There's a Lot Of Rent Seeking in the 1%

My only problem with Brad Plumer's piece on whether online piracy is really hurting the industry is this word:

earning record profits overseas

Let's call it what it is: "rents", not profits. Let us not forget that a government granted monopoly should be balanced with the actual capital cost of creating and distributing the product. Technical advances have made content far cheaper to produce, and practically free to distribute, yet consumers do not see the benefits as copyrights have become more restrictive rather than the other way around. I do not condone piracy, but it is probably responsible for all recent legal innovations in distribution.

The Redistribution of Wealth We Should Care About

The biggest wealth transfers in America occur between people without a lot of wealth to people with a lot of wealth. This is in the form of Social Security and Medicare.

The EITC is a very efficient way to redistribute consumption, it encourages the poor to work more instead of staying on welfare, and used to be championed by conservative economists.

The rhetoric on the Right wants to keep middle class wealth redistribution, and eliminate an efficient consumption redistribution. This is, in a word, stupid.

I Don't Have the Facts to Back This Up, but

I think Democrat's have underestimated how much benefits extensions and cobra subsidies are contributing to the unemployment rate. A lot of the unemployed have other options. For instance, a 17 year old would gladly collect unemployment benefits for the full 99 weeks while attending school. Same with college students, or people with working spouses who don't really need to work. I know some other people who regularly exhaust their benefits before even looking for another job.

The 5 unemployed for every opening argument is compelling, but are there REALLY 5 people actively looking for those positions and not just staying "unemployed" so they can continue to collect benefits until they are exhausted.

In other words, is the unemployment rate inflated because we are giving benefits to people who would otherwise not bother being counted as "unemployed"?

Yes, I realize this is exactly the opposite of what I said in a previous post.

Simple ShadowStats Smell Test

People who worry about inflation tend to point to shadowstats.com as a truer measure of inflation. They likely don't do this simple test to see how valid it is:

What was my income X years ago, what it is now, and is my standard of living reduced as much as this inflation measure says it should be?

I didn't move to the U.S. until 2003, and from a higher tax nation, so I'm going to start there. At that time my household income was about 100,000. Eyeballing the chart here, I can see what our income should be to keep up with the alternate inflation measure.

2003, 100,000
2004, +7.5%, 107,500
2005, +9.5%, 117,712
2006, +11%, 130,660
2007, +11%, 145,032
2008, +10%, 159,535
2009, +5.5%, 161,979
2010, +10%, 178,176
2011, +11%, 197,775

Our household income is much less than $197,775, which is what shadowstats claims we need just to keep up with inflation. Yet miraculously we feel much better off than we felt in 2003. That includes now having 2 kids we have to spend money on, and a larger house! Weird.

Incidentally, regular CPI says we need $123,309.24 a year to have roughly the same standard of living as in 2003. That seems more reasonable to me...

I'm The 99 and The 53 (part 1)

I'm the 99:
- Income inequality reflects a problem. Government granted monopolies in the form of licensing, copyrights, and patents have a specific purpose: to overcome the large capital costs involved with creating a new product or work. When huge technological leaps are made to make the creation of media or products cheaper and easier, it's time to RELAX these government protections ("rents"). Rent seeking accounts for a huge amount of income inequality.
- Equality of opportunity needs a safety net and redistribution of consumption is the best way to pay for it.
- Hating government in the abstract is not a good way get streamlined, efficient government.
- Suffering in the name of "personal responsibility" is necessary, but it can be excessive enough to be counter-productive in a laissez-faire system.

I'm the 53:
- I will never feel sorry for someone who willingly entered a contract that they had perfectly reasonable alternatives for and then complained about the outcome. You have to take responsibility for your own bad decision, lack of action, or dumb behavior.
- Bailouts that prevent you from gaining the wisdom that comes from learning from your mistakes will hinder you. Bad decisions need to have bad outcomes.
- 99ers should read "The Millionaire Next Door". When I did, I recognized that life needs to include SOME hardship or less people will choose to be exceptional out of necessity.

VAT and Flat Taxes are Not Equivalent

In the long run they are, but if immediately enacted, old capital is treated much differently. When a VAT is enacted and a saver switches to consumption, he still pays tax. In a flat tax, realized capital that is used for consumption is not taxed.

There are some "fairness" issues that are different depending on the version. For example, is it fair that a retiree who saved after tax income is now double taxed with a VAT? Is it fair that a trust fund kid pays 0 tax even if all he does is consume under a flat tax?

Inflation Protection

My neighbor asked me a few years ago what he should do with his money. He's a hardcore right-wing talk radio listener and I knew he just wanted me to say "gold". I thought then, and still think now that gold is a horrible idea, but I didn't have any better ideas either. I'm starting to come up with some now though:

- Invest in companies with large economic moats. That is, companies with the best ability to simply pass higher prices on to consumers. The most obvious of these are oil and basic materials companies who own quality wells and mines. As of today it seems some inflation is already priced in to these companies, but there will likely still be some buying opportunities ahead.

- Get Fixed Rate Debt / Pay off high interest debt. If you are carrying variable interest rate debt now is the time to get rid of it, if you can. Either pay it off or refinance to fixed rate debt.

- Become a landlord. This is counter-intuitive, I know. The thing is though, rents have not seen nearly the same decrease as property values (in fact they've been increasing), and rent vs. own ratios are very good in many cities. Remember that inflation cannot last without increases in wages. Wages won't increase until quality employees can no longer be picked up on the cheap. Multi-family properties are not being built, which will contribute to a shortage if inflation picks up. Once people are hired and getting raises I expect rental properties to be able to keep up with inflation.

I don't expect any significant inflation for a few years. It will be especially hard to register much inflation in 2012 where gas prices have to be significantly higher than $4 a gallon to match the change from 2010 to 2011. I also don't see the Fed doing what I see as the best recommendation which would immediately boost demand driven inflation. Instead what I predict is small spurts of growth when oil prices are low, followed by a general slowing as speculation pushes oil prices higher. In essence, energy prices will function as our monetary policy lever.