Chronicle of the Conspiracy
Saturday, July 15, 2006WHAT MOTIVATES PEOPLE? Really... what demons drive people like David Berkman, who sent me this letter in response to my SmartMoney.com column about the minumum wage.
I can't let your last statement in SmartMoney regarding low income people driving "clunkers" go unanswered. I'm a retired business investor, and consider myself to be very well off. However, I drive a 23 year old car. And no, it's not a classic.Aha! Gotcha! Mr. Berkman must be profoundly and smugly satisfied that he has proven himself to be a bit more savvy than me!
But I never used the word "clunker," which he put in quotes. I never said anything about the kind of cars that wealthier people drive -- in fact I never said anything about the cars that all of any particular type of person drives. Here's what I said:
Those with the lowest incomes tend to own the oldest cars in the worst condition.That's an absolutely true statement, not in the slightest contradicted by Mr. Berkman's example of himself.
What drives someone to bother to find an error that isn't there -- and even it were, an incredibly trivial one -- and send an author an email about it, crowing about how much savvier one is? Mr. Berkman, I have three words for you: "get a life." Oh -- and a new car, too. The new ones are more environmentally friendly, you know.
Or how about this one, from Dan Elmore? I won't burden you with the whole messy thing -- one passage says it all:
One thing about you is crystal clear; you have no regard for your fellow man. I would guess you are an atheist (or an extremely poorly raised Christian), and do not contribute in any way to your community. The most concerning observation is, you see absolutely nothing wrong with that. I found your article, and thus you, to be greed driven, selfish, uncaring, apathetic, immoral and irresponsible.
Posted by Donald L. Luskin at 11:59 AM | link
Friday, July 14, 2006NOT QUITE A REAL PREDICTION MARKET But then again, Henry Blodget was not quite a real analyst. He's running an online "sweepstakes" in Google's quarterly earnings, and claims that the consensus derived that way "has been more accurate than the Street consensus, as well as a better reflection of what the Street's real expectations have been" for the last two quarters. Blodget has claimed many things in a career notable more for being notable than anything else. Link via Eric Savitz.
Update... Jason Ruspini reports that a true prediction market in earnings releases has been considered. Thanks to our correspondent "Irrational Exuberance" for the link.
Posted by Donald L. Luskin at 5:28 PM | link
MIRON'S FOURTH PRINCIPLE Here's the fourth installment in the series on negative consequences of government intervention, from Harvard libertarian economist Jeff Miron. What a nice expression -- "Harvard libertarian economist"... but one so rarely gets to use it in a sentence.
Negative Consequence #4: Overexpansion and the Difficulties of Cutting Back
Posted by Donald L. Luskin at 5:18 PM | link
MORE FLORA FOR YOUR WEEKEND
Our "public editor" Irwin Chusid is the author of The Mischievous Art of Jim Flora, celebrating the life and work of the iconic commercial artist of the 1950s. Now Irwin has turned us on to a blog that walks us page-by-page through a 1957 Flora children's book, The Day the Cow Sneezed. I was born in 1954 -- but for some reason I don't remember that day. Thankfully, we have Flora's eccentric and slightly disturbing illustrations to remind us. This display of Flora's work is especially interesting, because it shows both the finished printed pages and Flora's original mock-ups of the same pages. (Irwin, you've been holding out on me...)
Posted by Donald L. Luskin at 3:47 PM | link
GOOD TWEAK, GOOD POINT Alan Reynolds writes,
Federal tax receipts continue to soar, with the individual income tax now expected to rise by about 15 % this year and the corporate tax by 20 %.For me, this has always been an uneasy part of supply-side economics. The libertarian in me desires lower tax rates based on first principles, as an element of personal liberty. But to the extent that lower tax rates mean you are paying more tax dollars -- which end up funding bigger government -- that cuts the other way.
Thanks to Jameson Campaigne for the link.
Posted by Donald L. Luskin at 8:54 AM | link
AND SPEAKING OF PREDICTION MARKETS Tradesports has just listed contracts on the 2008 presidential winner (in the past, this leading prediction market exchange had listed only winning party -- these new contracts are on the winning individual person). Only two individuals are listed at the moment -- Clinton and McCain. Right now they're about tied, with McCain having a slight edge (Clinton is 13-16, and McCain is 14-25). Neither candidate is seen now as having a dominating probability of winning.
Update... Busy day at Tradesports. Now they've listed a new contract on whether the US Congress will pass and the President will sign an Internet gambling law. Tradeports execs should go long this contract as a career hedge!
Posted by Donald L. Luskin at 8:42 AM | link
PREDICTION MARKETS BLOG Our friend Chris Masse has announced the creation of a group blog about prediction markets. Check out this prospectus for it -- comments and suggestions welcomed!
Posted by Donald L. Luskin at 8:39 AM | link
THE CASE FOR SWEATSHOPS Here's the alternative (from the World Health Organization):
The Ministry of Health in Indonesia has confirmed the country's 53 rd case of human infection with the H5N1 avian influenza virus.
Posted by Donald L. Luskin at 8:35 AM | link
Thursday, July 13, 2006THE MINIMUM WAGES OF SIN My SmartMoney.com column for tomorrow.
Here's a fantastic idea that will make everybody richer. Let's pass a law setting a minimum price on used cars. How about, say, $15 thousand?
If you've got an old beater you want to sell, and you were worried that you'd only get a couple thousand bucks for it, then this law is for you! Now you'll get $15 thousand for it!
This law would help the least fortunate Americans most of all. Those with the lowest incomes tend to own the oldest cars in the worst condition. With this law, they'll be assured of getting a terrific price.
There's just one problem. There are lots of used cars that no one wants to buy for $15 thousand. If you want to sell one of those, under this new law chances are that you wouldn't be able to sell it at all. The $15 thousand minimum prices you right out of the market.
And the poor people whom this law was supposed to help? They'd actually get hurt two ways by it. Not only would they not be able to sell their used cars. At the same time, they wouldn't be able to buy a used car either -- since now they'd have to pay $15 thousand for it, which they can't afford (and which it probably isn't worth, anyway).
So who would support a law this stupid? Well… actually, you might -- without even realizing it.
If you support minimum wage laws, then you're supporting the very same logic underlying this crazy idea of a minimum price for used cars. (Thanks to Don Boudreaux, an economist at George Mason University, for the colorful metaphor.)
If a law forces employers to pay no less than, say, $10 an hour -- then employers will simply not hire anyone for jobs that are really worth less than that. And they'll fire anyone who was doing those jobs at a lower wage, before the law was passed.
Which leaves the low-wage earner with a rather stark choice. Would he rather be employed at $9 an hour, or unemployed at $10 an hour?
Don't kid yourself that employers will just bite the bullet and pay up for jobs that aren't worth the legal minimum. They won't.
Consider what happened in France, where there is a minimum wage roughly twice that mandated in the United States. Go to a grocery store or a toy store there. There are hardly any clerks to help you. No baggers to pack up your stuff when you check out. Merchants simply can't afford to pay the too-high minimum wage for this kind of work.
So two things happen. First, you waste your own valuable time having to find what you want without help, and bagging your own orders. Second, low-skilled workers who would normally be clerking and bagging -- if the high minimum wage hadn't eliminated those jobs -- are simply unemployed.
The minimum wage in France is about twice that of the United States. So is the French unemployment rate.
And that high unemployment rate is persistent, too. Without low-wage entry level jobs, unskilled French workers -- especially youths and minorities -- have no way to acquire the skills necessary to work their way up to higher paying jobs.
As a result, minimum wage laws end up not just harming certain individuals, but setting back the growth rate of the entire economy. They distort the optimal use of skills in the economy -- why should I have to do my own bagging? And they keep low-skilled entry-level workers permanently out of the work force -- in the long run, where is the work force going to come from?
It's easy to think sentimentally and sympathetically of the workers who get stuck in low-skill minimum wage jobs for a lifetime -- and imagine that a minimum wage law would help those people out. But the reality is that, in the United States, there are very, very few workers earning the minimum wage. Most minimum wage jobs are held only for a short time -- by teenagers and part-time workers, for whom such jobs are merely a temporary hardship on the way to something better.
The issue of minimum wage laws is hot right now, because there's an election coming up. There's been lots of agitation in the U.S. Congress to raise the federal minimum wage, and several states will have their own minimum wage laws on the ballot this November.
While individual members of both political parties have their own views on the minimum wage, traditionally it’s been a Democratic issue -- probably because, historically, the Democratic party has drawn support from labor unions. According to the New York Times, the Democrats are trying to get minimum wage laws on as many state ballots as possible this November, in order to attract voters to the polls. It's the same strategy the Republicans used in the last election, with state ballot initiatives to ban same-sex marriage.
So most of what you'll hear about the minimum wage over the next couple months is going to be pure politics -- from both sides. Try to listen skeptically.
For me, I know from my own career experience that, sometimes, it can be a very good thing to work for nothing. And nothing is as about as far below the minimum wage as you can get.
When I first started as a trader 25 years ago, my only income was my trading profits. I did well from the start, but I started small. So for quite a while my expenses ate up all my profits -- and there was nothing left over for me at all.
But those early years were years of learning. Living in poverty was my "tuition" -- a price I had to pay when I was young to develop the skills that started me on what turned into a high-income career in trading and investment management.
I hate to think where I'd be today if there had been a law that made it illegal for me to start my own trading operation 25 years ago, just because I couldn't pay myself a minimum wage at first.
Fortunately, the magnitude of minimum wages being mandated by most of the initiatives on ballots this November is modest. Nobody's talking about taking us up to levels like the ones in France.
But as an investor, stay on high alert. In politics, the road to hell is paved with good intentions -- and the longest journey down that road begins with a single bad law. Remember, the S&P 500 lost 25% of its value in early 2002 while Congress was creating the well-intentioned economic disaster known as Sarbanes Oxley.
Posted by Donald L. Luskin at 6:46 PM | link
JOKE OF THE DAY
Posted by Donald L. Luskin at 6:46 PM | link
THE JOURNAL PIMPS FOR PELOSI The editorial page of the Wall Street Journal may be a beacon of conservatism, but the news pages pander to the Democratic party just like the New York Times. Check out the headline and lede of a story today that positions the Dems as the party of fiscal restraint:
Pelosi Promises Fiscal Restraint If Democrats Win"Promises"? "Pledged"? Read down several paragraphs, where the truth comes out:
"Not every single dollar" would go to the Treasury, she said, "but I hope that...we would use the rollback of the tax cuts" to address the deficit since "it is the biggest drain...on the next generation."Okay. No "promise." No "pledge." Just "hope." But that word didn't make it into the headline.
Update... There's one born every minute...
Posted by Donald L. Luskin at 10:11 AM | link
BRAVO FOR THE SEC The SEC decided unanimously to preserve the safe harbor under which institutional investors may use "soft dollar" commission payments to pay for independent investment research. Our DC lawyer/lobbyist friend (anonymously, of course) notes that the New York Times covers the good news "like it's a petty crime report."
The Securities and Exchange Commission issued tougher guidelines on the use of so-called soft dollars yesterday, limiting the kinds of services money managers can buy by paying brokerage firms inflated trading commissions and passing on the higher costs to clients.My friend gets the story right:
How can you be the most powerful media force in the world's financial capital and not know that the commissions a client pays to a broker are for both research and trade execution, that trade execution is continuing to fall in cost due to technology and competition and that research, if it's good, is all about growing investor returns? (If that research is wrong, of course, you lose money.)
Posted by Donald L. Luskin at 9:23 AM | link
NOT A KNOCK ON CRAMER, BUT... The same thing happens when I or anybody else favorably mentions the name of a small stock on CNBC. From a new scholarly paper, Is the Market Mad? Evidence from Mad Money :
We document market inefficiency in the in the days following the buy recommendations of Jim Cramer, host of the popular CNBC show Mad Money. The average cumulative abnormal overnight return for the smallest quartile of recommended stocks is 5.19%, and these returns completely disappear within 12 trading days. We also find that trading volume, buy-sell imbalance, and short sales volume are all significantly higher than normal on the day following Cramer's recommendations. These findings allow us to test hypotheses about the behavior of different types of traders. Finally, our GMM estimates of the components of the bid-ask spread suggest that market makers are aware of Cramer's recommendations and anticipate the order flow imbalance following Cramer's recommendations.Thanks to Chris Masse for the link (via MR).
Posted by Donald L. Luskin at 8:00 AM | link
Wednesday, July 12, 2006MIRON'S THIRD PRINCIPLE Another in libertarian economist Jeff Miron's ongoing series of quick back-to-basics looks at the negative consequences of state intervention:
Negative Consequence #3: Altered Incentives and Unintended Consequences
Posted by Donald L. Luskin at 8:47 AM | link
THE SUPREMES, MAKING IT UP AS THEY GO ALONG Even the conservatives on the Supreme Court show no consistent adherence to the legal limits of government power. Libertarian constitutional scholar Richard Epstein in this morning's Journal:
A huge chunk of the Supreme Court's work lies in interpreting the statutes and regulations that govern every nook of American life. In reading statutes, the justices oscillate uneasily between two inconsistent approaches. Sometimes they distill the meaning of a disputed provision by making their best independent judgment about its structure and function. So they slap down any government officials who exceed statutory powers. Alternatively, they lament the imprecision of language, doubt their own expertise about social and political complexities, and defer to whatever reading the official gives to the statute that empowers him.
Posted by Donald L. Luskin at 8:43 AM | link
PICKY, PICKY, PICKY Reader David J. Phillips:
I caught the following headline on the death of the Enron founder: "Kenneth Lay Dead at age 64." The verb lie means to be in a horizontal position; whereas, the verb lay means to put (something) in a flat or horizontal position. Ergo, when Kenneth died, the proper headline should have read: "Kenneth Lies Dead at Age 64."
Posted by Donald L. Luskin at 8:37 AM | link
Tuesday, July 11, 2006"US," LITTLE FELLA? What can liberals say in the face of the stunning success of the Bush tax cuts? Nothing -- but Robert Reich says it anyway.
I don’t want to rain on the President’s parade... But... The President’s supply-side tax cuts have had only one conspicuously positive effect, for one conspicuous group. They’ve helped people earning over $200K a year become fabulously richer. These people do have cause to celebrate, and it’s understandable if they want to parade around in their designer clothes. The rest of us, though, are still caught in a downpour."The rest of us?" The smarmy little phony... when's the last time he ever made any less than $200K a year?
Posted by Donald L. Luskin at 11:32 PM | link
JOKE OF THE DAY
Posted by Donald L. Luskin at 10:33 PM | link
CHINA'S A GREAT GROWTH STORY ...but don't forget about the totalitarianism thing. From Reuters:
A Chinese court jailed a farmer who reported bird flu outbreaks to the central government to three-and-a-half years for fraud and blackmail, state media said on Tuesday.
Posted by Donald L. Luskin at 1:09 PM | link
Monday, July 10, 2006DOES THE BLOGOSPHERE NEED THE NEW YORK TIMES? Sure... the way Jonas Salk needed polio. On the other hand, Chris Anderson writes,
Let's look at some numbers. Technorati shows that there are currently 555,000 posts linking to the New York Times. Nearly 800,000 posts mention the Times in one way or another. Sounds like a lot? Not if you pull back and look at the entire blogosphere. Technorati is currently tracking 2.7 billion links. What are most people actually talking about? Mostly themselves, their friends, their family and things that are more interesting to them and their daily lives than whatever we in the media choose to focus on with our limited resources and space. To use a proper head-to-head comparison with the searches above, Technorati currently shows more than 152,000,000 posts that use the word "I". So that's roughly 300 times more people talking about themselves (and the world around them) than talking about what the New York Times has written about.Thanks to reader Chris Masse for the link.
Posted by Donald L. Luskin at 8:18 AM | link
JOKE OF THE DAY
Posted by Donald L. Luskin at 8:16 AM | link
SURPRISE, SURPRISE, SURPRISE! Thanks to the many readers who've pointed out the story in the New York Times headlined "Surprising Jump in Tax Revenues Is Curbing Deficit," which begins with this lede:
An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year, even though spending has climbed sharply because of the war in Iraq and the cost of hurricane relief."Surprising"? "Unexpectedly"? To the Times perhaps -- but not to this blog or to many conservative and supply-side commentators who knew that the 2003 tax cuts would stimulate enough growth to offset much of their apparent "cost". It would be an amusing exercise to list the cavalcade of predictions from the Right of precisely what has happened here, and predictions from the Left that it was impossible. Amusing -- but too easy. So instead, take a look at this post on the new Reality is Unreal blog, in which Robert Ferguson uses this story to take a top-down look at the inherent silliness of the business of economic forecasting, whether by the media or by politicians.
Posted by Donald L. Luskin at 8:06 AM | link