Bob Gibson

Shoeless Joe Jackson: The first two were high and tight, so where do you think the next one's gonna be?
Archie Graham: Well, either low and away...or in my ear.
Shoeless Joe Jackson: He's not gonna want to load the bases, so look low and away.
Archie Graham: Right.
Shoeless Joe Jackson: But watch out for in your ear.
--Field of Dreams

As a young student of the game, I read, watched, slept, observed, copied, admired hitters. Probably to my detriment, I gave pitchers little thought. One pitcher, however, earned early mindshare.

Some of my earliest baseball memories involve Cardinals pitching great Bob Gibson. The first World Series that I remember was the 1967 Red Sox/Cards contest. Gibson pitched three games of the seven game affair. He completed and won them all. In 1968 the Cardinals returned to face the Tigers. Once again, Gibson pitched three of seven games. Once again, he completed them all, but finished 2-1 when the seventh game went the Tigers' way on a misplayed ball by Cards centerfielder Curt Flood.

Bob Gibson's lifetime World Series stats: 3 World Series, 9 games started, 8 complete games, 7-2 record, 1.89 ERA, 92 strikeouts. As good as the Giants Madison Bumgarner threw this past October, his World Series record has a way to go to match Gibby's.

Gibson also pitched one of the early games I saw at Crosley Field. Sitting behind homeplate and gazing thru Crosley's bulletproof glass backstop, I marveled as Gibson spun like a top toward the first base side of the mound after delivering his pitches.

A fierce competitor who had no problem throwing high and tight to maintain dominance. Happy birthday to Hall of Famer Bob Gibson, my favorite pitcher, who turns 79 today.

Preferential Inflation

So I went to the bank to see what they could do
They said, sir, looks like bad luck got a hold on you
--Simply Red

Many people seem to believe in the value of inflation (creating new money out of thin air) to bolster economic activity. Inflation is ostensibly referred to as 'money printing.' But in modern monetary systems, most money is created electronically rather than in printed paper form.

Primarily, inflationary cash is disseminated using one of two approaches. One approach is via the 'credit money' channel. The Fed begins the process by suppressing interest rates, and then lending digital money (created out of thin air) to large finanical institutions. These institutions either expand their own leveraged loan book using the credit money borrowed from the Fed as collateral, or they trade the credit money for their own account (again, often using leverage).

An important thing to remember about credit money is that it is a liability. Money created in this fashion puts someone in debt to someone else. Credit money disappears when loans go bad or are paid back.

Via the various 'quantitative easing' (QE) programs, the Fed can also give liability-free money to financial institutions. After the institutions purchase Treasuries and other securities on the market, the Fed buys those securities from the banks. The securities go on the Fed's balance sheet; the banks get the newly-minted-out-of-thin-air cash.

My question to those who see inflation as an economic development tool is this: Why do you endorse inflation being done in this manner? Why is it acceptable that printed money goes to financial institutions first? It is well known that early users of newly printed cash benefit the most. Why is it ok that financial institutions get preferential treatment?

Why isn't it more equitable to simply print the cash (rather on paper or electronically) and then distribute it directly to the citizenry?

Speak the Truth

"Speak the truth always, even if it leads to your death."
--Godfrey of Ibelin (Kingdom of Heaven)

Jacob Hornberger picks up where we left off the other day. The game of musical chairs between Republicans and Democrats will continue until the American people change the way they think about government. Much about how Americans think about government has been inculcated into them through years of indoctrination via education and media sources.

One problems is that many Americans believe that we have always had our present form of government. They do not realize that what we have today results from a steady drift away from the limited government principles of our founding ancestors.

The bigger problem, according to JH, is that most Americans actually believe that they are free--and that this freedom is due to our present form of government.

This is what Hornberger believed for many years. Through young adulthood, he firmly believed that he was free, and that government was responsible for granting people freedom. It was not until he seriously reflected on claims that Americans were actually surrendering their liberty that he realized his error.

How to facilitate a public change of mind? Speak the truth about freedom and about what the welfare/warfare state has done to compromise it.

Massive Speculative Carry Trade

"The mother of all evils is speculation--leveraged debt."
--Gordon Gekko (Wall Street: Money Never Sleeps)

John Hussman describes the current financial system condition very well: "At present, the entire global financial system has been turned into a massive speculative carry trade."

Carry trades involve borrowing funds at low cost and investing them in projects deemed to return higher than the 'cost of carry.' Carry trades involve leveraged debt used for speculative purposes.

Zero interest rate policies (ZIRP) and quantitative easing (QE) attract carry traders with their low cost funds and asset buying promises. Layer on top of that propensity for central banks to bail out risk gone awry and you have the perfect environment for huge, risk-laden carry trades.

Carry trades persist until either a) cost of carry goes up, or b) return on assets bought on margin with those borrowed funds forecast to decline. If either occurs then carry traders rush to close out their projects before margin calls begin.

With carry trades currently put on in such size, it is only a matter of time before the process reverses.

Voting the Rascals Out

Phil Connors: Do you ever have deja vu?
Rita Hanson: Didn't you just ask me that?
--Groundhog Day

In the 2008 elections, Dems trounced Reps. Tables turned in 2010, with midterms resulting in a GOP route. In 2012, Democrats dominated once again. And in yesterday's midterms, Republicans nearly ran the table.

Each time, the winning party claims a new era. And it is posited that the losing party is on the deathbed of irrelevance.

In reality, both parties are more alike than different. Statist mentality rules both parties. Policies that flow from this mindset are destined for failure.

It should not be surprising, therefore, that we experience this whipsaw action every two years. Because the electorate associates failed policies with the dominant party, the electorate votes those rascals out.

Unfortunately, the electorate generally votes in a new band of rascals.

The folly proceeds in Groundhog Day fashion...until non-statist ideas finally prevail.

Quarantine Power

Dave: My wife makes me take off my clothes in the garage. Then she leaves out a bucket of warm water and some soap. And then she douses everything in hand sanitizer after I leave. She's overreacting, right?
Dr Erin Mears: Not really. And stop touching your face, Dave.
--Contagion

Judge Nap suggests that federal government quarantines on people returning from Ebola relief efforts in Africa are wrong. I understand his point. Presumption of liberty, a tenet of natural law, precludes government from detaining people without due cause in the name of public safety.

I also understand the very real potential for government to abuse quarantine power.

But is there not a argument that due cause does exist here? Ebola transmission mechanisms are not well understood. There is a chance that relief workers can be carrying the virus in hard-to-detect manners. As such, the fact that these people were exposed to conditions that could have infected them and made them carriers could be seen as constituting due cause.

There is also an argument to be made that people who immerse themselves in contagious environments voluntarily surrender their liberty. Upon their return, there is some probability that they could contaminate others with a deadly virus. Thus, prior to reentering their home society, their freedom must be restricted until it is determined that they do not threaten the freedom of others.

Refusing or avoiding quarantine in such a situation could be seen as aggressing on others. Even if the aggressor does not intend serious even lethal harm, it could happen nonetheless (similar to 'involuntary manslaughter').

One remedy is to make people who do in fact infect others liable for harm that they consequently bring to others. However, establishing clear causal links in such circumstances would likely be difficult.

Quarantine, then, seems a plausible alternative. It can be seen as consistent with the proper scope of government--that being to help people protect their person and property against infringement by others. The returning relief worker who avoids quarantine in situations where knowledge about a lethal virus is lacking can be seen as committing an act of aggression on others. Government-facilitated quarantines help individuals defend themselves against this aggression.

Viewed in this light, presumption of liberty rests with the people who might get infected rather than with the relief worker.

Perhaps this is a case where the Welfare Clause rightly applies...

Terminal Tax

Do it nice and easy now
Don't lose control
A little bit of rhythm
And a lot of soul
--Grand Funk Railroad

I love Union Terminal. It may be the best of all Cincinnati landmarks. Its art deco structure, the murals, its position in American history indeed make it a true treasure.

However, my love for Union Terminal gives me no right to force others to surrender resources to preserve it. I am aggressing on them if I do.

This is why there is no such thing as a 'good' tax levy. Unless all are for it, in which case government enforcement is not necessary because voluntary cooperation rules the day, tax levies are instruments of force--the majority furthering their interests by robbing the minority.

Guildthink

Dean Yeager: Dr...Venkman. The purpose of science is to serve mankind. You seem to regard science as some kind of dodge, or hustle. Your theories of the worst kind of popular tripe, your methods are sloppy, and your conclusions are highly questionable. You are a poor scientist, Dr Venkman.
Dr Peter Venkman: I see.
Dean Yeager. And you have no place in this department, or this university.
--Ghostbusters

In a WSJ article, Amity Shlaes suggests that the economics profession is guilty of 'guildthink.' Economists shut out innovative ideas in favor of status quo concepts. Such a notion, of course, is not new. Narrow, status quo thinking has influenced scientific progress for centuries.

Indeed, when viewed through the lens of institution theory, guildthink is a predictable phenomenon. Social pressure builds inside the economics field to promote such normative isomorphism.

Over time, growing uniformity of isomorphic behavior reduces the variation necessary for successful adaptation. Pressure to adapt overcomes pressure to conform, which topples guildthink status quo in favor of ideas with more validity.

Agency Theory

What does it matter to ya
When you gotta job to do
You gotta do it well
You gotta give the other fella hell
--Paul McCartney

Agency theory (Alchian & Demsetz, 1972; Fama, 1980; Jensen & Meckling, 1976) posits that goal incongruence causes problems among cooperating parties. These cooperating parties could be customer and supplier, owner and manager, investor and financial advisor, voter and politician or any relationship where one entity delegates work to another. The delegator is the known as the principal and the delegatee is known as the agent.

The relationship between principal and agent is a contractual one. The principal 'contracts out' to the agent.

Goal incongruence is assumed to stem from axiomatic varied self-interests among individuals, which make it difficult for principals to insure that agents will perform per principal wishes. It is also assumed that information about goodness of agent work and outcomes is a commodity that can be purchased (Eisenhardt, 1989).

Principals therefore contract with agents using two primary approaches. Behavior-oriented contracts (monitoring) employ salaries and hierarchical governance to specify appropriate agent activities and to observe activity execution. Outcome-oriented contracts (incentives) employ commissions, options, and market governance to specify appropriate outcomes and to provide 'carrots' for agents to achieve those outcomes.

Various problems can reduce the effectiveness of these contracts. Regularly monitoring agent behavior may be difficult in many circumstances, thereby making the cost of acquiring information about agent activities prohibitively expenseive. Causal ambiguity about the relationship between agent behavior and outcomes, and poor agreement about goals and means to achieve them can impair the effectiveness of both monitoring and incentive arrangements.

As uncertainty increases, effectiveness of contract is reduced. Agents are more likely to shirk--i.e., fail to fully deliver on their their contractual responsibilites. Principals might also exploit uncertainties to procure better terms from uninformed agents.

High levels of uncertainty suggest alternative mechanisms of integration and coordination (e.g., joint ventures, mergers) in order to manage the relationship (Nilikant & Rao, 1994).

References

Alchian, A.A. & Demsetz, H. 1972. Production, information costs, and economic organization. American Economic Review, 62: 777-795.

Eisenhardt, K.M. 1989. Agency theory: An assessment and review. Academy of Management Journal, 14: 57-74.

Fama, E.F. 1980. Agency problems and the theory of the firm. Journal of Political Economy, 88: 288-307.

Jensen, M.C. & Meckling, W. 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3: 304-360.

Nilikant, V. & Rao, H. 1994. Agency theory and uncertainty in organization: An evaluation. Organization Studies, 15: 649-672.

General Welfare

We don't move in any 'ticular direction
And we don't make no collections
--The Who

The 'Welfare Clause' is often cited as justification for myriad federal government programs including socialized medicine and social security. However, couched in the notion that all individuals are equally endowed with certain inalienable rights, and that all people should therefore be treated equally under the law, only those federal programs that can be construed ex ante to result in equal benefits for all are valid.

Of course, this perspective would drastically reduce legitimate federal programs as few would pass the true general welfare test.

This was the scope of the Welfare Clause that Jefferson, Madison, and others had in mind.