Tuesday, September 30, 2008

Bailout was defeated by Congress ! Suck on that Rudd !

Victory for free markets today, as the proposed $700b Wall St bailout was voted against by Congress.

This is despite many meddling world leaders, eager to look concerned and discuss government actions and put forward new interventions and proposals at each concerning development, put forward supportive statements suggesting the bailout is vital to stability.

One typical example is our dud PM, Kevin Rudd, who was disappointed by the fact that American tax payers were not robbed of a further $700b USD. An online video just showed him looking "deeply concerned and distressed", so my mood is further improved at seeing this thieving bureaucrat have his hands slapped as government was blocked from picking yet another pocket.

Stock markets have obviously been hammered, but this is going to speed up the recovery instead of prolonging it. Bad investments were made over the past decade, we must live with it and liquidate them before moving on. This means pain in one way or another. Government cannot, and should not even think about, waving its magic wand to "stimulate or stabilise financial markets".

Its a shame so many people were caught unaware by this collapse, people who had their life savings and superannuation in shares (down nearly 40% in the last 12 months) or property (only starting to come down now). But we live in a financial system where the central bank is a monopoly, and sets the rule of the game.

And here is the problem with the system:

They tell us we can only use Australian dollars as a medium of exchange, to settle payments and debts, to save money, to bank, to earn, to trade with.

Central banking, via fractional reserve, accomodates the banking cartel to expand credit at a sharp pace, and the supply of money continues to double every decade. This is concealed sneaklily by government engineered statistics relating to CPI and GDP, to reassure us that the economy is healthy when a terrible storm is brewing.

And it should be no surprise that as the storm strikes, it is central banks and the US government who make the biggest noise and try to rush through legislation to give them new expanded powers. I guess its a way of distracting attention from the serious issues that should be discussed, and the media are all too happy to dance to their tune.

Monday, September 29, 2008

The New New Deal, socialism wins in America

The US government is doing the unimaginable and going ahead with a $700b+ bail-out package of troubled Wall St giants. The cost will actually go into the trillions, as the $700b limit is on the rolling size of the fund, which can be used to purchase up to $700b of mortgage related, "illiquid" (i.e garbage) assets at a time, and then sell them off on the market.

Basically, the U.S taxpayer has to open their pockets and fund the loss on these crappy assets that sit on the balance sheets of a whole lot of banks who made the stupid decisions in the first place.

This is the biggest nationalisation in American history and is an affront to freedom, capitalism and the constitution (where does it mention Congress having the power to buy mortgage related assets)

How did this come to pass ? There was a massive public uproar over this proposal and it looked like a few brave congressman and senators would resist this unprecedented expansion of government. But of course, the Dems could easily be bought by inserting their populist agenda into the details of the bail-out package. Just staple on some limits on CEO salaries, a moratorium on foreclosures and other sweeteners for home owners and presto, it looks like a "balance was struck".

The idiotic media commentary has been enthusiastic for this scheme, and as usual, very myopic and focussed only on the hear and now. Here are some problems, and predictions I have about this disaster, that the media should take heed of.

  • This is not going to end the credit crunch. This is going to cause it to spread, so that even the credit rating of the US government will be brought into question. Sovereign US debt has never been backed up by any tangible assets like gold bars, its always been resting upon "the full faith and credit of the US government". And there is no way that such an empty guarantee will maintain a AAA credit rating in the coming years.
  • This will boost the sharemarket - for the coming week. Volatility will remain, many more companies will collapse. The bear market is far from over.
  • This will absolutely destroy the US dollar. Where is the US government getting the trillions of dollars to fund this scheme when they are already running a massive deficit ? Creditors will soon question the ability of the US government to repay its obligations and dump their holdings of US dollars.
  • This will be very inflationary, as the Fed and Treasury will try to expand the supply of money and credit, and the price of all real assets, in terms of $US, will shoot up. Watch gold in particular. Oil may suffer downwards effects of an impending global economic slowdown, but gold will only go up in inflationary environments.
  • This will NOT be the last bail out, this will NOT bring stability to financial markets.
  • The US government will be unable to pay for its massive budgets, and will need to slash expenditure. Abolishing social security and medicare are the only viable options, as well as cutting back on their military expenses, which include operating bases in 130 different countries.
The parallels with this story and with Atlas Shrugged are too strong to ignore. Socialism is here and the U.S.S.A will collapse as a super power if they do not end the statism in Washington and return to their tradition as a free, capitalist society.

Thursday, September 25, 2008

No new road regulations ! A letter to VicRoads !

VicRoads is the Victorian government authority in charge of roads, road laws, speed limits, regulations and traffic signal timing. There has been a huge protest over the State Government's proposal to extend clearways in commercial areas to 6am-10am, and 3pm-7pm.

Angry traders and residents took to the streets at Bridge Rd in Richmond, High St in Armadale, Toorak Rd in South Yarra, High St in Prahran East and St George’s Rd in North Fitzroy around 9am.

The latest protests come as the Herald Sun revealed VicRoads received 783 submissions about their plan to extend clearways. Only 20 or 2.6 per cent, declared support for the State Government's proposal.

I encourage all readers to leave VicRoads a complaint on their feedback form.

Let them know that the roads are already over-regulated, that we need less restrictions, less parking and speed regulations, and certainly congesting the road with more mobile barriers (a.k.a trams) is not going to alleviate congestion.

VicRoads use false reasoning to suggest that extending clearways will benefit half the galaxy:
Clearway changes will benefit over 300,000 tram and bus passengers and over 250,000 private vehicle road users in Melbourne every day – this is not reflected in the submissions received.

Thats it.. thats the only reason provided for the clearways which has angered so many local businesses and traders. Here is my letter to VicRoads.

------------------------------------------------------------------------------

I am writing to express my strong opposition to the proposed extension of clearways. The reasons given for the extension of clearways are very superficial, they are based on assumptions that do not hold up to scrutiny and they do not present a strong case for the new regulations.

On your website, the only defence of the clearway extension was as follows:

http://www.vicroads.vic.gov.au/Home/RoadsAndProjects/RoadAndTrafficManagmement/KeepingMelbourneMovingClearwaysUpdate.htm

"Most submissions were critical of the decision to change clearway times, but it is important to note that the ‘silent majority’, who may be pleased with, or indifferent to, a particular issue, may not be motivated to respond to a call for submissions. Clearway changes will benefit over 300,000 tram and bus passengers and over 250,000 private vehicle road users in Melbourne every day – this is not reflected in the submissions received."

Firstly, those figures and the benefit they convey are grossly overstated. Will every single motorist and public transport user, regardless of what time of day they use the roads, benefit ?

And what is the value of the benefit ? Is the reduction in travel time significant ? Is it negligible due to other bottlenecks in the road system ?

Secondly, it is downright dishonest to assume and declare that the silent majority are most likely supporters of whatever legislation is being implemented.

There is not one public statements where VicRoads has even acknowledged the costs of this new legislation.

Obviously there is the loss of revenue to traders and businesses. There is also the cost of new signage, additional parking enforcement and probably some advertising costs in some "public awareness campaign" to explain the changes.

Then there is the cost to motorists who are looking for parking during these extended times, as well as the threat of being penalised with huge fines at specific times of the day, even if they make an informed judgement that there is very little traffic flow and that parking would be a good use of the public land. The hardship and burden placed on many motorists alone would outweigh the small benefits in travel times.

As it stands, our roads are already over-regulated.

Another aspect that shows that the legislation will not accomplish its so-called intention is the focus on supporting trams and increasing the number of trams in service as a method of reducing congestion. Common sense dictates that trams cause massive congestion, perhaps more than any other vehicle. Trams effectively occupy 2 lanes of traffic, especially when they stop or when they turn corners. They never travel at a speed that matches the flow of traffic, and they seem all too keen to observe the timetable regulations and arrive at a specific time, even if it means travelling at half the speed limit when no traffic is in front of a tram.

The amount of congestion that can be seen behind a tram is astonishing, and I cannot see how more of these mobile barriers can solve congestion when they are the problem itself.

Putting aside the astronomical cost of tram infrastructure, tracks, electrical cables and stops, there is absolutely no justification for the continued use of trams except perhaps in the Melbourne's inner CBD.

The glaring reality is that every single tram can be immediately and easily replaced by a bus service, with not one significant drawback to any commuters.

Buses do not cause congestion, are cheaper, do not require tracks and overhead grids, and do not cause massive blockages when stopping for passengers.

I hope somebody in VicRoads does a serious consideration of these suggestions, and that they consider simplifying our road system, removing trams, and allowing a free community where commuters use their own discretion and judgment to determine the when/how and where of each journey they undertake. Parking restrictions have absolutely no benefit, and a huge cost to society. The idea that employing an army of public servants to impose fines on parked cars, and that society is more prosperous as a result, is yet another underlying assumption that needs to be examined.

Sunday, September 21, 2008

Economics in one lesson

Austrian economics is right.

I've never read such an impressive body of knowledge with such good foresight and prediction, as the Austrian economists.

I'm reading Henry Hazlitt's "Economics in One Lesson", written back in 1962. He warned about the perils of socialism again and again, and in the last week, as a result of all the doomy predictions that have come to pass, the American government has brought about even more socialism.

The individual, the tax-payer is the biggest victim of our times. I thought it very interesting and relevant to post a key section from the book:
----------------------------------------------
Chapter VI:
Credit Diverts Production;

"Government encouragement to business is sometimes as much to be feared as government hostility. This supposed encouragement often takes the form of direct grant of government credit or a guarantee of private loans."

"But there is a decisive difference between the loans supplied by private lenders and by a government agency. Each private lender risks his own funds. When people risk their own funds they are usually careful in their investigations to determine the adequacy of the assets pledged and the business acumen and honesty of the borrower.
If the government operated by the same strict standards, there would be no good argument for its entering the field at all. Why do precisely what private agencies already do ? But the government almost invariably operates by different standards. The whole argument for its entering the lending business, in fact, is that it will make loans to people who could not get them from private lenders. This is only another way of saying that the government lenders will take risks with other people's money (the taxpayers') that private lenders will not take with their own money."

And this summary should also serve as a warning to our financial alchemists:

"There is a strange idea abroad, held by all monetary cranks, that credit is something a banker gives to a man. Credit, on the contrary, is something a man already has. He has it, perhaps, because he already has marketable assets of a greater cash value than the loan for which he is asking. Or he has it because his character and past record have earned it."

Friday, September 19, 2008

Austrian economics was right !

Here is a poster of Lehman's boss, Dick Fuld, which has been autographed personally by the disgruntled former employees who now have to find somewhere else to work.

Most amusing is the quote up top in the middle - "Austrian economics was right !"



This issue to me, the issue of whose theory of economics holds up to rational inquiry, to the historical evidence, is the most important issue of our time. Austrian economics correctly and accurately predicted the implosion of communist economies back in the 1920's. It has a superb track record and in my opinion, it deserves some serious consideration.

We've seen the problems with big government, with socialism, with Keynesian economics, with fractional reserve lending and central banking.

Many people would be well served by reading up on some Rothbard, Hazlitt and von Mises. The von Mises blog is an excellent source of analysis and insight into today's affairs from an Austraian perspective. Today's article has a great summary of the turmoil swirling around the financial markets:
-------------------------------------------------------

What's Behind the Financial Market Crisis?

Daily Article by | Posted on 9/18/2008

The financial crisis is not over. Neither tax rebates nor low interest rates nor higher or lower exchange rates can do the job of reviving an economy that is burdened by debt loads that are too high. On the contrary: the policy measures that the US authorities have been applying will prolong the agony. Be prepared for the challenges of extended financial turmoil and economic stagnation.

Early this year, the US central bank decided to manage the debt crisis in the light-hearted belief that a few aggressive rate cuts would "unfreeze" the banking system. Yet as of the end of the third quarter of 2008, the arteries of the financial system are still cluttered, and the financial system has moved even closer to total collapse.

Those banks and brokerages that haven't yet failed have been kept alive by emergency monetary transfusions from the US central bank. The Fed has cast away all restraints of economic rationality and is acting in a purely political way. The Board of Governors of the US Federal Reserve System is pursuing the goal of getting the financial system through the mess — at least until the end of the year, no matter how high the costs will be thereafter.

The American central bank has adopted the financial equivalent of the military strategy of scorched earth. The economic philosophy of the current chairman of the US Federal Reserve System can be summarized in the slogan, "No depression under my rule!" He resembles a military leader who stubbornly declares, "No defeat under my rule!" the more the chance of victory is slipping away, and defeat can be denied no longer.

The current economic disaster is the result of the combination of negligence, hubris, and wrong economic theory. For decades, an economic and monetary policy has been practiced based on the illusion of, "It doesn't matter." At first it was, "Deficits don't matter." From that, the policy of "it doesn't matter" got extended to money creation, the credit expansion, the stock-market bubble, and the housing boom. Now, we're being told that buying financial junk by the central bank to beef up banks and brokerages also doesn't matter.

Thursday, September 18, 2008

John McCain's dishonesty

I am no fan of Obama (Change you dog can roll in !) , but John McCain is one of the most dishonest people around today, he repeatedly contradicts himself and his very own viewpoints from only a few years ago.

John McCain is really abandonding all his past principles and positions in his run for the presidency.

Heres a gem of a story:

The lawsuit, filed by a Republican Party official in Cumberland County, PA, sought to remove Barr's name from the ballot—contrary to promises made by John McCain during his first bid for the presidency after then Texas Governor George Bush tried to have McCain blocked from the New York primary ballot. "I would never consider, ever consider," McCain said during his 2000 campaign, "allowing a supporter of mine to challenge [an opponent's] right to be on the ballot in all 50 states."

McCain went on to call such tactics, "Stalinist politics."


Also, his foreign policy views seem to have shifted from non-inverventionism (during Clinton's presidency) to pro-interventionism during the Bush presidency:

Don't blame the markets !

...for the credit crunch and global financial crisis.

This is not a symptom of capitalism.

It is a predictable outcome from government regulating the American banking system.

I have just started reading Henry Hazlitt's famous work "Economics in One Lesson" where he always points out government regulation has unintended and unwanted consequences.

Read this article to see one of the biggest examples in history:
--------------------------------------------

The government compels banks to make loans in poor neighborhoods even if the applicants are not considered prime borrowers. You may not know about that because the Community Reinvestment Act is not exactly a household (excuse the pun) name.

But the commercial banks do know about it. They have a CRA department. They get a CRA rating. They know that the way to get a high CRA rating is to make loans to poor applicants or in poor urban neighborhoods regardless of the financial prudence of the loans.

They know that if they don't do this, they will be punished severely by the regulators when they try to make any major change which is dependent on regulatory approval. And they know that pretty much every major change a traditional bank makes is, in fact, subject to regulatory approval. So, they grit their teeth and stamp a big inky "yes" on an application which they know, according to traditional financial standards, deserves a "no."

Up until 1995 the Community Reinvestment Act was largely a requirement to support "community groups" in poor neighborhoods. Of course, this often meant left wing groups like ACORN, etc. But after 1995 the scope of the law was dramatically increased.


Over the strenuous objections of the banks themselves and some Republicans in Congress, CRA was renewed and modified in such a way that it gave far more power to the federal government to punish banks for not lending more widely in poor neighborhoods.

The classic "fair housing" laws from the Martin Luther King Jr. era of civil rights were deemed insufficient. Under CRA, not only were realtors required to sell to qualified buyers regardless of race, which they should have been, but banks were accused of a new kind of "financial redlining" if they didn't provide the funds. Income, credit history, assets, debts were out. Urban neighborhoods were in. The Home Mortgage Disclosure Act pushed things along too by requiring banks to ask about and disclose the race of its mortgage applicants. In effect, banks were forced to provide the evidence of their own alleged discrimination.

Subprime loans to minority applicants exploded ten fold in the mid-1990s as a result. In fact the Clinton administration found a rapid increase in subprime loans in minority neighborhoods. Their principle worry was that, even then, not enough lending was going on in these communities. More was needed. And they got what they asked for.

Under New Deal-era regulatory rules of Glass-Steagall, commercial banks and investment banks were separated. When that act was repealed as part of banking deregulation in 1999, commercial banks and investment banks were able to merge, subject to approval by regulators.

However, the banks' CRA rating was taken into account in the decision. This meant that a high CRA rating became an important prerequisite for mergers, which increased the pressure on the banks to make these risky loans. The banks also were given permission to put these loans into packages of securities that could then be sold into investment markets.

Last week, a front page Wall Street Journal article set off a national debate about the legacy of Alan Greenspan. Critics have been taking the former chief of the Federal Reserve to task for failing to see the alleged excesses of the marketplace and neglecting to issue new diktats to punish those excesses accordingly.

But it is not Mr. Greenspan's fault that Congress substituted identity politics for financial prudence, although his easy money in 2003 didn't help much. If anything, Mr. Greenspan regulated too much.

The fault lies with the small army of hard left political hustlers who spent the early 1990s pushing risky mortgages on home lenders. And the fault lies especially with the legislators that gave them the power to do it.

Turnbull to lead the Libs, and now they have my support

Who would have thought we'd ever see common sense from the leader of one of the 2 main political parties in our life time.

Malcolm Turnbull, who has just been appointed leader of the Liberal Party, is really in fine form, with his plan to slash and simplify the entire tax system, and his appointment of Henry Ergas as chairman of his tax review.

Sometimes its an astonishing moment when a politician admits something so plainly obvious as this:

"Taxes vary in their inefficiency. But all taxes tend to cost the economy more than the revenue they raise.


Now, if we can just get Turnbull to oppose environmental regulations and commit to removing middle class welfare, then we really have a *liberal* Liberal leader.

Wednesday, September 17, 2008

Video of the day - how to handle losing your job

Everyone copes with disaster in different ways, but watch these 2 comedians in the background of this video.


Awesome Wall Street Prank - Watch more free videos

Tuesday, September 16, 2008

Sir Richard Branson in fine form

There are many reasons to admire Richard Branson. A self-made entrepreneur who took some massive risks to get started, correctly assessed market sentiment, and continues to build wealth and employ tens of thousands around the world, has done "the community" a greater service than any single politician or bureaucrat, whose resume points to the fact that government can only destroy, confiscate and redistribute wealth.

He is in fine form here as he lashes out against the socialist British government for their nationalisation of Northern Rock (my comments in red)
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Virgin chief Richard Branson has accused British Prime Minister Gordon Brown of having "bottled out" of the Northern Rock crisis in a move that will "haunt" him.

The British entrepreneur wanted to take over the stricken bank but Brown's government nationalised it instead due to a "lack of courage", Branson has told the Daily Mail newspaper.

And he warned that the "tragic error" would cast a shadow over the government for years to come.

The collapse of the mortgage lender last September has been a key point in Brown's 15-month premiership and was a bellwether moment as the economic downturn kicked in.

Branson's Virgin Group was behind one of two private takeover bids which finance minister Alistair Darling rejected saying they would not give taxpayers value for money (?!?!?! - and forcing the taxpayer to buy-out a failed bank is somehow value ?!!?) as he confirmed the temporary nationalisation in February.

"Brown was more concerned with tomorrow's news than jobs," Branson said.

"He didn't care about saving a great British institution. Brown bottled out. He was scared of the prospect of me, a capitalist, turning the bank around.

"Darling didn't even have the courtesy to ring and tell me of their decision!

"I expected the courtesy of a call, especially as they promised me that if they decided to nationalise they would let me know first. Then I heard rumours that the BBC was about to break the news.

"So I rang Darling. It was tense. As we were talking, the news broke on the TV. Unbelievable! Then I got a call from Gordon Brown telling me to move on and not to make a nuisance of myself about the decision.

"It was a tragic error. I would have created thousands of new jobs, but instead it has been made to disappear. It will haunt this government and those who follow it." (You're only half right Richard - governments are never held accountable for their mistakes and it won't haunt them because they will be retired living off a comfortable pension in a few years )


Fitch, Moody's and S&P; Ratings or Reassurance Agencies ?

Lehman has filed for Chapter 11 and is toast.
The stock plummeted to 19cents.
The ratings agencies in America- Fitch, Moody's and S&P - are all SEC (government) sponsored. In the past, they haven't performed their role as ratings agencies nearly as well as they should have.
In fact, to get the cushy position of SEC approved ratings agencies, they have been deliberately optimistic to the point of blindness.

Only yesterday did Fitch change its ratings on Lehman down from A+ to D.

--Long-term IDR to 'D' from 'A+';
--Short-term IDR to 'D' from 'F1';
--Senior debt to 'CCC' from 'A+';
--Subordinated debt to 'C' from 'A';
--Preferred stock to 'C' from 'A'.

What a joke. As Mike Shedlock puts it best, its time to break up the credit rating cartel.

Monday, September 15, 2008

The banking cartel

I really don't have time to compose a letter right now, but I suggest some readers notify the ACCC that the Australian banking industry closely resembles a cartel.

We do not have a free market in banking. No Western economy does.

In a future posting, I will examine in detail the many cartel features of the industry - e.g

  • government forcing all debts to be paid with the government backed paper currency thus choosing the medium of exchange for the entire currency.
  • banks not being required to have deposits backed fully by reserves, also known as the practice of fractional reserve banking
  • a government operated central bank which interferes with the free market in massive ways - setting interest rates, targeting inflation, stimulating economic activity.
  • governments acting as lenders of last resort, and banks never ever being allowed to fail when their reckless lending should be forcing them to collapse.
Look at how oblivious the mainstream media is to the nature of banks. They suspect cardboard companies, fuel companies and supermarket chains of forming cartels nearly every week. America is no different to Australia. But this report from Washington shows how the Banksters get a free pass from the media.


A CONSORTIUM of 10 global commercial and investment banks have announced plans to provide $US70 billion ($85 billion) to help offset a credit squeeze amid an anticipated collapse of Wall Street giant Lehman Brothers.

Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley, and UBS, said in a joint statement they "initiated a series of actions to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets".

They agreed to create a "collateralised borrowing facility" of $US70 billion, with each bank contributing $US7 billion, to help ease access to credit.

Since when do competitors bail each other out in a free market ?!?

It has something to do with fractional reserve lending. Each bank expands its credit beyond its reserves and as long as other banks don't contract, the process can continue indefinitely as long as other banks participate in the same game. The central bank is established to ensure that this very outcome happens. A cartel is formed and each bank depends on the other banks to continue expanding their credit and increasing their profits.

Note the tone of the article never even hints at this question. We need to get more journalists asking the right kind of questions and to end the banksters corrupt cartel.

Wednesday, September 10, 2008

Price gouging for dummies

Next time you see someone from the ACCC, tell them to keep their filthy socialist mitts off our free markets.

The Mises institute has a funny-because-its-true summary of what happens when these ambiguous "price gouging laws" are used to prosecute traders. You fill in the blanks:

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Price controls and price-gouging laws make matters worse rather than better.

Consider the case of (hapless merchant) , who was fined $___ and sentenced to ___(months/years) in jail for increasing the price of (goods) by ___%.

The bitter irony is that (merchant) 's (goods) were conf
iscated and taken to a secure location, where they (rotted/melted/remain to this day) .

The citizens of (town) are still without (goods) , and the very person who tried to provide them with (goods) faces prosecution.

----------------

This is indeed the way things work. Are price gouging laws really moral and ethical ?

Firstly, no matter how you spin it, the law has one primary functi
on - to prosecute people who try to sell something.

Of course, they set their own prices in this process, but they do not attempt to use coercion or violence to force any buyer to engage in the transaction.

And yes, it becomes a very sensitive and emotional issue in
the wake of a disaster. Even the act of engaging in voluntary trade becomes something that people cast strong judgements about, because the trade involves highly desirable goods that relate to people's survival - i.e bread, fuel, water, candles.

Secondly, from an ethical and moral viewpoint, what is the best way for a trader to allocate and distribute these highly desirable goods in an emergency ?

  1. Keep prices the same causing massive lines and shortages. ?
  2. Push prices down, or even make these desirable goods completely free ?
  3. The free market solution - Adjust prices upwards sufficiently so that supply meets demand, and people do not queue up for these goods and no shortage emerges ?

Well, I'll now try to show why #3 is always the most ethical and moral solution to allocating scarce goods to customers.

This analysis applies strictly to these essential goods that cause so much emotional attachment during an emergency.

In this scenario, the demand curve has gone up by a huge amount, which means that the price each customer is wil
ling to pay, and thus the value attached to that good or service has increased by a large amount.


The supply curve has not moved one bit. During the very initial stages, supply can not be expanded. You can not wave a wand and have extra fuel, food or bread on the spot. Up till now, nothing I have said is very controversial. Its just pure reality. This is what happens for the market for essential goods and services during emergencies.

Its how we proceed from here, that is so hotly disputed.

The demand curve represents the people in the market, and the aggregate of what each individual is willing to pay. When you sum them up, you get a curve which shows how much or how many units of a particular good will be purchased at a particular price.

If prices are held constant, or even worse, if they are lowered, a shortage will and must occur.


Options #1 and #2 always involve massive queues, mobs and even stampeding crowds. Shortages mean that the shelves run empty. Shortages mean that the first in ( or those who push most aggressively and trample over others to be the first in) are the ones who get rewarded.

Free markets would allow prices to adjust upwards to the point where supply meets demand.
But government regulations and price gouging laws do not. So I shall call any price, below this intersection, the government price.

At the government price, there will be people who were willing to pay the going price for the goods but did not manage to secure it. This is exactly what is meant by a shortage.

Whats more, those who were first in (the fittest, the most patient and prepared) are not necessarily the people who valued the goods the most highly. Take the example of medication - imagine a queue forming and the shelves of a chemist being emptied within hours.

If somebody was willing to trade their house for medication to survive, then they may be forced to do just that to buy the medication off somebody who managed to beat the queue and secure it. This all happens because traders were not allowed to adjust their prices upwards by even 10% or else they could be prosecuted by the gov't.

A whole new speculative market emerges where people rush to secure these essential goods because they know that you cannot deny the forces of the free market. They know that these essential goods can be re-sold to those most desperate for a quick and easy profit. Perhaps this form of profiteering is deeply offensive and upsetting to people, but in the end, it is a form of voluntary trade and it is better to allow the essential goods to find their way to those who place the greatest value on it.

In times of emergency, if option #1 or #2 is implemented, then a speculative market builds overnight. People queue up for groceries and petrol because they can see that a shortage will emerge at the artificially low prices. These individuals are not necessarily the ones who value these scarce goods the most highly, but those who are quick and can calculate that there are other people who will place a value on those items that is much higher than the going price.

By regulating the prices that shops and traders can charge for goods and services, you are trying to plug your finger in a hole when the boat is leaking. The market forces will emerge through a different hole. It is better to allow the free market to adjust prices in the first place so that people can visit the stores and pay more for the goods they so desperately need, and so that people who do not need the goods at the higher prices will not buy them.

We are led to the obvious conclusion - Option #3 does the least harm. It is the most moral and ethical. And what of the benefits ?

Well Option #3 allows prices to adjust upwards. Everybody should be aware that prices are a big big signal, a red flag to other producers. It sends out a HUGE incentive to other producers to very quickly expand their supply. Fuel will be trucked in overnight, bread, medicine and other essential goods simply because people see the profit opportunity.

Not because they want to feel good about themselves or because they are trying to appear moral and ethical. But in the end, their actions are the most moral and ethical.

Not only does it send out a price signal to other producers, it provides a very nice reward to those who had the foresight and entrepreneurial skill to provide and supply goods before the emergency strikes. It means that the free market is the best way to prepare for emergencies. Businesses now have a huge profit incentive to rapidly move essential goods to disaster zones before the disaster even strikes. They have a huge profit incentive to analyse and predict natural disasters, and to prepare for them !

And lastly, Option #3 helps avoid stampedes and massive queues.

Obama made fun of it in a recent speech, but it is actually the best thing to "leave it to the free market" and not Washington.

Vote Greens!

These are the kind of freaks who vote for The Greens. I wonder if they react similarly towards the loss of human life ?

Tuesday, September 09, 2008

Haloscan destroyed comments - apologies

I "upgraded" this blog to Haloscan so that I could take advantage of trackbacks. This has replaced the comments system and all existing comments are no longer visible.

Apologies.

Friday, September 05, 2008

Michael Costa for PM

I've only read one article on this fellow, but he was just sacked from his position as treasurer of the NSW Labor Party, simply because he had common sense.

  • Fiscally responsible - Check
  • Makes a mockery of climate change alarmism - Check
  • In favor of privatisation - Check.
He would make a terrific PM. Read on..

Mr Costa had made clear to Mr Iemma and other colleagues his view that NSW would require strong economic medicine to retain its AAA credit rating in the aftermath of the collapse last week of the Government's planned sale of $10 billion worth of state-owned electricity assets.

In recent years, Mr Costa has become a key hate figure for the Left, not just in NSW but nationally.

He is an unapologetic climate change sceptic, who believes the current phase of global warming is the result of natural rather than human forces. Last year, he embarrassed Mr Iemma by calling environmental scientist Tim Flannery an "idiot" only months after Mr Flannery launched a climate change forum set up by Mr Iemma.

Mr Costa has been the driving force behind the privatisation program, with many believing his confrontational style was the key obstacle to a resolution of the divisions opened up by the issue between Labor's parliamentary wing and the party and union machine.

The tensions boiled spectacularly to the surface at Labor's state conference in May, where Mr Costa and Unions NSW chief John Robertson had a heated exchange of views before the sell-off was voted down by 702 votes to 105.

....

...

In an interview with The Weekend Australian last Friday that further enraged his colleagues, Mr Costa threatened to resign unless he was given a free hand to initiate radical reforms in a mini-budget due to be delivered in early November.

Those reforms include the outsourcing of rail maintenance, the partial privatisation of Sydney's ferries and a round of public service job cuts.


Good luck in the future, Mr Costa.

Thursday, September 04, 2008

Needs Needs Needs !

Other than protecting the floors when I'm painting the house, and the TV guide, thats what The Age is good for these days - reading about the needs of people.

Socialist elite Kenneth Davidson presents his opinion as informed comment when he wrote this miserable pretentious piece of garbage on "education needs". He says Kevin Rudd's education revolution doesn't go far enough, and the sub-heading says it all:

Disadvantaged schools have desperate needs that aren't being met.

It seems that all you need to do to be a champion representative of "progressive", "modern" government, and to talk about "social justice" is to give a great deal of attention and to incur panic and hysteria that the needs of others are not being met.

Why, needs are so important to the left, that they have to butcher the English language and be redefined as rights. For decades, the progressive agenda of big government and rewarding needs has won over millions of pundits and is in place in every Western social democracy.

The right to a "minimum wage" (even though this prices unskilled people out of work). The right to "university", and the right to "public schools" (even though this imposes thousands of dollars of a tax burden on each tax payer and coercively steals their income. The right "not to be offended by hateful speech". The right to a minimum standard of living and welfare.

Here are some recent ones that have been added to the existing list:
  • The right to good health,
  • The right to free dental checkups
  • The right to new computers in schools
  • The right to child care rebates for parents
  • The right to have new highways
  • The right to access high speed broadband,
  • The right to access telecommunications infrastructure in the bush.
  • The right to a climate that doesn't change
These all sound wonderful and cheery, but they are each an abomination of the English language and are deliberately presented this way to avoid any balanced and rational discussion of an issue.

An ideology that rewards needs will have to redistribute wealth and pass laws restricting freedoms. A government cannot reward or assist anybody with their needs unless they suddenly become charity workers who toil day and night to feed the homeless and to build schools. But governments instead opt to collect hundreds of millions in taxes for every single need they plan to address.

The socialists have shifted the discussion so far from any balanced perspective, that any debate will not possibly be about WHETHER governments should be rewarding needs, but simply how they will reward needs. Kenneth Davidson suggests Kevin Rudd is not rewarding the right kind of needs in schools:
THE Rudd Government's policy promising every school a computer for every two pupils is a cruel joke. In terms of improving the quality of education it is a second or third-order priority. The billion dollars allocated for computers would be better spent on things disadvantaged schools are likely to need: decent lavatories, on-site caretakers and teachers' aides, for a start.

None of these are cheap. Its funny that an advocate of central planner like Davidson thinks that his system of rules can handle priorities though.
Surely a better policy would be to spend a much smaller amount

Yes it would be !! Please continue...
to raise public schools that increasingly draw students from disadvantaged households and neighbourhoods to the level expected by the middle class.

Sigh.. Here we go, more social engineering from our central planners.

Although Davidson continues to plead for more money and more resources to socialised education, at least he highlights some interesting facts:

According to a sober analysis of school funding ..... total government per capita expenditure on students in 2006 was $11,303 for non-government schools and $9252 for government schools.

Damn thats a lot of moolah. Don't you think parents would be better off with $9000 vouchers to spend on any school they like ? Why is money shovelled by the truckload, in ever increasing amounts, to socialised education when the free market always managed to provide an abundance of goods and services that people want, in a competitive manner ?

I agree with Davidson on some points. Education is very expensive, and that new computers for all the schools might not do that much to lift standards.

I disagree with Davidson on every other point. I contend that:
  • Schools are best equipped to spend the money to raise education standards, so long as they receive money from parents and not from bureaucrats.
  • Parents, not politicians, are best informed to select a school that meets their criteria
  • If you are going to use public funds for education, then at least vouchers allow parents to direct the money towards schools that meet their requirements.
  • Central planning ends in disaster. The more regulation, the more corruption and laziness.
But in the end, it is nothing less than theft at gunpoint to force the population to fund a system.

What of those who carefully manage their own finances and choose not to have children because of the expense ?

What happens to the idea that families are in the best place to decide on how to manage their lives and raise children and any effort to interfere or subsidise those costs of living is taking away responsibility and consequences for their actions ?

What of the moral hazard caused by free education, which results in some thoughtless single mothers having many children they could not possibly raise with their finances ?

What of the injustice to those who cannot have children, or those who do have children and pay for the entire costs of their education and upbringing ? Why should they be forced to provide for others ?

One thing is becoming increasingly clear. It should not be the role of government to reward needs. Individuals should address their own needs. Families should address their own *actual* needs. At least in these situations, they are well aware of what those needs are, whether they be food, clothing, education or health.

Private charity is another method to reward the *actual* primary needs of strangers. But government is the wrong approach. It tries to guarantee that the *presented and verbalised* needs of every single stranger will be met, cost be damned. And let me assure you, just as surely as Centrelink spends over $100bil per year, COSTS WILL BE DAMNED !

You see if government rewards everybody's needs, then everybody has an incentive to show that they have needs that are not being met. And we've seen the explosion of Centrelink and many new forms of middle class welfare so that 1/3 of Australia now receive welfare !

There are hazards with rewarding needs through the state. Many more hazards than with rewarding no needs through the state.

In Atlas Shrugged, the wisdom of the main character, John Galt, is summarised with one
quote:

"I swear -- by my life and my love of it -- that I will never live for the sake of another man, nor ask another man to live for mine."

A victory for freedom - luxury car tax defeated.

I'd never thought I'd sing the praises of Family First, but Senator Steve Fielding has struck a blow for liberty and for commerce

THE Federal Government's luxury car tax increase has been defeated in the Senate.

Family First Senator Steve Fielding sided with the Coalition to vote down Government bills at the second reading, 34 votes to 33.

The bills were set to be defeated last night but coalition senator Sue Boyce failed to show up to cast her vote.

The Opposition moved to have the vote recommitted when the Senate reconvened this morning.

Now if the Senate can defeat the alcopop tax and most importantly, any carbon trading scheme, this will be a terrific year where the people finally tell the tyrants in the ALP that we will not tolerate any new taxes, new regulations and a bigger government.

Wednesday, September 03, 2008

The first hobbit in the white house ?

John McCain has announced Alaska governor Sarah Palin will be his running mate in the presidential campaign, and thus quite possibly the next vice-president.

Most of the online chatter so far has been about her youth, her looks and overwhelmingly about her children - Todd, Piper, Willow, Bristol and Trig. Initially the discussion was about her courageous decision to have her baby, even after it was diagnosed with Down's syndrome. Now the chatter has shifted to her 17 year old daughter, Bristol, who is 5 months pregnant and single.

These discussions are idiotic.

I think it far more interesting that the Palin family all have freaky hobbit and halfling names !

There was a famous adventure movie called Willow about halflings, and whats the deal with Piper and Bristol ? Todd and Trig also have quite a middle-earth ring to them.

Perhaps they are related to Frodo and Samwise and Bilbo ? Even the surname, Palin, sounds like Baggins (maybe they even changed it from Pallins)

I think its time to get some hobbits into the White House. They can handle the burden of being the ring-bearers, and their experience in governing the hobbit shire will prove they are ready for the job.

Then again, perhaps Barrack o-Baggins has what it takes ?

Tuesday, September 02, 2008

Andrew Sullivan - all politics, no principles

Andrew Sullivan is generating his own news, with yet another link to some polling data that paints McCain and Palin in a bad light.

Its been such a long time since Andrew discussed any substantive ideas about conservatism, and he has been veering towards the likes of Daily Kos, with his endless political shilling for Obama.

He doesn't even bother trying to build a principled defence of Obama. No discussion of energy, economics, environment, health or education.

He doesn't set any criterion at all. He just talks about campaigning strategies, PR, polling success and popularity.

The only true conservative candidate, that supports limited government is Bob Barr from the Libertarian Party. Yet I can't recall a single mention of Bob Barr's name on Andrew's blog.

New blog features - trackbacks enabled

I had to register with Haloscan to enable trackbacks, but unfortunately, it also took over my comments, so I've lost all existing blogger comments.

Monday, September 01, 2008

Talk of childcare staff ratios ?! Are we that damn spoilt ?

Former ABC super-star, Maxine Mckew, is trying to grab headlines since her entry into the world of politics.

But with a pedigree in journalism at the ABC, she has more experience than anybody when it comes to telling people how to live, and how to be ruled by your elites.

In her latest epiphany, Comrade Mckew threatens the entire childcare industry to follow her dictat:

Rudd's handpicked adviser on childcare has attacked the current ratio of one carer to five babies as "not good enough" and warned the Government may link future funding to improved standards.

...
In an interview with The Australian Online, Ms McKew said Ms Fox's remarks amounted a "guilt trip" for parents, but warned there was a serious dimension to her comments. She said the current legal minimum demanded by the states of one carer for every five children was "not good enough.”

Here we have another example of government fixing a non-problem, by creating new problems.

For generations, parents *managed* to raise children. Manage is the key word. They don't know how they always did it, they each faced unique challenges and difficulties, some had large families to provide for on low incomes, etc etc... but it was considered a priority, and families did their best to raise their families through their own decisions, made in an environment of unconstrained choices and freedoms.

Now we face a culture where "need" trumps freedom. The moochers bid for our fake-sympathy and we are supposed to reward it by electing a party that coercively and forcibly steals property from its rightful owners and distributes it to those most needy. The single mothers, the welfare-dependent, those with many children, all form tremendously huge lobby groups.

So it no longer becomes a question of which party will try to represent them in elections, but to what degree EVERY SINGLE party will represent them. The Liberals implemented the idiotic baby bonus, Labor decided to maintain it once they reached power. The Liberals introduced a 30% childcare rebate, Labor increased it to 50% !

We all pay tremendous taxes on our income and expenditure, and those who choose to have young children are automatically given huge benefits at the expense of those who do not, can not, or choose not to. Public education costs around $6700 per student ! Baby bonus = $5000 ! Every year there are family tax benefits, Part A (as much as $5818 per year, per child) and Part B (as much as $3358 per year, per child).

And the recently introduced childcare rebate is very substantial too. Typically childcare can cost $70-$100 per day, and the government agrees to pay half.

This fat payout isn't enough according to Maxine Mckew, who is eager to seek out the female voters. We need better government enforced standards, according to her philosophy. Just like government schools are focussed on teacher-student ratios and mindless statistics, the childcare industry will soon be subject to the same level of government meddling, standardisation and regulation. All of these have the impact of raising costs which not only hurts tax-payers but it prices many low budget options out of existence.

We have empowered the state to subsidise and regulate the care of young children. The Department of Human Services are empowered to remove children from their families. We force children to receive vaccinations and to be schooled till Year 12, according to a government agenda. Why are so many parents so careless as to entrust these decisions to vote-hungry populist politicians ?