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Economic History 101, Individual Vs. Government Initiative: The Great Leap Forward

The agricultural economy of the late 1950's largely resembled that of the Nationalists prior to Mao's ascension to power, characterized by peasant farmers tilling small plots on which they had some form of claim of ownership or tenancy, the latter of which dated from the time of China's last dynasty, the Qing line. All that changed in 1957 with the policy known as the Great Leap Forward, its major policy elements being the redirection of labor Read More »

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Was Joe Paterno Really That Generous?

Many of those defending Joe Paterno's legacy point to his involvement in and giving to many projects at the University. At the press conference of the Penn State University Board of Trustees on the release of the Freeh Report, Trustee Kenneth Frazier was quoted as saying, that the report found "inexcusable failures on the part of Joe Paterno and others to protect children. But I'd also say Joe Paterno did a lot of tremendous things in Read More »

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Ford and the Auto Bailout…

The visit of President Barack Obama to Detroit yesterday gave the Administration ample opportunity to crow about the Government led auto bailout of 2008. "If it was up to the Republican Party, Chrysler and General Motors would not have been here," UAW Secretary-Treasurer Dennis Williams told the crowd of thousands "If it wasn't for President Obama, we would not have the opportunity to once again build the best cars and trucks in the whole world." I should Read More »

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Obama and Motown….

President Obama apperared today in my hometown, the city of wheels, Detroit, MI. Although in the grand and beautiful state of Michigan for the Labor Day weekend, I did not venture into the Motor City to hear the President speak, instead choosing to stay in a quintessentially Michigan setting near a lake and tune into it on C-Span. What I was treated to via the helfpful public affairs channel was vintage Barack Obama at his Read More »

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AT&T and T-Mobile: Troubled Reasoning Despite Good Policy

While I applaud the decision of the Department of Justice to file suit to block the merger of AT&T and T-Mobile as a sound free-market and pro-competive decision, recent quotes from Administration officials leave us to believe that this positive and constructive move may be more of a case of a blind squirell finding a nut than any sort of visionary and sound policy posture. Moreover, in reading the reviews of this action, I Read More »

Category Archives: Economics

So, the Community Reinvestment Act Incented Risky Lending Afterall

From the Digest of a recent study by the Bureau of Economic Research:

 

Did the Community Reinvestment Act (CRA) Lead to Risky Lending?

Yes, it did. We use exogenous variation in banks’ incentives to conform to the standards of the Community Reinvestment Act (CRA) around regulatory exam dates to trace out the effect of the CRA on lending activity. Our empirical strategy compares lending behavior of banks undergoing CRA exams within a given census tract in a given month to the behavior of banks operating in the same census tract-month that do not face these exams. We find that adherence to the act led to riskier lending by banks: in the six quarters surrounding the CRA exams lending is elevated on average by about 5 percent every quarter and loans in these quarters default by about 15 percent more often. These patterns are accentuated in CRA-eligible census tracts and are concentrated among large banks. The effects are strongest during the time period when the market for private securitization was booming.

The full study may be downloaded/purchased here.

What is certain about all of this is that the partisan divide in our politics will never allow real solutions.  We will remain hogtied with banks that are too big to fail, decreasing competitiveness in the finance sector due to contrived regulation, delusional faith in government solutions to problems with millions of variables, and oversimplification of the problems that people fear…

 

Economic History 101, Individual Vs. Government Initiative: The Great Leap Forward

china-great-leap-forward-and-great-sparrow-campaign

The communist revolution in China had come to pass almost a decade earlier.

During that decade, the leadership of China led by Mao Zedong had spent their time consolidating their power, eliminating internal enemies, battling the USA in the Korean War, and collectivizing much of the economy.  Ironically for a revolution that owed its success to the peasant population of China, Mao and the leadership of China had largely left the agricultural sector of the economy alone except for extracting huge stores of grain from the rural areas to pay for weapons during the Korean War.  The agricultural economy of the late 1950’s largely resembled that of the Nationalists prior to Mao’s ascension to power, characterized by peasant farmers tilling small plots on which they had some form of claim of ownership or tenancy, the latter of which dated from the time of China’s last dynasty, the Qing line.

All that changed in 1957 with the policy known as the Great Leap Forward, its major policy elements being the redirection of labor from agriculture to industrial production and the collectivization of farming.

Economic History 101, Lessons for a President

Given the current US President’s espousal of a theory that Government produces the wealth that enables success, we thought we would share a bit of economic history that he may find helpful.

We will start with the basic issue put forth by the President, one of individual initiative versus Government initiative and the closely related “theory of incentives”.

Rather than dry economic analysis that will surely bore the President and our readers, I have chosen simply to share a bit of history to illustrate the concepts that President Obama often fails to comprehend.

In the first installment we will be looking at one of the most calamitous experiements in replacing individual initiative with Government Initiative, Mao Zedong’s Great Leap Forward.  As with most of our presentations, we will use sources throughout the web to tell the story.

We welcome your comments on this series that we hope will illustrate the critical ideological framework of the current American political spectrum and hope that you find this series illuminating as well.

The Continuing Cluelessnes of the Obama Administration

I was unable to watch the Obama speech on jobs last night as I was on a long distance drive.  Consequently, I listened to his speech on the radio and focused on the content.

As a serial entrepreneur, having created thousands of jobs in my lifetime, engaged in another round of start-ups as well as posessing quite a hefty amount of economics education beyond my undergraduate degree in the subject, I found the impassioned speech remarkably free of content sans the intent to spread a half-trillion dollars around to people quickly (they must be people already lobbying for the cash rather than real entreprenuers) to assuage his standing in the polls.

Here is all you need to know about Mr. Obama’ plan in 5 quick bullet points.

  • Most new jobs are not only created by small businesses, it is a subset of small businesses called start-ups.
  • Start-ups take time to create from inception, to design, to planning, to funding, to government approvals.
  • For even the simplest start-ups in most locations in the US, government permitting and licenses will take about 1 year (and that is for a mere restaurant, try a factory of any type and the time grows exponentially).
  • Even if I have a concept, taken the time to design it, finished my business plan, marketed my business plan, found and arranged my financing and am ready to go today, by the time I get my government permits and licenses, most, if not all, of President Obama’s plans will have expired.
  • In other words, the plan is irrelevant to jump start real, sustainable job creation.

I could desconstruct the details of his plan point by point should one be able to actually get ahold of a copy – no one in Congress has yet received it – but it is ultimately irrelevant.  It does not even acknowledge or enable incentives to bridge the yawning gap in timing for business creation that is even created by the Goverment.  There are many other things that are wrong with this plan, but when it is so wrong on such a fundamental level and disdains reality in such arrogant fashion, there really is no reason to waste valuable time in life to analyze it any farther.

I am simply left wondering wheter the President lives on a different planet than I do, but I know the real reason for this proposal.  It is a political proposal to buffet the President’s waning popularity by attempting to box his primary opponents in.

That may be good politics, but it is just short of flashing a symbolic obscenity at the unemployed, underemployed, struggling businesses people and entrepreneurs.  The President just did a Maxine Waters, but the target was not the Tea Party, it was you.  After all, we all know what this was about – not you, not me, not the unemployed – it was about the President himself.

Milton Friedman on “Soaking the Rich”

This video is a bit of deja’ vu.  It is a segment of an interview on the Phil Donahue show in which the famous professor and monetarist answers a woman’s question that seems to be focused on the unfairness of the existence of billionaires in a capitalist society.

Although the video is about 25 years or so old, the issues are the same that are being debated today – taxing the rich, viabilty of social security and more.

Even though the late economist was an innovator and academic, his explanations remain very accessible to the average person.

Video: Economic Freedom and a Better Life

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In our continuing series of condensing lectures on economics, freedom, and liberty, this embedded video is from economics professor Josh Hall.

In this short 3 minute video, he explains that economic freedom leads to greater human well-being. If we look at average income, life expectancy, income of the poorest 10%, and other factors, we see that when governments let citizens make economic decisions for themselves, this leads to greater human flourishing.

AT&T and T-Mobile: Troubled Reasoning Despite Good Policy

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While I applaud the decision of the Department of Justice to file suit to block the merger of AT&T and T-Mobile as a sound free-market and pro-competive decision, recent quotes from Administration officials leave us to believe that this positive and constructive move may be more of a case of a blind squirell finding a nut than any sort of visionary and sound policy posture.  Moreover, in reading the reviews of this action, I remain convinced that the knowledge of economics on the part of journalists remain sourced in partisan talking points rather than any fundamental knowledge of the arcane science, as evidenced in the wholly biased article by Ben Protess and J. Michael Merced in today’s New York Times entitled The Anti-Trust Battle Ahead.

The battle lines in the case involving the merger are quite clear.  AT&T and T-Mobile claim that the US mobile communications market is highly competitive and that the combination of the two will provide economic synergies resulting in efficiencies and better service for consumers.  The Department of Justice is claiming that the combination is anti-competitive and will harm consumers.  Both are correct and both miss the larger issue that is wrapped in a smaller subset of facts and proven theories.

First off, the United States wireless communications market is highly competitive.  The very fact that Deutsche Telecom, the parent of T-Mobile, finds it difficult to compete in the market is sufficient testimony to that circumstance as the German powerhouse does not face similar market dynamics in a range of other countries in which it competes.  The United States market, however, also has market segments in which there is far less competition, each one dileneated by the technology deployed by the competing companies.  Unlike most of the rest of the world that operates on the GSM standard for cellular communications, the US features three primary technologies – CDMA, TDMA and GSM.  Therein lies the rub for AT&T and T-Mobile – there are only two major carriers in the US that use the worldwide standard and they are T-Mobile and AT&T.

Video: The Value of Economic Freedom

The following video is not as intellectual and theorectical as some of our video presentations, but it is succint in its view of the value of economic freedom.

Rather than fill our library of videos with purely academic excercises, I felt it was important that some to the point narratives were provided as well.  Enjoy this video from Economic Freedom and visit their site for more information if you wish.

Video: The Economics of Liberty

Dr. Walter Williams

In our continued quest to develop a database of topical, intelligent, and more than superficial lecture videos on the topic of economics, freedom and history, I am going to be publishing a rush of currently availble videos from YouTube and other sites that focus exclusively on these topics.

This video is of a speech made by Dr. Walter Williams, professor of economics at George Mason University, and features excerpts from the speech “The Entrepreneur As American Hero,” delivered by Dr. Walter E Williams, John M. Olin Distinguished Professor of Economics, George Mason University.

In fact, this speech was in response to Paul Krugman – Income Inequality and the Middle Class.

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