tfl: The Flatiron Life

Government and the public seem to be in a huff about AIG giving their employees bonuses after receiving money from government. I don’t understand why.

Typically government tries to keep things “normal”. It is not a big fan of demand shifting or preferences changing in any way. It is hard to plan when your constituents are constantly making their own decisions.

Last year and this, this inclination toward normalcy was in full display. This is when AIG went to the government and said, “Hey, something crazy has happened that we did not plan for. If we don’t get some cash we are not going to be able to operate as normal.”

The government said, “Oh crap! Really, you too! OK, here is $165 Billion. I hope that is enough to keep things normal.”

Now, AIG has done exactly that. They normally pay their employees mostly though bonuses and this year was no exception. Of the amount they were given they have spent 0.1% of it on these bonuses.

This did what they said they were going to do. Why are we surprised? I see two valid reasons.

You can be upset about this because you are new to the libertarian principle and have not gotten used to seeing how government inherently throws incentives out of whack.

-or-

You can be upset because you believe Scrooge McDuck was real and rich people mostly put their money in vaults that they like to swim in.

If you supported the bailout, then these bonuses are what you supported.

If you opposed the bailout of AIG but support the bailout of other companies or people and are upset, I have two questions for you. What upsets you about this compensation and why do you think the others would not do the same as AIG?

If you supported the stimulus then I think you have the least room to be upset because the truth is Scrooge McDuck does not exist. These guys may have created crazy investments, but they do not put their money under mattresses or in vaults. They buy things and invest. This will stimulate aggregate demand, the Keynesian principle we are working from, as much as giving the money to anyone will.

I hope you give me other options in the comments.

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Yesterday I was having lunch with a groups of peers and our VP at work. Our VP was talking about how we still have a budget for training and morale boosting events. This is after having two rounds of layoffs. He said sometimes people like to draw the line from still having these budget items to being able to still have some of our colleagues. Hoever, this is not how any company or even family works.

Companies don’t lay people off or cut programs so everyone else has to scrape by in the remaining departments. They lay people off so they can continue to have a going enterprise.

Generally, you don’t cut things from your family budget so you can scrape by in all areas, but so you can live fully in most areas remaining.

Walter E. Williams provides so basic economics on why we should not bailout the auto industry. The whole, short article is worth reading, but I wish this paragraph could be read to every congressman.

What happens when a company goes bankrupt? One thing that does not happen is their productive assets go poof and disappear into thin air. In other words, if GM goes bankrupt, the assembly lines, robots, buildings and other tools don’t evaporate. What bankruptcy means is the title to those assets change. People who think they can manage those assets better purchase them.

This is completely ignored by the media, as far as I can tell.

This handy Economic Meltdown decision tree confirmed it for me. I must retreat back into the “cocoon of academia.”

Setting aside the moral hazard FDIC creates, why hasn’t the amount it covers been adjusted for inflation?

I can think of a lot of things Madison and the gang were not likely have thought the Federal government would do when they signed the Constitution in 1787. Owning an insurance company (or any company, no matter how big) would have been really high on the list.

Can you point me to when the founders, or amendment writers, or Supreme Court used something like the phrase “too big to fail?”

Sorry Madison. “If men were angels,…”

Here is a good explanation of exactly what happened last week when the market rather efficiently reacted to a story about UAL going bankrupt. Oh, I mean a 6 year old story.

There were several steps this story had to go through before it made it to the trading floor. Not all these steps were automated by soulless machines programmed by soulless engineers. (Hey that is one step to far, stop the self hate.)

At any point, clicking on and reading the article would have made it clear that the story was old. Of course, enough people didn’t click and check before starting a sell-off that snow-balled, evaporating UAL’s market capital before anyone realized what was actually going on. The president of the research firm, Richard Lehmann, said, “It says something about our capital markets that people make a buy-sell decision based on a headline that flashes across Bloomberg.”

This reminds me a lot of the sub-prime problem. At any point, someone could have looked at the value of this homes and the ability of the owners to pay, but no one did. It finally looks like the state is going to let the market punish some people for this.

(HT: Russ Roberts)

“President Bush Calls On Business Leaders To Create 500,000 Crappy Jobs”

The Onion Radio News reports more truth than the MSM.

Zach sent me this post about free vs. farmed fish in British Columbia. I have posted about oceanic fisheries before.

A new study found that the way fish farms are organized in BC led to a increase in wild fish deaths due to parasites. The BBC story reporting the study describes some changes that can be made to the fisheries in order to reduce this risk.

Are there similar issues with bird farms today? Is this a factor in the spread of Avian Flu?

Do you think the undomesticated brothers of ancient cows, pigs, and goats had these troubles too. Seems likely, as I don’t know of many wild versions of these beasts.

Today I heard this report from NPR’s Adam Davidson. It is about Ft. Payne, AL, the former Sock Capital of the World. (It is also the home of the greatest country music group of all time).

Ft. Payne is no longer the Sock Capital of the World because we liberalized trade in socks and removed the tariff in the ’80s. Free trade is good, but if you concentrate of particular jobs it might look devastating. Over half of the sock mill jobs are gone in Ft. Payne. Much of the report concentrated on this.

However, it is not that dismal. At the end there is this gem.

Jimmy Durham, the county economic development officer, shows just how grim things have been for the sock business here.

On street after street, he points to buildings that used to house sock mills, most of which are now gone. With all these businesses shuttered, you might think Durham is in despair about the future of Fort Payne. He isn’t.

Those closed sock factories are reopening as new businesses.

He points to Steadfast, which makes bridges; Ferguson, a major plumbing supply company; a distribution center for Children’s Place; two new metal tube manufacturers; a high-tech label maker. For a town of only 13,000 people, this is a lot of new, good-paying employment. These jobs pay more than sock-making jobs.

In fact, most of 4,000 recently laid-off sock workers quickly found new jobs.

Joscelynn, Is this an example of what Joseph Schumpeter called Creative Destruction?