Blatant Reality

In a recent article in the Guardian, James Hansen “rails” against the cap-and-trade system being proposed in the United States. Now, he isn’t against the idea of placing a price on carbon, he just doesn’t like the idea that businesses could end up profiting from it.

Instead, he prefers something he calls a “fee-and-dividend” approach which is essentially a green redistribution of wealth scheme. Here is Hansen advocating this method at the University of South Carolina last spring:

As stated in the video, the rebate would be a set number so the less carbon you emit the bigger the rebate. Potentially, your rebate could exceed your tax so you would make money. Basically, the greener you are the more green($) you will receive.

However, while this method may sound better, it will still have negative affects, particularly on the poor. For example, Hansen mentions that companies may have incentives to invent better more efficient technologies. However, many may not be able to afford purchasing these new high efficiency items. Therefore, those that are well off may be more able to make the changes and reap the benefits, leaving the poor at best breaking even and at worst ending up in the red (paying more in carbon taxes then receiving in rebates).

Overall, the cap-and-trade or the fee-and-dividend system are unnecessary. Natural cycles constitute the majority of the climate changes with human contributions negligible at best.

To watch the entire presentation by Hansen and my rebuttals to some of his claims, click here.

In today’s Rasmussen Consumer Index, only 26% of Americans believe the economy is getting better while 52% Americans feel it is continuing to get worse. This issue even crosses political lines with more Democrats and Republicans viewing the economy getting worse than better.

Nationally, 26% of adults believe the economy is getting better, while 52% disagree and say it is getting worse. Democrats are much more optimistic than Republicans. Thirty-five percent (35%) of Democrats think the economy is getting better, while only 16% of Republicans feel the same way. Meanwhile, 45% of Democrats say the economy is getting worse and 62% of Republicans say the same thing.

 

(…)

 

Among investors, 30% think the economy is getting better, while 48% say it is getting worse.

Since I think this consumer index changes each day, here is a screen shot of the article:

I caught this on Drudge Report today. Seems like C-SPAN’s political analyst Steve Scully confused using ‘deficit’ and ‘debt’ in his interview with President Obama. Take a look of this screen shot off Drudge:

Here is the quote from Scully:

SCULLY: Yet, it all takes money. You know the numbers, $1.7 trillion debt, a national deficit of $11 trillion. At what point do we run out of money?

 

OBAMA: Well, we are out of money now. We are operating in deep deficits, not caused by any decisions we’ve made on health care so far. This is a consequence of the crisis that we’ve seen and in fact our failure to make some good decisions on health care over the last several decades.

In this quote, Scully says ‘$1.7 trillion debt’ and ‘deficit of $11 trillion.’ However, we all know that this is wrong. We have a  $1.7 trillion deficit for this year and a national debt of $11 trillion.

Is this mix-up significant? Probably not in the grand scheme of things. However, it does highlight the fact that a lot of people, even those that are well-informed, get ‘debt’ and ‘deficit’ confused and while Scully most likely knows the difference between the two, the sad fact is I doubt the majority of Americans do.

To see the entire transcript of the C-SPAN interview, click here.

Oh wait, you thought I was serious? Nope. It seems that today, the DOW experienced the worst inauguration day drop in its history.

So I just got back from seeing the movie “The Day the Earth Stood Still” and I was far from impressed. In fact, I was downright disappointed. I mean, I thought it would be a better choice than “Role Models” but now I feel that I might have been wrong.

Anyways, before I get into the main point of the article, let me explain the movie a bit to you. The whole premise of this flick is that aliens have come to earth to exterminate the human race in order to save the place from us. So apart from being a massively environmental propaganda piece, it also took the time to take jabs at the Iraq war and the US military in general (no pun intended). In fact, the only bright spot in the whole movie was the fact that Keanu Reeves got a role where his emotionless acting style was actually put to good use.

Alright, so before I explain the economic lessons we may be able to learn from this horrible movie, let me set up the scene. At about halfway through the movie, the alien (Keanu Reeves) ends up at a Nobel Prize winner’s house and they are discussing the impending doom of the human race. Reeves’ character mentions that his own race had to band together in order to save their planet when it was on the brink of destruction. To this, the Nobel Prize winner replies that the human race should have the same right to change and save their planet (not from the aliens, mind you, but from ourselves). If the aliens destroy the human race, they will never have the chance to excel and save themselves.

Obviously, I’m paraphrasing but the basic gist of this whole conversation is that the most innovation, change, and action take place when a civilization is on the brink of destruction (Pop Culture Reference: This is why people like Al Gore are saying we only have five years to fix things).

So what’s the economic lesson? Think about it this way. If we look at the recent mortgage crisis, and the economy as the whole, one could compare it to the earth in the movie: there’s been some bad decisions made that have been detrimental to its health so something needs to be done. Obviously, the stock market tumble and business bankruptcies are comparable to the tipping point the aliens mention in the movie: choices need to be made now that will affect how things play out in the end.

Now the next comparison is where I will probably get some people mad at me. I think that the US Federal Government is like the aliens in the movie. These aliens come to earth wanting to save it just like the federal government did with its bailouts. And just like the aliens want to destroy the human race in an effort to save the world, the government bailouts greatly damaged our country’s free market and principles.

So instead of letting the threat of impending financial disaster beget innovation and change that would ultimately be beneficial, the government, just like the aliens in the movie, wanted a quick fix to the problem. By bailing out the market, the government has removed any need for businesses to innovate and change in order to stay alive. Instead, all will be able to continue their old (failing) practices which will most likely lead to market stagnation (Case in point: Just watch and see how much the Big Three actually change).

Now does Neo… err…I mean Keanu Reeves’ character decide to save the human race or just the world? Well this isn’t a spoiler blog so I guess you will just have to suffer through the movie to find out. However, I will say that, in relationship with my elaborate comparison above, I did like his choice a lot better than the US government’s.

And the Dow comes crashing down again.

And the grand total is… a 1,340 point drop in the market since Obama has been elected President.

Take a look at what I said about the first drop the day after the election.

Do I really need to say more?

Hmmm…I wonder why the Dow almost dropped 500 points today? Actually, I have a pretty good feeling that Obama’s win yesterday had something to do with it.

Yea and this drop is after an almost weeklong recovery the Dow had seen since October 27th. So before you start telling me not to blame Obama for the drop in the market let me pose a question to you: If the market had been recovering for the past week and everyone knew that Obama was going to be elected, why the sudden drop after the predicted outcome came true?

Before I give you my hypothesis, lets look at the month long gragh of the Dow:

If you look at the trend of the market, it is consistently going down until the 27th of October. During this whole period, Obama had a fairly large lead in the polls but something changed around the 27th. The polls started to tighten, be it ever so slightly and news articles came out stating the McCain could have a shot at winning. In conjunction with this, swing state like Missouri, Indiana, and North Carolina, that up until a couple days before the election were polling for Obama, showed McCain with a slight lead on election day.

During this whole period where McCain seemed to possibly be making a coming, the stock market seemed to be making a comeback as well.

So is this all a coincidence and I have missed some spurious factor that has caused the stock market to first go up with the hopes of McCain pulling it off and then crash when Obama wins? Possibly, but I like to stick with Ockham’s Razor: “All other things being equal, the simplest solution is the best.” At the very least, if the rise in the stock market isn’t at all linked to McCain’s supposed comeback, the mini crash we experienced today can surely be linked with Obama’s win.

Oh yea, did I mention this is the biggest post election drop in history and that I predicted this would happen last Saturday?

You know, when you’re reading a story or watching a movie, the author or writer normally puts the moral or lesson at the very end so the audience will more likely remember it. Well that is what USA Today seems to be doing with their front page story titled “How Congress set the stage for a fiscal meltdown.” While it puts blame on both sides of the aisle, it seems to heap some extra blame by leaving the readers with these final two paragraphs:

Rep. Barney Frank, then the ranking Democrat on financial services and now the chairman, says he and his colleagues were not soft on Fannie and Freddie. “Yes, they lobbied strongly, but I was one of the most successful ones in challenging them.”

 

Frank had no apologies. Rep. Artur Davis, D-Ala., by contrast, offered a rare Washington mea culpa: “Like a lot of my Democratic colleagues, I was too slow to appreciate the recklessness of Fannie and Freddie,” he said in a statement. “Frankly, I wish my Democratic colleagues would admit, when it comes to Fannie and Freddie, we were wrong.”

I don’t know, maybe it’s just me, but by a Democrat admit they were wrong about Fannie and Freddie seems to set a pretty strong “moral” for the story: Democrats are to blame for this financial mess.

I’m sure you have all heard that the Dow is dropping fast with each new day taking us back to level seen farther and farther back in the 1990s. If any of you were wondering, our current level hasn’t been seen since October 1998, or ten years ago almost to the date.

For those who have been keeping track, Friday’s close means that the Dow has dropped roughly 2,330 points since the House passed the Bailout at 1:20 on Friday, October 3rd (look at this graph for the starting number I’m using). Basically, the Dow has dropped over 2,000 points in just over 5 days time. Wow. Welcome to 1998 people.