Is Mankiw One of the 'Obamicans' We've Been Hearing About

Pigou-obsessed economist Greg Mankiw's blog is the source of front page news as Reuters uses Mankiw's musings in the lead paragraph to tout Barack Obama. "Score One for Obama" gushes Reuters using Mankiw's words. I'm not sure Mankiw intended that much praise of Obama, who merely failed to offer up a policy that Mankiw disagrees with rather than actively propose a decent policy. Still it was enough for Reuters to relish the linking of a former Bush advisor to a pro-Obama theme. Although, what I can't figure out is where this quote comes from: "In light of the side effects associated with driving ... gasoline taxes should be higher than they are, not lower." It comes right after the sentence that indicates who Mankiw is and what he wrote, so it seems pretty clear that the report intends us to believe that Mankiw said it. But if you go to the actual blog post, he wrote no such thing. Yet this clearly sounds like something he would say, so maybe Reuters called him up so he could provide his climatological expertise - because that is what this is, Mankiw validating the speculative theory of anthropogenic global warming and its presumed negative consequences. Mankiw may be getting the economics right, but if you make a correct economic judgement based on false assumptions about underlying conditions, the consequences can be disastrous. History is littered with these examples.

Let me offer an alternative view. Mobility makes us both more efficient and happier. Reducing the price of mobility increases our efficiency and thus our standard of living, as well as our happiness and desire to maintain and increase that standard of living. Without the artificially increased cost of mobility due to gas taxes, the true level and price of mobility would find equilibrium. Over time we would have exactly the amount of infrastructure needed to provide that amount of mobility, as opposed to now where we have infrastructure added (bridges to nowhere) or restricted (refineries) based on the political process funded by gas taxes. Mankiw seems to be arguing in favor of this sort of inefficiency. Why? Because he's bought into a scientific theory that he is not trained to evaluate properly.

I am not a fan of the McCain gas tax holiday because it is temporary and thus does not impact long term incentives, but for what it is, it represents one ever so small shift of resource allocation from the government to private citizens; and no matter how small or fleeting, that is better than were it not to happen.

UPDATE: Bryan Caplan seems to agree with me. The gas tax holiday isn't a bad idea, it's just not a terribly good one. What were people expecting, a fantastic, silver bullet of an idea that would cure our energy shortage (and that is what it is plain and simple) overnight?

Hedge Fund Land Is the New Flyover Country

The Fed's aggressive rate cuts have so far failed to resurrect the credit markets; creeping protectionism and the prospect of capital gains and dividend tax increases have stocks in the doldrums. Real estate? Forget it. Risk arb is a shadow of its former self. Private equity is dead and loaning money to loser Korean companies is right out. Energy and commodities even seem to be flattening out. Bitter over our economic lot in life I fear that the hedge fund community, tens of thousands strong, will have to turn to guns, religion and racial bigotry to salve our tortured souls.

Sen. Baucus Reports to School Early

I laid down my marker awhile ago that Max Baucus would get a painful education in tax avoidance behavior as corporate America's sharholders outfox him. Turns out he is already getting an early tutorial in the incentive effects of shifting tax policy.

We're Gaining On the Pigou Club!!

I love it when I get to do a Mankiwesque "So-and-so Joins the Club!". So here we go...
McCain Joins the Club!!

Stop Global Warming! But Do It Somewhere Else.

Before I discuss energy policy issues, I always make my de rigeur declaration that I don't believe in anthropogenic global warming, meaning I believe it is a scientific speculation not a scientific fact. I do believe in energy diversity and innovation of hydrocarbon technology that could bring us cleaner fuels. Regardless though, we as a society seem to have already bought into the speculative mania regardless of the science, so it is worth advocating for good energy policy (and against bad energy policy) assuming that "global warming" is real. Unfortunately the worst policy response - sharply reducing hydrocarbon based fuels with the aim of eradicating them - seems to be carrying alot of political clout. The better policy - incrementally moving to cleaner fuels for key energy needs - seems to be tripping over an age old barrier, the NIMBY barrier. Liquidfied Natural Gas represents one way of getting a cleaner source of energy, relatively cheaply, into the power generation and home heating industries. Supplanting coal with nat gas would seem to be something the warmists should embrace. Apparently not enough to get past the NIMBY problem. Such an example is the defining essence though of the global warming crowd, they only want you to make the sacrifices.

We're Gonna Party Like It's 1992

Not to belittle the role that the Fed has played in trying to stabilize and calm markets, but the guys with the real mojo have just arrived on the scene. In recent days, we've learned of TPG's $7 billion infusion in to WAMU. Today we learn that a host of private equity heavyweights are taking $12 billion of paper off Citi's hands at 90 cents on the dollar. I knew this would happen, only I was overly optimistic that it would occur well before now. Still, that it is happening is the most positive sign of anything we've seen to date that could reassure us that the crisis is ebbing. Yeah, I know the Saudis and the Asians dumped billions on Merrill and Citi, but those guys have so much money, they are happy to have a couple hundred basis points gifted to them on a decent chunk of petro-dough. And they're high octane functionaries. The buyout crowd - Blackstone, TPG, and the like - are the full bore capitalists. They have alot of money, but in their heads their resources are relatively scarce. They go for the big returns, the double digit returns. That's what they are in business to do, anything less they may as well work at Fidelity. These guys are in the homerun business. Oil sheiks and the government employees overseeing the Sovereign Wealth Funds are in the singles business. In other words, the real confidence inspiring money has arrived. Not bailout money, but serious investment capital. The difference is important. How are folks at TPG going make money on their investments? Well, aside from insisting that no more stupid things be done, they are going to insist that these banks get back to doing what we know makes money - traditional lending to creditworthy customers. Do you think TPG is saying "Here's $7 billion, put it Treasuries, but for God's sake don't lend to a small business that's been around for 20 years." Of course not, but we keep hearing that banks won't lend so we're due for a real bad slowdown.

So the last few days events are a big cause for optimism, but the market continues to slide. Why? Because the media will not allow for a hint of justified optimism. The doom and gloom theme has to last into the heart of the general election campaign. They want a repeat of 1992 when a recovery was already underway, but nobody knew because the media was so hot for a fresh young Democrat that had emerged from nowhere to challenge the old guardiest of an Old Guard Republican President.

Buy stocks.

Notable Quotable

"For unflagging interest and enjoyment, a household of children, if things go reasonably well, certainly all other forms of success and achievement lose their importance by comparison." - Theodore Roosevelt

Mugabe Ought to Fold Up the Tent

If I were Robert Mugabe, I'd say "Hell, I'm 84, my Swiss bank account is superfat, and there ain't much more left to destroy in Zimbabwe. Retirement seems like a good option." Anything else and he might wind up "Ceausescued"

Hilarious CNN Contortionism on Economy

CNN is applying the recession theme blitzkrieg today, giving you ample opportunity to learn of America's deep economic woe (you can even check out the personal stories of Americans who are struggling). But most of the pimping of recession is comical. You can read about "the shadow job crisis" (unironically placed right near a link to a story about how ADP says employment numbers were up in March). The shadow crisis is that oldie but goodie of media bias, "underemployment." Ignore the unemployment numbers they say, it is underemployment, people not satisfied with the amount of work they have, that should worry you. Here's a lovely specimen of the nuttiness:
"In addition, a rapidly increasing number of people are being forced to take more than one job. There were 161,000 more workers in February who held more than one part-time job than there were in January. One economist said this is a further indication of how bad the market is.
'Basically, this is a sign that we're in a recession,' said David Wyss, chief economist for Standard & Poor's."
Got that. Lots of people actually have TWO OR MORE JOBS, thus we are in a recession. Funny, I thought hard times were characterized by people not being able to find ANY work. I've said it before and I'll say it again, at 4.8% unemployment, full-time employers have only the least employable left to choose from, it is highly likely that they will forgo adding to their ranks from this group. Also, in the last few years, employers likely added alot of people who didn't cut the mustard. Many of these people will not be retained as parts of the economy slow. This is totally normal and relatively meaningless when talking about the economy in aggregate. This is some world-class stretching to fit the pre-determined theme. Congratulations CNN.

Bonus, you can read about a custom shirtmaker in Houston whose "recession tale" means that they won't grow 10% selling $300 shirts like they did last year. Times is hard. Times is hard.

UPDATE: So, I checked out all of these real tales of woe "in their own words." Turns out not one of these people is experiencing anything close to real hardship. The most common gripe is inflation, rising food and gas prices. Seems like CNN doesn't know the difference between inflation and recession. What horrible reporting.

Diesel Fuel Blame Game

Our truckers are getting a little French on us. They are protesting the high cost of diesel fuel. Great. Fine. Protest. But don't blame the oil companies. First, blame congress. Then blame envornmentalists. Then blame the Fed. Then blame China and India. Then blame Nigerians who rupture pipelines to steal oil and Nigerian "rebels" who shut down drilling sites. Blame incompetent dictators who rob infrastructure maintenance spending to prop up their dying economies.

Oh, wait, yes, you can blame oil companies...specifically oil companies who spend money on annoying and preachy commercials to tell us that they aren't really an oil company, rather than maintain their refineries properly.

Bailout Coming??

Kudlow is reporting that Bush is potentially on board a massive Barney Frank/Chris Dodd subprime mortgage bailout. This is a terrible idea in every way, except, of course, as an election year political gambit. Truly disgusting that Bush would let this through. Although, if you take the election year fatalist view that Kudlow does - "there is no stopping a Frank/Dodd locomotive" - then the only question is what can you get for it in exchange. Kudlow mentions a repeal of the Community Redevelopment Act. Way to aim low Larry. How about making the dividend and capital gains tax cuts permanent? The stock market has been relatively free and clear of the recklessness that took over the mortgage market; and, now we are going to stick it to solid, dividend paying companies while we bail out real estate speculators and the purveyors of toxic debt? There is almost no way to make this $400 billion bailout palatable, but if we have to swallow this turd we ought to demand to wash it down with something nice.

My Weekend of Economic Research

Since the media is pushing this recession theme hard (I see that some Brit rag is dubbing 2008 the year of the Great Depression), I thought I'd go out this weekend and do a little gum-shoe research on the economy. Granted this is hardly comprehensive or representative, but this sort of real-world activity is how you reality check what you are reading in the papers. So here goes:

Saturday AM: Trip to the mall. Not packed but solid foot traffic. Apple store - mobbed. Pottery Barn and Crate & Barrel - dead. P.F. Chang's - close to full but no waits for table. Best Buy - moderate traffic, surprising lines at check out. Local Home Appliance retailer - dead.

Saturday Lunch: California Pizza Kitchen - packed, but no big waits for table unlike 6 months ago.

Saturday Evening - drinks at local Irish pub - restaurant 2/3 full, bar crowded.

Conclusion: Housing and related sectors stink. Rest of economy doing fine. Surprise surprise. Recommendation: use the media bias/harping to load up on stocks.