To Ban Short Selling Of Financial Assets Is To Be Short Sighted

Clueless About Economics

Politicians, economists, or regulators who favor banning short sales of financial assets have no clue about economics. They certainly have never understood how financial markets operate. Such a ban is like a barometer or measure of fitness for office of any politician or regulator.

Convenient Scapegoats

In the medieval ages we had witches and sorcerers. In the modern age, we have speculators and short sellers. When will the so sophisticated intellectuals, economists, and politicians finally use their brains instead of cheap scapegoating to deflect from own failure.

Free Markets Depend On Speculators & Short Sellers

Speculators and short sellers are essential to price discovery in a free market economy. They are the risk takers and canaries in the financial markets. Many loose their money, only a few are successful. When the few are successful somebody gets hurt, but for a reason.

Basel Accords (I, II, III) – Classic Examples Of Government Failure

Safety Of Mortgages & Sovereign Debt Conveniently Presumed

If it is true that that the early Basel Accords strongly presumed that mortgages or sovereign debt were safe, then these are dramatic examples of colossal government failure. Worse, these were self-serving presumptions to support certain notions of public policy like the promotion of widespread home ownership and politicians’ unrestricted access to finance their prerogatives (pet projects).

Government Debt Has A Credit Risk Weight Of Zero

Basel I of 1988 primarily focused on credit risk. Assets of banks were classified and grouped in five categories according to credit risk. , carrying risk weights of zero (for example home country sovereign debt)

I am sure that elected politicians think of themselves as responsible acting people who know how to handle other people’s money. If history is any guide, this is pure baloney. Elected politicians cannot be trusted with our money.

Causing The Great Recession

The latest financial crisis (2007-2008) was not least caused by such stupid, politically motivated presumptions that were enshrined in the Basel Accords.

Primacy Of Politics Over The Markets

The Great Recession Is A Product Of This Midunderstanding

Such a claim to primacy is utter foolishness! Were it not for simple-minded politicians who constantly try to assert such a primacy we would not have to suffer through the Great Recession of our time.

The German Chancellor Is An Advocat

German Chancellor Angela Merkel in May 2010 is quoted as saying “in a way, it is a struggle between politics and the markets. We must re-establish the primacy of politics over the markets.” Unfortunately, I could not immediately find a German language source for this quote.

Where Does This Misunderstanding Lead To

With elected leaders like this in the Euro zone or in the USA, no wonder!

The willingnes of domestic and international investors to buy government bonds for so many years at artificially low interest rates has finally come to a reckoning. Whoever invented this convenient nonsense of secure sovereign debt?

Biased Esoterics Or Economics

If you ever wondered why the Great Recession could have happened and why our elected representatives are so inept to deal with it look no further than the (pseudo)science of economics. Adam Smith/Hayek/Mises are spinning in their graves.

I just received the latest e-mail from the American Economic Association (where the brilliant minds of many Nobel laureates meet) containing the table of content and abstracts of American Economic Review (AER) Vol. 101, Issue 7 -- December 2011 (the flagship publication of AEA).

Now looking at individual articles featured in this latest AER:

1.       Title “The Slave Trade and the Origins of Mistrust in Africa”
The authors state “… we find that individuals whose ancestors were heavily raided during the slave trade are less trusting today.”
Comment: Wow! How did they even establish that the ancestors before slave trade were more trusting? Economists, a new breed of archeologists?

2.       Title “Buffalo Hunt: International Trade and the Virtual Extinction of the North American Bison”
In the very short abstract, the author mentions the emotional loaded word “slaughter” three times as in “… slaughter lasting little more than ten years …”, “… the slaughter was initiated …” and “European demand and American policy failure are jointly responsible for the "Slaughter on the Plains." …” (emphasis added).
Comment: Does this author, perhaps driven by excessive love for animals, propose a monocausal explanation? Since when do economists assign responsibilities in economic papers?

3.       Title “The Effects of Rural Electrification on Employment: New Evidence from South Africa”
We read in the abstract “… I find that electrification significantly raises female employment within five years. This new infrastructure appears to increase hours of work for men and women, while reducing female wages and increasing male earnings. …”.
Comment: Is this an example of gender studies and the notion of manifest gender inequality intruding into economics?

4.       Title “School Desegregation, School Choice, and Changes in Residential Location Patterns by Race”
The authors state “We decompose the well documented decline in white public enrollment following desegregation into migration to suburban districts and increased private school enrollment and find that migration was the more prevalent response. Desegregation caused black public enrollment to increase significantly outside of the South, mostly by slowing decentralization of black households to the suburbs …” (emphasis added).
Comment: I thought their finding in 2011 was already well established for a long time that white population moved into to the suburbs. What is “slowing decentralization” in this context? Economists and linguistics.

5.       Title “The Effect of Newspaper Entry and Exit on Electoral Politics”
The authors conclude “The effect on presidential turnout diminishes after the introduction of radio and television, while the estimated effect on congressional turnout remains similar up to recent years. We find no evidence that partisan newspapers affect party vote shares, with confidence intervals that rule out even moderate-sized effects. We find no clear evidence that newspapers systematically help or hurt incumbents.” (emphasis added)
Comment: What does this have to do with economics? This is a political science study. I don’t think economists in general are sufficiently equipped to make such bold statements. Or this a scientific cover for obviously leftist and influential major newspapers like Washington Post and New York Times?

6.       Title “Endogenous Information Flows and the Clustering of Announcements”
The authors “show that bad market news can trigger the immediate release of information by firms. Conversely, good market news slows the release of information by firms. Thus, our model generates clustering of negative announcements. Surprisingly, this result holds only when firms can preemptively disclose their own information prior to the arrival of external information.” (emphasis added).
Comment: I am impressed that economists of our times again and again confirm common sense. What is the surprise here? When the management of a company senses that the arrival of external information is imminent then it makes sense to release your own information as soon as possible. Is this perhaps an example for economists never having worked in the real economy for a for profit private enterprise?

7.       Title “Who Thinks about the Competition? Managerial Ability and Strategic Entry in US Local Telephone Markets”
The authors say “This motivates a structural econometric model based on behavioral game theory that allows heterogeneity in managers' ability to conjecture competitor behavior. We find that manager characteristics are key determinants in managerial ability. This estimate of ability predicts out-of-sample success.” (emphasis added)
Comment: This result smacks of banality and triviality.

8.       Title “Media and Political Persuasion: Evidence from Russia”
The authors state following purpose of their study “This paper compares electoral outcomes of 1999 parliamentary elections in Russia among geographical areas with differential access to the only national TV channel independent from the government.” (emphasis added)
Comment: This is another political science or media influence study in a premier economics journal. See also no. 5 above.

9.       Title “The Consequences of Radical Reform: The French Revolution”
In the opinion of the authors “The French Revolution had a momentous impact on neighboring countries. It removed the legal and economic barriers protecting oligarchies, established the principle of equality before the law, and prepared economies for the new industrial opportunities of the second half of the 19th century.” (emphasis added).
Comment: Again economists endeavor to be historians and political scientists as well (See also no. 1 above). That is a huge calling for any economist. From the title and abstract one gets the impression that the authors glorify the French Revolution by ignoring all its dark sides. Were there not, e.g., expanding price controls and executions of offenders in France during this time?

I think I will stop here after the first 16 articles out of a total of 25 articles listed and abstracted in the above e-mail sent by AEA. One gets the idea where I am coming from.

To be fair, there was at least one positive article worth mentioning among the first 16 of 25. Title “Dynamic Inefficiencies in an Employment-Based Health Insurance System: Theory and Evidence”. A subject, which is very relevant in our times to millions of employees and our elected representatives. The authors conclude correctly “Health is a form of general human capital; labor turnover and labor-market frictions prevent an employer-employee pair from capturing the entire surplus from investment in an employee's health. Thus, the pair underinvests in health during working years, thereby increasing medical expenditures during retirement.”. It is indeed high time the US abandons this socialist employment-based health care system. Private individual health care insurance in a free market economy is only way consistent with the US Constitution and with the magnificent ideals/convictions of the founding fathers and mothers. If the US wants to continue to be a beacon of hope and a shining city on a hill it is way overdue to reform health care insurance along these lines.

Two Russians In Mexico

Now that I have moved much closer to Mexico, everything about this country becomes more interesting.

Leon Trotsky

The other Russian was Leon Trotsky, a leading communist theorist and revolutionary, but who was outdone by Stalin to succeed Lenin, was killed in Mexico City in 1940 with an ice pick by an assassin on orders by Stalin. It was painter Diego Rivera who asked the Mexican president to grant asylum to Trotsky. While in Mexico he lived for about two years at the home of painter couple Diego Rivera and Frida Kahlo (with whom he had an affair). One of the foremost advocates of the permanent revolution died in the country were the party of permanent institutional revolution (Partido Revolucionario Institucional) ruled the country from 1929 to 2000.

Anna Pavlova

Recently learnt of another well-known Russian to visit and possibly to influence Mexico, the famous ballerina Anna Pavlova visited Mexico City in 1918, where she also performed Mexican Dances in open-air venue of the Plaza de Toros in front of a broad audience of 25,000 people. Mexicans were enthusiastic about her references to traditional Mexican dances. It has been said that at the time, the Mexican elite cared more about European art and style than about local traditions. Anna Pavlova may have changed that.

Stalin – A Criminal Before The Revolution

As can be learnt from the great universal encyclopedia of our times – Wikipedia – the successor to Lenin was a bank robber, counterfeiter. He was someone who conducted protection rackets, ransom kidnappings, and robberies. Details about his pre-revolutionary criminal career are unfortunately not provided in the article.

What is missing in the article about Stalin is that Stalin supposedly did not even bother to attend the funeral of his mother. The article about her mother does not mention it either. That is how a middle-aged Russian remembers Stalin.

Early Russian Revolutionaries

Two Main Figures Of the 19th Century Russia

Take Mikhail Bakunin (1814-76) and Sergey Gennadiyevich Nyechayev (1847-82). They were early Anarchists and Nihilists.

If it is true what is reported in Wikipedia especially on the latter guy, then no wonder about the outcome following the Russian Revolution of 1917 and of the USSR under Lenin and Stalin (Stalin was a petty criminal before he joined the communist party.). Mr. Bakunin is reported to be a close long-time mentor of Stalin.

A Murderer

Mr. Nyechayev and others conspired and murdered another revolutionary, because the victim was not complying. Mr. Bakunin did not mind, because he was very close to him especially in Swiss exile.

Purveyors Of Perverse Manifestos

Both Mr. Bakunin and Mr. Nyechayev each wrote and published a Catechism of a Revolutionary in the 1860s. The content of these Catechisms can only be described as perverse.

A revolutionary has no other purpose in life but to be merciless and destroy civilization at all costs and by all (including immoral) means.

A revolutionary must: infiltrate all social formations including the police; must exploit rich and influential people, subordinating to himself; must aggravate the miseries of common people.

Apparently groups like the Black Panther and the Italian Red Brigade terrorists republished this Catechism. What a turn of events.

Did perhaps Saul Alinsky take a cue from this Catechism when he wrote his “Rules for Radicals: A Pragmatic Primer for Realistic Radicals”?

Cowards In Switzerland

When things got a bit too hot, both men fled to Switzerland (like Lenin later) while other, less fortunate revolutionaries were captured and imprisoned.

Mr. Nyechayev even tried to disguise his cowardliness by deliberately spreading false rumors of his arrest in St. Petersburg before heading to Switzerland.

Betrayer Of His Followers

As a student, Mr. Nyechayev had 97 fellow students sign a petition so he would hand this petition over to the police with the intention to radicalize the poor students through prison and exile. What a warped mind.

While in Swiss exile, Mr. Nyechayev mailed leaflets to hundreds of followers in Russia again with the intention to denunciate these activists to authorities so they would be radicalized by their subsequent arrest and punishment.

Out Of Control Gun Control In America

Gun Controllers Are Blind & Obsessed

Gun control has been out of control for decades thanks to fanatic gun controllers who engage constantly in senseless battles of moral superiority and waste enormous resources. Further, and not less disturbing, theses narrow minded gun controllers prevent or subvert any serious debate among reasonable adults about such killings like in Tucson or Virginia Tech or Amish school children and so forth.

Abuse & Exploitation Of A Nation’s Trauma

In the wake of the high profile assassinations of US President John F. Kennedy (Died 11/22/1963) and his brother (Died 6/6/1968), Martin Luther King (Died 4/4/1968), Malcolm X (Died 2/21/1965) and multiple race riots in the 1960s and the ongoing Vietnam War & Protests, the legislators in the US Congress totally overreacted culminating in the infamous 1968 Gun Control Act (Enacted 10/22/1968). The negative effects of this irrational overreaction are still felt and present today.

Addendum

Previously, this nation witnessed horrific killings (sometimes in broad daylight to the imminent danger of innocent bystanders) by organized and other criminals (e.g. Saint Valentine’s Day massacre of 2/14/1929) using rapid fire automatic, sometimes large caliber, weapons. However, law enforcement and prosecutors learnt quickly how to deal with these criminals effectively. So called Untouchables were killed or became permanent residents of maximum security penitentiaries like Alcatraz, Sing Sing, San Quentin, …

Ice Age, Global Warming, (next panic?)

What hysteric, apocalyptic panic is next? Any bets?

Wave After Wave

Fad after fad!

In the 1970s it was Club of Rome and Global Cooling.

In the 1990s onwards it was Global Warming.

Is this just another manifestation of the human condition or what?

When will humans learn faster that they are being taken as fools?

What is truly shocking?

How many so called scientists were involved in this racket for funds and fame by exploiting human anxieties?
Way too many!

How many respectable, peer-reviewed scientific magazines went along by trying to be the latest and greatest distributor of a hoax?
Way too many and way too often!

The UN proved once more that it is an irrelevant organization.

The female head of government of one of the leading Western economies, a Ph.D. physicist and daughter of a clergy, went along with this nonsense instead of being a voice of reasoning.

The Curse Of Nuclear Power

Demagoguery Drowns Voice Of Reason

Recent and frequent comparisons of Three Mile Island, Chernobyl, and Japanese nuclear power plants affected by the earthquake are at best disingenuous and at worst irresponsible demagoguery.

Post-Modern Superstition

Medieval superstition in the 21^st century against nuclear power by too many people on this planet still reigns supreme. Poor education of our children for decades in science and technology explains a lot about the paranoia surrounding nuclear power.

Hiroshima & Nagasaki

Too many people of this world are still confusing nuclear weapons and nuclear power generation since 1945. Hiroshima and Nagasaki were not nuclear power plants.

Madame Curie & Her Husband

Marie Curie, one of the giants of science and radioactivity research and humanism, is reported to have died of the side effects of long-time exposure to radioactive rays. However, she died at age 66 in 1934 She survived her beloved husband by 28 years, who died of a horse carriage accident.

Why Did I Come To The U.S.?

Good Company

Before me there was Thomas Paine, Thomas Jefferson, Thomas Eakins, Thomas Alva Edison and others whose name I forgot to mention here. I am in good company. My father told me that I was named after someone else, but he was a big fan of Thomas Jefferson.

Trust In Taxpayers

The US income tax system relies on taxpayers to self-report their income for tax purposes. To submit any supporting documents with the tax return is basically not required. Tax audits are infrequent. Thus, Uncle Sam trusts its citizens like not many other governments.

Ultimate Checks & Balances

The founders of the German constitution omitted to include a 2^nd Amendment (or the right to bear arms).

Tier & Mensch

Wer ist klüger?
Affe oder Mensch?

Der Klügere gibt nach.

Der Dümmere glaubt er müsse den Affen retten.

Ein Planet für alle Tiere und Menschen.

Wichtigstes Tweet: Freiheit & Respekt Füreinander

The Exponential Development Of The Technological Revolution

Introduction

I am certainly not the first to make this claim (e.g. Singularity by e.g. Mr. Ray Kurzweil). However, this technological revolution may not yet be well understood by the inhabitants of this planet nor by myself.

Past Technological Revolutions Pale In Comparison

The ramifications and repercussions of this technological revolution are profound and will impact everything on earth in the foreseeable future. This technological revolution is like no other before in history in speed and impact. The diffusion of innovation and the adaption rate are already much faster than any historical precedent we know of. Just think of the cell phone.

For over five hundred years the book was basically the most important conveyance of human knowledge. Now the book as we know it is fast becoming extinct like the stone tablets and papyrus before.

Just take libraries for example. Do we still need those 100,000s of legacy libraries all over the world with millions of kilometers of bookshelves? Theoretically, one digital library with digital storage of everything ever written by humans would suffice.

Human Progress Like Rice On A Chessboard

Like Moore’s Law processing power increases, data storage increases, and ultimately the accumulation of knowledge and information. The acceleration of progress in science, medicine & technology, we are already witnessing today, is breath taking and just the beginning.

The Whole World Participates In This Revolution

Unlike previous, historical technological revolutions, which evolved over time and geographic space, this technological revolution is happening almost simultaneously worldwide and all people can and do participate across all continents.

Today, there are about 7 billion human brains participating in this revolution, billions of brains more than in any other previous revolution. Almost every human being today has already access to the entire human knowledge over Internet like the Wikipedia. Just compare this to the famous French encyclopedia of

This time it will not be a predominantly European & American, or Islamic, or Indian or Chinese revolution, but a revolution carried out by people of any cultural background and geographic location.

It will be a modern Renaissance, but much more powerful. This time people of all walks of life not only the scholars can participate. Thus, the obstacles for anyone to participate are greatly reduced compared to any earlier time.

The Evolution Of The Brain-Computer Interface Is Imminent

There is a distinct possibility that machines will soon be more intelligent than today’s humans. The famous Turing Test will likely be passed in less than 20 years.

However, I am not pessimistic. One day our brains will be augmented by computers. Can you imagine to have a memory such that forgetfulness is obsolete? Can you imagine to have a computer or network of computers work for you on a novel problem, while you sleep and you wake up to review what these computers came up with?

Being Envious

I truly envy the coming generations of humans. It is just mind boggling what the future holds in store. Very exciting Brave New World!

Economics Is In A Beauty Contest With Mathematics

First The Historical School, Then The Philosophical School Disappeared

Maybe the beauty contest explains why there is no Adam Smith, Friedrich Hayek, Ludwig von Mises, or even Joseph Schumpeter in our time.

One who does not learn the lessons of economic history is doomed to repeat it. Economists are doomed. Mathematics is no substitute for history. When I studied economics at my alma mater in Frankfurt am Main, there was, if I remember correctly, one elder professor of economic history left, but his courses were electables and he offered few courses.

In 1993, the Nobel Prize Committee had a special moment of inspiration when it awarded the economics prize to two professors of economic history.

Only Pure Mathematics Is More Aesthetic Than Economics

As a consequence, economists do not see reality anymore, only equations and abstract models. In their quest to be equal to physics, economists became econometricians. Or economists research some esoteric topics.

Economists Failed To Prevent The Great Recession

The Great Recession is a result of this beauty contest. The Great Recession should be a clarion call to every economist. Why are there highly trained economists working at, e.g., our central banks and international banks?

A Science Nobody Takes Serious

Economists are to blame when their science is ridiculed by popular opinions like economics is a dismal science guided by  an invisible hand and when they are the target of jokes like economists predicted 10 out of 7 recessions or you ask 10 economists and you get 13 different answers.

Or what did the so celebrated John Maynard Keynes once say “Practical men, …, are usually the slaves of some defunct economist” and “The long run is a misleading guide to current affairs. In the long run we are all dead”. What lesson did economist take away from this nonsense? Use mathematics and practical men will not understand you anymore.

The Greatest Tax Reform Of All Times In Honor Of Benjamin Franklin

Posted: 4/19/2011 Updated: 4/15/2015

Update 4/15/15

Just learnt of this quote from one of Ayn Rand’s books titled “The Virtue of Selfishness” (emphasis added):

“In a fully free society, taxation—or, to be exact, payment for governmental services — would be voluntary. Since the proper services of a government—the police, the armed forces, the law courts—are demonstrably needed by individual citizens and affect their interests directly, the citizens would (and should) be willing to pay for such services, as they pay for insurance.”

I fully agree!

A Tax Reform Like No Other

It is not utopian. It would be a triumph of individual freedom and responsibility. Such a tax reform would instantly solve so many problems with taxation. Too many to list here. The benefits of such a radical reform probably far outweigh the concerns. Politicians and civil servants would be held accountable like never before. The beast would be starved. No Taxation Without Representation was the beginning. Taxation Without Coercion is next.

A Tip Of The Hat To Benjamin Franklin

Benjamin Franklin wrote “Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.”. Taxes will still be certain, but the people will finally be able to vote with their money, because voting by feet is inconvenient. What would Benjamin Franklin think about voluntary taxes?