R.I.P. Prop 19

Lost amid my Fed-induced ranting and anger, I forgot to post the news here that Proposition 19, California's marijuana-legalizing ballot initiative that I've written about here before, failed on Tuesday.

Those of us who want a bit of sanity in the worldwide drug law debate had a disappointing result yesterday.

Not the US midterms – I leave it to you to decide whether sanity was high on the agenda there – but Proposition 19 in California, which, if it had gone through, would have effectively legalised the growth and sale of marijuana in the state. Sadly, it has been defeated: exit polls suggest that the result was 57 percent no to 43 percent yes. It’s a surprisingly severe beating, given that opinion polls throughout the race had it largely neck-and-neck. The anticipated youth vote, it seems, failed to materialise on the day: but then stoned 22-year-olds probably aren’t the most reliable voters.

The consensus among media outlets seems to be that Proposition 19's failure does not strip it of its importance--it is rather a giant step forward on an inevitable march toward marijuana legalization in California, if not the entire nation.

I tend to share that opinion, if only for budgetary reasons. State and local governments--not to mention the federal government--are in dire straits. It is only a matter of time before we start taxing vices in order to balance our budgets. To be continued...


[Telegraph]

Cover your ears, it's ranting time

The tone of this post is admittedly angry and bitter. It should be. Ben Bernanke deserves your scorn. The "free market" has become a sham, and Bernanke openly admitted it yesterday. The Fed has now  gone far beyond its congressional mandate and is now directly targeting stock prices. Simply put, that's bad.

In this morning's Washington Post, Ben Bernanke pens an incredibly deceptive op-ed to justify yesterday's announcement by the Fed that it will engage in another $600 billion of "quantitative easing" over the next 6-8 months. Bernanke's transparent attempt to legitimize his outright market manipulation is both politically disingenuous and academically fraudulent.

The Fed's so-called "dual mandate" is to promote price stability and maximum employment. This quantitative easing (or "QE", or "QE2" since this is the second round of easing) not only will not achieve those goals, but also goes far beyond the Fed's mission and authority. Direct market intervention of this sort is NOT part of the Fed's mission, and it is as blunt a statement as any quasi-government organization has ever made that it flat out does not care to allow free-market capitalism. You can label President Obama a socialist all you want; the truth is that Ben Bernanke (and Alan Greenspan before him) has done more to disrupt the free flow of commerce and to force a government-led economy than any politician ever could. It's frankly unconstitutional, and Bernanke's weak attempts at self-justification hold no water.

 
Fellow blogger (and angry man) Karl Denninger wrote a post last night detailing the inaccuracies and deliberate deceptions in Bernanke's op-ed. I won't enumerate them here, but I will focus on the biggest problem of all. Bernanke writes (emphasis mine),

Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.

Oh, crap. Ignoring for a minute that explicitly targeting higher stock prices goes WAY beyond the Fed's mandate and authority, the type of supply-side policies that Bernanke is now promoting can and will have disastrous results. He is directly espousing a plan that will nominally enrich the richest (those who own stocks) by inflating asset prices, to the detriment of the poor. I've mentioned here many times that inflation disproportionately hurts the poor, who cannot trade down from steak to hamburger or from a mansion to a townhouse--they've already traded down.

Furthermore, the "wealth effect" that Bernanke is now espousing DOES NOT create long-lasting economic growth. The inflation he creates may lead to higher sales for corporations, and nominal GDP growth as a result, but it will also reflect itself in their input costs. Therefore, the companies do not actually become more profitable, they simply sell more goods as measured in dollars. Without any real growth, they will have no reason or incentive to hire new workers. For evidence of this dynamic, note that Bernanke's first round of QE has spurred a stock market rally of 20-25% (depending on your measuring stick) since the end of August, with no actual economic growth or increased employment to show for it.

The best case scenario to result from QE2 is a stock market and commodity bubble. At best, this might feel good for a while, and keep the economy kicking for a few years (like from 2004-2007), but the prosperity will be both illusory and fleeting. The "benefits" to Bernanke's QE are already exhibiting diminishing returns, and if the current course is held, the eventual crash will be incredibly long-lasting, if not as dramatic and devastating as the events of 2008.

Bernanke has staked his career on the concept of QE; he gained great notoriety for his remarks on what Japan could have done differently to avoid its decades-long economic malaise (which we now seem destined to repeat), with QE at the center of his arguments. It became a centerpiece of his so-called "Bernanke Doctrine", which helped lead him to his initial nomination as Fed chairman. Despite zero empirical evidence to support his claims of the benefits of QE (he relies only on the assumptions within his economic models), Bernanke now stands poised to unleash a wild economic science experiment on the world's largest economy, at a time when it can ill afford a failed experiment. This is not good policy.

To rely on Bernanke's untested economic models at this time shows not only how desperate we all are for an immediate fix to the economy's ailments (news flash: there isn't one), but also how much blind faith we are willing to place in policies that we don't fully understand. Remember, Bernanke is the same man who in 2004 opined that improvements in monetary policy had ushered in a new era of low macroeconomic volatility, wherein large-scale economic shocks were no longer a relevant concern. Whoops. And yet, this is the same man on whose economic models we are now gambling our nation's (and the world's) economic prosperity. Seems a bit dangerous, no?

Typically when an economist or a banker devises a scheme that ordinary Americans (and even many well-educated Americans) have trouble fully understanding, it's a warning sign that the scheme is probably bad news in the long run. Stable economies require that all participants (however small) understand all of the relevant risks and rewards of their actions. A fundamental and widespread misunderstanding of mortgage-market mechanisms (caused in part by unprecedented financial engineering by the banks) helped inflate the real estate bubble, with disastrous consequences. We have all spent years now villainizing the banks for their role in our previous economic crisis, but we now stand by and watch as the biggest bank of them all (the Fed) repeats the sins of the past. The worst part of it all is that most Americans won't know that they're being screwed over (or how) until it's too late. Just like 2008.

There is no such thing as a free lunch anywhere in the world, and there is similarly no miraculously positive outcome to the Fed's latest batch of financial alchemy. At best, America will experience a further increase in the gap between rich and poor, and long-lasting economic stagnation that would put Japan's malaise to shame. At worst, these Fed policies could spur hyperinflation and a complete collapse in our nation's currency. Since the dollar has become the world's reserve currency, this collapse would be a horrific outcome for the global economy. What Bernanke is betting is that the entire world will step in and prevent our dollar collapse in order to help save themselves. That's too dangerous a game to play when the entire world's prosperity is at stake.

Any "fiscal conservatives" who think they just saved the country by electing a group of tea party whackos to "stop spending" need to think again. With fiscal stimulus now relegated to "not gonna happen" status by the coming Republican majority, this leaves Ben Bernanke's monetary policy as the sole tool for economic stimulus. And this is what he's come up with. All of this means that the only true friend that fiscal conservatives have left is Ron Paul. Good luck.

[Washington Post]

The awkwardness of transgender athletes

An article this morning on ESPN.com describes the situation surrounding Kye Allums, a women's basketball player at George Washington University whose choice to transition to being a male has created an odd dilemma.

A female-to-male transgender member of the George Washington women's basketball team wants to be identified as a man this season.

Junior Kye Allums -- who used to be known as Kay-Kay -- is referred to on the school's website as a "male member of George Washington's women's basketball team."

"GW has been supportive during this transition. This means a lot. I didn't choose to be born in this body and feel the way I do. I decided to transition -- that is, change my name and pronouns -- because it bothered me to hide who I am, and I am trying to help myself and others to be who they are," Allums said in a statement posted Tuesday on the website.

This isn't the first time that the issue of transgender athletes (or gender controversy more broadly) has come into the public eye. Amid some public pressure, in 2004 the IOC passed a resolution allowing transgender athletes to compete in the Olympics under their new gender (with some restrictions). Controversy surrounding the issue once again touched Olympic sports following the 2009 Track & Field World Championships, when questions about female champion sprinter Caster Semenya's gender sparked widespread investigations (she turned out to be a hermaphrodite).

More recently, male-to-female transgender golfer Lana Lawless sued the LPGA to allow her to compete as a woman following her reassignment surgery. Lawless is citing civil rights law in challenging the LPGA's "female at birth" requirement.

But the Allums situation adds a new twist. For the first time (that I am aware of), an athlete is asking to continue playing under his (or her) former gender. In order to do so, however, Allums must choose to forgo any medical procedures or hormone therapy (thereby remaining "female" under NCAA rules). Essentially, then, Allums is merely choosing to change what he is called. This is strange territory for sure.

It will be interesting to see what the public reaction to this situation is. There is definite inconsistency in policy from one sport to another, with the LPGA's "female at birth" policy representing a particularly stark departure from the norm. Typically, athletes are expected (and required) to compete with those whom they most closely resemble biologically--regardless of what they were at birth. Allums' choice does not challenge that standard, but the LPGA rule certainly does.

[ESPN.com]

Quote of the Week

In honor of Election Day, this week's Quote of the Week comes directly from a political rally... sort of. It's from Jon Stewart and Stephen Colbert's "Rally to Restore Sanity and/or Fear" this past weekend, and it's pretty clever. Courtesy of NPR, the quote is from a sign held by one of the rally's attendees.

This week's QUOTE OF THE WEEK

"Hyperbole is destroying America" -Jen Malek, Rally to Restore Sanity and/or Fear attendee

This quote is fantastic, in a "The following statement is true; the preceding statement was false" kind of way. You might like Stewart and Colbert, you might not, you might think they're more politically inclined than they'd admit, you may just think they're funny guys, but either way, they're clever, and they attract other clever people.

There's a gallery of other signs from the rally here, and some of them are hysterical (although a lot of them sorta suck). And no, I'm not a partisan hack trying to hide my true colors, I just like good satire. But you knew that already.


[NPR]

Immigration is not the problem

I missed this piece in the New York Times over the weekend, but it's an important one to read as a counter-balance to the recent rhetoric regarding immigration and globalization policies. In it, economics professor Tyler Cowen writes (emphasis mine),

In the campaign season now drawing to a close, immigration and globalization have often been described as economic threats. The truth, however, is more complex. 

Over all, it turns out that the continuing arrival of immigrants to American shores is encouraging business activity here, thereby producing more jobs, according to a new study. Its authors argue that the easier it is to find cheap immigrant labor at home, the less likely that production will relocate offshore.

The study notes that when companies move production offshore, they pull away not only low-wage jobs but also many related jobs, which can include high-skilled managers, tech repairmen and others. But hiring immigrants even for low-wage jobs helps keep many kinds of jobs in the United States, the authors say. In fact, when immigration is rising as a share of employment in an economic sector, offshoring tends to be falling, and vice versa, the study found.

In other words, immigrants may be competing more with offshored workers than with other laborers in America...

As other papers by Professor Peri have shown, low-skilled immigrants usually fill gaps in American labor markets and generally enhance domestic business prospects rather than destroy jobs; this occurs because of an important phenomenon, the presence of what are known as “complementary” workers, namely those who add value to the work of others. An immigrant will often take a job as a construction worker, a drywall installer or a taxi driver, for example, while a native-born worker may end up being promoted to supervisor. And as immigrants succeed here, they help the United States develop strong business and social networks with the rest of the world, making it easier for us to do business with India, Brazil and most other countries, again creating more jobs.

For all the talk of the dangers of offshoring, there is a related trend that we might call in-shoring. Dell or Apple computers may be assembled overseas, for example, but those products aid many American businesses at home and allow them to expand here. A cheap call center in India can encourage a company to open up more branches to sell its products in the United States.

Cowen makes some important points, aiming toward a bigger-picture view of what encourages a business to hire an American worker. The reality is that few Americans are willing to take jobs as low-skilled workers, especially once they have a college degree (which more and more Americans now have). This is a phenomenon that was brought to light (humorously, but no less correctly) by Stephen Colbert in his congressional testimony.

Therefore, if we as Americans aren't willing to fill low-paying jobs (or, at least not willing to fill them at a reasonable wage that won't produce rampant inflation), we are faced with a choice between immigrant labor and overseas labor--immigration versus offshoring. In the case of immigration, we might still be able to work as the low-skilled laborers' supervisors; in the case of offshoring, all jobs go overseas.

This is an important point to understand. When wage levels at home are too high, or labor supply is too low, companies are forced to find other sources of labor. We can't simply shut off immigration and foreign trade and expect that all will be well in our domestic employment picture. It isn't the case.

Difficult economic times often require us to decide among several unpalatable outcomes. In this scenario, there are four basic choices:

1) Lower our wage expectations, begin accepting the low-skilled jobs that are currently going to immigrants and overseas
- This outcome is both unlikely to pass and somewhat undesirable; the wage paid by these jobs is insufficient to keep pace with the increase in living costs that has come as a result of government policy (both fiscal and monetary). This leads to...

2) Close off all avenues of immigration and offshoring; require companies to hire American workers at whatever rate they demand
- This option might seem to many as the most "fair", from an American worker perspective. Corporations are evil, they underpay their employees to pad their wallets, and they should just pay a fair wage to a good strong American worker.

This approach is also politically popular, and has gotten a lot of play since the recession began. Protectionist policies like these are easy to parrot when unemployment is high, and they therefore almost always show up. But there is a big problem in the analysis. The fact is, companies farm cheap labor because it helps them keep the price of their final product (charged to the consumer) down. If they are forced by policies to pay more for labor, the only certainty is that consumer prices will rise.

Inflation is ugly, and it hurts the poor the most, as I've mentioned here before (most notably in the text of my letter to my senators). Therefore, ironically, this option would provide incredibly fleeting gains to the newly employed. The end result would be little different from the end result of Option #1--poor Americans would be unable to pay their bills. 

3) Allow our jobs to be sent overseas
- As the study above mentions, this is likely a WORSE option than option #4... 

4) Allow immigration, accept that immigrants will take the low-skilled jobs
- This is simply the best among several somewhat unpalatable options. We can't have it all our way--there's no such thing as a free lunch. It'd be great if we could all work low-skilled jobs and get paid 6-figure salaries and somehow avoid inflation and a decrease in buying power. But it's mathematically impossible.

Immigration and outsourcing are the only things preventing our economy from rampant inflation--and an even more rapidly growing gap between rich and poor. That's irrefutable, no matter what the politicians in search of cheap points try to tell you. And if I had to choose between the two, I'd choose immigration every single time--not just for the economic benefits that the above study touts, but because it's consistent with the roots of our country.

No, I don't support illegal immigration, but I also don't think that illegal immigration is anything but a symptom of an already screwy immigration policy in our country. Fixing illegal immigration requires fixing our immigration policies more broadly, and fixing both will prove a boon to our economy.

Don't forget to vote today.


[New York Times]

Interesting take from Scott Rasmussen

In a Wall Street Journal op-ed this morning, Scott Rasmussen (President of Rasmussen Reports, a political polling group) presented something of an alternative view of tomorrow's elections (and the expected Republican landslide). His essential conclusion jives pretty perfectly with my own personal view of our two-party system and what it's become. But I'll let him do the talking since he writes it better (and frankly more diplomatically) than I would. As usual, all emphasis is mine.

Democrats face massive losses in tomorrow's midterm election. Based upon our generic ballot polling and an analysis of individual races, we project that Nancy Pelosi's party will likely lose 55 or more seats in the House, putting the GOP firmly in the majority. Republicans will also win at least 25 of the 37 Senate elections...

There will also be a lot more Republican governors in office come January... A common theme in all the races is that white, working-class Democrats who tended to vote for Hillary Clinton over Barack Obama in 2008 are prepared to vote for Republicans.

But none of this means that Republicans are winning. The reality is that voters in 2010 are doing the same thing they did in 2006 and 2008: They are voting against the party in power.

This is the continuation of a trend that began nearly 20 years ago. In 1992, Bill Clinton was elected president and his party had control of Congress. Before he left office, his party lost control. Then, in 2000, George W. Bush came to power, and his party controlled Congress. But like Mr. Clinton before him, Mr. Bush saw his party lose control.

That's never happened before in back-to-back administrations. The Obama administration appears poised to make it three in a row. This reflects a fundamental rejection of both political parties.

More precisely, it is a rejection of a bipartisan political elite that's lost touch with the people they are supposed to serve. Based on our polling, 51% now see Democrats as the party of big government and nearly as many see Republicans as the party of big business. That leaves no party left to represent the American people.

Voters today want hope and change every bit as much as in 2008. But most have come to recognize that if we have to rely on politicians for the change, there is no hope. At the same time, Americans instinctively understand that if we can unleash the collective wisdom and entrepreneurial spirit of the American people, there are no limits to what we can accomplish.

In this environment, it would be wise for all Republicans to remember that their team didn't win, the other team lost. Heading into 2012, voters will remain ready to vote against the party in power unless they are given a reason not to do so.

Elected politicians also should leave their ideological baggage behind because voters don't want to be governed from the left, the right, or even the center. They want someone in Washington who understands that the American people want to govern themselves.

Rasmussen's piece is both a rebuke of the past three Presidential administrations and a stern warning to the new Republicans who will descend upon Washington in the coming months.

The warning? Do not assume that your victory, however "landslide", is indicative of a voter mandate. This was a major mistake made by George W. Bush after his razor's-edge re-election victory over Sen. John Kerry in 2004, and his party suffered horribly for it. The Republican "recovery" this year has come not because they've changed the way they've done business, but because the Democrats made a similar error following the 2008 elections.

With our increasingly polarized Congress, it will become more necessary than ever for the extremists in power to reach across the aisle. But if past is predictor, the dominant ego that pushes both parties toward their extremes will not allow for cooperation. For the foreseeable future, every two years will see a rejection of the party in power, until one of the parties in power changes the way they do business. The voters' true mandate is clear: figure it out, or you'll always be short-timers.

[Wall Street Journal]

My phone knows (or knew) more than I do...

This Halloween weekend was a pretty rough one for me. It's never easy to admit to yourself that you're not as smart as an inanimate piece of electronics, but that's exactly what happened to me this weekend after my iPhone took an unfortunate dive into a watery grave (I'm thinking he heard what I said about him here, couldn't handle the shame, and decided to take his own life...sad).

Even more unfortunate was my realization that all of my contacts were (by default) stored on the iPhone's internal drive, and not the SIM card. And my subsequent realization that even though I'd backed up those contacts on iTunes, iTunes wouldn't show them to me without a functional iPhone plugged in (cute, Apple, very cute...no, I won't buy a new iPhone). And my final realization that I... don't... know... ANYBODY'S... phone number any more.

Even when I logged onto my account online and viewed my last cell phone bill, I barely recognized any of the numbers in my call history. Without a name attached to them, they were pretty much meaningless to me. Bad news.

It used to be that I knew all of my friends' phone numbers--I still remember all of the home phone numbers of my childhood friends, many of which have been defunct for years now. Now, since changing my phone number a few months back, I barely even know my own. It's a strange shift, and not necessarily a good one. The more we entrust to our electronic devices, the less self-sufficient we become (or at least, feel).

With smartphones, this dynamic becomes even more pronounced. We use our phones as calendars, Rolodexes (wait till I try to explain those things to my kids), checkbook balancers (and, for that matter, checkbooks), notepads, alarm clocks, flashlights, video game consoles, maps, compasses, encyclopedias, e-mail machines, remote controls, and I don't even know what else. When they malfunction, drown, or we simply forget to charge them, we find ourselves lost and confused in a cold, cruel world.

It was therefore somewhat refreshing to be forced to track down my old contacts and revert to the slightly-less-smart phone that I used pre-iPhone. I'd forgotten what my life was like before my iPhone took over, and it turns out I was capable of getting out of bed and tying my shoes back then after all. Who knew?