Wednesday, April 30, 2008

Unintended Consequences

In 1939 we had “Appeasement” to keep from fighting a war with Germany. It kind of worked for a couple of years; we still had a war, but if we had nipped it in the bud, it would have been small. World wars tend to be large.

Congress gave a subsidy for growing corn to make ethanol, and the price of beef went up. Turning food into fuel is pure lunacy. The funny part is the subsidies more than make up for the unprofitability of the venture. God bless Congress for their infinite wisdom, their group stupidity will kill us (if their kindness doesn’t). I would like to see the gas stations give you the quart of ethanol instead of mixing it in your gas. You’d be able to fill your tank and get tanked. The DUI would be an unintended consequence.
The Fed dropped the interest rate when the stock market took a dive in 2001 and the real estate market took off. The solution to one problem created a new problem; of course everyone knows that real estate has hit “bottom.” The Fed bailed out Bear Stearns and God knows where that is going yet. Ben’s 30 billion dollar loan will buy a lot of “Blue Sky” (assets with intangible value). B of A is about to throw away the sucked out dry carcass of Countrywide. I guess they get to keep CW’s loan servicing department. This outcome however, was far from unintended.

Congress a few years back passed a law that allowed farmers to depreciate heavy farm equipment over five years. Every business in the US bought a Hummer as a 50K write off! A great business expense when gas was $1.50.

We need to accept the idea that the solution to one problem creates a new problem. If that wasn’t the case, we would have solved all of humanity’s problems hundreds of years ago. Once you realize this, you begin to understand politics. The problems are real, but the solutions are only trade offs. The whole mess will sort itself out with or without any intervention. Intervention will not change the final outcome.

It reminds me of the saying “give a man a fish and you feed him for a day, Teach a man to fish and you feed him for a lifetime. The unintended consequence here is you have a couple of guys in a boat drinking beer all day. The additional unintended consequence is a mad wife with a frying pan. Ouch!

Copyright 2008 All rights reserved

10 comments:

OriginalFrank said...

Agreed. In fact, I'll go you one further: usually political "solutions" exacerbate the problem, but that is almost immaterial to the politician.

What IS important to them is to APPEAR to be solving a problem, hence increasing their re-election changes. Whether the "solution" produces good or ill effects is not too important.

In essence, they are buying their re-election with "solutions" that only need to appear useful. In point of fact, it is better if the solutions make things work (e.g., ethanol scam), since they can later go back and "solve" that problem too. And gain MORE re-election traction.

Uggh.

alice cook said...

Top flight post....one of the best things I have read in a long time.

Well done!

Alice

Cranky said...

I think this whole ethanol mandate is about pay-back. OPEC plays games with oil, U.S.A. started a new game called “burning food”. What happens when grain exports get choked off?

If I may deviate from your point here a bit… have you started your own “Chart of Pompous Prognosticators”? I keep seeing tidbits here and there that I think should be chronicled, like this one…

By William L. Watts, MarketWatch
Last update: 9:18 a.m. EDT May 1, 2008

LONDON (MarketWatch)
“Worst of credit crisis may be over: Bank of England
Total subprime losses appear significantly overstated, U.K. central bank says”

Maybe you should send them a picture of that iceberg.
I think #15 pretty much parallels that thinking…

"While the crash only took place six months ago, I am convinced we have now passed through the worst -- and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us."
- Herbert Hoover, President of the United States, May 1, 1930

Exactly 78 years ago (May 1). How neat is that???
Granted, this was not from the U.S., but from the “global economy”.

Quoting Lt. Lockhart (Full Metal Jacket)
“…it's a huge $#!? sandwich, and we're all gonna have to take a bite.”

Jim in San Marcos said...

Hi Original Frank

I like the "only need to appear useful." How true! I had a good laugh over that.

Jim in San Marcos said...

Hi Alice

Thank you for the compliment. You made my day.

I was going to publish it without a picture but I like the way you always include a picture with each of your posts.

It's rather uncanny how I had you in mind when I put in the picture, and you came back with a comment.

Thank you again and take care

Jim in San Marcos said...

Hi Cranky

I think I'll leave the next list to someone a lot younger than me.

An odd thing though is no one mentions a guy back then that had it right, Roger Babson. In fact he is accused of single handedly starting the Stock Market Crash. Google "Babson Break" for more info.

Anybody that is lost about the “Chart of Pompous Prognosticators” here is a Link to it.

Thank you for your comments

Anonymous said...

I get scared every time a politician gets creative. Practical long term solutions are simple. There is very little need for creativity. The tax code is a great example of what happens when these fools get to tinkering.

Check out this mind expanding idea: The government should borrow money sparingly and only for good cause.

Here is another big idea: The government should not be disingenuous.

The big problem is that being creative is fun. The simple stuff is boring and is difficult. This means that people will always try to find the perpetual motion machine. If we are slick enough, we should be able to get something from nothing. We might well be doomed to reliving many blunders of history in a more creative way.

Just look at the great things all the new financial engineering has brought us.

vipness said...

Politicians have taught me it is every man for himself. I wish we had more caring leaders. It is too difficult to filter out the goodness from the BS right now. Maybe I'm supposed to do something about this... hmmm... run for office? Yikes!

SACKERSON said...

We expect too much from politicians. They have to deal with contradictions, and desires that can't be fully met. We'd be more reasonable if we accepted more personal responsibility. The devil's deal is that they pretend to be able to handle our orders, because it gives them so much money, sex and power. Perhaps smaller government is the real answer, but they don't want to let go of the goodies and we don't want to accept reality. Only a crisis will reform us, and only temporarily even then: how can you make a straight plank from the crooked wood of humanity?

Anonymous said...

We have met the enemy and he is us

-Pogo