How the State Can Help Poor People Stay That Way

GOP's Baker recommendations would cut off access to the market and make it harder for poor and middleclass investors to compete with the rich.

Hedge funds are innovative tools of finance. The flexibility and lack of regulation they have allow higher returns with less risk. The popularity of these investments and long history of safety speaks for itself. What better way to give the poor and middleclass a chance to get a leg up then by giving them access to the same services that millionaires have? What benefit does the State provide by cutting off voluntary exchange between two adults?

If politicians really wanted to help the poor they would get rid of the regulations that make it hard for them to move up in the first place. A good way to do that would be by letting the hedge funds themselves determine the minimum they would be willing to accept.

Perversely, the regulations put in place to help the poor (or whatever special interest group the political is trying to court) typically end up having the opposite effect of their intentions.

Examples are everywhere: the minimum wage laws that decrease employment opportunities, the rent controls that make housing scarce, the “equal opportunity” laws that turn women and minorities into liability time bombs against their will. The direct beneficiaries fight hard to retain their protected status and since the costs are diffused over a wide group, resistance to these laws is difficult to organize.
When a politician says he is “helping” the poor you can be sure of two things:


1. They will be worse off than before
2. He isn’t writing a check from his personal account

Worst LA Times Op/Ed...Ever

Statist Randall Rothenberg tries to claim YouTube as a Marxist innovation in a silly Op/Ed in today's LA Times.

YouTube popularity is a triumph of capitalism not Marxism. The tools for a video sharing site have existed for some time. The high-speed connections, cheap storage space, advances in technology were all the natural advances of profit focused business. So why does Randall Rothberg think that that Marxism has something to do with it? A poor understanding of economics is my guess:

WHETHER by kings or capitalists, economic development since the dawn of homo economicus has depended on mobilizing resources on an increasingly mass scale, with all others (entrepreneurs and small businesses in particular) denied access. In scarcity and limits lay profits.

Anyone with a rudimentary understanding of economics can demolish this statement and here is my attempt: Who determines whether a business succeeds or fails? Who are the disloyal people whose opinions and desires change on a whim but still demand the best? Who are the ones that ruthlessly seek and demand the lowest price and the highest quality? It’s the consumer.

These sovereign, self-interested people spend their money on things that provide utility and nothing that doesn’t. An entrepreneur can make himself rich if he is able to anticipate their demands and will fail if he is wrong. Profits in scarcity and limits exist only in State controlled markets. An entrepreneur can only profit if he provides something of value to the consumer. In a free market society the consumer is always in control.

YouTube’s improvement on existing tools gave anyone the chance to make and share films, something that would have previously been extremely expensive and difficult. What was only a luxury available only to the rich is now available to all.The collectivist mindset doesn’t allow for entrepreneurship because advancement and innovation cause the collective to lose control. Make no mistake, YouTube is an accomplishment of capitalism.

Bloomberg.com – Capitalism 5th Column - pt 1

Bloombergs decline into blatant statism was first pointed out by Donald Luskin in 2005. Its only gotten worse since then.

Here are some of the front page stories from today: Some CDS Trades Profitable – Time to let the gov’t regulate it ; Gov’t Official Wants to Extend Gov’t Reach to hedge funds– Lets Regulate another industry that doesn’t need it ; Its Bush's Fault ; The Noble Extortionists - Women who can't handle the workplace, should they be handed millions or multi-millions?

Government Futures

This is from the very buzzword heavy press release:

Government Futures uses a collective intelligence approach in a Web 2.0 environment to deliver unexpected, actionable insight that enables industry and government stakeholders to anticipate and shape change. Collective Intelligence emerges from collaboration and debate among independently-deciding individuals, and can produce more accurate insights than a handful of experts. A Web 2.0 environment enables participation and community, and encourages users to add value to the information as they use it.

The website doesn't seem to have anything that resembles a futures market. It does have a survey that any anonymous, unverified surfer can take and a blog. They also have a pdf of survey resulsts on a range of topics from IPv6 Implementation to baby boomer retirement.

It's a new site, but so far it has a lot of buzzwords and no substance.

Wall Street Drivel – Now Publishing Op/Eds Praising Spitzer

At first I thought it would be satire, but Donald Kempf appears to be completely serious in yesterdays WSJ Op/Ed, “Spitzer Is Good for Business.”

Somehow he didn’t cover the main issues that most capitalists had with trust fund baby Spitzer’s abusive regime. Spitzer’s main tactic for getting press was to make unsubstantiated accusations and indicting to force settlements. It had to be close to the easiest job in the world, especially since he never had any intention of going to trial. It’s the equivalent of holding a gun the head of the businesses and coercing them to settle. It’s pure prosecutorial abuse, and the press ate it up.

His fiat laws were not subject to oversight, review, or input from the industry, but hey I’m sure his intentions were good. The illegal leaks to journalists smearing the businesses and individuals he was going after (Citigroup, et al) went unpunished and practically unmentioned in the press. The few times Spizter did go to trial, he only went after low level employees he could bully around. Ohh and he still lost.

Thankfully honorable men like Richard Grasso wouldn’t back down and give in to the looter.

We can only conclude from this Op/Ed that Mr. Kempf is signaling he wants a job in politics. He’s rich, and clearly flexible on his principles so he should fit right in. Elliot Spitzer is a great example of why trust fund babies should stick to Greenpeace, where they can’t do any damage to the productive members of society.

Skilling’s Show Trial has Predictable Result

Former Enron CEO Jeff Skilling was sentenced today to 24 years. We blogged frequently during the trial about the misguided prosecution who struggled to make their case and yet still ended up winning.( Ken Lay is Innocent, Sean Berkowitz on the Run, Berkowitz Blows It, Ken Lay Falling Short) Although they had no real evidence, the prosecution relied on word games and things unrelated to anything that occurred at Enron (does anyone remember Photofete?) to smear Mr. Skilling. By charging him with dozens of crimes and holding the trial in an unfriendly court the prosecution managed to eke out a victory. The brilliant Jeff Skilling crushed Sean Berkowitz on the stand but the lynch mob wasn’t satisfied with that.

Enron Issues:

The bad guy got away – It wasn’t Dr. Kenneth Lay. It wasn’t genius Jeff Skilling. There was only one repugnant criminal in this entire case; Andrew Fastow. He lied, he stole, he deceived and even got his own wife throw in jail. Somehow this Judas, staying in character, ratted (more accurately blamed) Mr. Skilling for Enron’s issues and got away nearly scot-free. Essentially the prosecutors didn’t have a case unless they could find someone desperate enough to blame Skilling and Lay, so they went to the most dishonest guy they could find and he was willing to do it.

Criminalizing Agency Cost - Skilling brought this up during the trial. History will look back on the Enron trial like the Salem witch trials. Skilling was the victim of a hysterical lynch mob, he wasn’t a criminal. A bankruptcy isn’t a crime. A bad business decision isn’t a crime. A stock market decline isn’t a crime. But logic never works on lynch mobs.

Retroactive Crimes – This paragraph from the New York Times says it all:

His lawyers are arguing that he should be sentenced under the 2000 guidelines because the 2001 guidelines did not take effect until Nov. 1, 2001 — three months after Mr. Skilling resigned his chief executive post and left the company. The jury in the Enron case, however, convicted Mr. Skilling of being part of a conspiracy the government defined as extending through December 2001.

Note: Judge Sim ruled that the gov't did not prove the timeline for conspiracy extended into November of 2001 so the previous sentencing guidelines would apply. It is simply more evidence of a shoddy, abusive type of prosecution that was common during the trial.

Prosecutorial Abuse – Here is how justice works in America: Press hungry prosecutors will indict based on the way the political winds are blowing, regardless of actual crimes taking place. And what better way to get headlines then to attack someone rich and famous? Since the indictment will be based on weak/no evidence the only way to lean on an innocent person is by loading up on the number of charges to force a settlement. Even if an innocent person can afford to fight all of the charges (in Skillings case he spend over $30 million. What kind of justice can a normal person expect?) there is always a chance that one charge might stick. And if not the prosecutors can always use Section 1001, a law so arbitrary that anyone can be turned into a criminal by the State.

Enron as a business may have has some flaws, but the biggest fraud in this case was the political prosecution of Jeff Skilling and Kenneth Lay.

Links:

During the trial the Houston Chronicle Enron Blog was the best source of real-time info, they still put out good updates: http://blogs.chron.com/enrontrialwatch/

Why WSX and not TradeSports?

Washington Post article on the Washington Stock Exchange. Why are they promoting a fake money exchange when real money ones exist?

The site uses the theory of prediction markets -- the higher the "stock price" of an event, the more likely it is to happen -- to try to accurately forecast outcomes. The Iowa Electronic Markets, another political prediction market that started in 1988, claims to be more accurate than the polls 75 percent of the time.

So who's going to win that tight Senate race in Virginia? At press time, WSX gave the edge to Republican incumbent George Allen, who was trading at $62.25, while Democratic challenger James Webb was at $54.98.

The Allen contract on TradeSports is now at 72 with Webb's at 30.

The GOP's Bad Bet - NY Times Op/Ed

GOP House control contract is at 32. Charles Murray summarizes why the Gaming bill is bad for America and speculates on the impact it will have in the elections:

In the short term, this law all by itself could add a few more Democratic Congressional seats in the fall elections. We are talking about a lot of people (an estimated 23 million Americans gamble online) who are angry enough to vote on the basis of this one issue, and they blame Republicans.

In the long term, something more ominous is at work. If a free society is to work, the vast majority of citizens must reflexively obey the law not because they fear punishment, but because they accept that the rule of law makes society possible. That reflexive law-abidingness is reinforced when the laws are limited to core objectives that enjoy consensus support, even though people may disagree on means.

Thus society is weakened every time a law is passed that large numbers of reasonable, responsible citizens think is stupid. Such laws invite good citizens to choose knowingly to break the law, confident that they are doing nothing morally wrong.

Surprising Statistic of the Day - Worldwide Energy Consumption Leaders

Gartman asked this question in his newsletter this morning: What nation has the largest consumption per capita of energy?

I was way off, as in not even close. Here is a list of the top ten from the IEA from 2000*

1. Qatar 26,773
2. Iceland 12,246
3. Kuwait 10,529
4. UAE 10,175
5. Bahrain 9,858
6. Luxembourg 8,409
7. Canada 8,156
8. USA 8,148
9. Trinidad 6,660
10. Finland 6,409

*Units: Kilograms of oil equivalent (kgoe) per person per year, 2001 stats are available which Gartmen says are not official. Whatever. The composition remains nearly the same for both years.

GOP House Contract Continues Decline

Keep in mind that this was trading at 50 only 16 days ago! The Republicans are getting crushed.

Can you name one of the charges Martha Stewart was convicted on?

In todays New York Times Martha Stewart is quoted, “I honestly don’t remember exactly what I was prosecuted for.”

Can anyone remember?

If you said insider trading, like most people think, you’re wrong. The real answer is lying to investigators and obstruction of Justice. What ever happened with whole that insider trading thing? Exactly nothing. There wasn’t enough evidence to pursue it so instead they charged Marta for lying about a crime they never proved she committed.

This Kafkaesque conviction was not for lying under oath, but one of the absurd Section 1001 convictions that make it a crime to “lie” to any federal official. You don’t have to be under oath or even be made aware of your rights for the law to apply.

Don’t you know it’s for your own good Citizen?

Mark Warner Officially Withdraws from Race

“I have decided not to run for President.”




His contract collapsed on the announcement to its current .6 level. The biggest DEM gainer was Edwards who picked up nearly 6 points (his contract now trades at 13), followed by Clinton who picked up 2. Clinton is by far the favorite for the 2008 Dem Nominee with her contract at 48 and looking like a good short when the time is right. The next closest nominee is Gore who is trading at 17.

Markets in Everything: Event Ticket Futures

How can you make sure you’ll have tickets for the Superbowl if your team makes it? Buy a future. Chicago Sun Times has an article about the market http://www.ticketreserve.com . Does the CFTC care? And can a market for event tickets be used as a proxy for betting on your team to get around the new gaming law?

Here's how the ticket futures market works:

• • TicketReserve offers futures for a finite number of tickets. Each future is priced based on a team's likelihood to make it to the big game.

• • Once the futures are sold, it's up to individuals to buy and sell them for whatever price the market will bear as the season progresses.

Fair-weather fans and opportunists can even make a few bucks, buying low and selling high as the standings shift.

A Significant Drop - GOP House Control Closes Below 40

Divine Stupidity – The New York Times Gets More Incoherent

The Times is currently doing a series on smearing religion, but the real story is about property rights. It’s bad, really bad. Fortunately I read it so you won’t have to. Here is what the Times thinks:

-The Government should control and regulate religion (I’m not kidding!). Scary stuff.
-Clergy member should unionize (or something).

That’s the entire five page article. Why does the Times things those are good ideas? Well this wasn’t really clear; it sounded like they started writing a smear-piece on Wal-Mart and decided to go with religion instead. Anyway, the same “solutions” The Times has for fixing business apply to the church, more government control, more regulations, and more unions, add in a few sob stories and you got yourself a series!

The statist war on property rights continues…

Short Odds for Ignorance - New York Times Op/Ed

Written by Robert Hahn and Paul Tetlock, my only complaint is that they don't go far enough.

The bigger economic story is how this act, by effectively prohibiting Internet betting, could unintentionally slow the emergence of new tools that have the potential to improve the productivity of the private sector and the government. Sadly, this is an aspect of the measure that both its supporters and its opponents seem to have overlooked.
...
These markets work for several reasons: first, almost anyone can participate; second, people think hard when they have to back up their predictions with money — buy the right presidential contract and you win, buy the wrong one and you lose; third, the profit motive encourages people to look for better information.

Fundamental Event of the Week: Non-Farm Payroll (NFP) Predictions

Consensus: 120,000
CME Derivative Auction: 120,030
ADP: 78,000

What the market needs is a “Goldilocks” Non-Farm Payroll report. Too high could signal that future rate decreases that the market is counting on will be less likely to occur. If the number comes out too low traders will see it as slow down beyond what was already priced in.

Here are previous posts on the topic:

August: NFP Forecasts
July: NFP Forecast Divergence

Although TradeSports lists the contract, there hasn’t been any volume on it since US traders were banned from trading on US Economic numbers.

New TradeSports Hastert Resignation Contract

It’s currently running at 50% with a short expiration. If it’s this high now, the market must think its nearly certain he will resign after the November elections.

Is the TradeSports GOP House Control Contract Falling on Foley?

Is scandal involving former Rep. Foley the only reason for the contract 10+ point decline in less than a week?




Many bloggers seem to think so, but other events the last week have likely played a larger factor.

1. Gaming Law – This law was snuck into an impotent port security bill and and passed on Friday. Although the House passed this in mid-July it seemed unlikely to go through until very recently. Is it unreasonable to think a law that has very little support and criminalized the actions of million of votes won’t have any backlash? People’s first instinct is to throw the bums out.

2. The War Gets More Unpopular - Woodword’s State of Denial – This scathing picture of the current administration war incompetence is now #1 on Amazon. As the Liberman defeat showed, not supporting the war in Iraq is no longer toxic; the anti-war spirit could play a factor in the upcoming election. At any rate one would hope that the voters find this topic more important than another political sex scandal. Rumsfeld, the main villain, has seen his resignation contract go up nearly 10 points since the publicity blitz started.



3. The Foley Cover-up – Will Hastert resign? Did he give Foley too much room to avoid seeming homophobic? *yawn* Talk about things that don’t matter...

It’s too early to know for sure, but House control looks like a dear heat.

The Consequences of State Control - India's Water Supply Failure

It’s always a bad idea for the government to be involved in production and delivery especially with something as vital as the water supply. Without price signals and the desire to make a return on their investment, government involvement in industry becomes a political tool, a cheap gambit to get votes from the lowest common denominator, barely removed from a bribe. Here is how is worked in India.

Indian law has virtually no restrictions on who can pump groundwater, how much and for what purpose. Anyone, it seems, can — and does — extract water as long as it is under his or her patch of land. That could apply to homeowner, farmer or industry.

Nothing wrong with that, right? Here is where the issue is, the people have wasted the water they have under their own land and now count on the government for their water.

It is a logistically complicated, absurdly expensive proposition. Bringing the water here costs the state about a penny a gallon; the state charges the consumer a monthly flat rate of 58 cents for about 5,300 gallons, absorbing the loss.

In other words the state is bringing water for nearly no cost and is confused why it is wasted. Any good when sold at such an absurd discount will be wasted. The people responded to incentives. Why won’t is change until the situation is beyond desperate:

Prime Minister Manmohan Singh has warned of the consequences of free or cheap electricity and urged state officials to crack down on pumping. But state officials, attuned to potential backlash, have been slow to respond.

Tighter restrictions would in any case run up against one of the government’s top priorities, one that India has long considered vital for its independence: the goal of growing its own food.

Independent food production, it sound like a Great Leap Forward. Haven't they heard the Law of Comparative Advantange?

The crisis has been exacerbated by good intentions gone awry and poor planning by state governments, which are responsible for regulating water.

Always and everywhere price regulation leads to shortages. The "good intentions" the NY Times mentions are only the rational response to the governments pricing policy. The fact they refer to the shortages as a result of "poor planning" means the situation has to get a lot worse before it will get better. Free markets work. Lets see how desperate the situation gets before the people let them.