Is the U.S. Bond Market On Dope?

Now, I've never been an advocate of the so-called "efficient market hypothesis" and have in fact argued against it. But I am still amazed at how irrationally low the inflation expectations of the U.S bond market is. Although the current year over year inflation is relatively low and one of the primary arguments for a short-term increase in inflation -the previously assumed surge in unit labor costs- was revised away yesterday, there is still good reasons to believe that inflation will accelerate in the short-term despite the economic slowdown. And there is no reason to believe Ben "Helicopter" Bernanke will be less inflationary than Greenspan över the coming years. Some people must have confused "Black Hawk" with inflation hawk. And during Greenspan, the average inflation rate was 3%. So, how could there be a mere 2.30% spread between the regular 10-year note and the 10-year TIPS?

While no one can know the future for sure, and so it is possible that inflation will be 2.3% or lower per year during the coming decade . But that would require that Bernanke would pursue a significantly less inflationary policy than Greenspan, which seems highly unlikely. With the massive debt overhang of the U.S. economy, it seems in fact a lot more likely that the Fed will try to inflate more to bail out the heavily indebted households.

With the real yield being a mere 2.21%, I wouldn't recommend anyone to buy the TIPS. But it is certainly a lot better deal than the regular government securities.

Finally Angela Merkel Does Something Right

Germany raises its pension age. A necessary step in the right direction, considering Germany's rapidly ageing population. But considering how fast Germany is ageing, it will not be enough, and more cuts will be needed.

Ytterligare en spik i SR-Kristian Åströms kista

Med anledning av att tyska statistikmyndigheter nu meddelar att sysselsättningstillväxten i Tyskland fortsätter med allt högre fart och arbetslösheten går ned trots ett ökat arbetskraftsdeltagande, så kan jag inte låta bli att påpeka hur detta ytterligare förlöjligar Kristian Åströms förvirrade SR-artikel.

Nej, jag säger inte att de tyska erfarenheterna bevisar någonting, särskilt då som det sker i ljuset av en allmän europeisk konjunkturuppgång. Att hög a-kassa, allt annat lika, höjer arbetslösheten finns det ju goda teoretiska skäl att tro på, och det är på dem jag grundar min uppfattning. Men den där clownen Åström påstod ju att de tyska erfarenheterna skulle på något sätt motbevisa det eftersom det inte skulle ha blivit några nya jobb. Nu ser vi dock hur han till och med utifrån sin egen missvisande "metodologi" blir avfärdad.

Bush Praises Estonian Tax Policy-While Being Silent On Spending Policy

I see via Greg Mankiw that Bush have praised Estonia's tax policy. Ironically though, he mainly praised it for being simple rather than the fact that it is low. That is ironic because Bush have during his presidency lowered current taxation, while some of the cuts (such as the child tax credit) have if anything made it more complicated.

And more importantly, Bush leaves out the fact that the key to Estonia's success is that its tax cuts have been accompanied by spending cuts. According to statistics Estonia's database, government consumption fell from 19.9% of GDP in 2000 to 17.4% in 2005. And during 2006 the downward trend have continued. In America by contrast, government spending have risen during Bush.

This is important, because as Mankiw have pointed out before, tax cuts will only raise growth if they are matched by spending cuts.

Unexpectedly Bullish U.S. GDP Report

The revised third quarter U.S. GDP report was a lot stronger than the first one. And here I am not primarily refering to the increase in the headline number from 1.6% to 2.2%.

What was most surprising was the fact that corporate profits rose. Not just compared to last year's Katrina-depressed levels but also compared to the previous quarter. I had expected , just like for example Paul Kasriel of Northern Trust, that they would fall.

The reason we were wrong, were however not faulty analysis, but faulty preliminary data. The preliminary data underestimated GDP growth and even more so national income growth, while greatly overestimating compensation of labor, which were downwardly revised by more than $100 billion. Had the government's initial data on GDP and compensation of labor been unchanged, corporate profits would have fallen significantly instead of rising.

This revised picture paints a lot more bullish outlook. The higher corporate profits will mean that business investments is likely to be stronger than otherwise. Yesterday's durable goods report suggested a downturn in business investments, but the stronger profits means the chanse of a turn around has increased.

Still, there were details supporting the bearish case even in this report. While the dramatic downward revision in labor income enabled a increase in corporate profits, it also means that the household savings rate is a lot lower, -1.3% rather than the -0.5% previously reported. And as more than half of the upward revision in GDP comes from larger inventories, this means that production could be reduced in the fourth quarter 2006 or in 2007.

All told, most signs still indicates that a recession in 2007 is more likely than not. But the strength of corporate profits in this reports means that the probability of a "soft landing" have increased somewhat.

Skuldavskrivning är bistånd

Jag har ju upprepade gånger (exempelvis här) framhållit mitt motstånd mot målet att slänga bort 1% av BNI på bistånd, som av någon underlig anledning blivit någon slags helig graal för alla riksdagspartier utom moderaterna, och moderaterna har ju som väntat gett efter för de andra tre partiernas krav. Jag anser ju att 30 miljarder i bistånd är 30 miljarder för mycket.

För folk som sväljer innehållet i denna missvisande SR-artikel så kanske man kan tro att jag skulle glädjas. Den påstår ju nämligen att 1 miljard av biståndsbudgeten kan användas för skattesänkningar. Om det ändå hade varit så väl.

Men vad man gör är att okritiskt citera den socialdemokratiska biståndstalesmannen som påstår detta. Premisen bakom hans påstående är då för det första att bara en tiondel av avskrivningen är en kostnad och för det andra att skuldavskrivningen inte är bistånd. Angående det första är jag ju förståss i och för sig medveten om periodiseringsproblematik i bokföringen och att den verkliga kostnaden för de nämnda avskrivningarna mycket väl kan till stor del ha legat i tidigare år. Men man tillämpar ju här en dubbelmoral då man inte tidigare år tagit med den verkliga kostnaden och inte nu tar med den verkliga kostnaden i år för framtida avskrivningar.

Angående det andra är det helt obegripligt hur man inte kan se skuldavskrivning som bistånd. Sskuldavskrivning innebär ju att man ger bort pengar till andra länder. Att inte ta med det hade ju inneburit att biståndet hamnat på mer än 30 miljarder.

Att nu SR och andra biståndsanhängare försöker att mixtra med begreppen här innebär ju att svenska skattebetalare riskerar att bli skinnade på ännu mer än 1% av BNI.

High Money Supply Growth Shows Continued Need For ECB Hikes

There have been a number of voices recently calling for a pause in ECB rate hikes. This includes Bloomberg News columnist Matthew Lynn, Times columnist Anatole Kaletsky, not to mention of course European politicians.

Their argument is risks slowing next year due to a downturn in the U.S. economy, the lagged effect of ECB tightening, a rising euro and tax hikes in Germany and Italy. Well, they're probably right that the European economy will slow, primarily due to the tax hikes. Yet what is relevant here is the effect that ECB policy have. Trying to meet negative supply-side shocks with an "easy" monetary policy will only result in excess inflation. And so far we have yet to see much of a lagged effect of the ECB hikes. Money supply growth continued to be high, at 8.5% in October.

And while the strong euro and falling oil prices should contain consumer price inflation, it too will be pushed up by the tax increases. And by the boom in other commodity prices and the tighter labor market. The ECB should not damage the European economy with more inflation just because German and Italian politicians foolishly tries to reduce their budget deficits with tax increases rather than spending cuts.

Someone Have Been Watching Too Many Arnold Movies

South African man took seven days off work, claiming he was pregnant. Ii guess that's what happens when you watch too many Arnold Schwarzenegger movies. Well, I guess it could have been worse. He could have claimed to be a killer cyborg from the future or an extra-terrestrial trophy hunter or a person from another dimension.

EU Blackmails Switzerland For a Billion Swiss Franc

Swiss voters have in a referendum approved with a 53% majority a new deal with the EU. Or actually, calling it "a deal" is a bit misleading. It is more like blackmail.

Switzerland is not a part of the EU, but being completely geographically surrounded by EU states and having 70% of its trade with the EU, its economy depends on having good trade relations with the EU. So, they have instead tried to achieve a free trade agreement with the EU. Since free trade is mutually beneficial one would have thought that this would be a no-brainer.

But the EU, knowing that little Switzerland depend far more on them than vice versa, told the Swiss that they cannot just cherry pick the advantages of the EU, while completely opting out of paying money to the EU budget. So the EU told the Swiss: pay us a billion swiss franc per year, or we'll institute trade barriers that would harm the Swiss economy even more. Pure blackmail, in other words. The EU will thus get to enjoy the benefits of free trade with Switzerland and cherry pick another billion swiss franc, while the swiss will have to pay up a billion swiss franc in "protection money" to the Don Corleones of Brussells.

Varför en riktig a-kassereform vore välbehövlig

Niklas Ekdals senaste krönika är väldigt bra och viktig. Ett till synes gåtfullt faktum är hur industrin kan göra rekordvinster samtidigt som vi har massarbetslöshet. Det förra skulle ju antyda att svenska löner är för låga, medan det senare skulle antyda att lönerna är för höga.

Lösningen på denna gåta går att finna i den så kallade "solidariska lönepolitiken" där LO samordnar sina krav och utgår från att alla yrkesgrupper ska ha samma lönepåslag i kronor räknat. Detta innebär ju att de procentuella löneökningarna blir mycket högre för låginkomsttagare än för höginkomsttagare, samtidigt som löneökningarna blir lika stora oavsett om företaget är framgångsrikt eller ej och oavsett om det råder brist eller ej på den yrkesgruppen.

I praktiken blir den faktiska lönesättningen något mer rationell än så tack vare att löneglidningen vanligtvis blir klart högre hos framgångsrika företag och inom bristyrken än hos andra, men slutresultatet blir ändå i grunden att löneökningarna hålls tillbaka i vinstrika företag, samtidigt som de blir så höga i många svaga brancher att arbetslöshet skapas.

Det är alltså inte så att det generellt är för höga eller för låga löner-utan att lönestrukturen är fel med för höga löner i vissa brancher och för låga i andra.

LO verkar dock inte ha lärst sig, utan deras bud i den här avtalsrörelsen kommer ju förvärra situationen ytterligare. Dels så anger man ett krav i kronor per månad och dels kräver man särskilda kvinno- och låglönesatsningar. Detta innebär i praktiken att det kommer att bli för låga lönesökningar inom industrin samtidigt som arbetslösheten kommer att förvärras av att det blir alltför stora höjningar av minimilönerna för lågproduktiva.

En av orsakerna till att LO kunnat komma undan med en sådan irrationell lönesättning är att den subventioneras i praktiken genom a-kassesystemet där ingen åtskillnad i vare sig avgifter eller ersättningsnivå görs på basis av hur hög branchens arbetslöshet är. Regeringens omtalade a-kassereform kommer inte egentligen innebära någon nämnvärd förbättring. Sänkningen av ersättningsnivån kommer nämligen bara drabba höginkomsttagare (dvs de vars arbetslöshet inte kommer att höjas av LO-kraven) och det kommer även fortsättningsvis vara nästan ingen differentiering alls av avgifterna baserat på arbetslöshetsnivån inom en viss branch.

För att komma åt LO:s irrationella lönesättning borde man -förutom en del andra åtgärder för att minska fackens makt- helt avskaffa subventioneringen av a-kassorna. Då skulle LO:s irrationella lönesättning automatiskt straffa sig endera i form av att många medlemmar blir arbetslösa med låg ersättning och/eller att de som behållit sitt arbete får skyhöga avgifter. Långsamt skulle LO:s irrationella "låglönesatsningar" och "kvinnosatsningar" försvinna och lönesättningen mer baseras på företagens betalningsförmåga och utbudet av arbetskraft. Och även om "de nya moderaterna" inte vågar ta ett sådant radikalt steg borde man nu när man liks ta strid i frågan, arbeta för en högre differentiering av avgifter beroende på arbetslöshet samt genomföra en mer generell sänkning av ersättningsnivåerna och inte bara sänka taken.

Men det gör man alltså inte. Följden lär bli att LO kan driva igenom en lönepolitik som delvis kommer att sabotera den sysselsättningstillväxt regeringen hoppas kunna åstadkomma. Något som facken säkerligen inte har något emot (Ja, man behöver inte vara alltför konspiratorisk för att tro att detta kanske delvis är syftet). Och som Reinfeldt på grund av sin feghet kommer att förtjäna. Men även om Reinfeldt gjort sig mycket väl förtjänt av ett valnederlag 2010, så är det synd för landet att den chans som den borgerliga valsegern innebar kommer att kastas bort.

Another Example of Why Arab Democracy May Not be Such a Good Idea

As if the civil war-like chaos in Iraq or the electoral success of jihadists in Palestine, Shiite Lebanon and Egypt wasn't indication enough that Arab democracy is not the way to stop global jihad, the election in Bahrain end with the vote being split between Shiite and Sunni jihadists.

Now, That's a Good Budget Plan

Why can't we hear Western leaders, including allegedly "right-wing" ones like George W. Bush, Fredrik Reinfeldt and Angela Merkel issue plans of the kind Japan's Shinzo Abe have now issued, with a "strong commitment" to cut government spending? From Bloomberg News:

"Japan's Prime Minister Shinzo Abe said the government will make ``a large reduction'' in bond sales in the fiscal year that starts April 1.

``We will make a large reduction in bond issuance and we will overhaul and cut spending and eliminate unneeded expenditure,'' Abe told reporters today in Tokyo. ``We will push for these goals rigorously, with a strong commitment.''

The world's second-biggest economy grew at a faster-than- expected 2 percent pace in the three months ended Sept. 30, expanding for the seventh straight quarter.

Abe also said the government will try to limit spending in this fiscal year's supplementary budget on disaster rehabilitation projects and avoid public works that are aimed at propping up economic growth."

Great, although I would seriously dispute that Japan's extremely oversized "public work" projects really propps up growth. Although they have been reduced in recent years, they are still much larger than in other countries and certainly much larger than is neede, creating a opening for the Japanese government to reduce the country's large budget deficit through spending cuts, rather than tax increases.

Reinfeldt sjunker till en ny bottennivå

Några dagar efter riksdagsvalet förutspådde jag att regeringen skulle bli en stor besvikelse för de som trodde att regeringsskiftet skulle innebära något nämnvärd liberalisering av Sverige. Och nu ser vi hur borgerliga debattörer ( se exempelvis här och här ) uttrycker besvikelse över Reinfeldts allt annat än borgerliga eller liberala DN debattartikel.

I vad som måste vara en närmast historisk artikel så fördömer en moderatledare kommunalpolitiker som sänker skatten. Det måste vara första gången någonsin-åtminstonde under den tid moderaterna hetat moderaterna. I vilken mån detta utspel är ett utslag av valtaktik för att vända opinionsraset och i vilken mån det är genuin övertygelse är oklart. Förmodligen är det dock huvudsakligen valtaktik (trots att det är nära 46 månader till nästa val) då Reinfeldt är ökänd för att sakna allt som liknar fasta övertygelser.

Det som dock måste framhållas är att det finns inga belägg alls för att ökade statliga satsningar skulle leda till högre kvalitet. I Hongkong ligger den offentliga konsumtionen på blott 8.4% av BNP mot 27.5% i Sverige. Även om vi räknar bort de cirka 2% av BNP i Sverige som går till militären (Hongkong slipper ju det då man står under Kinas beskydd) satsar 3 gånger så mycket som Hongkong på "skolan, vården och omsorgen". Att Sverige av detta skulle ha fått högre kvalitet finns det inga belägg för. Hongkongs studenter har mycket högre resultat i internationella jämförelser. Barnadödligheten är tredje lägst i världen och bara marginellt högre än i Sverige, och medellivslängden ligger högre.

På motsvarande sätt kan vi se hur Washington D.C. låg överlägset högst i US när det gällde skolutgifter i USA. Men när det gäller faktiska resultat så ligger studenterna där lägst i USA. Och mer generellt kan man se att det finns ett negativt samband mellan utgiftsnivån och prestationer.

Det vore nog att gå för långt att säga att ökade utgifter har en negativ effekt på resultaten. Det orsaksamband som finns går nog i den motsatta riktningen (dåliga studentprestationer leder till att politikerna satsar mer). Men det finns inga belägg för att det skulle bli några nämnvärda positiva effekter av ökade statliga utgifter på skolan. Dunderfiaskot för Bushs "No Child Left Behind" satsning är ett exempel på hur en ökning av utgifterna inte resulterat i bättre studentprestationer.

Tillägg: Robin Ekman illustrerar situationen på ett bra sätt. Tur
för Reinfeldt att hans debattartiklar inte är universitetsuppsatser-då hade de dömts ut som plagiat då han inte ens anger varifrån han citerar.

Jag hoppas på Pär Nuder eller Mona Sahlin som s-ledare!

Varför det, kanske någon frågar. För att de två är mina favoritsossar?
Nej, det är de inte. Utan för att när det gäller socialdemokratin då måste man ha ett "tvärtom"-tänkande. Socialdemokratin är dålig för Sverige, så då måste vi förorda den som är sämst för socialdemokraterna. Av den anledningen är Pär Nuder och Mona Sahlin de jag hoppas mest på, medan Margot Wallström vore den värsta kandidaten.

Pär Nuder är intelligent och skicklig-men han är en högfärdig strebertyp, allt annat än folklig. I många avseenden mycket lik Göran Persson med andra ord. Han skulle därför förmodligen vara sämst för socialdemokraterna och därmed bäst för Sverige.

Mona Sahlin framstår som lite trevligare och folkligare, men hon är ganska korkad. Hon skulle därför också vara dålig för socialdemokratin och därmed bra för Sverige.

Allra sämst vore ju Margot Wallström. Hon är både skicklig och trevlig och populär både inom och utom socialdemokratin. Hade jag varit socialdemokrat hade jag helt klart förordat henne. Hon skulle vara den klart bästa för socialdemokratin och därmed sämst för Sverige.

Carin Jämtin, som Aftonbladets ledarsida idag förordade, vet jag faktiskt inte så mycket om annat än att hon gillar bistånd och "palestina", vilket gör att jag har väldigt låga tankar om henne, då jag är emot både "palestina" och bistånd. Fast å andra sidan så är ju andra sossar i princip lika dåliga inom dessa områden. Huruvida hon skulle vara bra för socialdemokratin och därmed dålig för Sverige vet jag inte riktigt. Hon verkar ganska tråkig och slätstruken, men kanske är det en missuppfattning baserat på den ytliga kunskap jag har om henne.

Swedish Household Debt Rises to Same Level as 1980s

Swedish household debt rose in 2005 to 135% of disposable income compated to 125% in 2004. This means that it have reached the highest level since the property bubble of the late 1980s, the Swedish statistical bureau reports. This illustrates again how the current strong Swedish growth rate is cyclical in its nature.

And While We're on the Subject of Unemployment

Today, the statistics bureau of Europe's two freest economies, Estonia and Latvia released their employment data. In Estonia, unemployment have fallen to 5.4% from 7.0% a year ago, while in Latvia, unemployment have fallen from 8.7% to 6.2%. In both cases, this occurred despite a significant increase in labor force participation. Total employment rose a full 6.2% in Estonia and by 7.2% in Latvia. While this rate of increase is unsustainable because first of all, there is a cyclical element in the Baltic boom (Both Estonia and Latvia have pegged their currencies to the euro and is therefore forced to adopt the loose monetary policy of the ECB) and secondly because Estonia and Latvia will soon run out of potential workers, this illustrates that low taxes and low welfare benefits will help to increase employment, contrary to the assumptions of certain leftist economists.

Leftist Economists Mislead About Unemployment

In Svenska Dagbladet Brännpunkt today, two Swedish and one American left-wing economists claim that leading Swedish economist Lars Calmfors and the centre-right Swedish government mislead people about the effects of lowering unemployment benefits. They claim that the OECD study that supposedly Calmfors and the government bases their claim that lowering unemployment benefits will lower unemployment, only says that their findings are applicable on a "theoretical average country" and not on all member countries. Specifically, the Nordic countries are supposedly the countries where the theory is least applicable. The reason for this, they claim is that the Nordic countries have high spending on "active labor market policies" and strong unions which create a "coordinated and responsible wage formation".

I have no access to the OECD report they refer to (It is available online only to subscribers, which I am not), so I am unable to say whether or not the leftist economists misrepresent what is written there or not. However, there is no need to access it to demonstrate that they are wrong.

The theory that lower unemployment benefits will ,other things being equal, lower unemployment is based on the simple fact that people want money. From this, it follows that the greater the economic incentive to get a job is, the more willing will people be to accept whatever job they can get. Even jobs that have a lower pay than your former job, jobs that which you don't find particularly pleasant or jobs which require that you move geographically or some additional education. So, in order to deny that lower unemployment benefits will lower unemployment you really have to deny that people want money. As far as I know, there is no evidence that Nordics are different in this respect. Indeed, if you look at the statistics, you can see that employment to population ratios have fallen in recent decades in Sweden and the other Nordic countries, while the number of people living off the state have sky-rocketed.

And in the article, they actually implicitly admit this without realizing it. For example they argue that it might only result in a re-distribution in unemployment, from those eligible for unemployment benefits to those without. By bringing up that effect, they implicitly admit that lower unemployment benefits will increase job-seeking activities and lower unemployment for those with benefits. The only way that the effect they bring up can occurr is if the theory they deny in the rest of the article is true. The same thing goes for another of their "counterarguments", that it will lead to more short-term job seeking rather than supposedly more meaningful long-term jobs (as if one cannot look for another job after being employed). This effect too can only occurr if the theory their article is supposed to deny is true.

In short, the assertions of the left-wing economists rest on absurd assumptions about people not responding to economic incentives, is absurd in the face of mass unemployment in Sweden and is internally contradictory.

Hong Kong Growth Accelerates Again

According to preliminary numbers, Hong Kong's GDP grew 3.5% from the previous quarter, which by the American way of expressing growth (quarterly change at an annual rate) translates into a 14.8% growth rate. Compared with a year ago, growth was 6.8%, way above the average analyst forecast of 5.5%.

Given how volatile quarter to quarter growth numbers tend to be, one shouldn't perhaps read to much in to the 14.8% number. But the year over year change of 6.8% gives a good picture of just how strong the Hong Kong economy is. Last week, we found out that unemployment had fallen to 4.5% (and unlike in Sweden and many other European countries, this number doesn't mask a massive hidden unemployment in various government schemes), despite the fact that the labor force had expanded by 1.9% from a year ago. Hong Kong's economy is fundamentally very strong, benefiting from its laissez faire oriented economic policies and the boom in neighboring China.

The details of the report is quite encouraging, with fixed investments surging, private consumption growing at a healthy rate, the trade surplus rising while government consumption and inventories is down.

The main danger to Hong Kong's economy lies in the danger of a recession and increased protectionism in America. Not primarily because it would reduce Hong Kong exports to America (which is now only a small part of Hong Kong's foreign trade), but because it would weaken the economy of Hong Kong's main trading partner: mainland China.

Jag lär nog handla mina kläder hos H&M i jul

Mot bakgrund av detta (eller ja, nu bryr jag väl ärligt talat inte tillräckligt mycket för att jag skulle avstå från riktigt bra erbjudanden i andra butiker, men jag blir helt klart mer benägen att handla på H&M för att reta feministerna). Som för övrigt är kapitel hundrafemtielva i den besynnerliga följetongen "Varför i helvete ger medierna den där patetiska föredettingen och knäppskallen Gudrun Schyman så mycket utrymme".

Väl värt att notera i det här sammanhanget är att Schyman ju har samma inställning i frågan som talibanerna. "Det är samma skönhetshatande strukturer, både i talibanernas Afghanistan och i feministiskt initiativ", så att säga.

Slavery Brings Peace?

While the recently departed Milton Friedman had significant shortcomings in his ideas, he was at times one of the more eloquent defenders of freedom. Via Lew Rockwell I found this exchange of words between him and a pro-conscription general:

"Gen. William Westmoreland, testifying before President Nixon's Commission on an All-Volunteer [Military] Force, denounced the idea of phasing out the draft and putting only volunteers in uniform, saying that he did not want to command "an army of mercenaries." Friedman, a member of the 15-person commission, interrupted him. "General," Friedman asked, "would you rather command an army of slaves?" Westmoreland got angry: "I don't like to hear our patriotic draftees referred to as slaves." And Friedman got rolling: "I don't like to hear our patriotic volunteers referred to as mercenaries." And he did not stop: "If they are mercenaries, then I, sir, am a mercenary professor, and you, sir, are a mercenary general. We are served by mercenary physicians, we use a mercenary lawyer, and we get our meat from a mercenary butcher."

But now, just after Friedman died, leading Democrat Charles Rangel, incoming chairman of the House Ways and Means Committee, proposes a re-introduction of conscription in America. The main argument that he seems to have for re-introducing it seems to be that he thinks doing so would prevent the politicians from starting wars.

That is a simply amazingly ignorant argument. Historically, conscription have not acted as a deterrent to war, but an enabler of it. A all volunteer army requires a market pay that is usually far higher than the token pay given to sla...uhm I mean drafted soldiers. Thus, conscription makes war far cheaper for the politicians.

Rangel's reasoning seems to be based on the implicit assumptions that the sons of politicians will be drafted. But for someone who have spent most of his adult life in Washington D.C., that is amazingly naive. Any kind of military draft would have loopholes enabling the sons of leading politicians to escape military duty in dangerous combat zones.

The existence of conscription in the 1960s sure didn't prevent the policians from entering the Vietnam war, and people with the right connections, like George W. Bush was able to escape miltary service in Vietnam.

Huh?

Supply-side web site TCS Daily continues with their budget deficit boosting ways in a new article by Jerry Bowyer.

Since his position is invalid, his arguments are of course extremely weak. What he really seems to be saying is that some wars according to him have had good results, so borrowing to finance them is a good deal. But given how lousy the war in Iraq, that is hardly an applicable "logic" now.

Moreover, even had military spending been beneficial, 80% of federal spending goes to non-miltary projects. And what's more noteworthy, he doesn't at all touch upon the question of how given a certain level of government spending, what does most damage: taxes or borrowing. Both will have negative effects (deficits will harm the economy through the crowding out effect on investments and the income effect, taxes will harm the economy through the substitution effect), but Bowyer makes no attempt at all to weigh them against each other.

In the beginning of the article, Bowyer quotes Ronald Reagan's response to a reporter asking him whether he would like to defend his budget deficit, to which he replied "No, they're big enough to defend themselves." . While that certainly wasn't a valid defence of deficits, at least Reagan was funny, which can't be said about Bowyer (except for his inclusion of that quote).

Regeringens självförvållade problem

Opinionsmätningar visar på ett stort tapp för regeringen och framgångar för (s). Orsaken anses främst vara striden om a-kassan. Det riktigt ironiska här är att de här problemen är ett resultat av regeringens ohederliga bokföring i syfte att locka till sig väljare. Något som fiffigt utnyttjats av (s) och facken.

Regeringen har ju alltså då föreslagit ett så kallat jobbavdrag där inkomstskattens ska sänkas för arbetande personer. Men på grund av att man inte vågar genomföra några omfattande besparingar måste denna skattesänkning betalas huvudsakligen av skattehöjningar. Dock har regeringen valt att kalla många av dessa skattehöjningar för "avgiftshöjningar" för att kunna lura borgerliga väljare att skattesänkningarna netto är större än vad de i själva verket är. En av dessa "avgiftshöjningar" är då höjningen av a-kasseavgiften, som ju blir till en skatt snart eftersom den blir obligatorisk.

Man kan ju fråga sig varför de väljer att höja a-kasseavgiften när det hade varit lika bra att skippa den höjningen och genomföra ett mindre jobbavdrag. Hade det blivit en nämnvärd differentiering av avgiften beroende på arbetslöshetsnivån hade det i och för sig haft poängen att motverka överdrivna lönekrav som ökar branchens arbetslöshet, men nu ska det ju inte bli så.

Iallafall, resultatet av regeringens ohederliga bokföring där man döper om delar av skatten till a-kasseavgift är att det låtit (s) och dess allierade fackföreningar att selektivt rikta in sig på just "avgifts"höjningen samtidigt som man förtiger jobbavdraget. Detta är ju förstås minst lika ohederligt som regeringens hantering av det hela, men det har visat sig effektivt då medierna varit dåliga på att påpeka denna ohederlighet från sossarnas sida.

Hade regeringen avstått från sitt trixande i frågan och presenterat ingen a-kasse "avgifts"höjning samtidigt som man bantat jobbavdraget med motsvarande belopp då hade man sluppit dessa problem. Dishonesty strikes back, kan man säga.

Med tanke på att det är hela 46 månader kvar till valet så är ju i och för sig dagens opinionssiffror något regeringen inte behöver ligga sömnlös över. Men risken är ju att (s) kan återanvända det 2010.

France Fails to Liberalize-France Fails to Grow

France have arguably the most statist economy in Western Europe. Labor- and product market regulations are among the worst in Europe and it has the second highest level of government spending to GDP after Sweden. And if you adjust for the extent to which Swedish government "spending" is taxation of transfer payments (scroll down to page 191) (as the money goes right back to the government this "spending" is pure accounting fiction), France actually have higher spending than Sweden too. And unlike Sweden and Denmark, where spending to GDP is trending downwards, the burden of government spending is rising in France.

And the political outlook is anything but good. When the government attempted to impose a modest liberalization of the strict labor laws, spoiled students protested and the government proved themselves to be the "cheese eating surrender monkeys" neocons accuse them of being. And as this The Economist story points out, the socialist opposition wants further spending increases.

Not surprisingly, the French economy performs very poorly. While one shouldn't read too much into the zero growth number for the third quarter (which largely reflected depletion the inventories built up in the previous quarter), the year over year growth is nevertheless significantly below the Euro zone average.

While France in recent years have outperformed Germany and Italy, this only reflected demographic factors (France's population is ageing much slower than in Germany and Italy). And at any rate outperforming Germany and Italy isn't much to brag about. Tax increases in Germany and Italy next year could perhaps ensure that France next year will once again outperform them, but this will only be because Germany and Italy performs worse, not because France performs better.

U.S. M3 Growth at Nearly 10%?

In the comment section of a post(scroll down) on the latest Philly Fed report in Nouriel Roubini's blog, one poster had an interesting link which nearly reconstructs the "discontinued" M3 measure of money.

Despite the false claim of the Federal Reserve board that "M3 does not appear to convey any additional information about economic activity that is not already embodied in M2", M3 have generally better correlated with financial bubbles and credit expansion than M2, which is why it is my prefered measure of money. And it is probably the case that this was the exact reason why the Federal Reserve board "discontinued" it.

But as the authors of the linked piece points out, most of the non-M2 M3 components are in fact still published by the Fed. Institutional money funds are still published in the money supply releases and the other components except eurodollars are published in two other releases (this and this).

On their calculations, M3 growth have accelerated greatly since its release was "discontinued" and is now nearly 10%, much higher than the 5% growth rate of M2. This in turn indicates that monetary conditions in America is much looser than most people think.

"But", some people might think, doesn't this contradict my earlier claim of the correlation between M3 and asset bubbles, given the current housing bust?

No, not really, because (1) While the housing sector is in a bust, equity- and bond markets have boomed in recent months (2) Despite falling house prices and construction activity, real estate lending is still actually increasing rapidly.

Milton Friedman R.I.P.

So Milton Friedman has died. Being a full 94 years old, it was perhaps not unexpected.

Milton Friedman contributed with both bad ideas and good ideas. Among the bad ideas he promoted was his positivist view of the methodology of economics and his view that fluctuating fiat exchange rates was the ideal monetary system. And in the late 1990s he came out with a very un-monetarist call for Japan to sharply increase money supply growth.

But while he had his shortcomings he was still on the whole a positive force for liberty. I remember how impressed I was of his defence of free trade when reading his Free to Choose book. And he has had greater impact in pushing politicians and the general public in a libertarian direction than any other economist or other pundit. While voting for Bush in 2000, he later regretted it and criticized the Republicans for spending too much.

And how can one not like someone heckled at the nobel ceremony by some wacko leftist screaming hysterically "Stop capitalism!Long live the people of Chile!"?

The Sloppy Thinking of Affirmative Action Defenders

I have previously on this blog adressed the injustice of affirmative action- and the negative effects of it in three countries that has it: America, South Africa and Malaysia.

Recently, affirmative action lost big in Michigan. Despite being badly outspent and opposed by both the Democratic and Republican establishment, by big media, by big business (including the big 3 car makers in Detroit who despite their financial troubles thought they could afford to sponsor the no-camp), by the unions and by the clergy, the proposition to ban affirmative action in Michigan won an overwhelming victory, 58 to 42.

I now stubled upon a piece by left-liberal columnist Gene Sperling, who attacked the proposition in Michigan and defended affirmative action. It is a quite instructive example of the faulty thinking underlying affirmative action.

He for example claims that a measure designed to ensure that people are treated according to their qualifications will reduce the number of skilled people. Rather odd claim since it is always the most qualified who has the best chance of learning the skills taught at universities. So how does he motivate it? Well, like this:

"First, the MCRI would impede our capacity to deal with projected skills gaps in our workforce. A bipartisan Aspen Institute report, led by David Ellwood, dean of Harvard University's John F. Kennedy School of Government, found that the U.S. pool of workers aged 25-64, which grew 44 percent over the last 20 years, won't expand in the next 20. Meanwhile, blacks, Hispanics and women -- groups underrepresented in the areas of science and engineering -- will make up a bigger proportion of our workforce.

To increase the pool of skilled workers in areas critical to our economy, we need an all-out national effort to boost the percentages of women and minorities who want degrees in science, engineering and math."

As for the first part about the projected stagnation in the labor force, I don't see how that is really relevant for the admission criterias. As long as the number of admitted students is the same it doesn't matter what admission criterias you have for that fixed number of seats.

Or actually, since surely the number of graduates rather than the number of freshmen students is what matters, criterias based on qualifications will best help meet any skill shortage since qualified students are much more likely to be able to graduate.

The experience from California after they abolished affirmative action is that while admission of blacks and hispanics dropped sharply at elite universities, the graduation rate of those that remained rose sharply. And more importantly, overall black and hispanic university admissions did not fall as they instead attended less
demanding universities. And with the course being less demanding, the total number of black and hispanic graduates increased significantly after affirmative action was abolished.

Meanwhile, the number of white and Asian graduates also rose. The experience from California shows conclusively that affirmative action at universities reduces, not increases the number graduates of all races including blacks and hispanics.

As for the second part about how blacks, hispanics and women will be a higher proportion of the workforce in the future, that will indeed imply a less skilled workforce provided the average skills of the specific race and gender groups are raised.

But if we are to remedy that, what's needed is improved educational performance of blacks and hispanics in elementary school and high school. Trying to pretend the performance gap from lower levels of education doesn't exist when deciding admission criterias will not do any good-as affirmative action will again only mean fewer graduates.

Moreover, what in case will be needed is more skilled students-whether they're black, hispanic, white, Asian or whatever. Further increasing the number of white or Asian graduates will be just as good for the economy as increasing the number of black and hispanic students even if the black/hispanic share of the workforce increases (There are certainly room for that as there are many whites/Asians who aren't college graduates).

Sperling has another line of argument , namely:

"Second, the MCRI ignores the business case for diversity, made by Fortune 500 companies in an amicus brief filed in the U.S. Supreme Court case Grutter v. Bollinger that unsuccessfully challenged the University of Michigan Law School's policy of considering race as one factor in admissions.

As the Fortune 500 brief says, ``today's global marketplace and the increasing diversity in the American population demand cross-cultural experience and understanding.''

For our nation's businesses, competing in the global economy places a premium not only on diverse workforces, but on workers who can thrive in racially and ethnically diverse contexts. This point is critical because it underscores the fact that a diverse student body benefits both minority and white students by giving everyone the chance to form friendships with those from different geographic, ethnic and racial backgrounds."

First of all, to think that ideas are innate to certain races and that diversity of ideas require racial diversity is in fact a blatantly racist concept, as Michael Berliner and Gary Hull of the Ayn Rand Institute points out. And as this racist concept is false, there is no evidence that racial diversity will boost competitiveness. Japan, South Korea and China are ultra competitive, scaring the shit out of American business who in desperation go to Washington D.C. for assistance in the form of protective tariffs. And yet Japan and South Korea is two of the world's most homogenus societies, and so are for all practical purposes China too (Most of China's non-Chinese minorities are in poor, marginalized provinces like Tibet, Xinjiang and Inner Mongolia)

He then carries on by saying:

"Supporters of the MCRI, such as its author Ward Connerly, chairman of the American Civil Rights Institute, believe that we should see the slightest consideration of racial diversity as the moral and legal equivalent of our most pernicious past practices of discrimination. Yet, our shameful history of excluding, segregating and imposing second-class citizenship on minorities shouldn't be used as a rationale to handcuff universities from taking steps to ensure a racially diverse student body."

And why not? On that, he says nothing. Racial discrimination is always irrational, regard of whether it is against blacks or against whites and Asians.

Norway's Trade Surplus Falls

One of the mayor sources of global imbalances have been the windfall gains of oil exporters such as Norway. But now, with oil prices finally falling, this seems to be partially reversing. Norway's trade surplus in October 2006 was 26.8 billion Norwegan kronor (roughly $4.2 billion), a decline from 32.2 billion (roughly $5 billion) in October 2005. This is a dramatic reversal from the rapid increase previously during 2006. And so, despite October's decline, the surplus for the first ten months of the year is still much higher than during the same period in 2005, 316 billion Norwegan kronor (roughly $49 billion) versus 251.3 billion (roughly $39 billion).

The trend reversal for Norway's surplus is likely mirrored by similar declines in the trade- and current account surpluses of other oil exporters such as Russia, Venezuela, Saudi Arabia and Iran. This should mean a relief in the unsustainably large U.S. deficit, and also a further increase in the surpluses of China, Japan and other East Asian oil importers.

Is U.S. Inflation Falling?

After today's PPI report, which showed sharp declines in both the all-items and "core" price indexes, some analysts, including the usually perceptive Nouriel Roubini have concluded that inflation is falling and falling rapidly.

The problem is that the decline in the October PPI can be traced to two temporary items: first the decline in energy prices, which have halted now as oil have stabilized at slightly below $60 per barrel. Secondly, the entire decline in core PPI and more can be attributed to a one-time hedonic adjustment of the perceived quality of new cars. Excluding this adjustment, core PPI rose 0.1%. I am not against hedonic adjustment in principle, but I have little faith in the government's estimates of it. And at any rate, even assuming it is done correctly, attributing the entire month to this month and thus misleading. And it will not be repeated in the coming months.

If you look at the underlying cost picture for the items consumer buy, you see a strong upward pressue. Unit labor costs is soaring, rents are rising due to a shift in preferences from owned to rented housing, the dollar is falling and non-energy commodity prices is soaring.

Weakness in consumer demand will however mean that consumer prices will rise a lot less than what you would expect given the trends in above mentioned underlying costs. Instead, corporate profits will be squeezed. But, I still expect core inflation to be above 2.5%, greatly limiting the scope for Fed rate cuts during the coming recession.

Mixed News in Japan's GDP Report

While Japanese growth of 0.5% (i.e. 2% with the American way of expressing growth, at an annual rate)during the third quarter was a lot weaker than I expected a few months ago, it was higher than most analysts expected recently and it was relatively strong considering other recent weak reports.

Oone of the reasons why growth was weaker was that the second quarter number had been upwardly revised (from 0.2% to 0.4%) due to higher inventories. That limited the gain in inventories this quarter.

But the most important reason for the disappointing growth was an unexpected and significant decline (0.7%) in private consumption. In part this was due to weak wage growth, and in part because of bad weather that kept shoppers home. Bad weather is not likely a permanent factor, so this should be reversed during the fourth quarter. While wage growth have been surprisingly weak given Japan's low unemployment rate, it should pick up soon.

And in any event, real compensation of labor had in fact increased 1.6% in the year to the third quarter(the nominal 1.3% increase deflated with a 0.3% decline in the PCE deflator). While that is hardly great, it certainly isn't weak enough to motivate the mere 0.3% increase over the year in private consumption. So, expect a bounce back (and possibly also a upward revision) in private consumption during Q4. Particularly since the lower oil prices should boost purchasing power among consumers.

And the most important factor behind growth, business investments, continued to soar. While the weak machinery orders number (a leading indicator of business investment) recently published indicates that investment growth will slow during the Q4, the long-term prospects remains healthy given the high level of corporate profits.

Another healthy sign was the continued gradual decline in government demand. The lower burden of government should boost the performance of the Japanese economy.

Japan's demographic situation, with a shrinking work force means that its structural growth rate is relatively low. But, the low level of debt, means that it is in a more favorable cyclical situation than both Europe and particularly America.

Stop Listening to Greenspan!

Alan Greenspan have been worth listening to, for two very different reasons during his life time.

First, during the 1960s he was worth listening to because he had sensible things to say, like during the 1960s when he was an associate of Ayn Rand.

Then, between August 1987 and January 2006, he was worth listening to, because he was the world's most influential man in the economic sphere. He was anything but sensible during that time, but since he had so much power it was nevertheless meaningful to study him and his statements.

But now, after he has retired? As Rachel Beck points out here, Greenspan is a lousy forecaster and as I've pointed out here, a lousy analyst. So, now that he at last is powerless, why does people keep people listening to him, other than as an example of someone who pathetically refuses to recognices the damage he and his intellectual dishonesty has caused.

More on Lou Dobbs Democrats

I see via Cafe Hayek that Harold Meyerson of the Washington Post have written more about the protectionist leanings of the new Congress. Meyerson writes approvingly about this, but he documents nevertheless interestingly that nearly every Democrat who beat Republicans did so by arguing for "fair trade" (euphenism for protectionism) and attacking their Republicans opponents for being too free trade oriented. Protectionist sentiment thus appears to have been another factor, besides opposition to the Iraq war behind the Democratic victory. The exit polls that I've studied didn't ask about trade, but the fact that the Democrats campaigned on this and won, indicates that it was a contributing factor.

Given the fact that we're talking about 27 House congressmen and 6 senators, the protectionist shift is significant. Given this shift and given the likely downturn in the economy, we can really forget about liberalization here, the question is now to what extent increased trade barriers can be stopped. Of course, as the Smoot-Hawley tariff bill in 1930 showed, trade barriers will not provide any relief in economic downturns. It will in fact just aggravate the problems further. But we certainly can't expect politicians to refrain from a policy just because it is destructive.

Peter Schiff On the Election

Many right-wingers argue that the Republican Party is the stupid party and the Democratic Party the evil party. Left-wingers often wishes to have the Democrats as the stupid ones and the Republicans as the evil ones. But anyway, this means that "bi-partisanship" is when people from both parties get together and do something that is both evil and stupid.

It is from this pessimistic perspective that Peter Schiff of Euro Pacific Capital analyzes the election results. I hope he is wrong, but unfortunately I think he is probably right:

"Now that the Democrats have likely taken control of both houses of Congress, some on Wall Street are cheering the return of government “gridlock.” The idea is that in a divided government each party stymies the other, resulting in no new legislation and no need to reformulate business plans. Companies and investors feel more comfortable with the devil they know. As legislation often does more harm then good, gridlock can be seen as being friendly to business and good for the economy.

However, my fear is that we actually get something far worse: bi-partisan cooperation. The most likely result of both parties "working together" is Democratic support of Republican pork, in exchange for Republican support of Democratic pork, which will wreak further havoc on the country's already dismal balance sheet. In addition, grandiose and ill conceived pet programs on both sides have much better chances of actually being passed. The last thing we need is Democrats and Republicans actually working together.

By 2008 the country will likely be in a deep recession squarely blamed on the Bush administration. This will set the stage for the Democrats to recapture the White House with a strong mandate for change and a supportive legislature. If the "free market" and "laissez-faire" rhetoric of Republicans are discredited, then the big government Democrats could be perceived as the solution. If so, look for a potential President Hillary Clinton and Speaker Nancy Pelosi to summon the ghost of FDR and conjure up another New Deal. Such fiscal activism, especially coming at a time when our nation can ill afford it, will cause the recession to be a whole lot deeper and last a whole lot longer than might otherwise have been the case."

Ehhh.... va?

Jag vet jag säger att någonting var det mest korkade någonsin alltför ofta (då jag i min tidvida närsynthet bara utgår från hur otroligt dumt en viss sak är och bortser från hur dumt alla andra dumma saker är) och därför kommer jag inte nu säga att det var det dummaste någonsin, men nog var denna debattartikel från Jonathan Liberman och Lisa Bjurvald i Aftonbladet mycket dum.

Artikeln går huvudsakligen ut på att fördöma Radio Islams och dess huvudman Ahmed Ramis antisemitism. I det har de ju helt rätt. Ahmed Rami och Radio Islam är irrationella judehatare som kan och bör fördömas.

Men det är ett mycket långt steg från att konstatera att Ahmed Rami har fel till att begära att hans ska censureras. Det första är elementär faktakontroll. Det andra är fascism. Yttrandefriheten måste värnas även för svin som Ahmed Rami, eftersom annars kan detta avsteg från principen om yttrandefrihet användas för ytterligare inskränkningar.

Det perversa i denna artikel är att dessa censurförespråkare perverst nog använder yttrandefrihet som argument för censur (!)

"Den sorgliga sanningen är att västvärlden inte längre vågar stå upp för yttrandefriheten när det verkligen gäller. Vi viker oss för antidemokratiska krafter, som i det fall där man i Tyskland lade ner en (ej rasistisk) opera redan innan den haft premiär, på grund av rädslan för repressalier från de islamister som skulle ha kunnat uppröras.

Hur kan vi vika oss för radikala element, men samtidigt tillåta att yttrandefriheten missbrukas för att kränka och svartmåla som i fallet Radio Islam? En propaganda­maskin vars nazistlika registrering av ”judar”, ”halvjudar” och de som i Ahmed Ramis bisarra tankevärld ses som ”medkonspiratörer” eller ”judiska lobbyister”?"

Att stå upp för yttrandefriheten när det verkligen gäller är inte bara att stå upp mot jihadister, utan även såna som ni, Jonathan Liberman och Lisa Bjurwald. Jihadisterna hävdar ju att all slags negativ framställning av den s.k. profeten Muhammed är "kränkning" av muslimer. På samma sätt hävdar ni att Ramis texter är "kränkning" av er. I ett fritt samhälle måste man tåla s.k. kränkning, ett begrepp som är så subjektivt att vem som helst kan potentiellt åberopa det för att tysta vem och vad de vill.

Och det är ju närmast höjden av hyckleri att i en text åberopa yttrandefrihetens vikt i syfte att undertrycka den.

Why Money Is Relevant

Reportedly, there is pressure on the ECB to do away with its formal targeting of money supply growth, just like virtually every other central bank have. Well, given the fact that the ECB have in practice consistently ignored money supply and kept interest rates low despite the fact that money supply have been way above the 4.5% target, they might as well do away with it. There's no sense in having a formal target if you're just going to ignore it.

But really, money supply is important and should in fact be the primary consideration of central banks -as long as central banks exist, which they really shouldn't. That is not because money supply is a good leading indicator of consumer price inflation. Anyone studying statistics over money supply and consumer price inflation can see that at least in the short- to medium term, money supply growth have virtually no relation to consumer price inflation (with the exception of economies with hyper inflation). But looking at a longer term perspective, the link is stronger, at least if you adjust for real economic growth. And more importantly, even if it doesn't raise consumer prices, it often have the effect of raising asset prices and creating asset price bubbles, something which is just as bad as consumer price inflation.

Trade Developments

The U.S. trade gap fell in September, just as I expected although the decline was greater than I expected. The main reason for this was a lower cost of oil imports, which fell by more than $4 billion from the previous month. This seemed to reflect not only lower prices but also lower volumes. In addition, there was a small decline in the non-oil deficit.

The decline in oil prices are helping to generally improve trade balances of oil importers like America, Japan and China. Meanwhile, the previous soaring surpluses of oil exporters like Canada and Norway have started to stabilize or turn down.

Nevertheless, the still massive U.S. deficit risks being used by the newly elected Congress with its increasing number of protectionists. The increasingly protectionist nature of the new Congress is discussed by Stuart Andersson points out in today's NRO.

An example of the increasing protectionist leanings of the new Congress is the newly elected Ohio Senator Sherrod Brown. He has written an whole book attacking free trade, called "Myths of Free Trade: Why American Trade Policy Has Failed".

Also: Greg Mankiw points to to a Slate article by Jacob Weisberg about how the newly elected Democrats are largely what one might call "Lou Dobbs Democrats". Quote:

"Many of the Democrats who recaptured seats held by Republicans have been described as moderates or social conservatives, who will be out of synch with Speaker-to-be Nancy Pelosi. The better term, with props to Fareed Zakaria, is probably illiberal Democrats. Most of those who reclaimed Republican seats ran hard against free trade, globalization, and any sort of moderate immigration policy. That these Democrats won makes it likely that others will take up their reactionary call. Some of the newcomers may even be foolish enough to try to govern on the basis of their misguided theory."

Election Observations

Just as I expected, the Republicans lost big. It is already clear that they will lose the House and it seems likely that they will lose the Senate too. While no formal winner has been declared in Montana and Virginia, the Democratic candidate has a slight lead in both, making it more likely than not that the ultimate winner after the recounts will be the Democratic candidates. John Kerry's gaffe didn't appear to have made much difference. There are a number of observations that can be made about the election.

Observation #1: Bush and the Iraq debacle lost it for the Republicans

The main reasons why the Republicans lost can be spelled in 4 letters: B-U-S-H. Whenever you saw a TV ad featuring Bush, it was nearly always in a Democratic ad, where it tried to tie their Republican opponent with Bush. Republican ads virtually never featured Bush.

While exit polls are not always 100% reliable, this poll clealy indicated that this was an anti-Bush and anti-Iraq war election. 36% said they voted to oppose Bush, versus only 22% who said they voted to support him.

We can also see how there is a strong antiwar opinion, with 56% disapproving and 42% approving of the war. And the passions are much stronger on the antiwar side, with 40% strongly disapproving versus only 19% strongly approving. Among those who strongly disapproved, the Democrats won an overwhelming victory ( 87% to 12%).

The economy, by contrast doesn't appear to be a factor at all. While many listed this as an important issue, the Republicans and Democrats shared their vote roughly 50-50. Similarly, in another important issue, corruption and scandals, the Democrats won only a slight victory, despite the fact that the biggest scandal involved Republican Mark Foley.

The implication of this is also that unless Bush comes up with a plan to turn things around in Iraq, Republicans will lose even greater in 2008. With the economy likely to be weak, this factor is likely to be much more negative in 2008. With a weak economy and two more years of "staying the losing course", the Democrats will not only likely secure even more Congressional seats in 2008, they will also win the White House.

Observation #2 Libertarians proved to be an important factor in many cases

The most prominent libertarian politician, Republican Ron Paul, was re-elected with an overwhelming majority, 60% to 40% (see the 14th district) despite the general Democratic tide and despite his "extremism".

No candidate for the Libertarian Party won any seats in the U.S. House of Representatives or the U.S. Senate, but they did win a few seats in local assemblies. And more importantly,in many cases the votes they took likely deprived Republicans of victory. In for example the Montana Senate race, Libertarian Stan Jones got 10,166 votes or 2.6%. Compare this to the 1,735 votes lead that Democrat Jon Tester now holds over Republican incumbent Conrad Burns.

Similarly, in the Wyoming House race, Libertarian Thom Rankin got 7,300 votes or 3.9%. Compare this to the 822 vote lead that incumbent Republican Barbara Cubin have over Democrat Gary Trauner. The fact that Libertarian candidates often gets so many votes that if they had gone to the Republicans they would have won, could put pressure on Republicans to return to the small government philosophy they're supposed to stand for, instead of the big government "compassionate conservatism" of George W. Bush.

Observation # 3 Referendums usually had good outcomes.

There were a lot of referendums this day. There were some bad referendum results, such as the increased minimum wages in a few states, but because American minimum wages are so low now, that will only cause very limited damage.

But in the two referendums I considered important, the outcome was good. In California, the ridiculus and idiotic "Proposition 87" that proposed taxation of California oil production in order to reduce dependence of foreign oil lost by a margin of 55% to 45%. Still, that a full 45% of Californians could support such a stupid measure is ominous.

And in Michigan, a ballot measure to ban the racist affirmative action policies of that state passed by a margin of 58% to 42%.

This despite the fact that the no-campaign had the support of virtually the entire Michigan establishment. All Democratic politicians and the Republican leadership in that state campaigned to keep the current racial discrimination policies. The no-campaign also received massive financial support from the "Big 3" car companies in Detroit. Here we may see a clue as to why Japanese car companies keep beating the shit out of them, namely the fact that they supported a measure to select people on the color of skin rather their qualifications indicate that they hire people on other grounds than competence. And so these incompetent employess pursue incompetent strategies that means that they lose market share to the Japanese.

Observation # 4 It remains to be seen whether this is good and bad

The optimistic view of this outcome is based on the observation that divided governments usually spend a lot less than governments where the same party holds both the White House.

Hopefully, that's how things will turn out and it might very well happen. However, the problem is that in the past, the Republican White House or Congress that shared power with a Democratic Congress or White House, was basically committed to reducing government. But George W. Bush with his "compassionate conservatism" is not interested in limiting spending, just as the Democrats aren't. So spending might increase just as much or more in the coming two years.

Moreover, the Democrats are committed to raising taxes and pursuing protectionist trade policies. And since Bush's tax cuts were made only temporary, it requires an active decision not to raise taxes. Had an active decision been required to raise taxes, Bush could have vetoed it. But he can't use his veto power to force Congress to make the active decision to extend the tax cuts, and so the Democratic victory is likely to imply tax increases. And as there are now more protectionists in Congress and with America heading into a recession with hugh trade deficits, the risk is very high of protectionist trade policies actually being implemented.

3 Myths About Voting

Since it is election day in America today, I thought it would be appropriate to refute 3 popular myths about voting.

Myth #1: "You can change things by voting" or "On election day, you decide"

This myth is remarkably popular given obviously false it is. While few would defend this myth if you really pressured them on the issue, you often hear people talk as though they believe it and most people seem to subconsciously believe in it. The only explanation for this that I can come up with is that this myth is a necessary part of the "democracy is freedom" myth that is a key belief supporting the current system.

I remember hearing this particularly often after the narrow victory for George W. Bush in Florida in 2000 over Al Gore, how this supposedly prove that by voting you make a difference. Oh really?

The final victory margin for Bush over Gore in Florida was 327 votes. Suppose some Gore supporter believing he could make a difference and expecting a tight race in Florida had purposely moved to Florida to make a difference. What would have happened then? Would he have made a difference? No, what would have happened in that case would simply be that Bush had won over Gore with 326 votes instead of 327. This would have changed absolutely nothing in terms of events shaping the world. Bush would still have become president and he would have pursued exactly the same policies as he has done for the past 6 years.

Indeed, as far as I know there is not a single example in the entire world where a single vote would changed who controlled a state, province or municipality or changed the outcome of a referendum. There may be some case somewhere where it have happened, but I doubt that it is more than one or two cases. Perhaps it is marginally more common for the distribution of seats to have changed on account of a single vote, but that too is extraordinarily rare. It is far more likely to be hit by lightning or get run over by a car on your way to the polling station than to change the outcome of an election.

Thus far from popular perception, the ordinary person is really as powerless as in a formal dictatorship. He can't get his way unless he is lucky enough that millions of others share his views. This is yet another reason why the market process is preferable to the political process. In the free market you get what you want without having to convince others. You can choose a Pepsi over a Coca Cola (if you have that preference) without having to convince others and you can have it without having to deprive the Coca Cola fans of their favorite brand. That is true freedom, unlike the illusory freedom of political elections.

Now, you may perhaps still want to vote if voting means no real sacrifice for you (like missing income because of skipping work or travelling long distances to get to a polling station) and if you feel a psychological need to symbolically mark your preference for political change. That is in fact the reason why I have usually voted in elections where I am an eligible voter. However, you should have no illusion that you change anything by voting or that voting makes you a free person.

Myth #2:"I may really sympathize more with some small socialist/ultraconservative/libertarian third party than any of the established parties, but since they have no chance of winning or entering the parliament I instead choose to vote for the lesser evil among the established parties"

Case in point was the latest Swedish election. There were a lot of complaints from Swedish libertarians and objectivists that the 4 centre-right parties in Sweden didn't propose sufficiently radical free market reforms and tax and spending cuts. Given the fact that there was a pure libertarian party, Klassiskt Liberala Partiet, on the ballot, you would have thought that they would have received quite a lot of votes.

But no, instead they received just 202 votes. Instead most libertarians voted for one of the centre-right parties (with the Centre Party being the most common choice) because they unlike KLP had a chance of entering the Swedish Parliament. Voting for KLP would supposedly have been "a wasted vote" because they had no chance of entering the perliament.

But even setting aside the high extent to which this belief is a self-fulfilling prophecy, it is wrong to believe that your vote somehow counts more if it goes to a party which is represented in parliament than one who goes to a party which is not represented in parliament. But this presupposes what I already explained to be false in myth #1: namely that your vote will change anything with regards to who runs the country, which it again certainly doesn't. To the extent that voting makes sense at all, it is to symbolically mark your political preference. And the effect there is if anything greater with smaller parties. Had say 1000 libertarian Centre Party voters instead chosen to vote for the KLP, then the election result would have been been 436389 for the Centre Party and 1202 for the KLP, instead of the actual results of 437389 and 202. The former would have clearly sent a stronger signal for freedom.

Myth #3: "Not voting sends a stronger signal for freedom than voting for a libertarian candidate/party".

This myth is even more false than myth #2, yet it has the support of many prominent libertarians. They believe that by voting you legitimize the system and that by not voting you are sending a signal that you reject the entire system. The problem is that this theory have nothing to do with reality.

Most non-voters aren't libertarians. They are simply politically ignorant and in many cases they are statists who are displeased with their "natural choice". Many conservatives for example will likely choose to not vote today because they feel the Republicans haven't done enough to limit spending and control immigration. Many socialists on the other hand will not vote because they feel the Democrats aren't socialist enough.

Since thus only a small proportion of non-voters are libertarians, not voting will certainly not be interpreted as a symbolic mark for libertarianism, but for voter apathy or discontent with the insufficient conservatism of the Republicans or insufficient socialism of the Democrats. By contrast, there is no doubt about what I kind of signal you're sending with a vote for a libertarian candidate. The obvious faultiness of this line of thinking was illustrated when Butler Shaffler tried to refute this by writing:

"Ask yourself this question: what would send a stronger anti-political message, a 10% voter turnout, or an 80% voter turnout in which the libertarian candidate received 0.7% of the vote?"

But here he applies completely different conditions for the two scenarios. What is relevant is the marginal effect of a single vote or any other fixed number of votes. Since he appears to think that everyone not voting in scenario number one does so for libertarian reasons he there assumes that 70% of the population are libertarians, whereas in scenario number two only 0.56% are that. The relevant comparison is when you compare the effects of a fixed number of votes (or non-votes). If we assume that 70% are libertarians, then if everyone of these voted libertarian, the libertarian candidate would get 87.5% and would thus win. If on the other hand, none of them voted it would presumably be some complaints about "voter apathy", but the system would remain-and remain unlibertarian. In Sweden, voter turnout in the elections to the Church of Sweden (the former state church) is usually only about 10% , but the church remains. If 0.56% were libertarian, then the system would remain unlibertarian no matter how these 0.56% voted(or not voted). But the signal would still be stronger with 80% turnout, 0.7% of which went to a libertarian candidate, than with 79.44% turnout and 0% to the libertarian candidate.

By all means, given what I explained under myth #1, you would be rational in not voting if voting meant any significant sacrifice for you. But you shouldn't delude yourself in thinking that non-voting somehow helps the cause of freedom.

Funniest Political Ad This American Election Season

For some reason, it has become fashion among American Senate candidates this election season to have ads with their daughters telling everyone how nice their dad is and how people should therefore vote for him. Just look at this ad from Tennessee Republican Senator Bob Corker and this ad from Pennsylvania Democratic Senatorial candidate Bob Casey (who will likely win over incumbent Republican Senator Rick Santorum).

Well, of course it's great that these girls like their dads enough to endorse him, but really, given their rather obvious bias, it's hardly convincing for rational voters not closely related to the candidate in question.

But at least one of these "daughter thinks her dad would be a great senator"-ads was made really funny. Namely this ad from Michigan Republican Senatorial candidate Michael Bouchard. Saying it was "the best political ad" ever, as the poster of the ad to YouTube did, is a bit of an exaggeration. After all, the purpose of a political ad is to turn things around for the advertising politician, and Mike Bouchard is trailing badly in the polls. So, while the ad may perhaps have helped, it clearly have had a very limited effect.

But in terms of funniness, it is definetly the funniest one that I have seen, at least this election season. I really like the looks on the faces of his poor daughter Mikayla and her date when Mike says "Isn't this fun"?

Also see the follow-up ad where Mikayla re-appears:

Good And Bad Arguments Against the Death Penalty

For a number of reasons (Here I discuss one of them) I think the Iraq war was a big mistake. But sympathy for Saddam Hussein certainly wasn't one of them. And now that the mistake has been made, there is no reason not to use it to do something good, like executing Saddam.

Yet particularly here in Sweden and in most other European countries, the death sentence is condemned and people say it is in principle wrong with executions-even for a mass murdering tyrant like Saddam. But on what ground are the death penalty supposed to be wrong on principle?

Is it because it is always wrong to kill someone? That everyone has a right to life, and that the justice system cannot violate the normal moral laws? But if it is wrong with the death penalty because murder is wrong, isn't prison and fines wrong because kidnapping and theft is wrong? This argument is not really an argument against death penalty, but against all forms of punishment.

The point is that criminals by not respecting other people's rights have given up their moral claim on others to respect their rights. And as murderers have chosen that they do not respect other people's right not be killed, they cannot claim any right not to be killed by others.

There is another argument against death penalty which is basically valid: namely that if you execute someone and later find out he was innocent you can't free and compensate him. That would by contrast be possible with life imprisonment. For this reason and because life imprisonment is almost as tough punishment as the death penalty, I am basically content with having that as toughest punishment.

But in murder cases where there is zero doubt about guilt, like the case of Saddam Hussein, it is just to execute them.

Another Apparent Statistical Discrepancy

Yesterday I pointed to the seeming contradiction between the barrage of weak economic reports that we've seen for the last few weeks and the very strong employment numbers released yesterday. But that is not the only apparent statictical discrepancy.While the overall U.S. economy is still expanding, albeit slowly, the housing sector is clearly contracting with both residential investments and house prices falling. Yet surprisingly, real estate loans from commercial banks are still expanding rapidly. Last week, it rose by 0.2% to $3281.5 billion, translating into a more than 10% rate of annual increase. And that was actually a relatively slow week, because real estate loans is up 14.2% compared to 52 weeks earlier. Lest anyone thinks this reflected increases late last year or early this year, the fact is that real estate loans are up more than 5% compared to 13 weeks earlier, translating into a annualized increase of 21.8%! And this in a housing bust!

While it to be sure is not inconceivable for real estate lending to boom during a housing bust, it is puzzling to say the least. There are three possibilities for this. Either the statistics showing a housing bust is wrong, or the statistics showing booming real estate lending is wrong or for some reasons banks are willing to increase people sharply increase their mortgage debt level even with falling house prices.

The first possibility is the least likely as the statistics come from too many sources and are too consistent for it to be true.

The second possibility is somewhat more likely as most of the increase (130 of 160) during the latest 3 month period came during a single week-between September 27 and October 4. Such a one week increase is not inconceivable but extremely unusual and therefor sort of suspicious.

The third possibility would be far more ominous as this means that debt overhang is accelerating further even with the slowdown and that thus the slowdown is not "doing its job" of clearing excesses. The excesses are then increasing at an faster rate than before, implying even more trouble lies ahead.

Surprising Job Report

Today's U.S. employment report was much stronger than I expected. Unemployment fell from 4.6% to 4.4% as the number of employed in the household survey rose 0.3%. The headline payroll survey number was a lot weaker, but combined with upward revisions of previous numbers and the increase in the average work week, it still meant a strong increase in hours worked. In addition to all of this, average hourly earnings rose 0.4%.

A very strong number indeed. The one you would have expected from a booming economy, not one steadily weakening as implied by the 1.6% growth number and the 51.2 ISM index for October and a otherwise consistent series of report showing rapidly decelerating growth.

How to explain this anomaly? One possible explanation is that either the production numbers underestimate production growth or that the employment report overestimates true employment growth or perhaps a combination of the two.

The other possible explanation is that both of these numbers are basically correct and that productivity is declining and profits falling even steeper in the fourth quarter than yesterday's productivity and labor cost report indicated for the third quarter. While that would presumably be cheered on by those who think that labor have received too little of economic growth compared to capital, it could be ominous for the outlook of business investments. It could also mean that price inflation could pick up further.

Innocent?

Apparently two women were killed and a few more injured during a battle between Israeli soldiers and Hamas soldiers in Gaza. To which Israeli Army spokesman comments:

"Unfortunately, maybe one woman was killed - I don't know if it's by IDF or not. But our purpose is definitely not to hit the innocent ones."

But apparently these "innocent" women were women who had heeded a direct call from Hamas to act as human shields for their soldiers as they fled from Israeli soldiers. Apart from again confirming how Islamic fighters systematically use women and children on purpose as human shields, it must be said that you are anything but "innocent" if you run to a mosque with the direct intention of acting as human shields for Hamas soldiers engaged in a battle with Israeli soldiers.

Jävla pappskallar

Finns det några som är mer korkade än den s.k. "autonoma" extremvänstern? De har ju förvisso hård konkurrens från många andra värdiga kandidater till den titeln, men när man ser vad som hände i Göteborg igår,då känns det som att ultravänstern måste vinna.

En talesman för den lilla kommunistiska (trotskistiska) sekten Rättvisepartiet socialisterna förklarar varför de anordade demonstration så här:

"Vi vill visa att Sverigedemokraterna är en liten extremistisk klick som inte tolereras av den breda allmänheten"

Och det tror de att de gör med en demonstration på ynka 100 personer i halvmiljonstaden Göteborg? En demonstration som ju mest varit patetisk om det bara varit en demonstration, men inte helt oväntat hade de en svans av drygt 40 AFA-huliganer som ser till att lamslå centrala Göteborg och orsaka poliskostnader på 1 miljon(!).

Det enda resultatet av AFA-huliganernas verksamhet är förutom den där miljonen i kostnader att allt fler lär stödja SD. De som i allmänhetens ögon beter sig som en "extremistisk klick" är ju ultravänstern, inte SD. Många lär ju resonera som så att om de där psykotiska våldsextremisterna i AFA och allierade organisationer (Ung Vänster, SUF, Osynliga partiet osv.) hatar SD så mycket då är nog inte SD så dåliga ändå. AFA fyller för SD liknande funktion som John Kerry för republikanerna.

En komisk fotnot i det hela är att tydligen så begav sig runt 20 nazister till extremvänsterns möte för att störa det. Bilden av vad som hände skiljer sig komiskt mycket från de båda sidorna. På den nazistiska webportalen Info-14 hävdar man att de som man kallar det "nationalistiska" aktivisterna drev vänsteraktivisterna på flykt och att dessa fegt gömde sig bakom en mur av poliser trots att de hade ett numerärt överläge. På ultravänsterns webportal Motkraft hävdar man tvärtom att det var nazisterna som flydde undan vänsterextremisterna.

Vem som har rätt vet jag inte då jag inte var där och då jag inte litar på någon av dem. Klart är dock att minst en av dem ljuger och att båda är kapabla till det.

UPPDATERING: Jag ser att det i Expressen/GT publicerats en artikel av en journalist som liksom jag påpekar att AFA i praktiken är SD:s mest effektiva kampanjarbetare.

Bad Report on the Economy Could Be Good News For Republicans

Republican pundits like Larry Kudlow have long bewailed the fact that Bush's rating on the economy have been low even though the economy have been strong. Kudlow suggested this was due to inadequate marketing from President Bush and liberal media bad-mouthing the economy, whereas left-wing pundits argued that this discrepancy was due to the allleged fact that the benefits from economic growth only went to corporate profits and CEO pay.

While the latter is an exaggeration, it is certainly true that until recently corporate profits and CEO pay increased a lot faster than national income and that thus real income for most Americans have increased a lot slower than per capita income. This is indeed probably part of the story why Bush got low ratings on the economy even though the economy was booming.

But now it seems that corporate profits are falling again whereas real wages for workers are rising. The latest productivity and unit labor cost report from the Bureau of Labor Statistics was pretty bad news for the U.S. economy. Productivity growth on the previous quarter fell to zero, and year over year productivity growth fell to 1.3%-the lowest since 1997.

But even as productivity growth have dramatically accelerated, compensation fo labor have in fact accelerated. Real compensation is now up 3.2% over the previous year and unit labor costs is up 5.3%.

While we will have to wait until the next GDP report for the first statistics on third quarter corporate profits, it seems likely that corporate profits fell. With
unit labor costs rising a lot faster than price inflation, this can only mean that profits fell. This may surprise some as earnings reports from Wall Street were fairly strong, but Wall Street companies include only big multi-national corporations. As corporate profits in the national accounts includes all companies, including all small and medium sized, this apparent discrepancy is probably the result of falling profits for small- and medium sized companies and/or rising profits for the non-American branches of big business.

This shift of national income from capital to labor could be bad for the economy as the strong corporate profits have been driving increased business investment, which in turn have helped counteract some of the effects from the bursted housing bubble. But as the increased real wages should improve perceptions of the economy among ordinary Americans, this might help the Republicans in newt week's congressional election. Confirming this view is the fact that even as the economy is weakening, the President's rating on the economy is suddenly rising.

I still believe the Republicans will suffer net losses in Congressional seats, but the improved ratings on the economy together with John Kerry's "botched joke" will limit these losses and possibly help them stay in control in the House and/or the Senate.