Kohtz.org

I read this quote at Cafe Hayek this morning. It's from an article in the Washington Times. It's worth reading.

But the purpose of the proposed systemic-risk regulator is not only to spot the impending systemic risk - but to intervene to prevent it from happening. Consider the power such a regulator would have. Consider that the existence of such a regulator would increase moral hazard - as it would be assumed that if the systemic regulator isn't warning of danger, market players would be more likely to assume risk is low. And consider the consequences of using such power mistakenly.

For example, let's say the regulator spots what he believes is a dangerous national real estate bubble. He acts quickly to snuff it out by raising interest rates or requiring minimum 40 percent down payments or some other intervention. What was a booming economy with 3 percent unemployment turns into a hard recession with 8 percent to 10 percent unemployment.

But later it is determined that it was not a bubble, but rather the beginning of what would have been a steady, healthy increase in value. Imagine if such a regulator had existed in 1955 and snuffed out the great post-World War II expansion that made America a prosperous middle-class nation of homeowners in suburbia rather than poorer renters in the city.

It is not given to the smartest people in the world the capacity to see the future, to discern with sufficient precision the details of the moment that cause the critical consequences in the future.

But it certainly is the lamentable history of man that we have the power to screw things up all the time. Remember the vaunted Japanese industrial policy of the 1970s that was going to permit Japan to shrewdly dominate the economic world over us hapless free-market countries with no governmental power to identify the industries of tomorrow?

In the end, the call for a systemic-risk regulator is yet another futile expression of faith in the power of government to outthink the markets. It is another foolish bet on bureaucrats and politicians in a tightly regulated economy being more likely to bring prosperity than free businessmen, investors and consumers in a free market. It is the biggest sucker bet in history: a bet on tyranny over liberty.

The government and the Federal Reserve are always trying to fix the economy through all kinds of means - everything from stimulus to bailouts. However, their efforts often have unexpected consequences. For instance, by lowering interest rates for too long after the dot com bubble burst, they provided the catalyst for the housing bubble. This article by Russ Roberts in the WSJ nicely sums up the reason why these failures occur.

If economics is a science, it is more like biology than physics. Biologists try to understand the relationships in a complex system. That's hard enough. But they can't tell you what will happen with any precision to the population of a particular species of frog if rainfall goes up this year in a particular rain forest. They might not even be able to count the number of frogs right now with any exactness.

We have the same problems in economics. The economy is a complex system, our data are imperfect and our models inevitably fail to account for all the interactions.

Is the Dismal Science Really a Science?

The market is so complex, trying to judge what will happen by adding stimulus or bailing out a company is impossible and can often result in making things worse. Best to just let individuals decide what they want for themselves, the market will work itself out eventually.

The postal service was in the red last quarter, losing $297 million. Their solution, quit delivering mail on Saturdays.

Postal Service's emerging model: Never on Saturday

What their solution SHOULD be is to lay off the countless postal workers paid to sit around and doing nothing. Union contracts say that even if there isn't anything to do, postal workers must be paid for 40 hours of work per week. They are officially on "standby time." I've read there are up to 11,000 postal workers on standby time.

Does anyone think FedEx or UPS would have agreed to these rules? Of course not. And if they did, they would/should go out of business.

It's always an injustice when some sort of liberal legislation can't get passed, at least according to the liberals and the media. But what about when conservatives try and reform something like Social Security? It doesn't seem to be as tragic then, even though not fixing will eventually bankrupt our country.

Here is an insightful piece by George Will on our broken government, "For liberals, the filibuster is now the enemy".

Likewise, here is a clip from 2005 showing Democrats defending the filibuster against the power hungry Republicans. Capitol Hill has a short memory.

(both links via CafeHayek.com)

A new study was released that shows in the past decade, doctors have cut their average work week from 55 hours to 51 hours. This decrease in hours happens to coincide with a decrease their pay.

Staiger acknowledges that it's impossible to pinpoint the exact cause for the decline. But the research team does have a "best guess": a combination of lower fees and increased market pressure. The drop in hours worked can be directly stacked up against the decline in doctors' fees over the past decade. And in metro areas, where fees dropped faster and doctors faced greater competition for plum jobs, hours dropped at a greater rate.

In fact, doctors' wages dropped about the same proportion as their work hours -- 7 percent, after adjusting for inflation -- from 1995 to 2003. By comparison, salaries for other professionals increased by 7 percent in the same span of time, according to a 2007 report from the Center for Studying Health System Change.

- Fewer Hours for Doctors -- and Less Pay

It's basic economics than when you try and put price controls on a particular market, there are shortages. For instance, the gas lines seen in the '70s when Nixon put price controls on oil and gas. Bread lines in Russia.

One of the biggest "cost savings" for any proposed health care reform bill is always Medicare/Medicaid payments. While it may or may not save money for tax payers, it will most certainly reduce and restrict access to doctors.

I was going to write a post today about an article in the Wall Street Journal that seemed to legitimize the use of inflation as a way to solve our debt problems. I also sent the link to Don Boudreaux of Cafe Hayek suggesting that he touch on it (he has a lot more readers then I do).

He did. So, instead of me writing the post, you can read his.

My message to him: "How can the Wall Street Journal of all publications, give any credence to a suggestion like this? Higher inflation is a horrible solution to solve our debt problem for so many reason. Do they even understand what inflation is or what it does?"

P.S. Note the last line. :)

Man loses job, gets $600/week in unemployment benefits. After a year without work, he takes a 3 week construction job. His unemployment benefits are unexpectedly cut to $178/week. He moves in with a friend because he can't support himself on $178/week. After "several months" of being supported by his friend however, he finds a full time job.

"When stints on payroll hurt the jobless" - Temporary wages lower the calculation for unemployment benefits

The article is saying the people on welfare are being punished for trying to do the right thing - working. If I'm giving you something for nothing, and for whatever reason reduce the amount I give you, how is that punishment? At least in the above case, it seemed to motivate one person to find permanent employment. That's just tough love.