In Ayn Rand’s imagination, there is a perfect correlation between self-interest and moral goodness. This sentiment was expressed in her famous book Atlas Shrugged – required college reading for every budding libertarian. I read it and very much enjoyed it. I even flirted with libertarian political thought for a while. Then I actually thought critically about it and realized economic libertarianism results in the destruction of the middle class and all the political and social instability that comes with an economically polarized society. Rand was guilty of cherry-picking plots and characters so that in her fictional world, selfishness is virtuous.

In one sense Rand is correct; economic self-interest turns out to be the best system we’ve ever created to spread general wealth and well being (we call that system capitalism). She simply took that idea to the extreme and claimed that un-checked, excessive self-interest (aka ‘greed’) must be the greatest good. To demonstrate the folly of this, Jeremiah Tucker has written a humorous update to Atlas Shrugged based on the current economic crisis. I admit that if you haven’t read the original, the update will probably not be all that funny, but if you have, you’re in for a treat (assuming you’re not a Randroid).

Here are a couple of excerpts:

With your advanced alloy and my high-tech railroad, we’ll revitalize our country’s failing infrastructure and make big, virtuous profits.”

“Oh, no, I got out of that suckers’ game. I now run my own hedge-fund firm, Rearden Capital Management.”

“We who live by the mind could’ve been engineers, scientists, doctors, extreme-sports enthusiasts, but there is no purer pursuit than the pursuit of money. A is A. Money begets more money, and …”

Galt went on like this for what seemed to Dagny like hours, until, finally, something he said piqued her interest.

I’m hoping the recent economic collapse will fatally injure the libertarian movement that’s been gaining steam in the last few decades. There’s been a repeated pattern in recent economic history – deregulation within a sector reaches critical mass resulting in exploitative greed then economic collapse. It happened with savings and loans crisis in the late ’80s, the California energy crisis at the turn of the millennium, and last year with the mortgage and derivatives market. Throughout that whole time, the middle class has been shrinking and economic disparity has increased.

Economic libertarianism may sound good in theory and even better in a great work of fiction, but has repeatedly failed in practice.

The following article by Greg Mankiw a very highly respected economist at Harvard outlines what I believe would be a lot of peoples dream election. Ok, it may be more geared towards economist but just imagine if candidates actually would focus on these topics to garner the support of the many groups within this country or the many groups starting thinking more like economist. If that were to happen, maybe we could enact more positive change.

Out of the 8 topics Greg Mankiw focuses on, I think two standout either because it is a hot topic or something not often focused on but they are:

OPPOSE FARM SUBSIDIES Economists like free markets, a principle that applies to agriculture as much as any good or service. Again, Senator McCain has the lead. Senator Obama’s endorsement of the recent $300 billion farm bill, his support for domestic ethanol subsidies and his opposition to imported sugar ethanol may bring votes from farmers, but economists view these policies as a burden on taxpayers and consumers.

and…

LEAVE OIL COMPANIES AND SPECULATORS ALONE With the stunning rise in oil prices, both presidential candidates have been tempted to demonize market participants. Senator McCain has complained about the “obscene profits” of oil companies and called for a “thorough and complete investigation of speculators.” By contrast, most economists see nothing more sinister than the forces of global supply and demand at work. There is little benefit, and potentially much harm, in the candidates’ populist finger-pointing.

The second was actually a was a hot topic for while.

Enjoy
Santini

I ran across this blog on the Freakonomics Blog this morning and had to share this particular post. Though the blog states clearly that a strong causation or correlation exist, it is still particularly funny. I would also like to see the sale numbers for beer and cigarettes around May and a comparison to the past few years. I think you would have similar numbers. I have a feeling that the administration didn’t have this particular field in mind when they issued the checks to stimulate growth (and yes I know, I chose that phrasing on purpose!)

The above image was created and is licensed by Today is a good day.

Wired is running a different journalistic take on the recent rise in gas prices. It’s not a take that many are unfamiliar with. The article blames the oil corporations for manipulating prices. This, of course, elicited accusations of liberal bias. I can understand why. Blaming greed and ‘evil’ corporations is often a knee-jerk reaction of many liberals. Still, even knee-jerk reactions can be right occasionally.

Before taking aim at the Exxon Mobile in particular, the author of the article, Howell Raines, takes the media to task. He accuses them of uncritically accepting oil companies’ line that prices are a result of supply-and-demand dynamics. One journalist he interviewed claims that this is because of the number of young, Reganomics-era journalists in newsrooms. The interviewee says, “Younger reporters come out of a mind-set that the market rules, taxes are evil, and government ought to let these people in the oil industry go about their business.”

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File this story under “too good to be true.” Silicon Valley scientists have genetically engineered a bacteria that eats agricultural waste and shits crude oil. They’ve produced the world’s first jar of renewable crude oil. The bacteria, a non-pathogenic e. coli variant, literally consumes biomass, such as woodchips and wheat straw, and excretes nearly tank-ready diesel.

This is pretty amazing. They have literally taken a process that normally is measured on the geological time-scale and reduced the time it takes to days. A 1,000 liter jug of the bug can produce a barrel of crude in a week. We are moving closer to the ultimate source of all energy on our planet – the sun. Fossil fuels are simply stored solar energy from the distant past. This process makes the solar energy stored in plants available to us now in a form that our entire economic infrastructure is built to handle.

My first thought when reading the article was, “Great, just what the atmosphere needs, more oil burn-off.” But the scientists claim that this production technique is carbon-negative. They don’t go into detail as how that can be. They claim the means of production absorbs more carbon from the atmosphere than is produced by burning the fuel. My guess is that they are measuring from the wrong place. Sure, the plants that they use to feed the bacteria absorb carbon. But that is carbon that would have been stored by the plant waste for years. Converting it to oil and burning it will reduce the carbon turnaround time to weeks, if not days. Still, making oil renewable is a step in the right direction.

I also noticed that they didn’t talk about the cost of production. They did mention that it took $20,000 to genetically modify the bacteria, but once it’s modified, it’s self-reproductive, so that’s not a production cost. I guess the main cost would be whatever it takes to keep the bugs alive and healthy. Since we’ve already been doing the same thing with synthetic human insulin for decades, it must be cost-effective. Sure enough, they plan a demonstration-scale plant in two years, and a production-scale one in three. This puts it years ahead of it’s hydrogen-producing-bacteria competitor, which is unfortunate as hydrogen is much cleaner (its burn-off waste).

Politics and the economy are intertwined. We all know this. That is why in recent political polls, the most common response to “Thinking ahead to the November presidential election, what is the single most important issue in your choice for president?” is “Economy/Jobs”. We wouldn’t name that as an election issue if we believed politicians could affect the economy.

Markets influence politics and politics influence markets. The actual stings on influence are many and diverse. Add to this tangle, a new thread, from Intrade.com. The site sets up a futures market for all sorts of events. Everything from the name of the last named storm of the 2008 Atlantic hurricane season (‘Omar’ is the current favorite) to the most used internet search engine. The most interesting futures, though, are about politics.

These are real markets. Real money is spent to buy shares of an Obama presidential victory and the like. The value of those shares fluctuate according to how the market views how his chances of winning change. As of the time when this sentence was written, an Obama victory is trading at 61.3 and McCain is trading at 34.4. They are followed by Clinton at 5.1 and, amazingly, Al Gore, who isn’t even running, at 0.6. I think I’d sell that one short, if I could find a buyer.

The numbers represent the percentage chance of the event occurring. Thus if you think Clinton’s odds of winning the 2008 Presidential election is greater than 5.1%, then you should buy shares. If not, you should sell them. The monetary value is one-tenth the percentage. Thus, in this example, a share of a Clinton victory is $0.51.

Anyway, they do a state-by-state victory as well. For instance, you can buy shares in a Republican Presidential victory in Ohio for $3.90 apiece (representing a 39% chance that the republican candidate will take OH’s electoral votes). Because of this, they always have a current Presidential electoral map based current prices. Check it out now and then and let’s see how self-correcting this market is.

The other day I received my monthly email from the Economic Policy Institute (EPI) full of recent articles that they have published and one article caught my eye. The article discusses the most recent business cycle from 2001 to 2007 and compares the data to other business cycles post WWII.

I was astonished to see the authors findings. The paper gives a great breakdown, so I will quote that below and you won’t have to work through a summary provided by myself, lucky you!

* Of the 10 expansions since 1949, as measured from the end of the recession (trough) to the end of the expansion (peak), the expansion from 2001 through last year ranks last in average growth of GDP, investment, employment growth, and employee compensation.

* GDP growth in the latest expansion was a full 40% slower than the post-World War II average (2.8% versus 4.8% in previous expansions).

* Despite tax changes that were promoted as incentives to increase investment, average growth in total investment over the latest expansion was less than half of the post-WWII average, and ranked last in this group. For the full cycle, investment growth was also less than half the average and worse than all cycles in the last 50 years.

* Compared to the start of the last recession (the peak that occurred in the first quarter of 2001), the percent of the population employed declined by 1.5 percentage points by the end of 2007. The only previous drop in this measure relative to a previous business cycle peak came during the mini-expansion of the early 1980s, and the drop in the latest expansion was five times as large.

As a matter of fact, the paper points out that of the 9 major indicators for economic growth the 2001-07 business cycle ranked 8th or worse (out of 10) in 7 of them when compared to all full cycles since 1949! The only two areas where this most recent cycle was above 8th were Unemployment (5th) and…drum roll please…Corporate Profits which was 2nd best! It is sad that during an entire administration’s 8 year reign, their policies were only able to help boost corporate profits.

The records are going to show that the administrations policy of tax cuts and economic policies did not produce strong economic fundamentals, instead they help create the worst economic recovery. The worst part about the tax cut policies, as the paper points out, is that it makes it harder for future administrations to create the liquidity they need to fund much needed programs.

Santini recently completed a research paper on a subject that has been mentioned before on this blog. It is very well done, and may be of interest to a number of you. Unfortunately, it’s far too long for a single post. So instead, I’m posting a link to a PDF version of it. Here’s an except to wet your apatite:

Due to the increased public attention on ethanol as a fuel alternative, there has been a lot of debate concerning the viability and impacts of switching to ethanol. The purpose of this paper is provide a cost and benefit analysis of ethanol and biodiesel. Additionally, this paper will discuss the environmental impacts of the use of ethanol and biodiesel and whether the impacts have an overall net benefit or cost. Third, the paper will touch on recent public policy concerning the production and use of ethanol as a fuel additive and alternative. Finally, the paper will briefly discuss other alternatives in both the production of fuel ethanol and also in place of ethanol.

Gas prices are now much higher in America. We all know this. Some of us saw it coming (though I thought it would happen a lot sooner) and planned for it. We purchased smaller, fuel efficient cars, car pooled, and moved closer to where we work and/or go to school. We may have even taken public transportation now and then. Others, well, they continued living in the suburbs and continued driving their two SUVs 40+ miles to and from work.

You know the type. They insist that they ‘need’ an oversized vehicle to transport their kids to and from school and extra curricular activities. Not that their kids couldn’t walk the mile and half twice a day (yet they wonder why their kids are getting so fat). Despite this claim you usually see the driver alone in their tax-subsidized suburban tanks. You usually see them most often when they are right in front of you, blocking 90% of your visibility. That’s when you can’t help but notice that, more often than not, somewhere on the backs of these eye-sores, there is a little metal stylized fish.

That’s right, the owners of these monsters are often Christians. I couldn’t find any hard statistics to confirm this anecdotally formed opinion, but it stands to reason considering two commonly accepted facts. 1. Liberals are more likely to drive smaller, fuel-efficient vehicles. 2. Christians are more likely to be conservatives. Thus Christians are more less likely to drive smaller automobiles. Regardless, the point of this rant post is to highlight some hypocrisies of the Christian SUV/minvan driver, and how that hypocrisy has reached new heights recently.

How is ownership of a large, fuel-inefficient vehicle hypocritical for the Christian? Greed. First of all, SUVs are tax-subsidized, meaning that people rich enough to buy a large vehicle save money at the cost of everyone else, including those who cannot afford such a vehicle. Second, they produce more pollution. Harming everyone via the environment is not excused by the convenience of having a large vehicle. Third, SUVs are more safe for the owner (presuming they opt for the non-flipping kind), but less safe for everyone else. Fourth, they create a disproportionate amount of road damage for which everyone’s taxes must be used. And Finally, they create a high demand for gasoline which has pushed prices up for everyone. Continue reading…

The above image is created and licensed by She’s Not Ther.

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In the past, I have read that corn-based ethanol may have a net carbon-neutral effect at best. This was because the fossil fuel based fertilizers used to grown most all corn in the US offset any gains. Now, Scientific American has published an article about two new studies that show a major piece of the carbon equation has been neglected in previous research on biofuels. These show that the widespread use of all biofuels would definitely increase net carbon emissions.

It is true that when burned, biofuels represent a carbon-emissions savings over fossil fuels. So how is it that they increase overall carbon emissions? It is through plant-displacement. When an area is cleared to make way for growing biofuels, the plants that were being used are no longer sucking up and storing their share of carbon. In fact, they begin releasing their stored carbon as they decay.

This plant-displacement effect is amplified by free market forces. For the first time, space to grow fuel is competing with space to grow food. The upshot of this is that biofuels will increase food prices, especially soy bean prices. With high soy prices, people in places like Brazil start cutting down carbon-rich rain forest and planting lucrative soy. An acre of soy stores much less carbon than an acre of rain forest. As that rain forest foliage is burnt or left to decay, all their carbon is released into the atmosphere.

There are ways to make biofuels work, but none of them are economically efficient and thus won’t be pursued without government intervention. Combine this with the fact that “if we convert every corn kernel grown today in the U.S. to ethanol we offset just 12 percent of our gasoline use,” and one can see that biofuels are not a way out of the global warming problem.