The Affordable Care Act creates a new health insurance marketplace (the exchange). But because of the great uncertainty about what buyers will enter the market and who will buy what product, the law creates three vehicles to reduce insurance company risk.
Politicians and bureaucrats are notorious for manufacturing euphemisms -- clever but deceptive substitutes for what they really mean but don’t want to admit. That’s how the phrase “revenue enhancement” entered the vocabulary. Some of our courageous friends in government couldn’t bring themselves to say “tax hike.”
It’s easy to be negative about the U.S. economy these days. Find a glint of silver, and folks come running to point out all of the dark clouds looming about. This, of course, is what we got last week when the monthly jobs report was released from the U.S. Department of Labor (DOL). Folks pooh-poohed the number of jobs and whining that they’re not enough or that it’s less than a bunch of economists thought that it might be. But you know what? Stuff ’em.
Facts are easy. You can check facts. What supporters of the Affordable Care Act are doing, on the other hand, transcends factual bungling. It’s far more advanced: a warping of reality so debauched it looks like something out of a tale by H.P. Lovecraft.
The east coast and parts of the southern U.S. were to varying degrees paralyzed by blizzards a few weeks ago. The snow as expected rendered the roads treacherous, and in anticipation of slick streets, shoppers flocked to the grocery stores in advance.The rush into grocery stores, and its aftermath, offers worthwhile lessons in economics.First up, […]
The highest form of charity, argued the 12th-century Jewish philosopher Maimonides, is when the help given enables the receiver to become self-sufficient.But our systems of state charity — aka welfare — have too frequently had the opposite effect: They have actually created dependency. It is time to rethink the way we help people.I’m going to […]
Last year was quite the year for Bitcoin. We’ve seen exponential growth in Bitcoin’s exchange rate and extensive coverage in the media. Another phenomenon we have witnessed is the proliferation of alternative cryptocurrencies, five of which we’ve provided below.What all of these cryptocurrencies have in common is that they rely on a decentralized network to […]
President Obama crowed in his State of the Union speech about the economy, even mentioning “a rebounding housing market.” Maybe he was referring to friends in high places, like the seller of Penthouse One in New York, which just closed for $50.9 million, all cash. Millions of mere-mortal homeowners likely wanted to throw something at […]
The nonpartisan Congressional Budget Office is acting in a bipartisan way to cover up the biggest single threat to the bipartisan political alliance that is stripping America of its wealth: the United States Congress.There is no question that the following policy is bipartisan. Democrats and Republicans in Congress are completely agreed that the following information […]
Recent difficulties with implementing the Affordable Care Act have increased opposition to the program. A majority of Americans now oppose it. Problems with the HealthCare.gov website are in all likelihood temporary. However, there are serious long-term problems, particularly considering long-term finance and labor supply issues. Given the mounting difficulties with and growing concerns about the […]
The faces of the Detroit bankruptcy are the thousands of pensioners whose promised benefits are suddenly part of the restructure negotiation. When Motown filed for Chapter 9 last July, the city had $11.5 billion in unsecured liabilities. The vast majority of this was pension and health care benefits owed to retired city employees.The images of […]
“Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.”As the inequality gap grows, there is an ideological battle unfolding in the West.On the one hand, there are those who think government can fix things. It must do more, tax more, […]
On Feb. 7 the United States will once again reach its statutory debt limit, meaning it cannot legally borrow any more money. Since the obvious option of cutting spending to match the amount of revenue that the government collects is off the table for some inexplicable reason, Congress will have to pass a new, higher […]
The New York Times published an interminable article on health care recently. Plenty of facts — how scrupulous are these journalists! — but the article displayed absolutely no comprehension of the basics of cause and effect. I was left wondering about the whole point.The article details how the health care system rewards specialists to an […]
The Largest Company in History:“The United States Corporation of Government (USCOG)”I follow global social and commercial networks, looking for entrepreneurial opportunities.Innovation surges when industry and government models change. Buggy whips. Landline phones. Railroads. The Soviet Union. Apartheid South Africa. All marked social and commercial innovation, both bad and good.We are witnessing a new form of […]
We’d like to give the banks in Australia some credit. They’ve finally gone and done it. They have caught up with 1960s technology. They’ve figured out how to use PIN numbers.How to only use PIN numbers, that is. They’re considering scrapping signatures on credit cards to cut down on fraud. Apparently, having to verify your […]
We put in a good-citizen call to the SEC the other day.“There’s a massive scheme to manipulate stock prices,” we told the friendly agent.“I have to tell you that your call is being monitored so that we can better serve the public,” he replied.“Oh, don’t worry about that. The NSA is tapping our call anyway.”“Are […]
Dr. William C. Padgett is a retired optometrist who has been trying to bring an elderly care facility to Beaufort County, North Carolina, for over a decade.“Our senior citizens,” he laments, “are finding that it is difficult and in many cases impossible to find an appropriate long-term care facility locally.” Though he has received several […]
If you don’t have the angst out of your system concerning Wall Street banksters, Government Sachs, and the Affordable Care Act, settle in with Matt Taibbi’s Griftopia to make your blood boil one more time.Investors should be reminded of 2008 as they shrug their shoulders and put their money back in the stock market. The […]
What do 8 of the 10 wealthiest people in the U.S. have in common?Aside from being able to fly in private jets, the common thread is that each of them has made their fortune thanks to a start-up.Let me explain…From tech titans like Bill Gates and Larry Ellison (founders of Microsoft and Oracle, respectively), to […]
“Inequality is the defining challenge of our time,” according to President Obama. It’s certainly the topic of the day for Paul Krugman, Joe Stiglitz and a whole raft of liberal pundits.But have you noticed that hardly anyone else is talking about it? When is the last time you heard a shoeshine person or a taxi […]
In December of last year, I left my career to travel the world for one year.My plan was to visit as many countries as possible on my Star Alliance Around-the-World ticket in the first nine months, then, for the remaining three months, return back to the country that most caught my eye and my curiosity.Nine […]
Economic history is primed to repeat in the nastiest of ways unless the government stops distorting the price of something we use every day.Every product, good, or service has a price, which is essential to rational decision-making. We use prices every day as vital data that guide us. Without true prices, prices not distorted by […]
A new survey from Harvard University found a large majority of young Americans do not believe the law will save them money, do not believe it will improve their health, and do not intend to sign up for insurance through the new exchanges.
Uh-oh!The new pope, Francis from the Pampas, has just warned us to beware the “tyranny” of capitalism.Each man worships his own gods. Some worship at the altar of Jesus of Nazareth. Some at the altar of the Almighty Dollar. The capitalists don’t bad-mouth Francis’ god. You’d think he would cut them the same slack.Bad-mouthing Catholicism […]
The market has selected different things as money throughout history. Some of these items have served as money in isolated places for specific periods of time — for instance, cigarettes in prisoner-of-war camps. Cigarettes continue to be a currency in prisons if allowed, but if not, according to Wikipedia, “postage stamps have become a more […]
A president stands disgraced. Congress is scattering. Bureaucrats are baffled. Pundits are reaching. Industry is scared. Politicians are scrambling to do something, anything, to make it better. One political party is in meltdown and the other loving every minute of it, hoping to ride the calamity to electoral gains.The so-called Patient Protection and Affordable Care […]
The voting machine that is the market deemed an ounce of gold to be worth $1,600 a few days ago and then, whoops, two days later, that same market, the collection of rational minds that trade in the metal, valued that same ounce to be worth less than $1,400.
Keep in mind: These prices are in dollars that are not backed by anything other than Uncle Sam’s less-than-creditworthy promise.
Economists of the rational-expectations school and believers in the efficient-market hypothesis must be scratching their heads. These deep thinkers contend all information is known in the market. There are no such things as bubbles and busts.
Wikipedia explains rational expectations,
“it is assumed that outcomes that are being forecast do not differ systematically from the market equilibrium results. That is, it assumes that people do not make systematic errors when predicting the future, and deviations from perfect foresight are only random.”
Yep, that sounds exactly like you, me, and your idiot brother-in-law. Nobody makes mistakes when predicting the future.
At the same time, Eugene Fama, father of the efficient-markets hypothesis, says, “I think most bubbles are 20-20 hindsight.” When asked by John Cassidy at the New Yorker to clarify whether he thought bubbles can exist, Fama answered “They [bubbles] have to be predictable phenomena.”
Fama is no Nobel laureate, but he did co-author a textbook with Nobel Prize winner Merton H. Miller, and he himself has won plenty of prestigious awards for his theoretical work.
These guys can theorize all they want to, and win awards doing it, but what they have to say has nothing to do with how markets act and react.
This week’s Laissez Faire Club author, Alec Macfie, was an economist lecturing at the University of Glasgow back in the 1930s. He had a better head on his shoulders than today’s fuzzy-minded theoreticians who evidently haven’t taken the time to look out of their campus office windows to see how the world really works.
Macfie explores the ups and downs of the business cycle as well as investment booms and busts in his elegantly written Theories of the Trade Cycle. He not only, among other things, provides a clear synopsis of Hayek’s Austrian Business Cycle theory, but he also makes use of psychology to solve the business cycle puzzle. Investor errors are revealed in a crash as entrepreneurial errors are revealed by recessions. In Macfie’s view, the term error should be substituted with “excesses of optimism and pessimism.”
He explains that in a bull market the possibility of potential profits is spread by suggestion and is overemphasized. Investors hear the potential but not any opposing rational criticism. “A man acting under the influence of suggestion is like commander of a submarine observing his enemy through a periscope. He sees his easy prey and is impelled toward it, but his periscope cloaks from him the surrounding dangers,” writes Macfie.
But how could investors or entrepreneurs go from bullish to bearish so quickly to create huge drops in assets prices? A. C. Pigou, a renown English economist at the time, sheds some light on this, explaining, “An industrial boom has necessarily been a period of strong emotional excitement, and an excited man passes from one form of excitement to another more readily than he passes to quiescence.”
So for investors there is no inbetween, they go from bullish to bearish in the blink of an eye. Just what is it that sets them off? “It is, of course, common knowledge that we tend to manufacture rational explanations for conduct which springs largely from our unconscious urges,” Macfie explains. “Every politician, every elector, exemplifies this.”
Manufactured rational explanations or rationalization is constant in individual finance, according to Elliott Wave’s Robert Prechter. Individuals use reason to succeed in economic endeavours. However, in finance, individuals rationalize the decisions they have made that amount to simply herding with other investors. Rather than make their own valuations, investors depend upon others’ valuations. Rather than having knowledge about markets they remain ignorant. Rather than using objective value, investors value subjectively.
Bubbles and crashes are consistent with nonrational risk aversion, but not with rational assessments of risk. Still, people are hyper risk sensitive and often resort to bailout first and analyze later. “Thus, it is the instinct of each herd member to flee from danger that supplies the force behind the stampede,” writes Professor Macfie, even though that force maybe be a mere suggestion.
And while an individual will achieve prosperity acting in the economic sphere, that same person will chase booms and busts in finance. Why? According to Prechter, speaking at The 2013 Socionomics Summit in Atlanta, these decisions are made with two completely different parts of the brain. We use the rational part of our brain, the neocortex, to make economic decisions and maximize utility. However, investment decisions are made in the limbic system, that is driven by emotion, making us follow the herd.
Does any of this make sense from an evolutionary standpoint? Actually, yes, according to Prechter, “Prosperity keeps humans alive in the short run. Setbacks keep the species alive in the long run.”
The pummeling of gold was certainly a setback for those who are betting against the central bank controlled new world order. But one should realize that central bankers are no more than academic theoreticians lucky enough to get a government job. Their views of how the how the economy and markets work have no basis in reality.
Yes, the gold herd was spooked a few days ago. But the yellow metal has been around a lot longer than Ph.D. economists and will prove more durable in the end.