A thousand words

I like it for three reasons.

1. I am personally enraged by redundant, time consuming paperwork.
2. Reducing paperwork means increasing freedom and economic efficiency.
3. I really want to reach out and squeeze those scissors

How It Will Go Down

Any questions?


[via Glasperlenspieler]

Railroads Get a Boost

Not everyone is struggling in this economy, as railroads see strong surges in profit.

Union Pacific Corp.'s third-quarter profit jumped 51% as the railroad company posted volume growth for the third consecutive quarter and noted freight revenue improved across all business segments.

Chairman and Chief Executive Jim Young said strong volume growth, pricing gains and operating efficiency "combined to produce another record quarter" for the company. Results easily topped Wall Street's expectations.

The company's results further highlight the transport sector's rebound from last year's moribund levels, as the U.S. economic recovery continues. Already, peer CSX Corp. and transport companies J.B. Hunt Transport Services Inc. and United Parcel Services Inc. have reported results above prior-year levels as volumes jump higher. Union Pacific has said it sees a peak autumn intermodal shipping seasons, although it warned of industry uncertainty.

As the dollar weakens and commodity prices rise, commodity movers like railroads should see a boost, as I wrote about a year ago, when Warren Buffet bought railroad company Burlington Northern.

I should really start listening to myself.

They Took Our Jobs! [Robot Apocalypse]

These cold, heartless bastards aren't content to just conquer the world, they want our JOBS too!

Today, a Japanese company called Fanuc, Ltd., has industrial robots making other industrial robots in a "lights out" factory. (That's the somewhat unsettling term for a fully automated production facility where you don't need lights because you don't need humans.) That's where we're headed.

It's not just manufacturing, either. Automated call centers are replacing customer-service agents. Automated checkout stations are replacing grocery-store clerks. When the science of computer vision advances sufficiently, we'll have algorithms, not humans, evaluating X-rays at airport security checkpoints and screening user-generated content for sites like Facebook.

The robots are going to do all our work, better than us, at a fraction of the cost.

Or, as the denizens of South Park so eloquently put it:

Ben Bernanke is the Most Powerful Man in the World.

Bernanke's actions at the Federal Reserve ripple throughout the globe, especially into emerging markets.

A surge of capital is flowing into emerging markets as money flees the U.S., Europe, and Japan in the hope of higher returns.

The perception is that emerging markets offer stronger profit growth for their stocks, higher interest rates for their deposits, and the potential for currency appreciation.

Yet it's not all roses for the emerging economies involved.

That's because the surge of money seeking emerging markets is an example of how easy monetary policy in the developed world spills over into the developing one. Emerging markets nations try to tighten monetary policy... but are then beset by waves of foreign capital entering their countries. This negates the domestic tightening effort since foreign money is sloshing around their economies, and it's how Ben Bernanke is actually the entire world's central banker.

Inflating our dollar's value away so that we are forced to bubble-ize emerging markets doesn't seem like great policy to me, but I'm not a central banker, so what do I know.

Bernanke Talking, is Anyone Listening?

Fed Chairman Ben Bernanke has joined the chorus of people warning Americans of our government's unsustainable debt load.

[I]n the United States, governments at all levels are grappling not only with the near-term effects of economic weakness, but also with the longer-run pressures that will be generated by the need to provide health care and retirement security to an aging population. There is no way around it--meeting these challenges will require policymakers and the public to make some very difficult decisions and to accept some sacrifices. But history makes clear that countries that continually spend beyond their means suffer slower growth in incomes and living standards and are prone to greater economic and financial instability.

Everyone outside of Congress and the Obama administration is saying the same thing: We must balance the federal budget. Unfortunately, the only people with the power to do this are in Congress and the Obama administration.

When the Going Gets Tough, the Tough Drink Wine

Despite a faltering economy, Americans' appetite for wine has increased

At supermarkets and other food outlets, sales of 750-millileter wine priced at $20 or above are “up significantly,” leaving shelves at their fastest pace since 2006, said Doug Goodwin, vice president of beer, wine and spirits at SymphonyIRI, which collects point-of-sales data at retailers.

“Consumers have moved consumption into the home,” said Goodwin. “The reality is you can go into a Kroger or Safeway and buy a nice $30 bottle of wine that would have cost $60 in a restaurant.”

Dollar sales of bottles marked $20 or more are up 19% from January 2010 through Sept. 5, compared with the same 2009.

I'm partial to Cabernet and a good Malbec, myself. I used to like Pinot Noir, but now I need something with a little more body.

The Crappy Economy is Getting Crappier

No one want's to spend money, according to a new Gallup Poll. Back to school time is usually a boon for retailers, but parents seem to be tightening their belts, as this year's self-reported spending is even lower than in 2009.

The picture becomes clearer when you add in the fact that nearly two-thirds of Americans believe the economy still hasn't hit rock bottom. Many those who still have jobs are convinced that the economy will fall even further, and are probably saving money or paying off debts instead of buying their kids a new Sponge Bob backpack.

My advice? Don't listen to me. It'll only depress you.

America Is 'Bankrupt Mickey Mouse Economy'

I've been saying it for a while, but here is a hedge fund manager agreeing with me.

"America today looks like Russia in 1998. Consumers, companies and the government are all highly indebted. America as a result is a bankrupt Mickey Mouse economy," Wermuth told CNBC.

"The big evil for the IMF in Russia in 1998 was the prospect of the central bank funding government debt. The Fed is now even buying mortgage-backed securities," he noted.

"Even before the (Troubled Asset Relief Program) and the expansion of the Fed's balance sheet, total US public and private debt as a percentage of GDP in the US stood at 290 percent, that figure is now far higher," Wermuth added.

"US credit risk is huge and America has two options, either default or let the currency depreciate substantially against currencies such as the yuan and the rouble," he explained.

"Last night's news from the Fed simply creates the right conditions for dollar weakness and a reduction in US liabilities to foreign investors and governments," Wermuth said.

Despite the horrific implications, it's comforting to know I'm not the only one who sees this coming.

[CNBC]

Free Trade Is A Bust

The free traders told us that free trade would usher in a new level of prosperity, as we eliminated the costs of tariffs and quotas from our international economy. And they were right about that prosperity...in China.

Now, I'm all for free peoples being able to enter into agreements across borders. But as NAFTA and Chinese trade have shown us, these agreements don't always work as planned.

Free traders will tell you that reducing trade barriers produces a net increase in prosperity. They are right. What they didn't tell you was that net prosperity wont happen in America.

China, Mexico, and other nations with which we have easy trade all share advantages not available to us in America. They do not have the strict (and monetarily expensive) environmental protection policies that we have here in the US. They also have much lower minimum wages. These advantages allow them to produce the same products for much lower costs than US manufacturers. Hence why so many US companies produce their goods overseas, only to sell them in American markets.

The result of this regulatory imbalance is apparent. American manufacturing is dead. Huge portions of the products we consume are made outside the US. We suffer an enormous trade deficit, which in any other country would destroy currency value, though for us the affects are blunted by the US dollar's global reserve currency status.

Our labor and environment policies have applied costs to American industry that industry in other countries can avoid, setting our industry up for failure. We simply cannot compete in these markets without efficient, large scale automation, but even if we do succeed with automation, we have still shed jobs from our economy.

Free traders might reply that this means Americans must advance, and work in higher skill businesses that China and others aren't able to do yet. They are right, but leave out the fact that retraining and building new high tech businesses takes a lot of work, time, and money, adding more costs to our already (relatively) expensive labor/business environment.

We have to change our trade policies. Low or no tariffs simply don't work when trading with nations who are not on the same playing field. And I don't want to eliminate environmental or labor standards. So we have to apply costs to imports through tariffs. We have to apply them broadly, but also slowly. We don't want to shock the global market with sudden new costs. We also must be cautious of making tariffs to high, thus stifling trade too much.

Our economy is dying. We have to do something. Some will call this policy "protectionist." I call it common sense.

Nassim Taleb on EconTalk

Smart guy Nassim Taleb talks about the financial crisis and the systemic fragility that led to it in this illuminating interview.

[EconTalk]

The Economy is Fucked: In Graph Form

We all know the economy is bad, so I'm not shattering any illusions. But the bad news is that its getting worse, especially for those most deeply affected: the unemployed.

This is a graph of the median length of unemployment for those looking for work, and it stands at nearly 5 months. So half of all those looking for jobs have been looking for over 5 months--and they aren't finding anything.

The government likes to release its unemployment statistics, and their current number is 9.3%, which gives a much rosier picture of the situation than truly exists. Like any good statist government, they have to massage the unemployment numbers to make it look like they are doing a good job, even when they aren't.

The real unemployment picture is much darker.

This graph shows the ratio of non-government jobs to the population as a whole, basically how many jobs per capita. This ratio is a true measure of unemployment, as it accounts for those who have given up looking for work or for other reasons aren't counted. You have to go back to before my birth (1985) to see a worse time to find a job in America.

Of course, I don't want to be overly dramatic, there is one sector of our economy that is doing quite well, and appears unfazed by the economic destruction taking place. That sector would be the government.

Despite its crumbling tax base, our government is having no problem steadily adding jobs, and putting an increasing strain on those who can still find work in the private sector. While our economy is taking a hacksaw to jobs, our government is happy to continue piling them on. This would be great, if it wasn't for the fact that the rest of us have to pay for those jobs. These government jobs aren't creating wealth and they aren't helping the recovery. In most cases, government jobs destroy wealth, and that's the last thing we need right now.

But why, you may ask, is the economy struggling so much? What makes today different from yesteryear? That is a question with many answers.

First, too much bureaucracy. Our economy and employment live and die on small businesses. If entrepreneurs have to fill out a thousand documents and apply for a thousand permits before they can open up a new small business, they may not even try. It isn't worth it to start a business, especially in this economic climate. The problem goes much further than this, of course, but fixing this would be a start.

Instead, Obama has added even more complexity and paperwork to the already overburdened businessman with the health care bill. He simply doesn't understand that paperwork can slow economic growth, or even set it backwards.

Second, too much uncertainty. Our government has never taken such direct control of our economy. It would be tolerable if that control was producing results, but it isn't. Instead, our economy must constantly adjust to the trillion dollar whims of Congress or the Fed, and this constant adjustment means no one can possibly plan and invest for the future. Without this investment, our economy stagnates and sheds jobs, waiting out the turbulence so it can start investing again.

With trillions in bailouts saving huge companies from their own mistakes, the laws of economics no longer apply. Companies are waiting for bailouts, or sitting tight and waiting for the economic picture to make sense, but either way they aren't expanding and adding jobs.

Third, too much debt. Our government is running up debt like a psychopathic teenager with a credit card. Our leaders have ignored the consequences of a debt based economy for decades, and now those consequences are upon us. We spend nearly a half a trillion on interest for our national debt every year. We have now taken on the debt of Fannie Mae and Freddie Mac, which totals into the tens of trillions of dollars. That isn't even counting our un-paid-for obligations to Social Security, Medicare, ObamaCare, and, oh yeah, Two Wars.

Business leaders are not blind. They see this massive debt obligation, and they know it means at least one of two things: Much higher taxes, Drastically cut government services, or Both. Either way, this is perhaps the worst time to start a business in the history of this country. Even if you can eke out a living, or if you're lucky a profit, you can be assured that most if not all of your success will be soon taxed away by our spendthrift government.

Congress, seeing the desperate situation and the looming mid-term elections, have passed another round of unemployment benefits. I liken this to attempting to bail out a sinking ship with a coffee mug. You might buy yourself a minute or two, but the ship is still going down.

Regional Racism

Critics like to paint the South as a hotbed of ignorant racism, and film and TV does us no favors, creating racist charicatures that almost always hail from the South.

But I have suspected for some time now that the seat of American racism lies not in the South, where we have had to deal with the issue of race in our daily lives for hundreds of years, but rather that the most racist region lies to our North, specifically in the American Northeast.

My suspicions have been scientifically confirmed by some kindly Stanford economists, who's experimental paradigm consisted of an iPod for sale in a Craigslist ad.

Over the course of a year, they placed hundreds of ads in local online markets, randomly altering whether the hand holding an iPod for sale was black, white, or white with a big tattoo. Here is what they found:

Black sellers do worse than white sellers on a variety of market outcome measures: they receive 13% fewer responses and 17% fewer offers. These effects are strongest in the Northeast, and are similar in magnitude to those associated with the display of a wrist tattoo.

Interesting that the Northeast, the supposed bastion of liberal tolerance, is also where black people face the most racism.

The research delves deeper into the data, finding even more measures on which blacks are at a disadvantage, but I felt this particular geographic detail to be the most interesting.

[via those awesome guys at Freakonomics]

Stock Market: Reality (Finally) Sets In

I've been saying the stock market is grossly overpriced for quite some time now, but the market stayed bullish after government bailouts, stimulus, and plain irrational exuberence, despite our economy being in the toilet. But finally, reality has set in, and the Great Correction has begun.

In one month, the Dow has lost 1,190 points, or 10.6% of its value. That is a boatload of money evaporating, and I doubt we have seen the worst of it.

So there's your sunny optimism for the day.

[graph from Marketwatch]

Fiat Currency FAIL

The fate of every fiat currency is the same. The government in charge prints to much, usually to cover its own debts, and the money becomes worthless.

Fiat currency, like the US dollar, is not pegged to the value of any hard commodity like gold. Instead, the value comes from faith that the money is worth something. Eventually, governments abuse their ability to print money, and people lose faith, and no one will take your funny money anymore.

[via nick]

Minimum Wage Goes Up, Hours Go Down

How the minimum wage works in the real world.

A.G. (who asks me to use, in this post, only his initials) is a regular reader of Cafe Hayek. He’s 28 years old and is an entrepreneur in Charlotte, North Carolina. His firm employs 25 people, 21 of whom are low-skilled workers. A.G. just sent this memo to his employees:

To All Team Members:

The schedule for next week has been posted. You may notice that hours have been cut back on your schedule. This is across the board, not just you. I don’t want anyone to think they’ve done something wrong to deserve a cut in hours, so I wanted to explain why it’s happening.

There are a couple of reasons for this:

1) May and September are very slow months for our business. Anyone who has worked Sundays recently has seen the drop off in traffic. Now that we’re entering May, that drop off will continue on to other days as well, and it will get worse.

2) The recent increase in the minimum wage to $7.25/hour. Since we’ve opened, I’ve had a lot of people ask why they can’t get more hours, and it’s a great question.

I would LOVE to give everyone all the hours they want, and then some. Our customers would be happier across the board, we could accomplish much more every day, our business would grow, I could hire even more people, and on and on. However, we operate on a tight budget just like any other business, and in order to survive, we have to make money. That means our labor cost (the total amount you are all paid) must stay below a certain percentage of our total sales. If it doesn’t, we go broke and everyone loses their jobs.

Our brilliant Congressmen in Washington, D.C. decided a couple years ago that it would be a good idea to raise the minimum wage by about 40% to $7.25/hour. It just took effect last year. That probably sounds like great news for everyone – more money in everyone’s pockets can only be good, right?

Unfortunately, it doesn’t work that way in the real world. If I’m forced to pay everyone 40% more, I can’t afford to schedule as many employees for as many hours, since our sales aren’t going up by 40%. Remember, I can only afford to pay you guys a certain percentage of all the money coming in the door. That means hours get cut, and everyone ends up poorer.

In a perfect world, it should work the opposite way: you should be free to choose how much you think your skills and time are worth (since you know best), and I should be free to pay you whatever that amount is if I want to hire you. Everyone wins in that case. I get as many good employees as I want that I can afford to pay, and you get valuable job training, references, and relationships to carry into the future.

To prove how bad of a deal minimum wage is for you guys as hard-working job-seekers, just look at this way:

I’m not being forced to pay $7.25/hour; YOU are being forced to accept $7.25/hour no matter what, even if you’d be willing to take less in order to get (or keep) a job.

You can thank our elected officials in Raleigh and Washington for sticking you with such a raw deal.

If you have any questions about any of this or want to talk more about it, please feel free to come see me, the door is always open.

Our leaders have the mistaken belief that by mandating a certain hourly wage, our low-skill workers will earn more money, when in reality they will just work fewer hours.

Of course we shouldn't expect our Congress critters to understand that--whenever they run out of money, they can just (legally) steal more from the American people.

[Cafe Hayek via Instapundit]

Treasury to Sell 7.7 Billion Shares of Citi

Remember when all the banks fell apart, and our government gave them a bunch of our money? Well, in the process we bought 7.7 billion shares (a 27% stake) of Citigroup, Inc., that the Treasury is now planning on selling back to the market.

SAN FRANCISCO (MarketWatch) -- Citigroup Inc. shares fell 2.4% Monday as investors unloaded the stock following news that the Treasury Department will begin to unwind its sizeable stake in the banking giant this year.

The Treasury said it plans to sell 7.7 billion shares of Citi (C 4.16, -0.02, -0.48%) it owns as a result of the financial bailout over the course of 2010 subject to market conditions.

"Treasury intends to sell its Citigroup common shares into the market through various means in an orderly and measured fashion," it said in a statement.

Treasury said it intends to initiate its disposal of the common shares pursuant to a pre-arranged written trading plan.

The Treasury bought the shares when the stock was at $3.25. Many analysts say we should have begun the sell off in October, when the stock was around $5 per share. Today, it is at $4.17, still a nice $7 billion profit if we sell now.

My only question is: what are they waiting for?

Why Should You Want A Government Job?

The question is, why wouldn't you want a government job?

Government jobs PAY. On the state and federal level, the government pays its employees well, to speak nothing of generous pensions and health benefits. And the best part is you almost never get fired or downsized. You may have to join a union, but it's worth it. It's easy to squeeze an institution that has no bottom line.

While private pay and economic growth is stagnating, our state employee counterparts have secure, great paying jobs, at our expense.

Now, if I had my druthers, I'd cut huge thousands of jobs from the federal government. But I know I'll have to change a few more minds before we do that. So in the meantime, could we just bring government salaries more in line with their private sector counterparts?

Our leaders bemoan the bank bailouts, but too many government employees enjoy excess on the public dime. We can't afford it, and paying for it is choking our economy when it needs the most help. Even if we could reduce the deficit just a little, we should look at it.

But for now, government jobs remain a staple of American employment. Solid pay, good benefits. We should all be so lucky.

[WSJ and USAToday]

Freakonomics Radio

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Who Needs New Cartoons

When our problems stay the same?

Circa 1934