Is There Ever Enough Regulation?

In the Wall Street Journal last week (12/24/14, Page A15, Good Medicine for Bad Bankers) Alan Blinder laid out his plans for more government regulation of banks. While seeking more regulation is not unexpected coming from a liberal like Blinder, it is the increased intrusion and non-stop zeal that is so frightening. 

Most conservatives understand that companies and their employees can be dishonest and will break legal and ethical standards. Conservatives understand that free markets don't solve all our problems. While most of us could debate until the cows come in just how much regulation and government spending is warranted or beneficial -- most of us would settle on something well north of zero. We get it Mr. Blinder. 

But at what point is enough enough? At what point do we ease into the Nanny State? Let's get back to banking. DF goes a long way to regulate banks. Some of us think it goes too far in some ways but we understand that banking is complicated these days and it doesn't hurt for government to put some curbs or brakes on riskier banking activities. After all, if government is going to subsidize or insure some bank deposits backed up by our tax money, then it makes sense that society should have some say so about banks. DF has a lot of say so. DF went through Congress and was signed by the president. There are also international accords that regulate bank risk exposure. 

Some might think that enforcing criminal statutes and DF would be enough -- at least for a while. But not so for Blinder. He wants to muck things up even more. His article quotes a Fed Official William Dudley as saying that there are just too many bad bankers these days. They do some really awful things apparently and are not being harassed enough by people in government who apparently never do anything wrong and are much better at banking than are the bankers. So what does Blinder recommend.

First, he wants whistle blowers to be encouraged and treated more kindly by their companies. Perhaps they should post photos of the "whistle blower of the month" on the company's Facebook Page. Then we can count all the Likes they receive. The ones with the most Likes get free tickets to an IU football game. Second he wants to regulate the pay of bankers so that they focus less on the short-run. 

Everyone loves to get paid for today's work when hell freezes over. Right?  Third, anyone caught doing something wrong would be not only convicted but would be barred from banking for life. I wonder how the unions would go for that one? Fourth, each bank would have a point total score -- sort of like airline frequent flyers points. These totals would accrue each time a bank was caught doing a no-no and would somehow be published so that all of us dummies would know exactly which banks were repeat offenders. Maybe a weekly tweet of bad bank scores would get the word out. Finally, when a bank was fined or otherwise punished -- it would not be enough to whip the CEO in public. Instead the government would require everyone in the offending part of the bank to be spanked in the town center by the principal. 

So Mr. Blinder. ARE YOU KIDDING? Why not do these same things to Pharmaceutical companies? How about all those companies who advertise great deals buying gold today? Then there are those wonderful firms who heavily advertise reverse-mortgages? Why stop there? I am sure there are evil and mean-spirited owners, managers, and employees in EVERY INDUSTRY who stay up all night conjuring up ways to deceive the public. 

This is nuts for a couple of reasons. First, we spent a lot of time and energy passing legislation over the last 50 years -- are you kidding about these suggestions? Did you copy this crap from one of your student's freshman exams? Second, are you sure you want our government to have regulators who tell business people how to run their companies? Do you want them to institutionalize whistle-blowers? Do you want to regulate pay? Do you  want to have government employees infringing on the rights of union employees to keep their jobs? Do you really want a government that often has strong ideological goals deciding which companies are the bad guys? 

Some of you are saying cool. You love the idea of government controlling these bad actors. To you I say -- just wait until the government thinks your company is one of the bad guys. Or maybe just take a peak at Cuba or China and see what it's like when liberals get their wish. 

Christmas 2014

My good friend Ron, a reader of this blog suggested that publishing on December 23rd might be a little ballsy. After all, you important folks have a lot to do to get ready for Christmas and archery practice. So I decided to follow his advice and post something whimsical, though highly meaningful.And by that I mean I am posting my 2014 Christmas list. For those of you who do not celebrate Christmas you may substitute another word for Christmas or for list or for any other word above if you want. This is a free country you know.

In reading this list you will notice that I did not include JD. I figured that would be sort of err redundant. There are only 18 items because I am not greedy and I forgot the other ones.

1. Cuban Cigar
2. Free popcorn and flack jacket with ticket to  “The Interview”
3. Elizabeth Warren Jockstrap
4. A one-pee night
5. One channel that has news
6. Fed Impatient about Interest Rate above Zero
7. Honest politician
8. Mung Bean Bindaettoek at Gwangjang Market
9. Putin and Bieber in the rear view mirror
10. Sing one song live with the Temptations or Four Tops or Justin Bieber
11. Ribeye Steak as big as my head
12. Cash
13. A liberal/progressive who will write a guest blog for me
14. Another grandson
15. Wearable Camera for the Back Door
16. Paul Krugman's speaking fee
17. An Uber gift certificate
18. Another daughter named Ashley

I hope you have a great Christmas and a very Happy New Year. 

Guest Blogger Harvey H. Homitz on Global Climate Change

From the desk of:  Harvey H. Homitz 

p.o. box 436 Sanibel, FL. 33957

to: Justin Gillis 

C/o. The Editor,

      New York Times, New York, NY.

Re : By Degrees.  

        New York Times, Science section, Tuesday Nov. 11th. 2014

Dear Mr. Gillis,

Congratulations! You are indeed the lead trumpeter for the NYT Green Warming Marching Band if you dig my tune.!  Nothing wrong with blowing a good trumpet,  even if it is for the NYT,  but be careful!  Remember when Joshua blew his at Jericho....the walls came tumbling down.   

We don't want that happening in New York! Right?

Let's not mince words!, for a while now  I've been following  your 'BY DEGREES' piece on Global Warming, or what they now call Climate Change.  That terminological reconfiguration was a smart move, nothing wrong with that!  Better be safe than sorry I always say, especially for you journalists when you get into the prognostication business.  

So! We've got the outcome thing covered but all this headlong charge into Wind and Solar has been bothering me for a while  and I'm relieved that finally you got it ..  Justin Time eh!  

Oops ! I forgot; Justin Gillis.

Well done! You hit the Danes on the Jutland with that one!    What are those 5.6 million Danes going to do when the wind stops blowing and the Norwegians won't give back the electricity  they owe from pumping up their hydro electric dams when there was too much wind? And Danish wind to boot.  More to the point what are they going to do when 45 million Brits., who shut down their Nukes and dirty old coal plants, are begging for a few tera-watts  to save them from freezing in the dark? Eh?

Well I don't mind sharing this one with you; the Brits will do OK without Danish Wind. They've got Lord Browne Fracker!  You know,  the chap who changed British Petroleum to Beyond Petroleum,  jumped out of the closet, quit BP and started fracking all over North England.  

Now you seem to be a bright sort of fellow, very literate if not so numerate.  After all, apart from a few recent exceptions, there's  not many Dodos on the NYT payroll, so you may have guessed by now that I am packed in the sardine section of an Airbus, at Mach .75 , 35k ft. and reading your piece in the Times.  Incidentally, when you say "BY DEGREES" are we talking about Fahrenheit, Uncalibrated, Celsius or Kelvin? Perhaps you should put that little circle with F, U, C or K after 'degrees' so that any real scientists reading it would know what the f*** you're on about.

Now Articles like yours  tend to make one think.   So it occurred to me as I sipped an inferior wine while nibbling fruits and nuts, (appropriately  since I was departing California which is well endowed with both), how lucky I was to be propelled by kerosene and not Danish wind.  Further, with the aid of a slide-rule, (which need not be switched off in flight),  I calculated that it would require 70,000 horses or 350,000 galley slaves at max exertion, to get this Airbus off the ground. Suddenly the sardine section seemed less crowded!

Well, not to worry, you're on the right track now, and being an expert in these matters myself, I don't mind helping you avoid the obvious pitfalls while sweeping on with the grand fallacy.

As luck would have it I'm available.  Let me know when we can start.

Yours from the Last Bastion of Independent and Unfunded Natural Scientists,

Harvey H. Homitz

Purveyor of Sensible Science to Innumerate Literati.

Low Oil Prices? I don't think so.

Oil prices are low. Groovy! Hold on they tell me. Low oil prices are bad. What? Tell my new gas guzzling Santa Fe that lower gas prices are bad. Tell my wallet. What is going on here? We cried and moaned every time we went to the gas station for years and now that gas prices have dropped a few cents, we are supposed to see a crisis in the making? This is economics gone wild

Where to start? Basic economics. Suppose people want fewer Thingies. This leads to a lower price for Thingies. Firms supply fewer Thingies to the market. That sounds pretty intuitive. People want less so firms supply less. It happens all the time. So when global demand for oil started to fall and this caused the price of oil to decrease, it makes sense that oil firms produce less. What is the problem? The problem is that some folks are worried that the price will fall so far and get so low that most firms would lose money selling oil and the supply would dry up.

Now you see the rub. But come on guys – what are we assuming here about oil firms? Basically the worry warts are saying that firms are passive entities who bark at the ring of a bell.

First, is it not possible that oil firms could work harder at cutting costs to remain competitive at lower prices?

Second, is it not possible that firms could innovate or find better ways to make money with oil? Notice that when prices are high and rising there is very little incentive for oil firms to cut costs and innovate. But when they are falling, the stakes are much higher and there is plenty of incentive for protecting profits.

Third, is it not possible that firms who got rich when oil prices were super high might have invested or saved some of that money for a rainy day?

Finally, is it possible that oil prices are not yet really so low that we have to worry?

It is this last question that I want to address here. Are oil prices really so low? So I found some data on crude oil prices. You can get data back through 1776. Ha ha. No you can’t. But you can get them back to before I was born! I found monthly data on crude prices and I mostly wanted to focus on when they got interesting – after the early 1970s.

Before 1973 crude went for about $3 a barrel.

After two oil crises we found oil near $40 by 1980. You have to admit that is quite an increase. My allowance didn’t go up nearly that much.

At that time a strange bunch of fellows who were part of a group called the Club of Rome predicted that oil prices would soon reach $100 per barrel. Unfortunately their timing was quite wrong as oil prices fell below $40 very soon and basically fluctuated for the next 24 years! Yes, it took until 2004 before oil prices reached the magic $40. $100 per barrel sounded pretty stupid.

One reason for telling the above story is that we have mental giants who like to extrapolate the latest changes into the forever future. What goes up must go up! That same logic prevails with some people today. Oil prices went down so they must keep going down. Maybe they would go to -$100 if only prices could be negative.

The Club of Rome must have started singing JD drinking songs because they finally got their wish in 2008 when oil prices climbed to about $133 per barrel. I wish all of my forecasts would turn out correctly 38 years later!

Okay, Larry get to the point. As I am typing a barrel of crude oil costs about $66. Is that a low price we should worry about? Well, it is low compared to the $133 of 2008. But then it is quite high compared to the $39 per barrel of February of 2009. Are you getting seasick yet? Yes, oil prices oscillate like crazy. But even more telling is the fact that $66 per barrel is HIGHER than virtually every month since 1946 except for a little burst in 2006 and another one from about 2010 to sometime in 2014. 

If oil companies could make money on oil during all those months when it was priced at $66 or less, then I am guessing they will be okay now and they will continue producing oil. While $40 dollars a barrel might be a little tougher on them, I am guessing they could survive prices less than $66.

Some of you sharp cookies might worry that I haven’t accounted for the general level of prices. After all, $66 dollars today buys a lot less than it would have bought some years ago. So I deflated the CPI energy Index with the CPI. Guess what? Even if you account for general inflation, energy prices today are higher – not lower – higher than in most months since the 1970s. That is, a dollar earned from energy buys more than it did in the past. For example, in 2002 a dollar of energy could buy only about 60 cents of consumer goods and services. In September of 2014 a dollar of energy could buy a whole dollars-worth of consumer goods and services.

So whether you deflate or not, oil prices are not low at $66 per barrel. If anything they are high. I am not about to begin weeping JD tears for these energy companies. Most of them will do fine, especially the ones that aggressively invest, manage costs, and innovate.   While supply of oil might decline because of good economic reasons, it is hard to imagine a future energy crunch like we had in the 1970s. In the meantime, enjoy pulling up to the pump and paying  $2.something for a gallon of gas. 

Ferguson

Ferguson has no significant macroeconomic impact. But no self-respecting blogger can ignore all the words and scenes associated with that town near St. Louis, Missouri. One could not get through Thanksgiving or Black Friday without constant reminders and it threatens to keep going for some time.

My take is broader and more personal than the police case. I have heard and read so much about Ferguson coming from so many different viewpoints that it does none of us any good for me to regurgitate or pile on.

Ferguson makes me think of what happens in every family. Ashley screams – Jason hit me. Jason explains that Ashley kept bugging him. Ashley retorts that she bugged him because he took her soccer ball. Jason explains that all was great before Ashley was born. It is pretty obvious that no amount of accusation is going to solve anything. 

Timeout for both of them is a temporary but an effective way to restore peace and quiet. Jason and Ashley are now grown and are great friends. How did we get from there to here?

I don’t mean to make light of racial issues in the US. But it does seem to me that if we get beyond the actual legal case in question, we quickly realize that much of the intensity of the aftermath involve whites and blacks talking or shouting over each other’s head. From my vantage point nothing very constructive is happening. It is like Jason and Ashley when they were kids. A timeout is called for.

Another parental approach for rival siblings is to follow timeout with a second stage. Okay – the two of you will go into one room with a locked door and you may not come out to play or eat or send texts or do anything until you explain how you are going to get along better in the future.

That’s what I would love to see. Let’s face it. Blacks can charge that some whites are racist and they place numerous roadblocks to prevent Black success. Whites can point to persistent social problems among black communities that contribute to Black problems. Inasmuch we shouldn’t for a moment – whether we are Black or White – praise the progress that has been made in race relations. The elephant in the shop is a shameful lack of racial progress.

That’s where this gets personal. I remember growing up in Miami – I was born there and then left to go to Atlanta to college. Racial segregation was the ruling culture in Miami. As a barely middle income kid, my neighborhood was on the border of the black section of Coconut Grove. I saw lots of black people. But I never went to school with one in segregated public schools. As you may know, blacks were required to sit in the back sections of buses. I never had a black friend until a summer job when I was 18 years old.

I could go on but you get the picture. The point of the picture is that my parents taught me that segregation is immoral. They believed there was no excuse for the way Black people were discriminated against and they firmly believed that in my lifetime things would change for the better. I never challenged that. It was hard to believe – especially after the Civil Rights movement, that segregation and discrimination would be measurable 50 years later.

My parents were both right and wrong. While Black ghettos remain, many escaped segregation and many have done well despite being minority citizens in a majority White country. While the advancements are real and recognizable they remain insufficient. That’s the elephant in the room. Damn it, it is deplorable that so much inequality and discrimination still exists.

And of course, depending on your race or your ideology you are now ready to fight. And you might want to start with me! Whites point their fingers at Blacks and vice versa. But in my humble opinion, neither side is willing to admit that both are responsible for the lack of progress. But they are. Both Blacks and Whites contribute to segregation and inequality. Both blacks and whites hold on to extreme ideologies and historical mistrusts and hatreds. Both blacks and whites hold on to stories that “prove” they are right.

Well, they can hold onto all that destructive crap all they want. Maybe it serves the wealth and power of some. Maybe it is easier to stay segregated? All I know is that we can and should do better. Segregation and racial hatred are immoral and wasteful. What I know is that it will take REAL leaders on both sides who really care about human beings. It will take sitting together in a room for as long as it takes to begin a sincere dialogue about mutual errors and potential successes.

I spent time this Thanksgiving holiday with some of my grandchildren. Maybe you did too. What are we supposed to tell them about the next 50 years? That’s what Ferguson means to me. 

Some may call me simplistic to believe that leaders could sit down and make progress on something that has festered for more than half a century. And maybe it won't happen. But let's face it, doing nothing or relying on violence is just going to make things worse. I'd rather harp on the real but unpopular than to continue the disastrous status quo of finger pointing. Now where is that JD?