Much Ado About Nothing

The president is painting a picture of apocalypse if the sequestration is allowed to happen.  This is a strange change from November of 2011 when he announced that he would veto any bill that sought to prevent the automatic cuts.  Of course, these aren't even cuts.  The sequestration is actually $15 billion more spending than last year.  Preventing the sequestration would be $100 billion in more spending.  Strange, no?

This gets to the trick of Washington accounting.  All budgets are scheduled to grow year after year.  So, let us suppose that all budgets are automatically set to rise by 10% each year.  Thus, if the Pentagon is getting $600 billion this year, it will get $660 billion next year and $726 billion the year after that.  Instead, sequestration 'slashes' the budget 'to the bone' by only spending $630 billion next year and $693 billion the following year.  Oh, the humanity!  There are no cuts, only reductions in the rate of growth.

Here is an interesting note.  What if we didn't cut or increase but just spent the same as last year's budget.  Oh, there was no budget last year.  Or the year before that.  Or the year before that.  Okay, let's skip back to the 2008 budget.  Suppose we just spent that same budget for the last 5 years.  What would the deficit be today?  $279 billion, far below the trillon dollar deficit we have.  We are spending $800 billion more a year today than we were in 2008 and yet can't afford to 'cut' a mere $85 billion?  Really?

Government is greedy.  It wants all of your money.  It will continue to take your money and spend your money.  It will tell you that the world will be thrown into a Great Depression and the sky will fall if you force the government to cut back the way most people have been forced to cut back.  A reduction of 2.4% in its spending is unacceptable.  Even after Obama got his $600 billion tax hike in the Fiscal Cliff, he can't give up $85 billion in spending.  It's because he wants a 'balanced approach' that 'asks millionaires and billionaires' to pay more while government doesn't give up one thin dime.  Balance!

Downton Pregnancy Curse

Yes, I follow Downton Abbey.  It is a surprisingly engaging show that is also a great look at a different time.  It has just closed out the third series (what we call a season, the British call a series) with the death of a central character.  This is the second major figure to die this series and I have noticed a peculiar pattern.

1. Cora was pregnant but suffered a miscarriage on account of a fall.

2. Ethel, one of the maids, got pregnant in the second series.  Her lover, an army officer, died before the child was born.

3. Sybil, the youngest daughter, died shortly after childbirth.

4. The series finale brought the birth of the future Lord Grantham and the death of his father.

No pregnancy has gone without a death.  Is it any wonder that Europe has a low birthrate?  I would advise all characters to avoid pregnancy at all costs in future series.

President calls to expand failed program

The Department of Health and Human Services recently reported on a study of the effectiveness of the Head Start program.  It turns out the program is costly but has no long term benefits.  Kids that go to Head Start vs. those that don't are hardly discernible in 1st graders and completely gone by the 3rd Grade.  So, by the government's own metrics, here is a program that can be safely eliminated.  What does the president think about that?  That it should be expanded!  Yes, universal preschool for all children, he declared in his State of the Union.  His HHS has admitted failure and he wants to spread the failure to encompass all children.  Now, the program isn't harmful but it is an expense that yields no benefit.  It is clearly wasteful.  However, it will likely increase the need for preschool teachers and pump more money into the public school system.  See, it isn't a complete waste; it'll create jobs!

 

http://blog.heritage.org/2010/01/15/head-start-a-150-billion-failure/

Do you buy more if the price goes up?

It is common sense that as the price of a good goes up, the less of it will be bought by consumers.  In fact, that is part of the law of supply and demand.  Rising prices depress demand while falling prices depress supply.  Or, conversely, Rising prices encourage supply and falling prices encourage demand.  Simple, right?  The important part to this is that prices rise or fall to a point where supply equals demand.  If there are 100 eggs and 200 hundred egg buyers, the price will rise until 100 egg buyers are priced out of the market.  Or, to take it the other way, if there are 200 eggs and only 100 buyers, the price will fall until another 100 buyers are lured into the market to buy the excess.  This price mechanism is part of Adam Smith's invisible hand.

Let us suppose the government got involved in the egg market and decided that, despite there being 200 eggs and only 100 buyers, the price of eggs should be 20% higher?  What would happen?  Well, some of those 100 buyers would be priced out of the market and there would be even more unsold eggs.  So, though the egg sellers have plenty of eggs for sale, they can't sell them because the government has instituted a price floor, a minimum price beneath which the good cannot be sold.  The market now has surplus eggs that will rot on the shelves.  The egg sellers who manage to unload their eggs on some buyers will be very appreciative of the government move since it has increased their profit per egg but those who are stuck with unsold eggs will not thank the government.

 

Happily, the government isn't putting in price floors, right?  Not as explicitly as the above example, certainly.  Actually, it is.  The minimum wage is a price floor and it has an identical impact on the labor market as it does in my fictional egg market.  The lucky eggs who get a job with the higher minimum wage will thank President Obama for his caring.  The unlucky eggs who don't get jobs will sit on the shelves and add to the youth unemployment rate (the minimum wage is almost exclusively for teens and college students, not family breadwinners, despite what the media reports).  So there is the tradeoff: have many people with a job getting $7.50 an hour or have fewer people getting $9 an hour while the rest have no job at all.

 

Government cannot tinker with the price of goods without impacting either the supply or demand, almost always in a harmful way.  The minimum wage should be zero.