Friday, November 30, 2012

What Should We Produce?

     Government is trying to restore the housing industry.  It
has used direct subsidies to buyers and artificially low interest
rates with limited success.  Politicians and others seem to believe
that restoring the housing industry and raising housing prices is
the key to economic recovery.

     Spending too much money on too much housing caused
the housing bubble that burst into recession.  How wise is it to
try to recreate the conditions that were a major cause of the
recession?

     Recessions happen because of major mismatches between
supply and demand.  When production of a certain thing, such as
housing or higher education, greatly exceeds what consumers
want to buy, production must decrease.

     Decreased production causes unemployment.  Excess
production facilities must be liquidated and directed to other 
uses.  During this process employment and production decrease. 
We call these inevitable decreases recessions.

     The cure for a recession is putting labor and other
resources to work producing the things consumers want the
most.  Those are the things that consumers will buy.

     Government should forget about restoring the housing
industry.  For one thing government has no way or knowing how
many houses people want and what prices they are willing and
able to pay.  All government can do by artificially manipulating
housing is reinflate the housing bubble and set us up for another
recession when that new bubble bursts.

     The purpose of all production is to provide consumer
goods.  A balanced, stable economy must produce the things
consumers want most.  Only consumers can decide what they
want most.  In markets not manipulated by government, market
prices tell businesses what is most in demand.

     Businesses wanting to sell products and earn profits
constantly seek out those price signals and attempt to produce
what consumers want most.  Businesses that misread the signals
lose money.  Those businesses either clean up their acts or slide
into bankruptcy.

     Businesses constantly make mistakes and fail.  The
economy as a whole doesn't collapse because of these business
failures.  Recessions happen when businesses are misled by
government actions, such as subsidies, mandates, prohibitions,
and artificially manipulated interest rates.

     Such manipulations lead many producers to make the
same mistakes, such as building too many expensive houses, or
directing too many resources into higher education.  When
consumers balk at buying the excess production, production
collapses and we have a recession.

     The root cause of the recession wasn't the drop in
consumer buying.  The root cause was the government
manipulation that caused the excess production in the first place.

     When a recession happens the only good thing to do is
let it happen.  The temporary drop in production is the inevitable
result of government artificially pushing production of things
consumers didn't want.  Left free to act, producers will put the
improperly used resources, including labor, to work making the
things consumers want most.  Soon the recession will be over.

     Before government started trying to fix recessions, they
didn't last long.  The last US recession government didn't try to
fix was in 1921.  That recession ran its course in one year.  The
first recession the US government tried to fix was 1929.  The
economy didn't recover until 1946.

     So long as government tries to stimulate production of
anything beyond the quantities consumers want and are willing
and able to pay for, a never ending succession of bubbles and
recessions is inevitable.

     To avoid recessions government must quit manipulating
supply and demand.  Consumers must be free to set the pace for
production.  Producers must be free to follow the consumers'
directions.  Manipulating supply and demand for housing,
ethanol, higher education, electric cars, windmills, etc. can only
lead to crashes and recessions.

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Copyright 2012
Albert D. McCallum
18440 29-1/2 Mile Road
Springport, Michigan 49284

Friday, November 23, 2012

Fuel for Thought

     During the government caused energy shortages of the
1970s someone in government had a bright idea.  Why not
prohibit auto racing to save fuel?  Certainly driving in circles
isn't a very important use of fuel.

     The idea died quickly when someone else figured out that
it takes more fuel to fly a football team across the country than
the racers use at an auto race.  This isn't even half the answer to
what impact prohibiting racing would have on fuel consumption. 
To answer that question we must consider all of the "unseen"
consequences of a ban on racing.

     For starters large crowds at races, football games, etc.
travel to the events.  Travel consumes fuel.  How much?  Let's
try some very rough estimates to calculate a ball park figure.

     In a 500-mile race with 40 drivers, the cars will travel
20,000 miles.  At one mile per gallon that would be 20,000
gallons.  Race cars get more than one mile per gallon.  If they
didn't, there would be many more pit stops.

     If 100,000 fans each use a gallon of fuel traveling for an
event, it would add up to 100,000 gallons.  They may use a
gallon of fuel while trying to find a parking space and crawling
through the traffic jams before and after the event.  For events
such as the Indy 500 and the Super bowl, spectators consume
vast amounts of fuel traveling from afar.

     It is certain that the spectators use far more fuel than do
the participants.  A major event may consume millions of
gallons.  Does this mean that canceling large crowd events;
races, ball games, concerts, etc., would be a great way to save
fuel?  Before leaping to this conclusion we should ferret out a
bit more of the unseen.

     People who don't go to events do something else.  That
something else could be laying in the backyard.  In most cases it
won't be.  How much fuel would be consumed doing something
else?  Something else could be a trip to the beach, the mall, a
movie, bowling alley, etc.

     Will those other uses of fuel equal or exceed the fuel
consumption of the event?  I don't know.  Neither does anyone
else.  Even if the event was canceled no one could ever figure
out how much fuel the would be spectators used for other
purposes.

     We still haven't reached the depths of the unknowable. 
Many major events are televised.  Millions watch.  Watching
television doesn't use much fuel.  If the viewers weren't
watching television, How much fuel might they consume doing
something else?  It is a safe bet that many of them would
consume fuel doing something.

     No central planner can even know the impact canceling
events would have on net fuel consumption.  Even after the fact
it would be impossible to figure out whether the cancellation
caused fuel consumption to go up or down.

     To figure out the consequences of any action that
interferes with human choices, planners must be able to trace all
of the choices and actions that would have occurred without the
interference.  Also, they must trace all of the choices and actions
that flow from the interference.

     To do this the planer must accurately predict the future
choices and actions of millions of people.  This includes the
entire chain of choices and actions that will run forever into the
future.  Even for something as seeming simple as canceling a
race, no planner is capable of even coming close to guessing
what will happen.

     No central planner of any kind can come close to
estimating the impact his plan will have on the choices and
actions of millions and billions of people.  Central planners
indulge in the pretense of knowledge.  Unavoidable ignorance
guarantees the plans will fail to archive the results they promise.

     Planners who can't even predict how canceling a race will
affect fuel consumption, don't have a chance to plan the entire
economy and get it right.  We should call "central planners" by
their real name, central guessers.

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Copyright 2012
Albert D. McCallum
18440 29-1/2 Mile Road
Springport, Michigan 49284

Thursday, November 15, 2012

Much Ado About Nothing

     The campaign that seemed to last forever finally ended. 
Hundreds of millions were spent.  A few trillion annoying phone
calls were made.  What do we have to show for it?  Nothing,
absolutely nothing.

     We could have extended the terms of all the incumbents,
except for any who died, without any noticeable difference.  The
election to end all elections didn't end anything, except the
campaign.  How long before the talking heads start telling us
2014 will be the most crucial election the country ever faced?

     Considering the candidates on the ballot, it was long
apparent that the election wouldn't change the direction or even
the momentum of the country, even if all of the losers had won. 
The few candidates who stood up for reduced spending and
smaller government could have caucused in a phone booth, if
there still is a phone booth out there to be found.

     Mitt Romney didn't offer a real alternative.  He did his
best to avoid taking a position on anything.  He was for jobs,
reduced spending, and more freedom for businesses.  What was
he going to do to further any of those goals?  Other than
wanting to use coal for fuel, the specifics were few and far
between.

     I listened to Romney and Ryan's acceptance speeches at
the convention.  That coal thing was the only thing close to real
substance that either offered.  The general theme was "We are
good.  Elect us and we will do great things."  This was nothing
more than the Republican version of "hope and change."

     There were two defining events in the Romney ride to
failure.  A month or so before the election he volunteered that he
liked many of the parts of Obama Care and would keep them. 
Then he realized he had only shot himself in one foot.  So he
reloaded and fired off that he was proud to be the grandfather of
Obama Care.  It is hard to campaign after blowing off both feet.

     My reaction to this was that Romney might as well have
conceded the election and threw his support to Obama.  The
only thing Romney had going for him was that he wasn't
Obama.  Then he rips off his mask and announces "See, I really
am Barack Obama."

     The second failure involved Romney's now famous
remark that 47 percent of the voters were dependent on
government.  Perhaps he was a point or two off on the percent. 
Other than that he was spot on.

     He had finally gotten something right.  So what did he
do?  He ran from it as fast as a man could run after shooting off
both feet.  He got caught telling the truth and was embarrassed. 
Could anyone other than a politician be embarrassed by being
caught in a truth?

     We shouldn't pick presidents based on how exciting they
are.  The reality is that many, if not most, voters do.  On the
excitement index Romney ranks below cold oat meal.  I don't
see this as a fault.   The reality is that it is a major handicap for
a politician.

     Romney's major defect was that he was only obsessed
with being president.  If he had any concern at all about the fate
of the county, it was buried deep in second place behind his lust
for the presidency.

     There is no reason to mourn Romney's loss to one of the
most destructive president's in the history of the nation.  Romney
would have done little, if any better.  The results might have
turned out worse.

     There is a silver lining.  Voters still blame Bush for
Obama's failures.  If Obama had acted responsibly the economy
would have recovered by now, as it did during Reagan's first
term.

     The next four years were destined by Obama to be
economic stagnation punctuated by recession.  If Romney had
won he would get the blame for Obama's failures.  Perhaps after
another four years a few more voters will figure out that the
stagnant economy really is of Obama's doing.

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Copyright 2012
Albert D. McCallum
18440 29-1/2 Mile Road
Springport, Michigan 49284

Thursday, November 8, 2012

Steak and Caviar for Everyone?

     The customer went to the supermarket to buy a loaf of
bread.  The clerk punched the cash register and said "That will
be $71.00."

     The customer replied, "How much did you say?"

     "$71.00."

     "For a loaf of bread?"

     "No," the clerk replied, "For the bread, sirloin steak, and
caviar."

     "I don't want sirloin steak and caviar, just a plain loaf of
bread."

     "We can't sell just a loaf of bread" explained the clerk. 
"We are required by law to  provide all customers with sirloin
steak and caviar."

     "I don't want sirloin steak and caviar.  Besides, I only
have $10.00."

     "That doesn't mater.  We must abide by the mandate and
provide the whole package."

     "I'm going to another store," responded the frustrated
customer.  "My kids are hungry."

     "That won't work.  All stores must include sirloin steak
and caviar."

     The frustrated customer went home to tell her children
they would have to eat their peanut butter without bread.

     Is this crazy or what?  Would sane people tolerate having
no options other than buying expensive food or no food?  Would
people be better off with no food than with the food they could
afford?   How many people who could only afford the bare
essentials of food would starve because they were denied the
opportunity to buy the food they could afford?

     Still, millions believe mandating that all medical
insurance policies include the equivalent of sirloin steak and
caviar is a great idea.  Of course, those government mandates
don't mention that the customer pays for the mandated bells and
whistles.

     The mandate requires insurance companies to pay for
drug rehab, psychiatry, child birth, contraceptives, etc. 
Nationwide there are 2,000 or so mandated coverages.  How
many ask "Who pays for all of this?"  Someone must pay the
insurance company.  Otherwise the insurance company will be
bankrupt.  Then it won't pay for any services.

     If the mandates were honestly stated they would say "To
buy medical insurance you must  pay for drug rehab, psychiatry,
child birth, contraceptives, etc."  It doesn't matter whether you
need or want the mandated coverage, you must pay for it, or
make do without medical insurance.  Still the politicians who
made medical insurance unaffordable complain that many people
can't afford medical insurance.

     Cost of medical insurance for college age individuals has
greatly increased this year   Why?  Obama care.  How many
more young people will have to go without insurance because of
the government mandated price increase?

     The price increase isn't from young people suddenly
incurring more medical expenses.  It is from government shifting
the medical costs of older people to younger people.  Young
people with low incomes, or no incomes, are forced to subsidize
medical costs for the wealthiest generation.

     This is only one small example of how government
intervention has kited the cost of medical services and medical
insurance.  The politicians are mainly responsible for creating
the mess.  Why would any sane, thinking person trust those
politicians to clean up their mess?

     Government has meddled with the providing of medical
services for more than a century.  The chickens are coming
home to roost.  How can any sane, thinking person seriously
expect more government meddling to solve the problem?

     We can continue down the road we tread and see medical
costs soar and denial of service become common place.  Or, we
can force government to back off and allow free people
voluntarily cooperating with each other to clean up government's
mess.  Mandating sirloin steak and caviar for everyone is the
problem, not the solution.

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Copyright 2012
Albert D. McCallum
18440 29-1/2 Mile Road
Springport, Michigan 49284