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"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice" - Adam Smith

Wealth distribution in the wrong direction

Written by Fred Hansen | Sunday 22 August 2010

President Barak Obama has now got his dream car, the hybrid car Chevy Volt, produced only after intervention from government and labour union- owned Government Motors.

In one way it reminds us of the German predecessor: the Volkswagen. A car not produced according to market demand, but for dubious ideological targets. However, the new ‘Voltswagen’, on sale for $41,000, costs, when all subsidies are accounted for, about $81,000. Not only is it worlds apart from the original Volkswagen, but its creation signifies a distorted economy: taxpayers funding a vehicle which can only lead to loss and a shortage. In addition, comes the government subsidy of $7,500 for purchasers of the car, a nice addition for ‘upscale urban liberals’, some of Obama's strongest supporters.

People who are trying to justify such immense subsidies argue that this is necessary to get the electric car industry up and running, because they are in their infancy. The truth is that electric cars of some sort have been around for a century and the market still did not absorb them. Why supply when there is no demand?

But would it be a good thing if we all switched to electric cars? The point is to reduce CO2 emissions, right? But in some regions, we get our electricity from CO2­spewing coal. The more electricity pulled from the grid, the more coal is burned, essentially replacing dirty oil with dirtier coal (which is why some coal backers see much promise in electric cars). Studies confirm that China – which is allegedly “beating us” in the race to a green economy – would produce vastly more greenhouse emissions if it switched to electric vehicles.

Government intervention stymies market forces. Furthermore, the creation of the ‘Voltswagen’ blatantly derives an ‘is’ from an ‘ought’: there should be electric cars, whether supply is economically feasible or demand is there.

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Barack Obama: Last European

Written by Fred Hansen | Friday 25 June 2010

George Soros yesterday used very strong words in an interview with the German highbrow weekly, DIE ZEIT (The Times), words no government official would dare to use for it would be a break with the international rules of non-interference in other countries internal affairs. However what he said in his harsh language is exactly what Barack Obama will be preaching on this weekends G20 summit in Toronto: Germany should cut taxes and do everything to induce Germans to spend more and buy other countries products rather than continue its mean habit of sitting on a huge trade balance surplus.

However German chancellor Angela Merkel has taken a decisive stand against Barack Obama, finding herself alongside many other European heads who recognized the once in a generation opportunity to abandon Keynesian deficit spending that did them no good lately. It will be this battle between realists and denialists in relation to unsustainable spending that will occupy centre stage for the foreseeable future in the West. For example, France has not had a balanced budget in one single year of the last four decades. If it were not for the extraction of huge European funds, paid for by Germany among others, France would have long gone broke.

With the brave austerity budget in Britain and the dramatic tumbling of Kevin Rudd over a prohibitive mining tax the balance in the Anglo-sphere, which had erred for too long on the side of unlimited deficit spending, is switching back to economic realism - focussed on wealth creation after everybody seems to be “running out of other peoples money” (Thatcher). US president Obama, who was so keen to emulate the now broke European model, suddenly stands as the last European spendthrift. And he used George Soros, the same who made his billions by betting on the decline of the pound, to bully Germany back into the Keynesian fold. I wonder where Soros has put his bet in times of a much anticipated decline of the Euro. Overall Soros is a poor choice of Obama - he is probably the last person to get any sympathetic audience in Germany.

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Too big to fail or too big to fix

Written by Fred Hansen | Wednesday 09 June 2010

It is certainly too early to point out the definite cause of the BP oil spill off the coast of Louisiana. However it is important to remember that it was the environmentalists, through pushing increasingly cumbersome regulation, who forced the oil industry to drill in ever deeper waters in the first place. We have, as described by Chicago Nobel economist George Stigler, the phenomenon of regulatory capture. In this case the regulators and oil industry have been getting too cozy with each other.

In the meantime the environmentalists are upset and unable to realize how technically difficult it is to plug an oil well pouring over a mile deep in the ocean. And not even Obama could fix it – their very same president who constantly projects the image of the possibility of big government performing miracles. It's a funny world which has been turned upside down. The American liberals are now learning the hard way the lesson about regulatory failure which conservative critics of big government have warned of for decades. As the WSJ puts it:

How remarkable it is to see a President who has put such exorbitant faith in the power of government being excoriated by his allies for a government failure. It's almost as astonishing as seeing Carol Browner, the White House green czar and long-time scourge of fossil fuels, being interrogated on NBC for excessive deference to Big Oil. Sometimes life really is fair. 

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Why are crime statistics down?

Written by Fred Hansen | Monday 11 January 2010

If you look at the latest crime statistics you are probably in for a surprise. Recorded crimes fell 5% to 4.7 million in 2009. Here are the latest stats for the UK:

  • Violence against the person down 6%
  • with injury down 7%
  • Domestic burglary up 1%
  • Offences against vehicles down 10%
  • Theft from the person down 12%
  • Criminal damage down 10%
  • Robbery down 5%
  • Drugs offences up 6%

Given the financial crash and concomitant job losses, unemployment is at new heights. So shouldn't crime be going up? Haven’t we always been told that unemployment, poverty, etc. is the driving force behind crime? Well, the latest facts from both sides of the Atlantic don't support this thesis and may never have, according to Heather Mac Donald in the WSJ. As such, the theoretical link between jobless numbers and the number of crimes lays in tatters.

It has long been argued that thwarted expectations turn the disillusioned youth towards crime. From there emerged the logic that crime could best be fought by a higher income distribution. The logical consequence of this mindset is that the police can do nothing really to bring crime down. That’s why the police in Britain have been content to report that crime figures are “stable". Now the facts have taught politicians and the police a lesson.

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Feminism has become just another special interest

Written by Fred Hansen | Friday 17 July 2009

We recently learned from Tim Worstall that the so called gender gap is actually a motherhood gap. But meanwhile. the recession is about to  reverse even that gap. Since men still dominate the construction and manufacturing sectors, which have been hardest-hit by the recession, they are much more likely to lose their jobs than women. This is likely to be true in most Western countries, not only the US, where 80% of the 5.7 million jobs lost between December 2007 and May this year were held by men. Far fewer jobs are expected to be lost in the service sector, especially in public services like healthcare and schools, where women dominate. These sectors even gained 588,000 jobs in the same period in the US.

Therefore, economists are already speaking of a “man-cession" with deep implications to the social fabric of society. It was not only market forces which brought this about. Organized feminist lobbyism played a major role here, manipulating president Obama’s stimulus plan, the $787 billion American Recovery and Reinvestment Act of 2009. Originally his emulation of the 1930’s New Deal aimed to protect jobs in exactly those hardest-hit sectors by investing in “shovel ready" programs to modernize roads, bridges, electric grids and other infrastructure.

Woman’s organizations immediately denounced this as a “Macho Stimulus" and about 600 feminist economists and 1000 feminist historians managed to press the president to scrap his “sexist bailout". The anti-stimulus feminist action group called WEAVE – Women’s Equality Adds Value to the Economy was a huge success. They managed to get the Obama administration to completely rewrite his stimulus along gender-correct lines with 42% of new jobs going to women. Yet since women had only held 20% of the jobs lost in recession the stimulus as it passed through Congress on February 17 skews the creation of new jobs heavily towards women. And its working: the Labor Department’s latest June data revealed a 2.5 percentage-point gender gap for women over men.

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Obama the Swede

Written by Fred Hansen | Wednesday 25 March 2009

At a time when President Obama resorts to populist rants against CEOs, dipping his toe in the dangerous waters of class envy, the formidable Charles Murray demonstrates what the janitor and CEO should expect from Obama’s emulation of Old Europe. In a brilliant lecture delivered at the American Enterprise Institute annual dinner, Murray shows that Barak Obama is the model Swede - expanding the role of the state at the cost of individual responsibility, family and private enterprise.

Murray carefully examines the sources of human happiness as developed in the Federalist by the American Founders. He identifies American exceptionalism with the lack of class envy and freedom of one's own destiny. He believes not in comprehensive equality, but for happiness “in the sense of lasting and justified satisfaction".

His thesis maintains that although Europe offered a respectable and viable alternative to the United States, its model is now doomed - but surprisingly not primarily for economic reasons. Rather, Murray is concerned that the culture of the welfare state is draining “too much of the life from life", thus depriving the individual of a source of deep satisfaction which rests on self-determination and managing ones own life. Murray detects four crucial institutions that qualify as sources of deep human satisfaction: family, community, vocation, and faith.

Seen in this light, the goal of social policy should be to ensure that those institutions are robust and vital. The European model doesn’t do that. It enfeebles every single one of them. The problem is this: "Every time the government takes some of the trouble out of performing the functions of family, community, vocation, and faith, it also strips those institutions of some of their vitality – it drains some of the life from them." Importantly, this applies as much to the lives of janitors as it does to the lives of CEO’s.

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Don't mess with other people's money

Written by Fred Hansen | Tuesday 07 October 2008

What have we learned from the financial crisis? The mainstream media are talking about the greed of Wall Street and wild capitalism as the root cause of the financial mess we are in. Very few of them acknowledge the role of politicians and collectivist government intervention. "Beware of trying to do good with other people's moeny." says Russell Robert economic professor at George Mason University in this Wall Street Journal article.

This time the politicians have been eve smarter. They didn't spend the money themselves but since 1992 Congress pressed the biggest national morgage lender Fannie Mae and Freddie Mac to increase the percentage of mortgages going to low–income borrowers:

In 1996 the Department of Houseing and Urban Development (HUD) gave Fannie and Freddie an explicit target — 42 percent of their mortgage financing had to go to borrowers with income below the median in the their area; the target increased to 50 percent in 2000 and 52 percent in 2005.

Also in 1996, HUD required that 12 percent of all mortgage purchases by Fannie and Freddie be "special affordable" loans, typically to borrowers with income less than 60 percent of their area's median income.

Between 2000 and 2005, Fannie and Freddie met those goals every year, funding hundreds of billions of dollars worth of loans, many of them subprime and adjustable–rate loans, and made to borrowers who bought houses with less than 10 percent down.

That is why the same people that brought us this mess, the US Congress, have had to bail us out. We need to ensure that there is no "next time" by insuring that they can never again play around with other people's money!

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Biofuel and the great disruption

Written by Fred Hansen | Thursday 11 September 2008

The commodity with the greatest potential to create economic and social disruption is not oil but food. In more than 30 countries food riots and protests have signalled international tensions since 2007. The world food market is not only growing fast due to emerging big economies but is also more concentrated than even the oil market, meaning that supply problems easily ripple through the world market. Whereas the top five oil producers supply only 43% of the global oil market, the top five corn suppliers muster 77%, rice producers 73% and beef and wheat producers 66 %. Bio-fuel mandates by many Western governments have proven particularly disruptive, as the example of the United States shows:

U.S. law requires that ethanol make up at least five percent of vehicle fuel (rising to 22 percent by 2022), and 30 percent of U.S. corn went toward ethanol production last year. The U.S. government has claimed that bio-fuel demand is responsible for only three percent of the increase in global food prices over the past year, but a recent World Bank report estimated that figure to be 75 percent. Moreover, the price hikes of the past three years threaten to push 100 million people back into poverty, erasing seven years of progress.

Market forces are expected to bring the food prices down eventually but according to the pundits not to the level where the hike started. This is because of distorting government intervention. We are entering a new era of food pricing, one that will probably discredit the whole issue of renewables, not only bio-fuels. The lesson: green policy hurts poor people in developing countries most and is not compatible with the social credentials of liberal politics.

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Scrubbing out carbon dioxide

Written by Fred Hansen | Wednesday 30 July 2008

Sound environmental policy or eco-ideology? In some countries hardcore environmentalists still resist nuclear power despite it being the most economically clean and truly sustainable energy option available. It also allows us to avoid stifling oil–dependence and additional pollution of the atmosphere. Those opposed to utilizing nuclear have of course dramatically over emphasized any potential problems that it may harbour. So rather than alleviating atmospheric pollution it leaves it at the mercy of the economically illiterate carbon–trading schemes. Similarly environmental activists, such as Greenpeace, have also resisted technologies like carbon capture and sequestration, exposing themselves to the accusation of being 21st Century Luddites. This increasingly compromises their credibility as environmentally responsible citizens.

Now environmentalists are giving us yet another example of imprudent opposition to new technology. Scientists at Columbia University are developing a new appliance called the carbon dioxide (CO2) scrubber. In as single day alone it can remove a ton of CO2 from the air. Speaking for the research team Klaus Lackner guesses that this device could prove an efficient way to minimize the atmospheric CO2 levels:

While some see the scrubber as an efficient and economical way to reduce atmospheric carbon dioxide, many environmentalists are opposing the technology because it allows people to use fossil fuels and emit carbon in the first place.

After decades of investment renewable energies have yet to deliver their required cost-effectiveness. Therefore it is not prudent to flat-out reject other technological solutions which are often much cheaper than reducing CO2 emissions at the source. This whole issue of green campaigning reeks of special interest groups and doesn’t reflect the pursuit of the noble cause of saving our planet.

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