More on High Frequency Trading

Summary:  In summary, we don’t believe HFT profits are excessive or excessively consistent. We censure illegal front running as strongly as anyone, but it has near nothing to do with HFT per se. Canceling orders in the process of providing liquidity is key to any sort of market making, whether HFT or not. We support the right of HFTs, or anyone, to try to guess the direction of the market, using order flow or any other public information. We not only support the right, we celebrate the successful exercise of that right as it adds to public welfare by making markets more efficient and lowering the cost of investing. Lastly, we believe markets are “rigged” in favor of, not against, retail investors.

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Minimum Wage

The Administration is seeking to raise the federal minimum wage from $7.25 to $10.10 per hour.

This can be understood as a tax.  As the cost of producing goods and services is pushed up, consumers will, in many cases, pay more for those items.  That extra cost represents an implicit tax.  Many pay a bit more so that some can take home a better wage.  Those with higher wage rates are little affected and are willing to pay this “tax.”  On the othre hand, the living standards of those with lesser incomes can be materially affected by this tax.

But there’s another group even more drastically affected, those who are priced out of the labor market.  Losing all their wages, they effectively pay a 100% income tax.

It is true that the incidence of this tax is difficult to predict.  But considering its potential effect on those least able to afford the tax, it makes little sense to risk their welfare.  For this reason, EITC (Earned Income Tax Credit) is a much better way to aid low wage households.  EITC can be targeted at families and creates minimal price distortions. The cost of this approach is entirely met by those paying income taxes, not those with already low incomes.