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September 30, 2004
The Reality of Cambodia
Here is an informative but depressing audio slide show by New York Times columnist Nicholas Kristof.
While Kristof does a great job at dispelling some of the myths regarding factory labor in poor nations, the next question that logically follows is why are such horrid factory jobs the best that are available?
Lack of democracy, property rights, the rule of law, and excessive government regulation all play a part. Two excellent books on the subject are Eat the Rich by P.J. O'Rourke and The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else by Hernando de Soto.
Posted by Peter Mork at 5:47 PM | Comments | TrackBack
September 29, 2004
Will the Draft be Back?
Is a resurrection of the military draft in the works? According to some that might depend on who wins the presidency on November 2nd.
When John Kerry was asked if he believed Bush would reinstate the draft at a campaign rally, he stated:
"If George Bush were to be re-elected, given the way he has gone about this war and given his avoidance of responsibility in North Korea and Iran and other places, is it possible? I can't tell you."
Howard Dean was a little more blunt a few weeks ago:
"I think that George Bush is certainly going to have a draft if he goes into a second term," he told students at Brown University yesterday. "And any young person who doesn't want to go to Iraq might think twice about voting for him."
If Kerry and Dean are serious about putting an end to any chance that the U.S. returns to a military draft, they might want to look to legislation currently sitting in Congress authored by two politicians in their own party.
Sen. Hollings (D-SC) has sponsored the The Universal National Service Act of 2003 in the Senate while Rep. Charles Rangel (D-NY) has put the same bill onto the floor of the House. Granted, the bills are going nowhere and were described as “collecting dust” in the WSJ. Still, it would be nice for a Kerry/Dean combo to use some political weight to get these bills removed from the floor entirely.
On the Republican front, in addition to denying that his administration has any plans to bring back the draft, President Bush should condemn recent comments by Senator Hagel of the GOP along with the bill mentioned above.
Fortunately, no matter who is elected this November, a return to military conscription is pretty far fetched. The tyranny of the status quo is currently on the side a volunteer army and for that reason alone the current debate over conscription seems more like an act of scoring political points than anything else.
Posted by Peter Mork at 4:51 PM | Comments | TrackBack
September 28, 2004
Moving at the Speed of Currency
How much money is changing hands between counties? The Financial Times reports today:
Trading on the world's foreign exchange markets has leapt to a record $1,900bn a day, driven by renewed interest in currencies as an asset class and the return of hedge funds specialising in currency bets.
To put that in perspective, using that daily figure the market value of foreign currency transactions in one week is greater than the market value of the Gross Domestic Product of the U.S. for the entire year. When that much money can move that quickly, it is a clear sign the Forex markets are efficient.
Posted by Peter Mork at 4:33 PM | Comments | TrackBack
September 25, 2004
Buying Votes
“…I would hope that nations around the world, and leaders, would understand the logic behind saying that good foreign policy, good relations must be firm on our borders. I can't think of anything more logical and more common-sensical than to understand our hemisphere which can be and will be bound by freedom and free markets and free trade is in the interests of our people.”
-George W. Bush (February 16th, 2001)
“…we are committed to ensuring that American industry and American workers can compete on a level playing field. That is why, today, I am announcing my intent to launch an initiative to respond to the challenges facing the U.S. steel industry. This initiative will be designed to restore market forces to world steel markets and eliminate the practices that harm our steel industry and its workers.”
-George W. Bush (June 5th, 2001)
It was a huge disappointment when President Bush, who talked so passionately about free trade during the 2000 election, decided to place tariffs on foreign steel in order to protect the domestic steel industry. To his credit the President did remove the tariffs last December, as he apparently realized that not only were the tariffs economically a bad decision but a political one as well. Steel importers expressed their anger at the President while steel unions were still reluctant to endorse him. But unfortunately this article tells a slightly different story:
"...some steelworkers were happy with the relief they got, including Bob Hoover, of New Cumberland, W.Va. He donned a black and gold 'Steelworkers for Bush' T-shirt in August when he stood with about 20 others from West Virginia and Ohio at a rally in Wheeling.
'Mainly, it was to let him know that not all steelworkers believe he's not doing a good job,' Hoover said Friday. 'The 201 tariffs did help.' "
The article does not go into any votes that Bush possibly lost from political backlash but my guess is that it's not many. The administration knew full well that free traders would not likely support Kerry, who has recently turned towards protectionism to shore up union votes. This despite a strong free trade record in the Senate.
What this article does demonstrate is that politicians still find it possible to buy a vote from Peter using money from Paul. Truly a sad state of affairs.
Posted by Peter Mork at 5:35 PM | Comments | TrackBack
September 22, 2004
A Day Without Cars
Today is Car Free Day across the globe. It reminded me of a few years back when I was living in Barcelona. In order to save some cash a friend had lent me his bike so that I could make the trip back and forth to school in the center of the city from the outskirts where we lived. After a few months of biking, my roommate told me that in a few days they were going to be having a Car Free Day (it was in the spring so I belive they might have changed the date). Major roads were to be shutdown to traffic, only accessible if you were walking or biking. He wasn't too happy about the holiday as it meant he would need to take the metro to work since the streets that were open would be gridlocked with traffic.
I was excited though. The thought of cruising right down the middle of streets like Gran Via without having to avoid traffic sounded like a dream come true. When Car Free Day finally arrived I started out down the street and laughed to myself as I saw larger than usual crowd heading towards the metro. I took a little joy in the fact that I would be enjoying a traffic free ride to work while almost everyone else would be jam-packed in the metro or buses. It was right about then that my back tire blew out. I had to put my bike on my shoulder, run it back up to the apartment, and then jump on the metro with everyone else. It was crowded, hot, and the lines took forever. To top it all as I exited at my station and started walking towards the university a guy on a bike cruised by right in the middle of a road closed to traffic. It was the first and last time my bike broke down in Barcelona.
Taking the overly crowded metro that day made one thing clear: there is a reason people drive cars. As the Competitive Enterprise Institute points out:
"Since so many anti-car activists are young and healthy, it’s no surprise they forget what a car-free world would actually be like,” said Sam Kazman, General Counsel at the Competitive Enterprise Institute. “For many people, a car isn’t a luxury – it’s the only way to get to work, transport their kids, or pick up groceries.”
Ultimately, I would have enjoyed biking into the city that day if my bike wouldn't have broken down. But for those who are too old, have kids, or have too much to transport to walk or bike the day seems counterproductive. While the purpose is to forcibly show everyone how easy it is not to drive, making everyone use the public transportation on one day more than likely leaves them thinking: "I'm glad this only happens once a year..."
Hat Tip: WSJ
Posted by Peter Mork at 5:58 PM | Comments | TrackBack
Kerry on Social Security
Kerry went on the offensive today taking on President Bush's proposal to offer workers the option to place a portion of their payroll taxes in private accounts. He states:
"The truth is, the only people who benefit from George Bush's Social Security scheme are the special interests," Kerry said in remarks prepared for a town-hall meeting in West Palm Beach, Fla., a battleground state rich in people keenly interested in the two pillars of retirement, Social Security and Medicare.
Yeah right. Somehow I fail to see how I am worse off if I get to keep the money I make instead of it getting paid out in a government sponsored ponzi scheme. Remember that not a dime of the money you pay in payroll taxes is actually being saved for your retirement.
All the money you receive is going to have to come from future taxpayers, and unfortunately there won't be enough of them to pay the governments obligations when the bill is due. Right now the federal government has promised to pay out $72 trillion more than it expects to take in from future tax revenue. The article continues:
Kerry pointed to a study by Austan Goolsbee, a University of Chicago business professor, who studied a model that proposes workers set aside a small percentage of their pay in private accounts as a method to adjust Social Security to a rapidly graying population.
Goolsbee concluded that fees charged by financial companies could reap them hundreds of billions of dollars and eat 20 percent of the benefits in an account held by a worker making an average salary.
Here is Goolsbee's CV and I'd be interested in taking a look at the study once I find it. Will financial companies "reap" hundreds of billions of dollars over the next century if workers have the option to put part their money in private accounts? I think the appropriate term would be earn. There is no doubt that financial companies have earned billions due to the advent of IRAs and 401Ks. But they earn billions precisely because they deliver trillions of dollars in value to their customers. The average fee of a mutual fund is around 1% of assets under management. If companies were charging more than that you could always switch to another fund or even put it in your local bank.
The Social Security system is not only broken but it's a fraud. Kerry's ranting may "reap" him votes among senior citizens in Florida, but if these tactics do put him in the White House, he will need to start dealing with the facts of this crisis instead of playing on voters' emotions.
Update: Here is the Goolsbee report referenced by Kerry.
Glancing through it the analysis looks pretty weak.
With regards to fees eating up 20% of retirement benefits here is the text from the report:
In each year, the real rate of return pre-expenses is 4.9 percent, so the net yield is 4.6 percent with 30 basis points of expenses, 4.1 percent with 8- basis points and 3.8 percent with 110 basis points. The calculation is done for a worker who starts earning at age 21 and retires at age 65 and is compounded annually. The results show reductions of less than 10 percent in the 30 basis point scenario and 20 to 26 percent with the higher fees. This compares to the results in Congressional Budget Office (2004) and Government Accountability Office (1999) that expense ratios around 100 basis points would reduce account values by more than 20 percent.
So the fees knock down the real return from 4.9% to between 4.6% to 3.8%. Clearly the investor would prefer to get the full 4.9% but do you expect the people investing your money to work for free?!?! There is a reason you would agree to these fees and voluntarily opt into the private accounts: you get a higher real return even with the fees.
Here are some number from the NCPA: low income workers can expect a 2.6% real return from the current Social Security System, median income workers can expect a 1.8% real return, while high income workers can expect a 0.03% return.
So take your pick, 1) a minimum real return of 3.8% paying fees or 2) a maximum real return of 2.6% without fees. Tough choice.
It also should be mentioned that a 4.9% real return is a very conservative estimate. Fees are fixed no matter the real return on your portfolio. So if you were able to get a 8%, 9% or 10%+ return the fees would be much smaller relative to your capital gains.
Goolsbee's report also states:
The collapse of the financial sector from the end of the bubble during 2000-2002 reduced revenues by $117 billion. The increase in revenue from the individual accounts would have a positive net present value more than 8 times larger than this collapse.
Come on!!! Comparing a three year loss to a future income stream over a 75 year time period! This is apples and oranges.
Posted by Peter Mork at 3:52 PM | Comments | TrackBack
September 20, 2004
Neo-Republicans
In today's OpinionJournal's Political Diary (sub. req.) Holman Jenkins takes a look at Republican Jack Orchulli's chances of unseating U.S. Senator Chris Dodd. In his analysis titled Fashionable Republican Jenkins points out:
Mr. Orchulli, 57, takes pride in presenting himself as "socially liberal, fiscally conservative," reputedly the sweet spot in the electorate today (though somehow voters frequently fail to confirm this wisdom by their behavior when they actually vote).
Voters "frequently fail to confirm this behavior when they actually vote"!?!? I beg to differ.
Jenkins need look no further than the state in which Orchulli is running: Connecticut. Republican Governor Jodi Rell, who fits the "socially liberal, fiscally conservative" label, was elected as Lieutenant Governor in 1994, then reelected to the post in 1998 and 2002. She replaced John Rowland (another pro-choice Republican) as Governor on July 1st of this year after he stepped down from the office. These Republicans are getting elected in a state where Bush only received 38.4% of the vote in 2000.
It is also hard to ignore two states whose all important electoral votes are a lock for Kerry: California and New York. Here again, despite the fact that Democrat voters solidly outnumber their Republican counterparts, the electorate has put into the Governor's office two Republicans. And again, Schwarzenegger and Pataki both describe themselves as socially liberal and fiscally conservative.
I know there are areas of the country this libertarian leaning political message would not fly. Yet it is hard to overlook the fact that in states that Democrats will no doubt win in their quest to regain the White House, the message put forth by these socially liberal Republicans seems to be resonating.
Posted by Peter Mork at 10:03 PM | Comments | TrackBack
September 19, 2004
The Unintended Consequences of Free Speech
In 1982 CBS produced a documentary called People Like Us, which showed the plight of poor Americans during first years of the Reagan administration. Getting wind that the show would highlight the faults of their American counterparts, Soviet officials decided to broadcast the program live within the USSR. As Dinesh D'Sousa notes:
The Soviet Union also broadcast the documentary, with a view to embarrassing the Reagan administration. But by the testimony of former Soviet leaders, it had the opposite effect. Ordinary people across the Soviet Union saw that the poorest Americans have TV sets, microwave ovens, and cars. They arrived at the same perception that I witnessed in an acquaintance of mine from Bombay who has been unsuccessfully trying to move to the United States. I asked him, "Why are you so eager to come to America?" He replied, "I really want to live in a country where the poor people are fat."
Fast-forward 22 years and it is apparent that Iranian government censors did not learn from the Soviet Union's mistakes. A few days ago Fahrenheit 9/11 opened in Tehran. Hundreds of mainly young Iranians attended the premier, but as the press reports their reaction was probably not what the Iranian government expected. Instead of simply intensifying hated towards the United States, many of the filmgoers exited the theater questioning the policies of their own government.
And even though his twenty-something son quipped in to say he was "disappointed" by the film and asserted "politics is not as important" for Iran's younger generation, he did envy Moore's position.
"It sure is a great country, where someone like Moore trashes the president and gets away with it -- and makes so much money!" he laughed.
Another woman said she was impressed with the scene where Moore chases US congressmen to ask them if they would send their children to Iraq.
"How many top officials here sent their offspring to fight in the Iran-Iraq war?" asked the woman, one of several who directed their frustrations at Iranian authorities -- and not President Bush.
Of course, this is not to say we should not feel compassion for the poor families in the 80's who although they might have hit some rough times in their lives still have a television, microwave and car. Nor is it to say that we should support our President unconditionally, even though he is clearly a more just leader than the mullahs of Iran. It is just interesting to note that Michael Moore, who has been labeled "unpatriotic" by many, ended up demonstrating to several young Iranians an important reason that the United States is one of the best countries in the world.
Posted by Peter Mork at 10:09 PM | Comments | TrackBack
September 16, 2004
The New Americans
This week we finished watching The New Americans, a three episode series from PBS. The series follows various immigrants during their journey to the U.S. and the beginning of their lives in the country. Filmed during the late 90’s, it is truly fascinating. I would highly recommend buying or renting the videos.
You ride an emotional roller coaster with all the families and become attached to nearly all the individuals in the film. For me though some of the most moving scenes involved young Juan Flores, the 8 year-old son of Pedro and Ventura Flores who emigrate from their home in Mexico.
Pedro has worked in the U.S for 13 years, only able to return home every 6-months to visit his family for a quick two weeks. After years of trying, he finally secures visa interviews for his family at the U.S. consulate in Juarez in an attempt to legally bring them to the States. During the the beginning of the interview they learn that although Pedro has found an additional sponsor to meet the income requirements for bringing 6 dependents across the border, this will not be enough. Since someone outside the family is being used as a sponsor, Pedro's income is not counted towards the sponsorship requirements. They are informed unless they find another sponsor they will only be granted three visas out of the desired six.
Outside the consulate they unsuccessfully call friends in the U.S. trying to find an additional sponsor. Sitting in the the consulate the next day, prepared to discuss other options with the immigration official, young Juan breaks down in tears. He approaches his parents as they ask him why he is crying and try to calm him down. In tears he gets out:
"You’re all going over there, and you’re not going to take me,"
His parents of course tell him that there is no way they would break up the family and do comfort him, but the viewer is still left heartbroken for the 8-year-old. The scene is a powerful reminder of the need to reform our immigration laws for those whose only desire is to come to this country in search of opportunity and to be with their loved ones.
UPDATE: Steve Rhodes from Blogcritics points out that several people who produced The New Americans were also involved in the making of Hoop Dreams, another of my favorite documentaries.
Posted by Peter Mork at 10:13 PM | Comments | TrackBack
September 15, 2004
Stock Talk
Kerry makes his case for the Presidency in today's WSJ. Without getting into his proposals, I just thought the tone of the op-ed was hilarious. He starts off with:
As I travel across this country, I meet store owners, stock traders, factory foremen and optimistic entrepreneurs.
I wonder how many times he has used "stock traders" in stump speeches across the country this year. My guess is not many. Anyway, moving on to the end of the first paragraph:
...American businesses will do better if we change our CEO.
and then concludes with:
On Nov. 2 we will have a national shareholders meeting. On the ballot will be the choice to continue with President Bush's policies or return to the fiscal sanity and pro-growth polices that proved so successful in the 1990s. You will choose.
Thanks Senator for putting that in terms us Wall Street guys could understand.
Too funny.
Posted by Peter Mork at 10:23 PM | Comments | TrackBack
September 13, 2004
The Politics of Immigration
The WSJ notes today that the nativist wing of the Republican Party had a major set back in Nevada and Arizona. Pro-immigration Republicans, Jim Kolbe and Jeff Flake, easily won their primaries against opponents funded by anti-immigration organizations. As the Journal notes:
The message is that anti-immigrant populism may look good in some polls but it doesn't work come Election Day, even on the front lines where illegals add to the burden on local law enforcement and social services. Some Republicans who listen to Fox's Bill O'Reilly or his imitator, CNN's Lou Dobbs, have been led to believe that immigration is a winning issue, but as with trade protectionism the votes never materialize.
Let's hope the trend continues.
Posted by Peter Mork at 10:37 PM | Comments | TrackBack
September 9, 2004
Unemployment: Relative Comparisons
Depending on where you get the news you could come to the conclusion that the 5.4% unemployment rate was either a sign that the economy is roaring or that it's wheels are falling off.
So how does one evaluate the most recent employment numbers? A good place to start is to look at the most recent numbers relatively. One such measure is to compare the numbers historically.
The graph plots the unemployment rate for the last 30 years (courtesy of economagic). The pink bands represent recessions and from the graph it appears we are progressing along a normal recovery. Actually, the recession was relatively mild with unemployment hitting a peak of 6.3% in June of last year. That compares with unemployment peaking at a rate of 7.8% after the previous recession in the early 90's and a rate above 10% in the early 80's.
Another relative comparison is to look at the unemployment numbers in other countries. Two that reported unemployment figures from the EMU within the last week were Germany and Ireland. Germany reported unemployment of 10.6%, while in Ireland the rate was a mere 4.6%. While there are several factors that go into creating a strong economy, it is interesting to note where these countries rank in the 2004 Index of Economic Freedom. Germany, with the highest unemployment rate, ranked 18th in the "Mostly Free" category. Both the U.S.and Ireland were categorized as "Free" with the U.S. coming in 10th and Ireland ranking 5th among all countries.
Posted by Peter Mork at 10:44 PM | Comments | TrackBack
I, Pencil
Here is the link to Leonard Read's "I, Pencil: My Family Tree as told to Leonard E. Read" from 1958.
The first entry on my "Quotes" page is Milton Friedman recounting Read's essay. In the original essay the 'pencil' states:
I have a profound lesson to teach. And I can teach this lesson better than can an automobile or an airplane or a mechanical dishwasher because—well, because I am seemingly so simple.
Simple? Yet, not a single person on the face of this earth knows how to make me. This sounds fantastic, doesn't it? Especially when it is realized that there are about one and one-half billion of my kind produced in the U.S.A. each year.
Pick me up and look me over. What do you see? Not much meets the eye—there's some wood, lacquer, the printed labeling, graphite lead, a bit of metal, and an eraser.
The essay goes on to describe the great degree of coordination, from individuals around the globe, that goes into making a pencil. Amazingly though, pencils can be bought for a mere 10 cents.
Even more amazing is that people of different religions, races, and nationalities cooperate in the process, and do so voluntarily. To me, this is the essence and beauty of economics.
Posted by Peter Mork at 10:41 PM | Comments | TrackBack
September 8, 2004
$72 Trillion of Invisible Debt
Holman Jenkins shows how large the unfunded liabilities of Social Security and Medicare have become in his column today. When politicians talk about the debt they conveniently leave out these numbers.
It would take $3.9 trillion today to retire the visible national debt, and $72 trillion today to pay off unfunded promises to retirees. Yet only the first debt is reported to voters. That's the kind of accounting "oversight" that, in the private sector, leads straight to a cellblock.
In addition he points out that if nothing is done for another 9 years another $18 trillion will be added to this total. One more reason that the transition to private accounts for younger workers should be done as soon as possible.
Arnold Kling has more details on his site.