Quotes of the day

The challenge for my generation was to provide an intellectual defense of liberty. The challenge for your generation is to keep it.--Milton Friedman

People tend to impute good motives to government. And if you assume that government officials are well meaning, then you also tend to assume that government officials always act on behalf of the greater good. People understand that entrepreneurs and investors by contrast just try to make money, not act on behalf of the greater good. And they have trouble seeing how this pursuit of profits can lift the general standard of living. The idea is too counterintuitive. So we're always up against a kind of in-built suspicion of markets. There's always a temptation to believe that markets succeed by looting the unfortunate. ... So even if a recession as bad as this one were the price of free markets—and I don't believe that's the correct way of looking at it, because government actions contributed so greatly to the current problem—but even if a bad recession were the price, you'd still decide it was worth paying. Or look at developing countries. China, India, Brazil. A billion people have been lifted out of poverty since 1990 because their countries moved toward more market-based economies—a billion people. Nobody's arguing for taking that back. ... When I think of my children and grandchildren, yes, they'll have to fight. Liberty can't be had on the cheap. But it's not a hopeless fight. It's not a hopeless fight by any means. I remain basically an optimist.--Gary Becker

Perhaps the best place to start is to acknowledge what we cannot do. If recent events have taught economists and policy makers anything, it is the need for humility. One thing we cannot do very well is forecast the economy. The recent crisis and recession caught most economists flat-footed. This is nothing new. We have never been good at foretelling the future, but when the news is favorable, others forgive our lack of prescience.--Greg Mankiw

How about investigating whether the SEC had any reasonable basis for believing [John] Mack’s short-seller story in September 2008 when it acted on his pleas, and whether Mack had any plausible grounds to believe the story himself? Now there’s a probe that might turn up something.--Jonathan Weil

Short-selling became particularly controversial during the recent bear market, when many of its practitioners turned a profit while almost all other investors were suffering. This fueled long-held concerns that short-sellers might be inducing the very price declines from which they profit. A series of regulations have been imposed in the last few years to restrict short-sellers’ behavior. These concerns are largely unfounded, however, according to the new study, titled “How Are Shorts Informed? Short Sellers, News and Information Processing.” Its authors are Joseph E. Engelberg and Adam V. Reed, both finance professors at the University of North Carolina at Chapel Hill, and Matthew C. Ringgenberg, a Ph.D. student there. The study has been circulating since January as an academic working paper. Their work suggests that the average short-seller has done well through astute research and analysis, not market manipulation.--Mark Hulbert

Of course, a big chunk of those day traders won't know they're doing worse than index funds. Because they'll look only at their gross trading returns. In so doing, they will ignore:
* Brokerage commissions
* Taxes
(~50% on short-term gains)
* Research costs
* The opportunity cost of the hours and hours they spend trading (which could be spent doing something else).--Henry Blodget

... the standard conception of self interest is not cynical enough: envy can explain most of what greed can, plus more. ... [Robin Hanson] notes that perhaps one reason for the marked decline in fertility among developed nations is that for women, being successful at work signals higher status than being a full-time mom. Thus, many women choose to have fewer children to signal their status. This is envy because seeking status is motivated by a desire to outperform peers, as opposed to anything related solely to mere wealth. Indeed, from an evolutionary standpoint children are the ultimate form of wealth, but if we are hardwired to outdo our peers that objective is no longer primary, but rather incidental.--Eric Falkenstein

It's not how much money you spend that makes you rich. You don't know; that guy might have spent all his money just to buy that car and he has nothing else. So he might not be rich at all.--Jeff Opdyke's kid

Even though the American healthcare system can use many reforms, regrettably the bill that passed the House and Senate is a messy compromise to attract reluctant Democrats that is short on needed reforms. Instead, the bill is filled with many complicated, and generally bad, new regulations, higher subsidies, and greater taxes. The most important needed reform is an increase the fraction of total medical costs that come from out-of pocket expenses in the form of large deductibles and significant co-payments. Out-of-pocket spending accounts for only about 12% of total American spending on healthcare, whereas the share of out-of –pocket spending is over 30% in Switzerland, a country considered to have one of the better health delivery systems. Partly because of this major difference, health care takes 11% of Swiss GDP compared to the much higher American percentage. As far as I can discover, nothing in the new bill really tries to raise the out-of-pocket share, and some changes would reduce it even further.--Gary Becker

Drafting a good bill would have been easy, [Becker] continues. Health savings accounts could have been expanded. Consumers could have been permitted to purchase insurance across state lines, which would have increased competition among insurers. The tax deductibility of health-care spending could have been extended from employers to individuals, giving the same tax treatment to all consumers. And incentives could have been put in place to prompt consumers to pay a larger portion of their health-care costs out of their own pockets.--Peter Robinson

Take a medium-sized firm that employs a hundred people earning $40,000 each—a private security firm based in Atlanta, say—and currently offers them health-care insurance worth $10,000 a year, of which the employees pay $2,500. This employer’s annual health-care costs are $750,000 (a hundred times $7,500). In the reformed system, the firm’s workers, if they didn’t have insurance, would be eligible for generous subsidies to buy private insurance. For example, a married forty-year-old security guard whose wife stayed home to raise two kids could enroll in a non-group plan for less than $1,400 a year, according to the Kaiser Health Reform Subsidy Calculator. (The subsidy from the government would be $8,058.) In a situation like this, the firm has a strong financial incentive to junk its group coverage and dump its workers onto the taxpayer-subsidized plan. Under the new law, firms with more than fifty workers that don’t offer coverage would have to pay an annual fine of $2,000 for every worker they employ, excepting the first thirty. In this case, the security firm would incur a fine of $140,000 (seventy times two), but it would save $610,000 a year on health-care costs. If you owned this firm, what would you do?--John Cassidy

It’s always been understood that Medicare was unsustainable, and had to be cut to keep the deficit from exploding. Now they are planning to cut it in the out years, but use the money for insurance subsidies, not deficit reduction. I say we should blow up the whole system, and start over with DeLong’s huge HSA plan, financed by forced saving and government subsidies. Then add a mandatory catastrophic plan, I don’t much care if it is single-payer public catastrophic insurance or private insurance, as long as people have the option of topping it off with extra private insurance. DeLong recommended HSA plans so large that most people would pay for almost everything out of pocket. Then get rid of everything else, Medicare, Medicaid, tax breaks on health insurance, state insurance regulations, etc. Indeed I’d go back to the pre-FDA days, and let everyone do what Rush Limbaugh did. Treat grown-ups like grown-ups. Yes, I know it’s an impossible dream. In the 21st century we’ll all be children. The pioneer days are gone forever. Just so I don’t get accused of “nihilism” I will take a wait and see attitude on Medicare. If there really are reforms that save a lot of money, then I’ll give Obama credit. I’m not a doctrinaire Republican, indeed I’m not a Republican at all. Obama has done some good things in the war on drugs, the space program, and a few other areas. But right now I see definite spending increases, and possible savings in a program that was unsustainable anyway. I don’t regard that as “deficit reduction.” I hope I’m wrong.--Scott Sumner

Paul Krugman is one of the international economists I most respect. He is a towering figure in the study of international trade. But his understanding of some international economic policy issues is, to put it generously, naïve. In fact, were the Obama administration to follow his policy advice, the world economy could encounter more serious difficulties, if not another recession, in the years ahead. ... A less likely scenario is that China would be forced to appreciate the currency sharply by, say, 40 %. This is likely to cause significant difficulties for Chinese companies. Again, there could be two possible outcomes. The first is that Chinese companies would no longer be able to export because of sudden loss of competitiveness. The market vacuum newly made available by the exit of Chinese products would be taken up by products from other low-cost countries like Vietnam and India. American companies would not be able to compete with these countries. So this would not add new jobs in the US, but the inflation rate would move higher. ... In either case, global economic growth would be about 1.5 percentage points lower, not higher, if China revalued its currency as Krugman demands. The magnitude is probably exaggerated, but the direction is certain.--Yiping Huang

President Obama blames the Bush Administration for the high cost of government - a bad situation that existed "when I walked in the door." One need not dwell on the fact that Senator Obama went to Washington in 2004 and proceeded to vote for the spending he now tags as profligate. The point is extremely well-taken: Bush43 did a fiscal belly flop, drenching the national ledger in red ink. For that, he is rightly held in low esteem, and his party swept from office. Now the Democrats are making Mr. Bush's failures their own. Mushrooming deficits have not saved the economy. Even assuming that job losses have bottomed out, today's optimistic scenario, no post WWII recession has taken longer to turn around. And no recession has suffered employment losses so steep in percentage terms. This might be blamed on a Republican predecessor too, but for the fact that such a debacle was precisely what the Obama Administration forecast would be avoided by the February 2009 "stimulus."--George Bittlingmayer, Arthur Havenner & Thomas Hazlett

Should the United States someday suffer a budget crisis, it will be hard not to conclude that Obama and his allies sowed the seeds, because they ignored conspicuous warnings. A further irony will not escape historians. For two years, Obama and members of Congress have angrily blamed the shortsightedness and selfishness of bankers and rating agencies for causing the recent financial crisis. The president and his supporters, historians will note, were equally shortsighted and self-centered -- though their quest was for political glory, not financial gain.--Robert Samuelson

I’m so excited I can hardly contain myself.--Patricia Cohen, on filing a lawsuit against her ex-husband Stevie

Almost 18 years ago, I tore up a picture of Pope John Paul II on an episode of "Saturday Night Live." Many people did not understand the protest -- the next week, the show's guest host, actor Joe Pesci, commented that, had he been there, "I would have gave her such a smack." I knew my action would cause trouble, but I wanted to force a conversation where there was a need for one; that is part of being an artist. All I regretted was that people assumed I didn't believe in God. That's not the case at all. I'm Catholic by birth and culture and would be the first at the church door if the Vatican offered sincere reconciliation. As Ireland withstands Rome's offensive apology while an Irish bishop resigns, I ask Americans to understand why an Irish Catholic woman who survived child abuse would want to rip up the pope's picture. And whether Irish Catholics, because we daren't say "we deserve better," should be treated as though we deserve less.--Sinead O'Connor

Some physicists are convinced that the properties of information do not come from the behavior of information carriers such as photons and electrons but the other way round. They think that information itself is the ghostly bedrock on which our universe is built. Gravity has always been a fly in this ointment. But the growing realization that information plays a fundamental role here too, could open the way to the kind of unification between the quantum mechanics and relativity that physicists have dreamed of.--Technology Review