Monthly Archive for July, 2008

The Government Version Of Enron

“It wasn’t until 1968 that Fannie was privatized….The main reason for the change was surprisingly mundane: accounting. At the time, Lyndon Johnson was concerned about the effect of the Vietnam War on the federal budget. Making Fannie Mae private moved its liabilities off the government’s books, even if, as the recent crisis made clear, the U.S. was still responsible for those debts. It was a bit like what Enron did thirty years later, when it used “special-purpose entities” to move liabilities off its balance sheet.” —The New Yorker via Greg Mankiw

In Praise Of Personal Interest

One of the many things I dislike about Chicano Studies as a major is its over emphasis on “nonprofit activism” vs “personal interest”. In the status circles of Chicano Studies students, you are admired more for your desire to ‘build a community outreach center for disadvantaged children’ than for say, getting an engineering degree and ‘making the big bucks’. Obama’s recent graduation speech at Wesleyan University reminded me of that. My strong dislike stems from the belief, based on three reasons, that the emphasis is counterproductive and winds up harming more than helping.

First, it is the wrong message to give to the poorest members of society who have very little to fall back on. If an upper middle class white kid decides to go into nonprofits that kid is accepting a lower standard of living than the one she grew up with but it is far different than a kid from a low income background. Even without financial assistance from the parents, the upper-middle class kid knows that if some financial disaster results, her parents can step in and help. Then there is inheritance, vacation assistance, and other perks that come with having upper middle class parents.

On the other hand, a kid from the ghetto is taking an enormous risk by accepting a low salary. They are, in effect, “putting all their eggs in one basket”. And unless they are the lucky ones, they are doomed to rear their next generation of children in the very same environment they were raised in (I was shocked to hear of a Phd in Chicano Studies buying a house in Compton…you have to have a Phd in Chicano Studies to consider that progress). As I tell my family and friends who are entering the college age, “Leave the charity to the rich kids”.

Second, it is inefficient. Minorities in education, in community outreach, and in most other nonprofits are literally “a dime a dozen”. Another minority, because of diminishing returns, is not likely to make much of a difference. Factor in the effectivity of community outreach (very low) and the contributions that minorities in education add, and you are looking at near insignificant levels of added value.

Contrast that to the number of minorities in the for profit fields like engineering, chemistry, and technology. They are a scarcity and companies are thirsty for more. In short, you are likely to do more good for yourself and for the community as one additional engineer than as one additional member of a community outreach program.

Third, and most importantly, the two are not mutually exclusive. Making more money gives you more choices. If charity is your goal, you are likely to do more good by making alot of money than being just another ‘worker bee’. When I explain this to my friends I use the analogy of Warren Buffet. I ask my friends, imagine if someone had convinced Warren Buffet to abandon what his talents are especially good at and pursue a career in nonprofits, or teaching, or politics? Now, billions later, he can do much more for charity organizations by funding the most efficient ones then by simply being another ‘worker bee’.

In other words, again if charity is your goal, with extra money you can provide valuable resources, fund efficient charities, be a stronger role model to the next generation (three people in my family want to be engineers now, just because of my experience), provide a better future for your children, assist your family out, or, just as importantly, be a testament to those around you that hard work and dedication pay off, that there is a way out of the ghetto.

Lastly, unlike nonprofits, even if altruism is not your goal, capitalism works in such a way that when pursuing personal interest “you are led, as if by an invisible hand, to do things that improve the lives of others”. So I say to the next generation of students, please, ignore your Chicano Studies peers, ignore Obama, and ignore anybody who tells you that making money is somehow less respectable. Your children, your family, and maybe even some charity organizations will thank you.

Quote Of The Day

“In evaluating the need for greater financial regulation, one should also not forget that the American economy greatly outperformed the European and Japanese economies during the past 25 years. Might that not be related in part to the fact that the United States led the way with major financial innovations like investment banks, hedge funds, futures and derivative markets, and private equity funds that were only lightly regulated? An infrequent period of financial turmoil may be the price that has to be paid for more rapid growth in income and low unemployment. Rapid income and employment growth might be worth an occasional period of turmoil especially if they do not lead to prolonged slowdowns in the real part of the economy. So far the effects on GDP and employment have not been severe, although the financial distress is not yet completely over.” — Gary Becker, Nobel Laurette in economics on the trade offs with regulations

Che: The Lefts Icon

Glenn Beck of CNN reports:

So, what is the uniform of choice when fooling terrorists in Colombia? …

That’s right, the same T-shirts you see Hollywood celebrities, starving pseudo-artists and confused hipster teens wearing around local coffee shops. To all those who decide that you want to be coffee house communist-chic, remember this: When you are wearing a Che T-shirt, you’re wearing the same shirt that makes terrorists believe you’re just one of the gang. I hope that latte is tasty.

How Che became such a revered superhero of the hard-core left is laughable. First of all, he wasn’t even a good revolutionary. He failed in his attempt at world revolution almost as badly as communism has failed in the places it was actually tried.

“This is a history of a failure” is how he himself described his efforts in the Congo. He was killed in Bolivia, trying to fire up another failure of a war. Earlier, he even managed to drop his gun and shoot himself in the face.

But more important than his incompetence is the fact that the man was a mass killer. Hundreds were reportedly executed on his watch, and that doesn’t include the deaths incurred in the wars he was constantly trying to start. He described his maniacal lust for war in his writings, saying he savored “the acrid smell of gunpowder and blood of the enemy’s death.” How this guy is a hero to the anti-war crowd is truly perplexing.

I should also point out what seemingly gets eliminated from the Hollywood movies attempting to glorify him: his bouts with racism. When describing the differences in the strife between “Europeans” and “the black,” the supposedly progressive-minded Che wrote, “their different attitudes of life separate them completely: the black is indolent and fanciful, he spends his money on frivolity and drink; the European comes from a tradition of working and saving which follows him to this corner of America and drives him to get ahead.”

Ohhhhh, so the “European” is a hard worker while “the black” is a fanciful drunk. Now I understand the difference. …

Revisionist history’s fusion with fashion sense isn’t exactly new, but its popularity seems to be growing. When actress Cameron Diaz showed up in Peru, she thought she had a trendy bag that might garner some jealous stares. People were staring, sure, but for all the wrong reasons.

The bag, purchased in China, featured a red star and the words “Serve the people” on it. The problem? That was Mao Zedong’s most famous political slogan, and it stirred up memories of the Maoist Shining Path insurgency, which, according to the BBC, was responsible for 70,000 deaths in Peru during the ’80s and ’90s. Diaz apologized later for “inadvertently” offending anyone. “

The full article can be found here. The comments section at the end of the article are a must read.

Quote Of The Day

“The impetus to tighter regulations varies from sector to sector, although there is a growing belief that many activities are insufficiently regulated. Obviously, the current turmoil in the financial sector is stimulating many proposals to regulate extensively various types of financial transactions. Yet it is not obvious that the problems in the financial sector resulted mainly because of insufficient regulation. For example, commercial banks are probably the most heavily regulated group in the financial sector, yet they are in much greater difficulties than say the hedge fund industry, which is one of the least regulated industries in the financial sector. Banks participated very extensively in originating mortgages, including subprime mortgages, and in buying mortgage-backed securities, and so they are suffering from the high foreclosure rates, and the sharp decline in the market value of these securities.” — Gary Becker, Nobel Laurette in Economics writing in his blog

Quote Of The Day

“Basically in the late 1990s Congress passed a law tying Medicare payouts to GDP–if they grow too fast, relative to GDP, reimbursements automatically drop. Ted Kennedy came back from medical leave to override that automatic cut, just as Congress has every year in recent years. All very well, and many physicians will tell you that they just can’t afford to treat Medicare patients for much less. But this–not some bogeyman in a pharma marketing department–is why the cost of Medicare is rising so fast. If we don’t have the political courage to slash reimbursements, or to ration care, then the Democrats should give up any pretense that they are going to slow the growth of entitlements, and just admit that they’re for the thing growing as fast as it can, forever.” — Megan McArdle, discussing the House and Senates refusal to curb doctor pay under Medicare

Rent Control In Action

The standard argument against rent control, see here, is that while it claims to help the poor – in reality, it is a boom to the well off and well connected. If housing for the poor is your real objective, there are many other efficient ways to do it – without rent control.

Example number 8,674,322 of rent control in practice:

While aggressive evictions are reducing the number of rent-stabilized apartments in New York, Representative Charles B. Rangel is enjoying four of them, including three adjacent units on the 16th floor overlooking Upper Manhattan in a building owned by one of New York’s premier real estate developers (see pictures above).

Mr. Rangel, who has a net worth of $566,000 to $1.2 million, according to Congressional disclosure records, paid a total rent of $3,894 monthly in 2007 for the four apartments at Lenox Terrace (16M, 16N, 16P and 10U), a 1,700-unit luxury development of six towers, with doormen, that is described in real estate publications as Harlem’s most prestigious address.

The market price for the apartments would be $7,000/month. Link via Mark Perry.

Our Collectivist Candidates

Cato Institutes David Boaz criticizes the collectivist remarks of our presidential candidates:

On Sunday Barack Obama urged graduates of Connecticut’s Wesleyan University to devote themselves to “collective service.” This is not an unusual theme for a commencement address. But it was interesting how long he went on discussing various kinds of nonprofit activism without ever mentioning the virtues of commerce or of individual achievement.

He also did not cite the military as an example of service to one’s country. This is a surprising omission in a Memorial Day weekend speech to college-age students by a man seeking to be entrusted with the defense of the U.S.

Sen. Obama told the students that “our individual salvation depends on collective salvation.” He disparaged students who want to “take your diploma, walk off this stage, and chase only after the big house and the nice suits and all the other things that our money culture says you should buy.”

The people Mr. Obama is sneering at are the ones who built America – the traders and entrepreneurs and manufacturers who gave us railroads and airplanes, housing and appliances, steam engines, electricity, telephones, computers and Starbucks. Ignored here is the work most Americans do, the work that gives us food, clothing, shelter and increasing comfort. It’s an attitude you would expect from a Democrat.

Or this year’s Republican nominee. John McCain also denounces “self-indulgence” and insists that Americans serve “a national purpose that is greater than our individual interests.” During a Republican debate at the Reagan Library on May 3, 2007, Sen. McCain derided Mitt Romney’s leadership ability, saying, “I led . . . out of patriotism, not for profit.” Challenged on his statement, Mr. McCain elaborated that Mr. Romney “managed companies, and he bought, and he sold, and sometimes people lost their jobs. That’s the nature of that business.” He could have been channeling Barack Obama.

“A greater cause,” “community service” – to many of us, these gauzy phrases sound warm and comforting. But their purpose is to disparage and denigrate our own lives, to belittle our own pursuit of happiness. They’re concepts better suited to a more collectivist country than to one founded in libertarian revolution – a revolution intended to defend our rights to “life, liberty and the pursuit of happiness.”

One gets the sense that Mr. McCain would like to see us all in the armed forces. In a Washington Monthly essay published in October 2001, his vision of national service sounded militaristic. He wrote with enthusiasm for programs whose participants “not only wear uniforms and work in teams . . . but actually live together in barracks on former military bases, and are deployed to service projects far from their home base,” and who would “gather together for daily calisthenics, often in highly public places such as in front of city hall.”

Mr. Obama wouldn’t send us into the military. All he wants is our souls. As his wife Michelle said at UCLA on February 3, two days before the California primary, “Barack Obama will require you to work. He is going to demand that you shed your cynicism. . . . That you push yourselves to be better. And that you engage. Barack will never allow you to go back to your lives as usual, uninvolved, uninformed.”

There is a whiff of hypocrisy here. Mr. Obama, who made $4.2 million last year and lives in a $1.65 million house bought with the help of the indicted Tony Rezko – and whose “elegant suits” and “impeccable ties” made him one of Esquire’s Best-Dressed Men in the World – disdains college students who might want to “chase after the big house and the nice suits.” Mr. McCain, who with his wife earned more than $6 million last year and who owns at least seven homes, ridicules Mr. Romney for having built businesses.

But hypocrisy is not the biggest issue. The real issue is that Messrs. Obama and McCain are telling us Americans that our normal lives are not good enough, that pursuing our own happiness is “self-indulgence,” that building a business is “chasing after our money culture,” that working to provide a better life for our families is a “narrow concern.”

They’re wrong. Every human life counts. Your life counts. You have a right to live it as you choose, to follow your bliss. You have a right to seek satisfaction in accomplishment. And if you chase after the almighty dollar, you just might find that you are led, as if by an invisible hand, to do things that improve the lives of others.

The full article can be found here.