Market Process Blog

On Townhall.com John Stossel titles an article The Road to Serfdom borrowing the title of the famous book by F.A. Hayek. He writes “It’s exciting that the world is so excited about Barack Obama. I’m excited, too. That he achieved the presidency says something good about America.” So then why does Stossel choose this title? He warns us that we have to look at the policy proposals coming out of the White House … read more.

I have always told my students there are two definitions for inflation. 1) The now standard textbook definition “a general increase in the prices of goods and service.” 2) A decline in the value of the currency, which is a more traditional and I think more accurate definition. The “price level” does not always accurately reflect inflation i.e. the devaluation of the dollar. Milton Freidman is famous for saying “Inflation is taxation without legislation.” However, now we are being bombarded with demand side theory that what we need is more inflation. “I’m advocating 6 percent inflation for at least a couple of years,” says Rogoff, 56, who’s now a professor at Harvard University. “It would ameliorate the debt bomb and help us work through the deleveraging process.” …read more The rationale, dollars that are worth less are a benefit to those in debt, and we all know the government is a major holder of debt.

Thanks to Patty Grant a former student of mine for making me aware of this article by Adam Shaeffer from the Cato Institute on school choice here in South Carolina. More on South Carolina School Choice Hearing This is a proposal that Governor Samford has tried to pass for years, and could not get pass the legislature. It is interesting that now Senator Robert Ford is running for governor he is supporting this policy.

Diana Olick a CNBC reporter has a piece on fourclosures RealtyTrac: Real Numbers or Hype?
She writes “Here’s the deal. RealtyTrac gets its total number of foreclosures–176,137 in May–by adding up “default notices, auction sale notices and bank repossessions,” according to their press release. Does that mean that some properties get counted multiple times? You bet it does.”

I also recently learned that if a property had an 80/20 mortgage i.e. no money down it counts as two foreclosures. So may be the numbers are overstated.

Ron Paul provides an interesting perspective on the Fed’s intervention and so called stress tests for banks. Most importantly, he notes that preventing the market correction is not a good policy strategy.

Wikipedia is a great source of decentralized knowledge see the earlier post on it’s origins.  However, it is subject to errors and media sources aparently getting lazy and not double checking their sources according to MSNBC

My colleague in hospitality and tourism pointed out this article to me. The Colorado Restaurant Association is taking efforts to encourage consumers to continue to patronize restaurants. I thought it was a clever ad campaign. If only it was that simple.

Yale Law Professor Steven B. Duke has an interesting article in the Wall Street Journal on the legalization of drugs. He does a nice job outlining the problems associated with prohibition and the economic consequences of such actions. (full story here).

According to CNN “Veteran Pennsylvania Sen. Arlen Specter switched from the Republican to the Democratic Party on Tuesday, saying he has found himself increasingly ‘at odds with the Republican philosophy.’” Read the full story. Which started me thinking does party matter? Political scientist I think would say yes, and I think political strategist and pundits would agree. It does matter in the outcome of specific votes and legislation. The Democrats will now have a filibuster-proof majority in the U.S. Senate for the first time since the 95th Congress, from 1977 to 1979. The Democrats controlled 62 seats during the first two years of the Carter presidency.

The question still remains does party matter? Over the years I have conducted a fair amount of research on state spending, and voting behavior of both Senators and members of the House of Representatives and my best guess is that it does not. Now I am not suggesting that my research is the definitive answer by any means. In fact, my results are mixed depending on the issue being examined. When it comes to voting in the Senate party does not seem to matter, but it does in the House of Representatives. It does not seem to matter in state spending or the overall fiscal performance either, although some economists have found higher spending under Democrats than Republican. I think the main point is that spending has increased under both. So what is my point? That ideology may matter, but party does not. Over the years senators have switched from Democrat to Republican and vice versa, or to independents (see the list here). The point is that spending and government grows under Republicans and it grows under Democrats. The problem not whether the Democrats or Republican are in charge the problem is we are putting politicians in charge.

Public choice economics teaches us that politicians are rationally self-interested in political markets the same as they are in private markets. It does not matter which party they belong to. Arlen Specter changing parties according to pundits had nothing to do with which party he felt more comfortable with, but rather under which party name could he win re-election. Our focus should not be on which party is in charge, but rather what institutional rules are the politicians in charge operating.

Did Treasury Secretary Henry Paulson coerce, which according to dictionary.com means, to compel by force, intimidation, or authority, esp. without regard for individual desire or volition, Bank of America Chairman and CEO Ken Lewis into going forward with the Merrill Lynch merger? According to Ken Lewis “Treasury Secretary Paulson, who says he was acting at the direction of Federal Reserve Chairman Bernanke, told Mr. Lewis that the feds would fire him and his board if they didn’t complete the deal.” … full story

So what happened, because Ken Lewis did not disclose this information to his stock holders the board forced him out as chairman. I am not arguing that coercion does not occur in the private market. The difference is we give the government the ability to engage in it legally. “The political class has spent the last few months blaming bankers for everything that has gone wrong in the financial system, and no doubt many banks have earned public scorn. But Washington has been complicit every step of the way, from the Fed’s easy money to the nurturing of Fannie Mae and Freddie Mac, and since last autumn with regulatory and Congressional panic that is making financial repair that much harder. The men who nearly ruined Bank of America have some explaining to do.”