The Dunning–Kruger effect is a cognitive bias in which an unskilled person makes poor decisions and reaches erroneous conclusions, but their incompetence denies them the metacognitive ability to realize their mistakes. The unskilled therefore suffer from illusory superiority, rating their own ability as above average, much higher than it actually is, while the highly skilled underrate their abilities, suffering from illusory inferiority. This leads to the perverse situation in which less competent people rate their own ability higher than more competent people. It also explains why actual competence may weaken self-confidence: because competent individuals falsely assume that others have an equivalent understanding. "Thus, the miscalibration of the incompetent stems from an error about the self, whereas the miscalibration of the highly competent stems from an error about others."I have been on both sides of the effect...(here is a good video that explains it).
Wednesday, June 30, 2010
Tuesday, June 29, 2010
The cost of fixing Fannie Mae and Freddie Mac, the mortgage companies that last year bought or guaranteed three-quarters of all U.S. home loans, will be at least $160 billion and could grow to as much as $1 trillion after the biggest bailout in American history.And recall, in addition to these unlimited lines of credit, the Fed has already purchased over $1.1 Trillion worth of mortgage backed securities on the open market (and by "purchase" I mean the Fed has created $1.1 Trillion of reserves out of thin air which amounts to an inflationary powder keg). It did this to prop up these securities, thereby reducing interest rates on home mortgages over the past year.
Fannie and Freddie, now 80 percent owned by U.S. taxpayers, already have drawn $145 billion from an unlimited line of government credit granted to ensure that home buyers can get loans while the private housing-finance industry is moribund. That surpasses the amount spent on rescues of American International Group Inc., General Motors Co. or Citigroup Inc., which have begun repaying their debts.
“It is the mother of all bailouts,” said Edward Pinto, a former chief credit officer at Fannie Mae, who is now a consultant to the mortgage-finance industry.
So, there we are, perfect examples of government intervention in the economy at its finest.
Monday, June 28, 2010
Friday, June 25, 2010
World leaders from the U.K.’s David Cameron to Naoto Kan of Japan are betting they can deliver fiscal austerity without derailing economic prosperity. History suggests they may be right.In case you haven't been paying attention, Europe has been mired in a serious economic crisis stemming from the various European nations' overwhelming sovereign debt loads and their perceived inability to service this debt going forward. Of course, Greece has made headlines, but there are many others including the so-called PIIGS (Portugal, Italy, Ireland, and Spain). Recently, interbank interest rates have spiked as fears mount over European banks' exposure to this sovereign debt.
As the crisis has spread, two schools of thought appear to have emerged among modern intellectuals. One side argues that these countries need to embrace "austerity", i.e., decrease spending, increase taxes, or otherwise do anything to lessen the level of indebtedness and increase the ability to service their debt. The other side, spurred on by Keynesian economists, argues that the government needs to spend even more and even be willing to print money to sustain or increase "growth." "Who would argue something so ridiculous?" you ask:
In other words, Obama is urging them to do more of what has just led them to the brink of ruin. Enter the empiricists:
...President Barack Obama is pressing for more stimulus, not less, in the U.S. as he prepares to meet Cameron, Kan and other Group of 20 counterparts at a summit in Toronto June 26-27.
“We must be flexible in adjusting the pace of consolidation and learn from the consequential mistakes of the past, when stimulus was too quickly withdrawn and resulted in renewed economic hardships and recession,” Obama wrote in a June 16 letter to G-20 leaders.
Governments have proven they can spur expansion by focusing their belt-tightening on spending cuts rather than tax increases, according to studies by Harvard University professor Alberto Alesina and Goldman Sachs Group Inc. economists Kevin Daly and Ben Broadbent.Note that these academics admit that they simply "don't quite get it," i.e., they do not understand how siphoning money from productive projects and pissing it down the sewer, known as a government's budget, does not lead to growth. Yeah, that's a real head scratcher. (p.s. I'm available to give a presentation...)
“There have been mountains of evidence in which cutting government spending has been associated with increases in growth, but people still don’t quite get it,” Alesina said in an interview. He made a presentation to European finance chiefs on the topic during their April meeting in Madrid.
Of course, these countries need to "tighten their belts" and decrease spending. But, consider what Europeans mean by "austerity" or the donning of "hair shirts." According to this article:
Gasp! The retirement age being raised to...62! Nooooo! Europe's definition of "austerity" can be likened to an alcoholic believing that cutting back to a case a day is a form of rehab. Well, one case is less than three, at least according to empirical studies.
Greece, as part of its broader austerity plan, has committed to bringing the minimum early retirement age up to 60 for everyone. And pension benefits for many will be reduced if they're claimed between 60 and 65.
In France, 60 is the kick-off point for most people to collect full pensions if they've worked 40 years. Those who started work in their teens can collect benefits as early as 56. But there is a proposal to raise the age to 62. French unions last week expressed their displeasure with the idea in a nationwide strike.
Thursday, June 24, 2010
Being a dad can be one of the most fulfilling roles a man can have. But there is a lot that goes into it. Are you important? Should your kid really be doing that at 24 months? How important is it that you go to the parent teacher conference? And just how do you put that car seat in right?Whoa, those are some "important" questions? But don't worry. The State has seen to it that you have all the answers you need. "Where can I find these answers?" you ask. At http://www.fatherhood.gov/ of course! See you there. (HT: PJTV)
Wednesday, June 23, 2010
If you said: "LOWER THE ASKING PRICE!," then you would be likely to sell TVs, sell your home, and find a job.
On the other hand, if you say: "print counterfeit dollars to raise prices in order to artificially stimulate aggregate demand" or "create a government sponsored entity that underwrites loans to people that want to buy stuff" or "pass minimum wage laws that RAISE the price of labor" or "extend benefits to encourage people not to seek work" or "burn the televisions, and bulldoze the homes" then you get a PhD from an Ivy League school and/or a job in the Obama administration.
Tuesday, June 22, 2010
Monday, June 21, 2010
Well, keep in mind, such questions are all just empty talk - propaganda spread by the "parasitic bourgeoisie", a.k.a., the people that make the food. According to this report:
Mountains of rotting food found at a government warehouse, soaring prices and soldiers raiding wholesalers accused of hoarding: Food supply is the latest battle in President Hugo Chavez's socialist revolution.Look, to get the food, you just send your army down to the places where they make the food, and you take it!
Venezuelan army soldiers swept through the working class, pro-Chavez neighborhood of Catia in Caracas last week, seizing 120 tons of rice along with coffee and powdered milk that officials said was to be sold above regulated prices.You see, price controls set by government fiat and the consequent shortages and rationing, are all meant to lead to "order" - not chaos and privation.
"The battle for food is a matter of national security," said a red-shirted official from the Food Ministry, resting his arm on a pallet laden with bags of coffee.
Just the kind of order that Obama is bringing to the health care market. Can you buy a copy of Atlas Shrugged on the black market?
"We are bringing order to prices," Trade Minister Richard Canan told Reuters during the Catia raid. "There are traders who are taking these products to the black market ... That is a crime and our government will continue to target these stores."
Thursday, June 17, 2010
Under the DISCLOSE Act, certain incorporated entities would be restricted in how they can exercise their free speech rights. There is an exemption for some in the media sphere like newspapers, TV news, and the like. However, there is one driving force in today’s public debate that is NOT exempt. Bloggers will not have the same exemption provided to other media sources. Never mind that the Supreme Court’s opinion in the Citizens United case stated, “Differential treatment of media corporations and other corporations cannot be squared with the First Amendment.”Don Watkins at The ARC states:
When the Supreme Court ruled that the government has to respect the right of corporations to engage in political speech, opponents of corporate speech (Obama included) put their weight behind the DISCLOSE Act. The Act reads like a grab-bag of policies united only by their intention: to place as many burdens as possible on groups that want to exercise their First Amendment rights.But don't worry too much. Certain groups like the NRA and the AARP were granted special exemptions in exchange for not opposing it - so they will be able to speak freely! Here is a copy of the letter I sent to my representatives (using www.congress.org). Feel free to use any part of it.
I urge you to vote no on HR-5175. This bill represents another attempt to abridge the First Amendment right to free speech and to reverse the Supreme Court's recent decision in Citizens United. No doubt this is a part of a continuing and dangerous effort on the part of incumbent politicians to silence political speech. The recent exemptions offered to various politically significant groups only underscores the arbitrary basis of this bill and serves to highlight the real political motives of its supporters.Speak now or the government will see to it that you forever hold your peace!
I am frightened that the very institutions that are to serve as the protector of our cherished rights are brazenly attempting to violate them, and I urge you to stop this unconstitutional assault on our liberty.
When it comes to the right to speak one’s mind about Islam, the record of the last few years makes it clear which direction the West is moving in. In France and Italy, Oriana Fallaci is put on trial for disparaging Islam. In Canada, Mark Steyn and Ezra Levant are hauled before “human rights commission” tribunals for criticizing Islam in print. In Australia, an Islamic organization sues two pastors for “vilification of Muslims.” In Britain, a Daily Telegraph columnist is arrested on charges of hate speech for having written negatively about Islam, and the Archbishop of Canterbury proposes that Parliament pass stronger laws against such speech acts. And in the Netherlands, Geert Wilders, the head of the Freedom Party, which performed so well in the June 9 general elections that Wilders may end up in the governing coalition, still faces trial for having made a film about the Koranic foundations of terrorism.
So what is Bawer and his associates' thought crime?
Ever since its establishment in 2001, [HRS] has been despised by many people on the Norwegian left — the same folks who hate Israel and who feel warmly about Hamas. The two women who run HRS, Hege Storhaug and Rita Karlsen, have labored tirelessly against monstrous practices like honor killing, forced marriage, and female genital mutilation, and for doing so have won the lifelong gratitude of countless Muslim girls and women — but as far as their PC enemies are concerned, to condemn any aspect of Islam is to be an Islamophobe, pure and simple. Last summer, a couple of newspapers, the far-left Dagbladet and the Communist Klassekampen, waged a brutal and breathtakingly mendacious smear campaign against HRS, the obvious intent of which was to bring it down once and for all.
I agree with Thrutch who says: "The lesson, of course, is that the longer one waits to speak out, the harder it becomes to do so. So don't wait!"
Wednesday, June 16, 2010
Note that they urge him to "get loud" and "take charge" yet none of these types can offer an actual solution. In this instance, the left is experiencing a form of metaphysical frustration. In other words, they are angry that the world is what it is and no amount of yelling and screaming will make it conform to their wish.The spectacle of watching an actual physical fact of reality playing out before this kind of mindset is both humorous and tragic. After all, there is no option in the leftist playbook for dealing with a fact of reality. Can Obama pass a law forbidding the oil to leak? The oil can't be put in prison. Can he expropriate BP's cash or imprison the BP executives? BP needs money to pay for the clean up and he needs the technical know how of the company. Can he convene a panel of experts and central planning apparatchicks? He has appointed an oil cleanup czar which Matthews and Olbermann rightly excoriate as "a lot of blue ribbon talk" accusing Obama of being a mere "Vatican observer" and threatening to "barf" if he mentions the Nobel prize credentials of his Secretary of Energy again. In other words, they recognize this is all talk and no action.
Yet, the oil continues to spill.
Within this frothing assault on Obama's helpless ineptitude, another principle can be observed albeit, somewhat indirectly - that is, the principle that faith and force are corollaries. In other words, those that dispense with reason and rational persuasion must eventually turn to physical violence. In Rand's lucid formulation:
...mysticism will always lead to the rule of brutality. The cause of it is contained in the very nature of mysticism. Reason is the only objective means of communication and of understanding among men; when men deal with one another by means of reason, reality is their objective standard and frame of reference. But when men claim to possess supernatural means of knowledge, no persuasion, communication or understanding are possible.
The left fundamentally suffers from a primacy of consciousness orientation. They wish that reality were something that it is not. They wish everyone could have the most advanced health care at no cost. They wish the government could counterfeit money and it would make everyone rich. They wish we could have costless, abundant energy that involves drilling offshore, instead of on land, yet, occurs without accidents and spills. Fundamentally, leftists are indeed mystics, and, at root, this is why socialism entails violence.
Olbermann et al. want Obama to take charge and do...something...somehow. In the video, note Matthews call for a "command and control" response or "executive command." They literally appear to be yearning for some kind of dictator or strongman, as every socialist must, to attempt to implement their contradictory wishes. However, as the video showed, they are getting more vociferous and more specific as to the kind of dictator. They want less Trotsky and more Stalin.
Friday, June 11, 2010
"Kill the speculators!" is a cry made during every famine that has ever existed. Uttered by demagogues, who think that the speculator causes death through starvation by raising food prices, this cry is fervently supported by the masses of economic illiterates. This kind of thinking, or rather nonthinking, has allowed dictators to impose even the death penalty for traders in food who charge high prices during famines. And this is done without the feeblest of protests from those usually concerned with civil rights and liberties.
Yet the truth of the matter is that, far from causing starvation and famines, it is the speculator who prevents them. And far from safeguarding the lives of the people, it is the dictator who must bear theprime responsibility for causing the famine in the first place. Thus, the popular hatred for the speculator is as great a perversion of justice as can be imagined...
Wednesday, June 9, 2010
In today's mixed economy, the expansion of credit emanates from two sources: the creation of money by the Federal Reserve bank and the creation of money by the private banking system.
First, the federal government creates new money when it purchases bonds on the open market. It essentially pays for the bonds with counterfeit notes. Any time the Federal Reserve wishes to expand the money supply, it can simply purchase assets on the open market in exchange for a credit (fake money) made to the sellers account at the Federal Reserve. Historically, the Fed has inflated the money stock by continually purchasing government bonds on the open market. For example, over the past year alone, the Federal Reserve purchased over $1 trillion of mortgage backed securities on the open market. It paid for these securities with fake money which banks are now keeping on reserve at the Fed. However, as I have pointed out previously, and as Reisman points out, these funds are "excess reserves" - not "required reserves" - which means that they are funds that banks can withdrawal or lend at any time. (Even the Fed recognized that this is an inflationary time bomb and began paying banks interest on these reserves in order to try and keep these funds from entering the banking system.)
Second, as Reisman explains in detail, private banks are allowed (and encouraged) to create funds to lend as long as they maintain a fixed ratio of deposits (reserves) to loans. This process is known as fractional reserve banking and results in a multiplicative effect on the money supply. Reisman states:
Furthermore, Reisman explains how increasing sales revenues and low interest rates, due to credit expansion, encourage "extreme debt and dangerous leverage." To convey just how leveraged the banking system had become, he points out that the total ratio of reserves to the outstanding money stock fell to about 1%. That means that, effectively, banks were holding about $1 of reserve for every $100 in loans. Reisman states:
The current plight of the economic system is the result of credit expansion and the malinvestment it engenders. Capital in physical terms is the physical assets of business firms. It is their plant and equipment and inventories and work in progress. As Mises never tired of pointing out, capital goods cannot be created by credit expansion. All that credit expansion can do is change their employment and shift them into lines where their employment results in losses. The empty stores and idle factories around the country are very much the result of the loss of the capital squandered in malinvestment in housing.
Of course, read this excellent speech for a more detailed explanation.
when credit expansion finally gives way to the recognition of vast malinvestments and the accompanying loss of huge sums of capital, the economic system is also mired in debt and deficient in cash. Thus, it is poised to fall like a house of cards, in a vast cascade of failures and bankruptcies, first and foremost, bank failures.
My recent posts advocating a 100% reserve standard, i.e., the elimination of fractional reserve banking, seemed to create tremendous controversy as many seem to believe it is a violation of property rights and the principles of laissez faire. To clarify my position, let me reiterate that I believe my opposition to fractional reserve banking follows logically from a proper legal definition of property rights which, in this context, represents an essential pre-condition of laissez faire and therefore, justice. That is, it is impossible for a court of a law to uphold claims to the same property made by two different parties. Certainly, two parties should be free to contractually agree to anything that does not entail force or fraud. However, for a contract to be upheld within an objective legal system, the contract must also not be contradictory. For example, I could not reasonably ask a court to uphold a contract in which I agreed to have my house painted both blue and red at the same time.
For the same reason, courts should not uphold the practice of fractional reserve banking as it is based on contradictory legal premises. Such a contract enables a deposit holder to both lend his money, yet have it remain available to him at all times for his immediate withdrawal. I hold that, legally, a deposit and a loan should require two completely separate contracts. In a deposit contract, the depositor retains title to his property (or the tantundem in the case of fungible assets) and the bank merely stores his property. In a loan contract, the lender transfers title to his property (or tantundem) in exchange for the future payment of interest or some other consideration. This line of argument closely follows Jesus Huerta de Soto treatise, Money, Bank Credit, and Economic Cycles.
Although Reisman does not discuss the issue in the terms used above, he explains how his plan would work as it relates to the distinction between deposit and loan banking:
To clearly establish the magnitude of checking deposits, bank depositors should be asked if their intention is to hold money in the bank, ready for their immediate use and transfer to others, or to lend money to the bank. In the first case, their funds would be in a checking account, against which the bank would have to hold a 100-percent reserve. In the second case, their funds would be in a savings account, against which the bank could hold whatever lesser reserve it considered necessary. In this case, the bank’s customers could not spend the funds they had deposited until they withdrew them from the bank.In essence, bank customers must decide whether they are making a deposit or a loan and the contractual agreement related to the account should reflect this fact.
First, I find Reisman's proposal to create an amount of money equal to outstanding checking deposits and then mandate a 100% reserve ratio to be a very practical first step on the way to a 100% reserve gold standard. Second, in regard to his straightforward proposal to allow wage rates to decline, I find it amazing that mainstream pundits (liberals) can not understand why minimum wage laws cause permanent unemployment. If the minimum wage was set at $1 million per hour, do these pundits realize that no one would be employed, or do they really think that everyone would just get rich? I honestly do not know.
Peter Schiff's latest on The Phantom Recovery:
The swelling ranks of the government payroll, and the shrinking number of private taxpayers footing the bill, will guarantee larger deficits and a weaker economy for years to come. In addition, the artificial spending has prevented a much--needed restructuring from taking place, leaving our economy far less efficient than before the crisis began. In other words, we have dug ourselves into a much deeper hole while failing utterly to build any means to climb out.
Marc Faber gave an interesting talk at a recent Austrian economics event titled Mirror, Mirror on the Wall, When is the Next AIG to Fall?
Tuesday, June 8, 2010
How did the six ideological groups do overall? Here they are, best to worst, with an average number of incorrect responses from 0 to 8: Very conservative, 1.30; Libertarian, 1.38; Conservative, 1.67; Moderate, 3.67; Liberal, 4.69; Progressive/very liberal, 5.26.Americans in the first three categories do reasonably well. But the left has trouble squaring economic thinking with their political psychology, morals and aesthetics.Or, maybe they just don't understand economics.
Monday, June 7, 2010
For some other scary projections see this recent working paper by The Bank For International Settlements titled The future of public debt: prospects and implications. For example, the authors project that for the U.S. to get to pre-2007 crisis level's of debt within 5 years, we would need to run a SURPLUS of between 8-12% of GDP. Another projection shows that the interest on the debt will hit over 25% of GDP by 2040 - that's not 25% of the budget - that's 25% of the nation's economic output just to cover interest on the debt.
Even under their ideal scenarios of growth, the levels of debt and debt service relative to various nation's GDP are enormous and explode going forward.
Friday, June 4, 2010
That’s the politician’s answer to every intractable problem: give orders, issue threats, and wait for obedience. But the creative human mind cannot take orders like that. Notice I didn’t say, “refuses to take orders.” I said, “cannot take orders.”A CNN article exposes yet more evidence of this mindset:
"One time, go off!" director Spike Lee urged on CNN's "AC 360°." "If there's any one time to go off, this is it, because this is a disaster."Note that they urge him to "get loud" and "take charge" yet none of these types can offer an actual solution. In this instance, the left is experiencing a form of metaphysical frustration. In other words, they are angry that the world is what it is and no amount of yelling and screaming will make it conform to their wish.
Lee's sentiment echoes the frustration of people who want to see Obama get loud, take charge and inspire them like he did during his presidential run.
On the campaign trail, Obama's rousing speeches were able to "inspire them" because, like a religious preacher, he was able to appeal to them on an emotional level. Like a church goer, the listener could imagine that Obama, like Jesus, possesses the power to change the nature of reality. He can deliver the highest quality medical care to everyone at no cost. He can befriend Islamic fanatics with nuclear ambitions and talk them down. He can invent alternative energy sources that are cheap, plentiful, and "clean." He can turn water to wine.
This kind of murky faith in the malleability of reality fused with Obama's unwavering egalitarian intentions and teleprompter honed eloquence, resonated with the liberal masses, transfiguring Obama into a kind of leftist epiphany.
Now, as the economy implodes under the weight of government debt, taxes, and every manner of statist intervention, (including environmental regulations that resulted in deep water drilling! HT: Gus Van Horn and now, the shut down of oil rigs that work!) Obama and his supporters find themselves up against an intransigent and implacable force - reality. Here is an eloquent quote from Atlas Shrugged that identifies the essence of evil - the wish that reality is something which it is not.
“And that is the whole of their shabby secret. The secret of all their esoteric philosophies, of all their dialectics and super-senses, of their evasive eyes and snarling words, the secret for which they destroy civilization, language, industries, and lives, the secret for which they pierce their own eyes and eardrums, grind out their senses, blank out their minds, the purpose for which they dissolve the absolutes of reason, logic, matter, existence, reality – is to erect upon that plastic fog a singly holy absolute: their Wish.
“The restriction they seek to escape is the law of identity. The freedom they seek is freedom from the fact that an A will remain an A, no matter what their tears or tantrums -that a river will not bring them milk no matter what their hunger - that water will not run uphill, no matter what comforts they could gain if it did, and if they want to lift it to the roof of a skyscraper, they must do it by a process of thought and labor, in which the nature of an inch of pipe line counts, but their feelings do not - that their feelings are impotent to alter the course of a single speck of dust in space or the nature of any action they have committed.
Wednesday, June 2, 2010
In a recent post, I analyzed the Obama administration's nascent war on freedom of speech saying:
When you hear [Cass] Sunstein, the POTUS, or anyone on the left call for fairness, level playing fields, obligations of citizenship, or "pressures on our democracy" emanating from the free exchange of ideas, keep in mind the image of an armed mob holding hands with university professors, lawyers, and the police ready to put you in jail or a hospital if you say the wrong thing as defined by them.According to this report, groups of brownshirt wannabes are now coalescing around the administration's fascist ideology.
The Federal Communications Commission (FCC) is being urged to monitor "hate speech" on talk radio and cable broadcast networks.And just who will determine what is "hate speech" on the internet and who is a legitimate "journalist"? For example, is my opposition to hate speech codes a form of hate speech? Gus Van Horn reports on a recent FTC working paper ominously titled, "Federal Trade Commission Staff Discussion Draft: Potential Policy Recommendations to Support the Reinvention of Journalism." He quotes a journalist who urges other journalists to "wake up" saying:
A coalition of more than 30 organizations argue in a letter to the FCC that the Internet has made it harder for the public to separate the facts from bigotry masquerading as news.
[One] cannot deny is what is clearly written in the FTC document and what it reveals about the intention behind the initiative, which is to transform the news industry from an information product collected by private individuals and entrepreneurs as a service to private buyers, to a government-regulated public utility providing a "public good," as defined and regulated by government.The obscure rantings of left wing professors like Cass Sunstein are being brought to life. Journalists wake up, indeed!
Tuesday, June 1, 2010
British Columbia is replacing block grants to hospitals with fee-for-procedure payments and Quebec has a new flat health tax and a proposal for payments on each medical visit -- an idea that critics say is an illegal user fee.In a free market, if one voluntarily offers his service to someone at an agreed upon price, it is called a trade or a transaction. Note, no one is hurt by this since both parties freely agree to the transaction and both benefit. Those who regard human happiness and justice as a value regard such an event as a joyous occasion and a profound example of an advanced civilization.
Under statism, such an event is literally illegal.