Archive for November, 2009

Saving Perversity

Sunday, November 29th, 2009

For over 20 years, beginning in the late 1980s, Americans were told that they weren’t saving enough. The advice came from a coalition of economists and business leaders. It culminated in a series of radio ads that lectured the listener on the profligacy of Americans’ spending habits. Our future prosperity was endangered by our addiction to spending. If we could only increase our saving, this dire fate could be averted.
The ads ceased in early 2008. By this time, something strange was happening. On the same station carrying the ads, network newscasts interviewed an expert on the then-current state of the [...]

Social Security: Prequel to Government-Run Health Care?

Monday, November 23rd, 2009

We are about to reconfigure our entire health-care system. In our hearts, we do not doubt that whatever system emerges from Congress will be a creature of the federal government, whether a “public option” is included or not. What evidence do we have about the effects of federal control in a sector of comparable size and importance to health care?
With a yearly payout of over $500 billion, Social Security is the world’s largest government program. It is the program unfailingly cited by 20th-century liberals as the one great shining moment of big government and the welfare state.
Nearly 75 years after [...]

The Return of Inflation

Thursday, November 19th, 2009

Those of us old enough to remember the 1970s recall, with a shudder, the last great American inflation. Recent events – the financial collapse resulting in a huge increase in indebtedness and money creation by the federal government – have stimulated predictions of future inflation. But inflation is already back, in a new and unfamiliar form.
 What Is Inflation?
Prices rise and fall constantly, but inflation traditionally describes the case where all or most prices rise simultaneously. We diagnose it using a price index, a kind of “average price” calculated using data on thousands of goods and services. The best-known price index [...]

Annuities Fulfill Their Core Purpose Beautifully

Monday, November 16th, 2009

Fish swim, birds fly, dogs bark, cats meow, politicians spend. Everything has a core purpose. That is the thing it was created to do, the thing it does better than anything else, its singular attribute.
Every financial instrument has a core purpose. Corporations attract capital by limiting liability. Stocks promote growth of capital by providing a residual claim on corporate earnings. Bonds attract loanable funds by giving lenders a senior claim on assets.
As for annuities – they provide retirement income that is guaranteed to last a lifetime. This is unique; no other financial instrument does it. Of course, annuities are not [...]

Bailouts Destroy Market Efficiency

Thursday, November 12th, 2009

The hottest economic topic these days is the recession – or the recovery, if we can believe 80% of business economists who tell us that it is already underway. It vastly overshadows the importance of everything else. Will the recovery be V-shaped or U-shaped or J-shaped? Will it be fast or slow? Will it be throttled by unusually-high unemployment? The implication is that cyclical concerns are the only ones worth worrying about.
If you’re an investor, here’s something else you should worry about: the efficiency of financial markets. The following case history illustrates the basis for concern.
The Rise of Bill Miller
For [...]