Thursday, December 28, 2006

Every Invention Has Its Costs

While visiting home this Christmas, I mentioned to a family friend my research for my dissertation. It consists of demonstrating that competitive structures like the Ansari X Prize (a $10 million prize to the first privately funded team that could get into space twice in two weeks) is preferred to a centralized structure (such as NASA) for the purposes of discovering new technology.

In this brief discussion, my brother seemed it necessary to point out that contestants used NASA-made technology to accomplish the task. He is correct, but I fail to understand the relevance. He is probably suggesting that the base technology everyone used could have only come from a state agency, in this case NASA. This sort of argument is common in the economics of science and it is foolish, just as it would be foolish to claim that because the free market invented the Apple computer, a state agency never could. The question is not of possiblity--given enough time, money, or people any organization can invent anything that is scientifically possible--but of relative cost.

For some reason, people groan when I talk about costs. I'm told that they are not everything and that's true: otherwise gum would always be preferred over a car because it's always cheaper. The benefits must also be weighed. Yet it is those that claim I think costs are everything that then turn around and claim benefits are everything. NASA created an invention, they might say, and thus we must be better off. I hope you can see why this logic, which refuses to ask what society gave up to achieve this marvelous invention, is flawed.

To insist technology should be created merely because the result might prove useful to the private sector is the same as scouring the streets for hours on end in hopes of finding money left on the sidewalk. There are cheaper ways to improve quality of life.

Thursday, December 21, 2006

Santa Scrooge

Last night, Dickens' classic A Christmas Carol was on TV. I watched, mostly because Patrick Stewart played Ebenezer Scrooge, but while watching I was reminded of a common economic mistake.

Scrooge is portrayed as a villian in the story because he has no love for Christmas and only cares about money. Perhaps the greatest victim is Bob Cratchit and his family, who barely scrape out a living trying to keep from starving on Bob's lowely salary. The spirits that visit the businessman late at night convince him that caring only for money will be the moral death of him and he will be forced to wander the world in ghostly chains for all eternity after he dies as punishment. To save himself from this ghastly fate, he must embrace the "Christmas spirit," which he does with full force at the end of the story.

Yet woven beneath this tale of Christmas goodwill is an economic lesson, if you are willing to see it. Charity is a fickle mistress. By their nature, people often donate in certain times of the year, Christmas being one of them, yet the poor and homeless need things all year around. Are the starving more hungry in December than January? Are the diseased more infected while choristers sing than when the streets are silent? Of course not. Charity flies in and out based on the random fancy of others. I have nothing against it--people should do what they wish with their own earnings. But to condemn a man because he is not charitable at a time when everyone else empties their pockets lacks an understanding of everyday needs of the needy. Indeed, if Scrooge was generous only during the holiday (but the same other times) I doubt the Spirits would have seen a need to visit him.

And here is the great lesson in this classic (at least the movie version) because Scrooge understood giving far more than they. Upon his epithany of virtue, he proclaimed he would have the Christmas spirit in him all year around. Not once a year for a day or a week but all the time. Incidently, Bob Cratchit also understood this for on his family's Christmas dinner (before Ebenezer's revelation) he toasted his wretched boss because he is the one that pays his salary (once again) all year around.

And this is a great lesson of the morality of trade. Capitalism and the pursuit of profit gives a reliable reason for people to ensure their fellow strangers survive. Charity, while seemingly more moral, is contingent on the daily fluxuating depth of another person's humanity. A man who eats a feast in one month and starves in all others will probably die. But the same man who dines modestly every day of the year will survive and prosper. Charity has its place but if you want to ensure the continued prospertiy for the most people, Tiny Tim better make sure God blesses capitalism, too.

Tuesday, December 19, 2006

Brian's Song

I knew I had to write about this the moment I read the title: Enough About You: We've made the media more democratic, but at what cost to our democracy? It's an editorial by Nightly News anchor Brian Williams in this week's Time. The piece is a direct criticism of the emerging culture that spawned this year's Person of the Year: You.

Or rather everyone that's contributed to the plethora of user-created content that's swamping the Internet and influencing everything else. Blogging. Wikipedia. YouTube. It is hard to overestimate their impact in how people are exchanging ideas and spreading information. But Williams thinks it's trouble brewing.
It is now possible--even common--to go about your day in America and consume only what you wish to see and hear...The problem is that there's a lot of information out there that citizens in an informed democracy need to know in our complicated world with U.S. troops on the ground along two major fronts. [Original emphasis]
There is no doubt that, in part, he is right. People can live their lives without being exposed to other ideas. Of course, they could always live their lives that way: it is very easy to not read or watch something you don't like.

What Williams is saying, though, is that he doesn't like what people are specializing in and they should turn to the "unbiased" media for the whole picture. But no one is unbiased; everyone frames or colors a story to their liking and while some are more neutral than others, no one is innocent. When anchors such as Williams insist what they report on is what matters to everyone, they not only lie by assuming an air of god-like neutrality, they arrogantly assume everyone cares about the same thing or views the world in the same way.

Because everyone knows that user-created content is biased, they are more willing to search out the other side to get the full picture. True, there are those that won't and simply consume what they like, but you can't do anything about them. They have always existed and they always will. But today it is harder to be them because it is so much easier to be challenged. Everyone knows everyone else's sources are biased so people are more likely to read up (and it is easier to do so).

And this points to the great flaw in William's article. He argues that we might miss the next great idea because we focus so much on "the same tune we already know by heart." But these great things, by definition, are for everyone and their truth appeals a mass audience. In the previous world of the narrow media, revolutionary concepts more easily fell through the cracks--only a relatively few people had to miss them. But today's wide media catches so much more. The constant spread of information makes it less likely--not more--that we will miss the next big thing. It is not that we might miss the next revolution; Williams is concerned because we might now recognize the absurdity of his selections.

Sunday, December 17, 2006


This Christmas, I'm finally jumping on the bandwagon and asking for an iPod. A conversation with Becky got me thinking as to why the economy often bears witness to consumer trends. Some might claim that people are stupid and buy whatever ads tell them to buy. Or that they are superficial and competitve, buying a thing because everyone else buys it. These are both only part of the story (if they are a player at all) and often leave the question unanswered.

An often cited explanation is what economists call path dependence. A new product hits the market, a few people but it and like it, products are made and perfected to work with it, encouraging more people to buy the same product. People buy iPods more than their equivlent because of the plethora and quality existing other products (from iTunes to adapters).

Another explanation is related but distinct enough to mention on its own accord (and is also the reason I requested an iPod). Every year, countless cutting edge products enter the market, most of which often fails in unpredictable ways or doesn't live up to expectations. And even if it does what it is supposed to do, it is hard to tell how useful the new, expensive device will be.

Thus, reputation matters. I personally am looking to jump on the bandwagon because testimony after testimony suggests an iPod is a quality product I'll use all the time--you won't know how you lived without it. I know nothing of mp3 players--iPod's competitor. I'll bet that reputation plays a large part in why some products triumph over others which are very technologically very similar. It's not that people are mindless consumers. Indeed this explanation shows most of them are thoughtful and cautious buyers, a tendency that increases as the price does.

Friday, December 15, 2006

Free Trade, Fair Trade and What We Have

Mason's student newspaper--Broadside--had an article concerning fair trade, advocating university students take up the practice. I was actually surprised by the article. Instead of the same emphasis on "market failure," Tsedey Aragie makes note that the WTO isn't about free trade (though I would argue it promotes a trade that is freer than what was standard before its conception). Some fair traders even acknowledge that local and supra-governments (WB/IMF) are a key source of strife.

Normally, I agrue that free trade is fair trade. But what is "fair?" If by "fair" we mean that each side benefits equally, then virtually no trade is fair; that bar is set too high. Instead, I checked; the first definition is "free from bias, dishonesty, or injustice." Note that free trade restrictions violate these things, especially bias and injustice.

Sometimes people make mistakes because people are not perfectly informed. Again, this does not inherently remove fairness. It might be unfortunate, but it is not unfair. Still, people might be conned, an act made unfair because of its dishonesty. In essence, these are contract violations (one of those few things I think the government should do: enforce contracts). Still, I don't see how this is grounds for distinguishing between free and fair. Just because people are being paid less than other people think they should be, does not mean they are victims of dishonesty.

What we have is neither free nor fair trade. Government restrictions on the former create less on the latter. I'd be more impressed with fair trade if its backers lobbied to create more free trade.

The Truth on American Oil Dependence

When I say "the truth", I mean "Pravda", as in the Russian newspaper (now owned, I believe, by the government Gazprom business). While the paper is mostly filled with "Paris Hilton and Britney Spears have lesbian sex" articles, there's occasionally an editorial tossed in for good measure. They usually run along the lines of "America seeks to destroy Russia", or "Poland seeks to destroy Russia", this one is a bit better than the usual.

And so, rather than focusing on Pravda itself, let's get down to the meat and bones of the issue it handles. The article I linked above describes a " of leading US business executives and senior military officers..." who delivered a report on oil dependency to the White House and Congress.

The participants include Fedex, UPS, and Dow-Corning executives, military high muckety-mucks, et al. Their conclusion is that:

'“pure market economics will never solve the problem” of US oil dependency.'

Where to begin?

Let's start by saying that a pure market is a pretty far cry from the US economy (though closer than, say, Venezuela).

But what really interests me is the idea that "oil dependency" is a problem, and that it presumes that we're really oil dependent at all.

We use TONS of oil, there's no mistaking that. But oil dependency is the sort of statment that makes me think of drug dependency - we're not just talking about use, we're talking about the inability to stop, even if we like. That, dear readers, is the bull. There is nobody forcing consumers to continue using petroleum - as soon as its price rises, consumers will flee. That's hardly the reaction of a coke-head looking for their fix.

Yes, our energy needs have grown, and will continue to do so for the forseeable future, but that by no means ties us into petroleum. As prices for oil rises, new commodities become economical.

But let's say we ARE addicted, and that we can't get enough of the black stuff. The only problems I can see with this situation is the fact that petroleum products tend to be polluting, contributing as well to a greenhouse effect.

But that, friends, is a debate for another day - and one, I should say, that David regularly addresses.

Thursday, December 14, 2006

Climatology and my Return

David's posted some interesting material recently about the fallibility of climatological models predicting great disaster in our near (i.e. w/in 100 years) future.

To add to the noise, I'm pretty confident that a huge variable hasn't been at all accounted for - volcanism.

What's the big deal? I mean, why get hot and bothered about a bit of lava? One word: Krakatoa.

I'm not so much worried about that particular volcano - it's watched like Michael Jackson at a cubscout jamboree - it's more what it showed us. Our everyday Joe American may not have heard of it, but believe me, it's worth knowing about.

In 1883 it heaved off some steam, launching the world into a miniature ice age of sorts (by heaving off about 25 cubic kilometers of said world, incidentally). All of this rock-vomit, according to Wikipedia, lowered global temperatures by about 1.2 degrees celcius, and the climate supposedly didn't return to "normal" for 5 or so years.

But that's not all this magma-muffin's dished out - far from it! Let me preface this with the disclaimer that this is a disputed thesis regarding Krakatoa as the direct cause, but the conclusions are solidly testified to in dendochronological records. That said, the real party started around 535 AD. Things are looking up for Rome, Emperor Justinian and his prize-fighter Bellisarius are out ridding their hood from the Germanic vagrants that settled in, and BOOM.

Yeah, that's an all-caps boom. We're talking major. Proto-Krakatoa let loose with the mother of all explosions, and all hell breaks loose. Global temperatures drop, causing crop failures, darkness during the day, and general misery. Teotihuacan in modern Mexico is abandoned. Barbarian slavs are pouring into the Balkans, nomadic pastorlist tribes in central Asia like the begin rampaging. Falling temperatures make it easier for plague to be transmitted, and there's a decade of incessant disease and suffering. The list goes on. You know, it wasn't the dark ages for nothin', folks!

Let me suggest that this is more than just a little blip in the data - this was a phenomenon that easily spread more than a decade. But what does that have to do with climate models in the long-run?

As David says, climates are sensitive, complex systems. Small disturbances in the present can have tremendous affects on outcomes in the long run, and this is a phenomenon that seems to be able to do more than just a little thing.

Who knows when a major volcano could erupt? Even more important, who has integrated this important tidbit into their climatological models of temperature change?

Less importantly to matters of public importance than the possibility of erupting volcanoes ushering in an era of catastrophy, I'll be heading to Moscow on Monday to get my daughter's passport, and my wife's green card. Just a few weeks then, and with luck I'll be back home!

Theory in the Fast Lane

My lovely wife and I were talking about driving in Russia, and one of the biggest differences that I can't get over is how many traffic-related deaths occur annually. I won't cite numbers, but it's much higher than the US rate, and this fact is amazing only because the US has something like 3-4 times as many cars per capita as Russia.

She gave me a wonderful theory, which I'd love to put more work into someday: that Russians have more accidents because more of them don't actually take the driver's tests to get their license.

You see, in order to get a license, you need to pass a test with around 500 questions. Since most people here aren't inclinded to study that hard for a piece of paper with a stamp on it, many just pay for their license, i.e. bribe someone. The friend-of-a-friend network puts people willing to buy licenses in contact with the right officials, and the result is that there are plenty of people driving legally (i.e. with a license) that ought not be driving at all (i.e. they don't have a clue what they're doing).

This is interesting in face of the European experiment regarding traffic laws - I'd be interested in knowing if we could find correlations between traffic fatalities and number and severity of regulations, etc.

I don't think this is nearly all of the explination - a good bit comes from the fact that they plow the roads so poorly in the winters, for example - but it's probably a larger part than it ought to be.

Might I suggest adopting a more, dare I say, humane licensing schedule, involving perhaps a dozen or two questions at most? People might take the time to study, and in the end, less regulation just might end up being more.

Tuesday, December 12, 2006

The Lunar Connection

Yesterday morning I heard Howard McCurdy on the radio discussing NASA's endeavors to go to the moon. At first, I was very excited: McCurdy penned a book--Faster, Better, Cheaper--which pointed out the flaws in NASA's attempts to reduce the cost of its over-the-top budget and I've often used in my research. Naturally, I expected him to blast NASA's plans and expose the obvious fact that a base on the moon was going to be very, very, very expensive. I was wrong.

Though he acknowledged the costs would be high, McCurdy defended the bureaucracy and the mission on the basis that sometimes, to advance technology, people need to explore brave new challenges.

There is no doubt that radically new endeavors expand our understanding of the world, and thus our technological base. But the scientific community is not so creatively drained that a multi-billion-dollar mission is needed to inspire others. Nanotechnology, genetic engineering, quantum computers, fusion--these are all areas which are far from reaching their apex and also promise to fundamentally change the way we understand and manipulate the world around us.

There is little doubt that going to the moon (again) will expand science, but we are at a point where more "mere" lab work will do the same. Perhaps McCurdy really meant that space will provide a literal different view--as in one from space. But if that is truly what he wants into to shake up the thought patterns of scientists, I suggest instead a much cheaper option to inquirers the world over: go stand on your head.

Friday, December 08, 2006

A friendly aside...

Lest it seem I'm too rough on my good friend Mr. Putin, I want to make it clear that for me, the simple judgement of him as a tyrant yearning for the old Soviet days doesn't fit any more.

Oh, I think he's got a bit of that up his sleeve, but more to the point, I'm not sure he has as much control over the whole situation that is "Russia" as western countries would like to imagine.

Given the fact that his country experiences hundreds, if not thousands, of paid assassinations a year by government estimates, that crime is growing at a rate outpacing GDP growth, and that politicians, journalists, and public figures across the country end up dead in myriad creative ways, it's conceivable that there's a bit of a hissy-fit of power going on.

The old Soviets don't see the problem with "extinguishing" opposition; mobsters and ex-KGB have collaborated for years; billionaires occasionally try to wrangle some political clout out from behind their bucks.

It's a nasty, hostile mix. Add in the ethnic tensions (between Russians and blacks, Georgians, Chinese, etc.), the nationalist desires of the southern republics (Chechnya, anyone?), and the conflict of interests the military and intelligence-dominated bureaucracy has with their citizen-subjects, and I'm pretty sure you come up a bit shy of a pound cake.

A fruit cake, perhaps - and one well soused with the water of life, if you know what I mean.

So let's not be too hard on Mr. Putin - it seems entirely possible to me that he's doing his damndest to duct-tape and staple together a country together before it blows itself apart. If anyone doubts that Communism can produce these sorts of effects, take a look at the former Yugoslavia.

And given the murderous tendencies of some other elements in Russia, I'm not sure it's a bad thing.

For the record, Russia has nearly 3 times the per capita homicides annually as Zimbabwe and Zambia, neither nation which I'd think of as a safe tourist destination.

Thursday, December 07, 2006

Why Anthropologists aren't Economists

I recently read on Dienekes' Anthropology Blog that a "pioneering" study has discovered that 2% of the world's population owns 50% of the household wealth.

Does that surprise anyone? Should it?

And does anyone else care that this is quite a remarkable egalitarian shift from the good old days when a handful of kings owned their realms and subjects due to heavenly mandate?

Back in the USSR

According to a research organization Eurasia Monitor, the largest group of citizens of the nations of Russia, Ukraine, and Belarus are regretful for the downfall of the Soviet Union.

I know this sentiment is especially strong in the older generation, which often feels betrayed and left behind by the democratic reforms in the post-Gorbechov era. The Yeltsin years were particularly terrible for people, and saw the savings of Russians flushed down the toilet as the government printed out so much money that the value of the ruble has still not recovered.

The suffering that the Soviet Union caused was incalculable. The post-Soviet-era pains stem directly from the economic stranglehold the communists held over the Russians for nearly 75 years; like any other correction, it was a painful one. As I mentioned, the pain was exacerbated by the political climate, with the bank of Russia printing money for, I suspect, the dual purpose of eroding national debt and harming the then-president Yeltsin.

With this era officially over, I'd think people would celebrate - even modern history books detail events like the Katyn massacre, Stalin's purges, Lenin's mass starvations, etc. But people, when living dangerously (as in dangerously close to starvation, as many people here were during the worst years after the USSR's fall), think with their pocketbooks and stomachs.

The government botched the transition to a market economy, and understandably people are pretty pissed. But going back isn't the answer.

Let me suggest that part of the answer is for cities like Irkutsk to not spend a million-plus rubles buying expensive artificial Christmas-trees from Ireland. Nor is it to establish a nation-wide vodka monopoly, as Putin has waxed poetic about. And it certainly isn't to allow Georgian immigrants to be beaten and deported because they bring cheap labor and products that the Russian people crave (like watermelons).

My solutions ideally center on hands-off approaches to the economy, while massively decentralizing the government to allow for regional autonomy.

But those are democratic solutions, and the bigger question that must be asked is not whether democratic reforms are needed, but whether the Russian people are willing and able to implement and use them. There seems to me to be such a strong ideology of central authority; in many ways, Putin IS the tsar, and as such, can do well as he likes.

Can ideology truly derail freedom in the world so well? I hope not for much longer.

Wednesday, December 06, 2006


Can I possibly be the only person ever to wonder what all that garbage I'm supposed to read in one of those EULA (end-user licencing agreement) actually was about?

Of course, I've read one. But that was many moons ago, and I've long sense stopped caring so much - for the most part. But it brings to mind another question: as a licensing agreement, a form of contract, the scope of the agreement could potentially be as broad as the publisher wishes to make it.

I see no rational reason from preventing EULAs from doing things like preventing the user from engaging in certain types of business, certain types of activity more generally, perhaps even wearing certain types of clothing.

Now I'm aware of some limitations to contracts and exchange - having and failing to disclose prior knowledge of the value of a product, for example (which is, hilariously, the basis for all exchange - disequilibria of valuations). But in principle, there's no problem with this - you agree to it, and you're getting the compensation in the form of the software you use.

The question I'm getting at is tangential (as I'm sure such "abuse" of contract would be unenforced) - I'm wondering what the legal ramifications of ignorance of the terms of a contract are.

If I sign a labor contract, for example, stipulating that I shall receive 7 dollars an hour for labor, when I didn't bother to read and learn the specifics, my being upset later upon so discovering is nobody's fault buy my own.

Since legal language and lengthy, redundant documents are used, in a sense, as a tool to prevent people from reading them (and certainly from understanding them without legal council), there might be an argument that a blatantly deceptive contract is only partially enforcible...

Fat Chances?


People eat too much of that which harms them, the only logical response is to take away the option altogether, right?

That's the leap that New York City has made concerning the use of trans-fatty acids in restaurants, and it looks like several other cities are following suit.

While I'd like to complain that this is just another silly example of people rudely being presumed by their servants (i.e. elected representatives) incompetent to make their own decisions; that they coopt the decisions that said people make as their best choices given available options; that the unseen costs and benefits are completely ignored; ...

I won't go on at all. I'm going to just ask people to punish their elected bitches by electing new ones to replace them for the vote of no-confidence in their bosses the present ones filed.

Will it happen? Hell no, it's comfy when someone else is taking care of your problems. The psychological stresses we can avoid by just taking the government happy-pill whenever a crisis (manufactured or reasonable though it may be) arises must truly be great, for I know many people that would applaud this decision.

But as I've recently blogged, our legislators have their hands filled with other worthy endeavors such as establishing official state muffins. This can't possibly be the place to look for output resembling sensibility.

I suggest all of our NYC readers (I'll indulge myself with the notion that we actually have one or more - but judging by the hit-meter, it's not likely) go bake a margarine-laden Apple Muffin and send it to city hall.

Tuesday, December 05, 2006

December's Most Random Wikipedia Page Is....

Pretty short this month: Palilogy. Even if you know what it means, I'll think you agree that this small, small, small article is random, was always random and will stay random.

The Thin Blue (Magic) Line

I had a conversation with a friend of mine the other day about the war on drugs. He strongly supported legalizing marijuana but backed the government ban on "harder" drugs such as cocaine and heroin. In fact, the only drug he seems in favor of bringing back into the private sector was weed. I asked him why.

"Because they're dangerous," he said. I reminded him that all drugs are dangerous, including legal ones like tobacco and alcohol. "But these are really dangerous." There is no doubt of this: heroin, for example, is incredibly addictive and dangerous, far more than, say, alcohol. But alcohol and heroin are not inherently different; heroin is just more of the same. So if one is okay and one isn't then there must exist a line that, once passed, makes it social optimal to illegalize. So where's the line?

I have not yet recieved an answer to this question that reflects current laws and I doubt I ever will (though the reader is welcome to try). The best boundry I can come up with is "when the drug starts to have an overall negative impact on the person's life." Heroin is more likely to cross that boundry than alcohol, but it ultimately depends on the person. Since an individual is the foremost expert on themselves (followed by friends and family), and people are all very, very different, a blanket law that treats everyone as the same will punish some unjustly.

Everyone has their own personal boundries, a fact that these laws ignore. To assume individuals are the same is social alchemy; I don't believe in magic.

Monday, December 04, 2006

Move Over Global Warming

In the recent hype of global warming, the sun has taken a backseat to anthropogenic causes of global warming. Yet in the slight warming that the earth has experienced over the past century, solar patterns have played an important role. Researchers from Duke
estimate that the sun contributed as much as 45–50% of the 1900–2000 global warming, and 25–35% of the 1980–2000 global warming.
Despite the fact that politicians have not denounced the sun, wasted billions, and held international conferences to accomplish nothing over solar patterns, the sun seems poised to do its part to alleviate global warming.
Researchers with the Russian Academy of Sciences warned Wednesday that the Earth could be headed for a 60-year cooldown, the news agency Interfax reported.

Scientists based at the academy's Pulkovskaya Observatory in St Petersburg, Russia, said they expected a gradual decrease in global temperatures in 2012-15, followed by a more dramatic, 60-year period of cold to come in 2055-60.

Khabibullo Abdusamatov, chief researcher at the observatory, said the predictions were based on solar cycles, and that after the 60-year glimpse of the Ice Ages warmer weather could be expected.

HT junkscience and Cato-at-Liberty

Sunday, December 03, 2006

Don't Forget To Read the Fine Print

It can be hard to demonstrate, for a mainstream audience, why so many laws are absurd. Mike sent me this link that explains the lunacy of consent forms in the best way I've seen yet. I recommend everyone take a gander at it.

Friday, December 01, 2006

An Inconvient Model

Today Jason Briggeman of Productivity Shock ends Hurricane Week--a week-long recognition that no hurricanes made landfall this hurricane season. I applaud Jason's efforts to remind everyone the failings of climatology.

Like the global economy, the world's climate is a high-dimension, non-linear system (which is a fancy way of saying "there's lots of important factors and they are all connected"). These complex systems are nortoriously hard to model because all the variables interact with each other, often in unpredictable ways. Economists learned this the hard way, having spent decades attempting to map the global economy but with only very limited success. But this was not mere academic time wasted: the flawed economics led to flawed policy. Economies went haywire as simple plans were grafted to a non-simple system. Recessions and hyperinflation followed.

Today climatologists are doing the same thing. While they might have more success (software is better and the climate forces are usually more predictable than people), the science is not yet at the point where policy is a safe idea. It pains me that the climatology discipline seems to want to repeat our mistakes. Not only might this roll of the dice not result in a lowering of global temperature, with the world economy more connected than ever before the unintended consequences could be far worse than any economic policy.

Tuesday, November 28, 2006

Weak Words, Strong Emotions

Black Friday isn't what it used to be. With the rise of e-commerce, retail outlets are seeing their post-Thanksgiving numbers slide. At least I blame e-commerce (especially since now we have "Cyber Monday") but others are blaming a sliding economy, in part sparked by Wal-Mart's lackluster numbers.

There's a sick sort of temptation for people in the media to cry wolf, especially since so many people never learn (unlike the villagers in the story). So its not surprising there was concerned talk on the radio today about weak dollar and, briefly, the trade deficit. Time for a lesson.

First, a "weak dollar" isn't bad for everyone. A weak dollar means American goods are cheaper overseas and boosts exports. Now it's true that the strength of a currency can indicate the strength of the economy (if the economy is great, lots of people want to due business there which means they need the currency). This is a pretty good proxy but only if the currency is weak or strong for very long time. In the short run, there is error and there is noise. And because traders won't want to take chances there's downward bias (and also thanks to media panic). Note that the dollar dropped after Wal-Mart reported its sales, as if Wal-Mart is the entire economy. In short, the dollar tells us a few things but only in the long run. The changing prices offer new opportunities so let's give the market a chance to respond. That's the real measure of a good economy.

Second, a "trade deficit" is even more immaterial than a "weak dollar." Unlike the budget deficit, the trade deficit is not debt. We don't have to pay it back in any way, shape or form. It is merely an arbitrary distinction between net capital flows (the level of foreign investment in the US) and net exports. By definition, if there's a trade "deficit" then there exists an inflow of capital. The more we import, the more American money exists elsewhere and since the US is the only place to legally spend that money (except for some small countries such as Panama and the Northern Mariana Islands), that money ends up back here. Sometimes it is imports, sometimes it is the buying of American assets (often it is Federal debt).

Now here's the interesting bit. By combining these two panic buttons, things seem even less bad. A weak dollar discourages importing and encourages exporting. It also discourages Americans investing abroad and encourages foreigners to invest in America. (Note they are both moving in the same direction because America's stuff is cheaper, which is why the distinction is truly arbitrary.) The point is both of these things strengthen the American dollar. It's hard to tell what the trade balance sheet will look like but as I (hopefully) illustrated, that doesn't really matter.

Saturday, November 25, 2006

Living With Lactivists

To the layman, a free society can be incredibly complicated. The KKK will have a right to protest but a person will be kicked out of a theater for talking too loudly. Both are equally disturbing--indeed the former one is often more disrupting than the latter--so why the double standard?

This is a question "lactivists" (people advocating that women be allowed to breast-feed any place they wish, including airplanes, as the recent new story indicates) should ask themselves because then they might learn why their side lacks the moral high ground. It certainly sounds like a nice idea. Mothers need to feed their infants at some point of the day and the kid is rarely compromising when that is. But some people don't like to see it. The same men who love breasts in ads don't like to see them used for feeding (even if it is "natural").

The basic difference is between public spaces (such as parks, streets, squares and other places no one owns) and private spaces (such as movie theaters and airplanes). Public areas are owned by no one and so nobody gets to make the rules. On a public beach a KKK member should be allowed to protest and nurse an infant--a sight to see if she did both at the same time. In a private space (and yes, this includes a store or mall or other so-called "public areas"), the owner should be able to make whatever rules he or she sees fit. If a bar, porn shop, country club or restaurant doesn't want a woman to nurse because they think doing so will hurt their business (and I think it would), it's their right to kick the woman out. Why should they be punished because she came in their store?

Women complain that they can't choose when their baby is hungry but they do choose what airline to take. Perhaps if they knew they didn't have a right to tell someone how to run their company, they would remember they don't own everything they sit in.

Tuesday, November 21, 2006

Shopping On Both Sides of the Aisle

We like to say in economics that a person's actions best reveal their preferences; to use a cliche, talk is cheap. How a person acts is what actually matters.

John Edwards says he hates Wal-Mart. He says it so much, even his six-year-old knows it and once scorned a fellow classmate for buying shoes at the discount retailer. Recalling the story, Edwards said "If a 6-year-old can figure it out, America can definitely figure this out," Edwards said.

Paradoxically, a few days ago Edwards' office contacted a local Wal-Mart to see if they could secure a coveted Playstation 3. It turns out it was his staffer that, Edwards claimed, only did it because he heard his wife mention she wanted to get one for the kids. Edwards also claims the staffer really just wanted one for himself. (Maybe he was after two; I don't know.)

Let us suppose all of this is true and the staffer only dropped Edwards' name and called from his office solely for his own purposes. Then we end up painting a strange picture: If your six-year-old can figure out that you hate Wal-Mart, why doesn't your own staff understand? Either that staff member knows Wal-Mart isn't the devil you claim it is or you do.

What Government is For

I'm far to serious - usually I complain and agonize about monetary policy, market intervention, and so on. So let me try to lighten the tone by pointing out one of my favorite functions of government:

Declaring random things official.

Now the average sort of "Lunacy" as detailed above may be downright dangerous, but I, for one, am glad to know that at least seven States of our Union have the free time and energy to adopt official state muffins.

Muffins, you say? Oh yes, and I though having state birds, trees, and colors was quite contemporary, but a little reading of the newspaper for new declarations will always broaden your knowledge of politics.

For the record, the list of official muffin by state:

- Minnesota - Blueberry Muffin
- Massechusetts - Corn Muffin
- Hawaii - Coconut Muffin
- New York - Apple Muffin
- Washington - Blueberry Muffin
- California - Poppyseed Muffin
- Texas - Chocolate Chip Muffin

My first reaction was disgust that this is what tax dollars are being spent on - paying our representatives to debate what muffin should be the official emblem of a state.

My second reaction was that this sort of inanity is a sneaky way of getting the public to subsidize advertisment of your product, and unfairly excludes other industries from the benefits thereof.

My final thoughts were relief that if this is the most constructive thing that a legislature can think to do at any one point, they're probably not out doing actual harm.

And now, I'd like to ask a question: is this a cause of shifting balance of Federalism widening central powers at the expense of local authority, is it an effect thereof, or is it entirely unrelated?

Monday, November 20, 2006

I Told You So

I have long argued that attempting to legislate every aspect of human behavior can often have negative consequences, especially if the rule-making goes too far.

It seems like some Europeans have begun to agree, and have responded to their glut of traffic signs and regulations by simply throwing them all out in a seven-city experiment. No asphalt, for one, but also no parking meters, no signs, no traffic lights, not even any lane markings on the road - drivers and pedestrians are free to act and interact, and at their own peril.

The argument, I think, is a quite reasonable one:

"The many rules strip us of the most important thing: the ability to be considerate. We're losing our capacity for socially responsible behavior," says Dutch traffic guru Hans Monderman, one of the project's co-founders. "The greater the number of prescriptions, the more people's sense of personal responsibility dwindles."

The results are said to reduce frustration at being constantly enveloped by inane regulations, encourage people to interact with each other rather than using a rule as a proxy, to declining numbers of accidents. Credit is given to the theory that drivers tend to drive most recklessly, rapidly, and automatically when they're wrapped up in the both comforting and frustrating apron of the Nanny State's regulation.

While I'm not certain tearing out the asphalt is a good plan, I'm all for deregulation - but did that really surprise anyone? And dare we even ask what the savings to these towns have been in the reduced costs of enforcement?

Now, can we get this sort of plan running somewhere in the states as a test program? I'm skeptical, since so many communities love getting their funds from traffic violations...

Friday, November 17, 2006

The Death of a Champion

Yesterday afternoon, Nobel-prizing winning economist Milton Friedman passed away. Best known for creating monetarism and exposing Keynesian flaws, he was an unyielding defender of liberty.

Among the advocates for free markets, Friedman was truly a champion. He was witty, serious, insightful and comprehensive all at the same time and many economists today trace their love for the discipline to Friedman's works and words. He will be truly missed and always loved. I leave you with one of my favorite lessons of his:

I want people to take thought about their condition and to recognize that the maintenance of a free society is a very difficult and complicated thing and it requires a self-denying ordinance of the most extreme kind. It requires a willingness to put up with temporary evils on the basis of the subtle and sophisticated understanding that if you step in to do something about them you not only may make them worse, you will spread your tentacles and get bad results elsewhere.

—interview with Richard Heffner of The Open Mind, 1975

Wednesday, November 15, 2006

Auto Pilot

President Bush met with the "big three" in automaking (Ford, GM and DaimlerChrsyler) Tuesday to discuss the poor state of their companies. I know it's standard practice nowadays to ask for federal hand-holding when a company is doing poorly but it's still absurd: a way to discourage innovation and encourage government expansion.

Some of the automakers' problems stem from big government: steel tariffs, coverage regulations on health insurance, union regulations, exchange rate pegging, etc.

Some of their problems come from themselves: little fuel efficiency (Japanese cars often have much better efficiency), high depreciation rate (US cars aren't made to last as long), poor market anticipation, etc.

US automakers should stop trying to steer the government to their side and start trying to get it out of everyone's hair. Maybe that will remind them that it's their job to fix their own troubles.

Toll vs. Tax

Greg Mankiw recently has been pushing his Pigou Club, a call for higher gas taxes. Higher taxes naturally sit uneasy with me, but I really didn’t bother trying to figure out if anything was seriously wrong with Mankiw’s reasoning. Today Tech Central Station published an article on some shortcomings of a higher gas tax. A good point that author Ted Balaker brought up was

Our reliance on gas taxes means that drivers pay for roads when they're at the gas station, not when they're actually using them. The result is traffic congestion.

It doesn’t matter how much the tax is, after it’s paid for it’s a sunk cost. Hence a massive decrease in congestion most likely won’t result.

And sky-high gas taxes havn't reduced driving as much as one might expect… Over there [in Europe] per capita driving has been increasing more than twice as fast as in the states. Higher gas taxes haven't spared them from pollution or traffic congestion either.

But by charging for driving on the roads – making them toll roads – congestion will decrease. This is a far more effective means to reach the Pigou Club’s objectives.

If our system were toll-based instead, motorists would pay for roads only when they actually used them. They would think more carefully before piling on the road at rush hour. Tolling, especially the kind of variable tolling used on the 91 Express Lanes, does more than give motorists speedy and predictable trips, it's also easier on the environment than stop-and-go traffic.

Sunday, November 12, 2006

An Immigration of Change

With the party make-up of Congress shuffled around like a Thanksgiving tossed salad, a whole new spin of old issues is on the horizon, notably the administration's plan to give immigration reform another chance. This seems like a good time to understand the economics of immigration as a lot of people get it wrong.

To be sure, the debate rages. On the pro-side is Berkeley professor David Card. On the con-side is Harvard professor George Borjas. Borjas claims immigration lowers low-income wages through basic supply and demand analysis. Card argues the situacion is more complex. Immigrants buy things, too, and the economy "absorbs" their impact. There's downward pressure in some places and upward pressure in others. Borjas has a hard time believing that the economy can correct that well or that quickly.

In sum, Bojas focuses on the slope of the demand curve for labor (which is negative: as supply shifts rightward, the more people you have and thus the lower the wages). Card focuses on the shifting of the demand curve (which is rightward: the more people you have, the more stuff they want in virtually all other markets). Both parties are correct and both miss part of the story. The Borjas story is great for the short term. Price changes tend to happen very quickly. But the long-term impact is better told by Card. The lowering of wages increases social totals and everyone ends up buying more things. There are losers, but there are winners and society as a whole is better off.

Friday, November 10, 2006

Broken Dobbs

With immigration a hot topic in the political debate, Lou Dobbs of CNN's Lou Dobbs Tonight continues to demonize people entering the country to work (the title comes from his show's segment on the subject, "Broken Borders").

Dobbs is wrong about the harm immigration does to our economy (see this post I wrote), just as he's wrong about the dangers of outsourcing (see parts 1, 2 and 3 of a series I wrote when his Exporting America book came out). "Lou Dobbs Democrats" are a strange bunch: anti-war but anti-trade. Trade re-enforces peace, just as you are less likely to start a fight with the grocer you go to every week.

The Nation has an excellent piece on Dobbs and how he runs his show, here.

Let the Games Begin

For everyone that suspected, it's official: Iowa Governor Tom Vilsack announced yesterday he's running for president in 2008. Not more than a week after mid-term elections, it's no surprise that Vilsack is first to offically start his campaign. Compared to his other (potential?) competitors (Clinton, Edwards, Kerry, Gore), he is by far the least known. No mystery why he's starting now.

As an Iowa native, I can tell you little is remarkable about the governor. Like all politicians, he enjoys enlarging the government and padding his position. A quick sampling of his governing:

-To try to encourage businesses to move to Iowa, the government used a half-billion dollar grant fund (the Values Fund), though Vilsack expressly vetoed cutting business taxes or reducing regulation.

-He backed Iowa's anti-meth laws (read more here), which made it much more difficult to purchase certain drugs.

-He vetoed an Iowa House bill that would drastically restrict the use of eminent domain, claiming the requirement of "just compensation" (paying the market value) was good enough.

I find that last item particularly upseting. If "just compenstation" was really just, you wouldn't need eminent domain.

Thursday, November 09, 2006

The Day I Almost Voted

I have never voted, and was looking forward to it this week. I have no disillusionments of my vote mattering, but I wanted the experience, to see what it’s like in that booth. But I recently switched my license to Virginia (I was a Maryland resident) and my voter registration never came in the mail. I still could have voted, but that meant I would have had to find the paper given me when I registered. I took one look at my desk and didn’t even try. There’s always 2008.

Wednesday, November 08, 2006

Unhealthy Care

While reviewing the new Senate with Becky, we stumbled upon Bernie Sanders, the Representative-turned-Senator and the only independent in the new upper chamber (Lieberman actually belongs to a third party: Connecticut for Lieberman; I am not kidding). Sanders has some pretty nasty positions, notably he's against free trade and for universal health care.

She was surprised I was against universal health care, especially since Canada's system is so successful. But it's not successful, I corrected, and here's why:

-It removes the incentive to provide quality health services. Not surprisingly, a uniform low pay for all doctors drives away the good doctors that want (and can) to save lives and be paid well. There's less reason to become a doctor and invent new medicines, too.

-It creates an incentive to flood the system. When you don't pay for something, you are more willing to consume it and so the waiting times for even basic medical procedures lengthen to weeks. People die on waiting lists.

-It crowds out other avenues. Governments expand and their existence shadows other alternatives. It is now illegal to purchase medical insurance or opt out of the Canadian system, even if your life hangs in the balance.

-It provides an opening to put government where you won't want it. When everyone pays for your medicine, your life becomes everyone's business. If you like doing something that could be counted as dangerous (like eating fast food), then be prepared to have it taxed or taken away.

-It is unethical. Health care isn't free for everyone; that money comes from somewhere (like taxpayers). Assuming the patient is seriously ill, it is immoral to create another set of victims because of someone else's misfortune.

Universal health care sounds like a nice idea, but so does rent control. Rent control is a disaster in the US, often benefiting the wealthy (who are more connected) than the poor (who find a sudden lack of suppliers). It would be a cruel act to do the same thing to their health.

For more information, Prof. Walter Williams wrote this article and this article on the Canadian system.

Let There Be Deadlock

A housemate of mine is a hard-core Republican and he, knowing that I favored small government, was astonished that I wanted the Democrats to retake the House. "They'll raise your taxes," he said, repeating typical partisan talking points. This might happen (mostly because Republicans spent all the money), but it's difficult to accomplish because now we have deadlock.

The logic of deadlock is ultimately an economic argument. When there's more than one party with branch or chamber control, it requires inter-party negotiation to pass a law. There's vote trading, diplomacy, petty bickering and constant talks. These things cost time and political capital to pull off. Legislation is now more expensive than when one party controlled the law making process. Basic economics: if something's relatively more expensive, you get less of it.

Deadlock is not the ideal scenario because it can't reduce the size of government, only slow its growth. But government reduction is a legendary event and it would be unreasonable to demand and nothing less. Deadlock is an attainable second option, and it looks like that's what last night gave us.

There's some confusion in Virginia and Montana over the Senate, but it appears it will be a 49/49/2 spread, with the two independents leaning Democrat. Because Cheney breaks Senate ties, the power is very balanced in the higher chamber. I'm not sure if a really close chamber is a good thing. On one hand, it only takes a slight tip to get a majority (making laws cheaper). On the other hand, such slights tips from both sides might bounce back and forth, transforming into a blob of politicking (making laws more expensive). I suppose it depends on the law, but I'm favoring the latter argument.

Monday, November 06, 2006

War Profits and War Politics

Robert Greenwald appeared on Real Time with Bill Maher promoting his new film about war profiteering in the Iraq War. He correctly complained that state-sponsored firms have little oversight from Congress and they often overcharge the government for services rendered. But he paradoxically concluded the key problems are (1) firms only care about profit and (2) the administration is ideologically committed to free markets.

This is not the essential problem. The essential problem is the government, not the companies. The government sets the standards. It pays the bills. It lets some things slide and others not. Just as the consumer determines the range of products at the market, the state determines the quality of war services provided. If the state is really guided chiefly by the best interest in the people, why aren't these substandard companies getting fired?

Friday, November 03, 2006

Operation: Random Task

While organizing lobbying-related stubs on Wikipedia today, I came across one of the more random articles I've ever seen: the Glass Packaging Institute, a trade organization focused on packaging glass. When I found the article, it was barely two sentences long--not long enough to be rewarded the "Random Wikipedia Page of the Month"--and so I've decided to adopt it and make it into a real entry.

I've already added a bit to it but scholarly obligations deny me from spending as much time on it as I'd like. Besides, the greatness of Wikipedia is its peer-production so I'll need help. Join me, won't you?

The Sacred Philosophy

Even though I wrote about the reasons why I don't vote Tuesday, I'm contemplating the act this Election Day. Virginia has a constitutional amendment to ban gay marriage on the ballot and I'd like to show my support against it (which is reason #2 if you read that post).

About half the electorate disagrees, making familiar arguments. But for the moment, forget that our culture isn't so fragile it will collapse because boys marry. Forget that homosexually actually is natural and it's marriage that isn't. Forget that the Bible commands Christians to "love thy neighbor." Forget that God (if there is one) wouldn't want us to limit an expression of love to anything less than all of us. The essential point is that America is fundamentally a land of free people.

Living in a free society demands that people put up with things they don't like. Your church doesn't have to marry gays but you don't get to make the rules for other churches, no matter how sad that makes you. There is no such thing as "freedom from others' freedom;" this was part of the sacred philosophy of the Founding Fathers. Ultimately, the ban is just wrong; it is unethical, unholy and un-American.

Wednesday, November 01, 2006

November's Most Random Wikipedia Page Is....

Really two pages: KL-ONE and KL1. Yes, they are different things. But I'm selecting the former is the real winner since its article is longer yet makes less sense. I of course left a snarky comment on talk page about writing the article in English. (Sample sentance: "The system is an attempt to overcome semantic indistinctness in semantic network representations and builds upon the idea of Structured inheritance networks.")

Runner up for this month is Transportation in North Korea because (a) I didn't know North Korea had any transportation beyond dirt roads (note 94% of highway is unpaved) and (b) the whole of the "Pipeline" subheading is "Oil - 136 km." The article was almost number one this month but the topic is actually quite relevant.

Tuesday, October 31, 2006

The Chronicles of Six

Tyler Cowen continues his epic reading of six word stories. Here are some of my favorites from Wired:

Computer, did we bring batteries? Computer?
- Eileen Gunnr

Gown removed carelessly. Head, less so.
- Joss Whedon

Kirby had never eaten toes befoe.
- Kevin Smith

We went solar; sun went nova.
- Ken MacLeod

- Harry Harrison

Tick tock tick tock tick tick.
- Neal Stephenson

Heaven falls. Details at eleven.
- Robert Jordan

God to Earth: “Cry more, noobs!”
- Marc Laidlaw

Always a fun time.

Only Seven Days Until People Stop Trying to Shame Me Into Voting

I had a conversation with an old friend from high school the other day and naturally, with the elections looming, our conversation turned to politics. This is about when I told him I don't vote.

Why don't I vote? There are three common reasons why people would engage in this democratic ritual: (1) they enjoy partaking in the democratic process; (2) they like expressing their support for a candidate through voting (no doubt because the candidate tells them that is how they like having support be expressed); and (3) they think their vote will make the difference in the election (thus gaining benefits from that outcome).

I gain nothing from (1) or (2) and I know (3) is about as likely as a jellyfish making me dinner. My friend had trouble relating to my position and told me a story that for this election he convinced people in his office to vote his way and brought in absentee ballots for them to fill out.

I have no problem with people voting. There are clear reasons to do so (like to shut up people who want you to vote). I only have a problem when politicians lie, saying people that their vote matters. That's different from being counted--the vast majority of votes are counted. But most don't matter because most don't decide the election. Telling people their vote will matter is like telling people Creationism made life on this planet. It's possible but not really.

In the end I'm tired of this discussion. It's not really a puzzle why some people vote, nor why others don't. It's just a heated debate between those passionate individuals who can't stand that the other side exists. I don't care which you do next Tuesday, just leave me out of it.

Friday, October 27, 2006

Living In an Immaterial World

A myriad of obligations deny me from watching Real Time with Bill Maher when it airs on Friday night. Additional distractions have prevented me from commenting on last Friday's episode and I feel I should post before the next installment.

The episode featured Congressman Barney Frank, Jason Alexander, Stephen Moore. Bill Maher and two others spent part of the show lamenting that the average wage was going down while the DOW grew. I'll give one guess which two were on Maher's side (and Moore got a masters in economics from Mason). Moore brought up good points but it mostly consisted of pointing out Maher was rich, too. What he should've pointed out is that the data didn't matter in the first place.

Wage data can be immaterial in two basic ways and which way depends on how much time the analysis covers: did wages drop base on last year's wages or last decade's? If it's last year's wages, then it is just a tick in the market. The lastest adjustment does not allow for sweeping conclusions about the nature of the economy. (See earlier post here.) Imagine a great but developing relationship and then your date says something stupid. Do you end it based on that? Of course not; you are still getting to know one another and mistakes will be made. The economy is similarly in a constant state of adaptation. There are rigidities and there are errors. The lastest tick means little.

If the data is last decade's it avoids the minor change problem but it eases to a different, more subtle problem. As people enter the bottom of the work force (immigrants, new adults) and people leave from the top (retiries), there's downward pressure on average wages even if everyone's getting richer. The better measure is income mobility over long spans of time. (See Steve Horwitz's myths page; the third item has an excellent discussion of the topic.)

So even if we set aside other problems with real wage data (inflation's over estimated, there's no inclusion of product quality, there's no inclusion of job quality), the data doesn't matter.

Wednesday, October 25, 2006

Wikipedia: How to Teach It and What It Can Teach You

I love referencing Wikipedia. Whenever I have a random trivia question, it's the first place I check. It may not be accurate all the time, but for what I use it for, it's accurate enough. And I love editing Wikipedia. Economic topics are far too rare (though becoming more common) and it's fun adding new articles and contributing (or cleaning up) old ones.

For the October 27, 2006 issue, the Chronicle of Higher Education noted many scholars in academia don't feel this way. Wikipedia isn't something to be edited or referenced, it's something students should be warned about. There is logic to this reasoning: an expert has as much authority as a schoolboy, a stark contrast from a classroom or journal. At the same time, that can be good because experts aren't always the clearest, most concise people. I've had many knowledgable professors that couldn't pass on that information to the class.

Scholars argue that Wikipedia lacks control but I see that as a good thing. At worst, it is an option to be ignored. Professors who are frightened of undoing damage caused by fallacies of wikiality should remember that problem has always existed. Most economic professors start each semester not only assuming their students know nothing but that they are also certain of blantantly false things.

But at best, Wikipedia is a tool for professors to teach their students and the public at large. My advice to academics (and the world at large) is to...

-Remember the best way to understand something is to try to explain it to others. Encourage students to edit Wikipedia and they will better understand the material.

-Edit Wikipedia yourself; you'll become that much better at lecturing and your students will thank you for it (and it'll make it easier to see how they edit).

-Talk to others. You'll also have to encounter people that disagree with you and will be forced to talk to them on their level. Another good teaching skill (I think economists could benefit a lot from this; we bemoan the fact that the public doesn't listen to us though at the same time we have a hard time talking to the public.)

-Recall how academic papers work: cite sources and peer review. These things are not requirements on Wikipedia but they are strongly encouraged; pointing out wrongs in the talk page and adding sources will improve the quality of articles that is unlikely to be undone.

-Understand that in practice, it is not as chaotic as you might think. The Wiki cultural is certainly more ungoverned compared to ivied halls but even in this free-for-all, academic credentials hold more authority (call it social capital) than no credentials. For the most part, you will be welcomed and you will be respected, so long as you do the same.

Sunday, October 22, 2006

The Efficiency of Innocence

When economists talk about efficiency we are usually talking about the costs and benefits for all society. Benefits minus costs are the "social totals" and the most efficient items are those that maximize these totals. Doing this type of analysis can be difficult because one must include all costs and benefits for everyone. It's usually impossible to get an exact figure so an estimation works pretty well. Still, it can be a daunting task.

I've decided that the "innocent until proven guilty" reasoning in US legal courts is efficient so, briefly, I'm going to demonstrate my logic. (If you don't want to go through all the assumptions and logic, skip to the conclusion at the end of the post.) Assume a crime, such as rape or murder, and a trial of an accused, the police's chief suspect. Assume that the police stop investigating the crime when the court finds a guilty party and the police keep investigating otherwise--not completely true but true enough for our analysis. Assume all third parties are treated equal--one family's feelings aren't inherently more valuable than anothers'--and the pain of seeing a family member go to jail is roughly equal to the pain of having a crime against a family member go unsolved. Assume the court is wrong by an even-handed chance (see below).

We have four scenarios to consider based on if the accused is actually innocent or guilty and what the courts find him as:
-declared Innocent if actually Innocent (IiI)
-declared Innocent if actually Guilty (IiG)
-declared Guilty if actually Guilty (GiG)
-declared Guilty if actually Innocent (GiI)

The first two represent the current legal system which favors claiming someone is innocent. The second pair represent an alternative system: "guilty until proven innocent" where guilty is the more likely verdict. Because these will chiefly determine what kind of error is most popular in a given legal system, this divide is how we will make our analysis.

IiI and GiG cancel each other out. In both cases the system did exactly what was most efficient to do. Social totals were maximized. It's the errors that are interesting.

Most of IiG and GiI cancel. The victim's family will suffer and the accused family will celebrate for IiG and the reverse is true for GiI. Similarly, effort needed for the case is on the state for IiG because they have the burden of proof; that effort transfers to the defense in GiI so once again we see a canceling out. The moral pain of sending a good man to prison is roughly balanced by an equal level of pain of letting a killer free. In both cases, the crime can be repeated as the bad guy still roams.

This is where we see the difference. In IiG, the crime is unsolved. Not only are people more alert because that crime could be repeated but police are still investigating the crime. The liklihood of correcting the error is much higher than in GiI where the crime could occur again but people's guards are down and the police aren't on alert. (In fact, in GiI it's more likely the bad guy will get away because everyone will be caught off guard.) Because everything else is a wash, this edge--which is by no means minor--demonstrates "innocent until proven guilty" better serves society.

For those that didn't read the whole post it is better for the law to assume people are innocent because the bad guy getting away is easier to correct than the good guy going to jail. In the former, society knows there's a problem still out there and thus makes it cheaper to correct. In the latter, the problem can occur with greater liklihood (or much longer) without it being stopped. We can see this in immigration policy: society never misses the good people rejected from the US so that drop in social totals would persist for a long time but accepting the bad guys allows us to kick them out when they prove themselves as the bad guys. Alex Tabarrok and Dan Klein make a similar arguement about the FDA: if a bad drug gets passed, society knows it and can remove it before too many people die. If a good drug is rejected, people can be dying for years and no steps taken to correct the problem.

This is ultimately the old distinction between the seen and the unseen. People focus on what they can witness first hand. They tend to ignore the unseen costs because the never were even aware of them. Sending the innocent to jail, rejecting a promising citizen and never benefiting from a great drug are treated as non-losses to society and so they are rarely corrected for even if they are just as damaging as their obvious counterpart.

Friday, October 20, 2006

The Most American of Us

The US was founded and built on the capacity of the individual and the dangers of centralized power. These basic sentiments run counter to the politicians' popular view of the illegal immigrant, claiming they leach off the American people and drag down the economy.

But a Washington Post article notes that the average Mexican immigrant is more like an entrepreneur, working hard, risking much and doing what it takes to get by (even leaving behind family members when they immigrate). They really do pull themselves up by their bootstraps. These tempest-tost stretch their budgets in virtually every dimension allowing them to purchase cars and homes, a testament not only to the wealth created in a free society but their determination to take full opportunity of its advantages.

When I see the average immigrant working as hard as our heroic pioneers and entrepreneurs while native-borns repeat claims of victimhood and accusations of theft, it is clear that this generation's foreign population are our next great citizens. Risking everything so they have a chance to risk everything once more, they are clearly more American than virtually every soul fortunate to be born here.

Friday, October 13, 2006

Dating for Nerds

Economics is an amazing discipline because it has widespread applications in so many other fields (such as politics, science, history, religion, psychology and sociology). One of my favorites is dating. I have done some field research and while I'm no expert at dating I've learned some things over the years (and in one or two of Bryan Caplan's lectures) that I think could prove useful (or at least interesting) to L3 readers.

At its core, dating is a way to correct for asymmetrical information (you know yourself, but not her and vice versa). Many normal dating activities that some people find worthless or immaterial (holding the door open, paying for dinner, buying flowers) are actually vital. They are what economists call signaling.

Signaling is an activity where its value lies in demonstrating a fact even if the activity itself is immaterial. What you learn in an advanced mathematics course will probably never come up again but doing well in it demonstrates you are an intelligent person. Instead of merely declaring you are smart, you can show it and that is much more convincing. (An actor that doesn't not cry but merely says he is sad is a particularly vivid example.) The lesson is that small stuff matters.

Signaling is a complicated thing because you can do it too much and thus send other, unintended, signals. If you are applying for a job and you agree with those around you all the time, you might appear too eager to please even if you are easy to work with. In dating, asking about a woman's job or family is a signal that he's interested in her as a person. Asking a string of unconnected questions about her life shows he's not really interested in her, he just wants her to think that.

There is generally a clear interaction between firm and candidate where one tries to impress the other and then the roles switch and then they switch again. In all cases, it is clear who should be doing most, if not all, of the signaling. Thus the danger of over-signaling is smaller than it would be. But with dating, transitions between who is "dominate" is continuous and rarely clear. This is particularly common in the initial dates an so are the occurrences of over-signaling. Avoiding questions she asks about him so he can ask her more questions makes him appear overeager; he didn't see that at that point she was now sending signals to him that she was interested. He didn't open up, which can also send signals that are not good.

Signaling is a very hard concept to master (I'm still learning myself) unless you are a person that has an intuitive grasp of it. Though signaling is not all of dating (getting to know people directly without signaling is important, too; that's what all that talking is about) it's still more significant than many people think. While it's important to relax, it's equally important to be aware that you could be sending bad signals. Finding that balance between alertness and being yourself is the essential learning process.

Word, Word, Word

I subscribe to's word of the day as a fun way to increase my vocabulary. Sadly my memory is not that great so progress is slow but yesterday I was sent a word I'm sure to remember:
concinnity (kuhn-SIN-uh-tee): Internal harmony or fitness in the adaptation of parts to a whole or to each other

What a wonderful way to describe so much of economic activity! Firms adapting to people, organizations dove-tailing with other organizations. The extended order created endogenously. People talk about how economics is all about competition but they fail to realize it is at least as much as about harmony.

Author's note: The title is based on the quote by Shakespeare: "Words, words, words." I never understood the appeal though my high school English teacher always loved it. I guess that's what happens when your last name is Shakespeare: everything you write becomes art.

Wednesday, October 11, 2006

Raising Awareness About Raising Awareness

Logging on to Wikipedia, I discovered that today is National Coming Out Day. Like every other National Group Day, NCOD aims to raise awareness of the LGBT community. It's gotten to the point where I'm losing track of what "raising awareness" means and I doubt groups that use it to justify their events have a much better idea.

So I started a Wikipedia article: raising awareness. In the article I suggest some groups become more interested in raising awareness than actually doing something about it simply because the former is easy to do. In undergrad every student organization seemed to be built around this concept and did nothing more. This even extends to our local chapter of the LGBT Alliance which was located on the most liberal campuses in the country. (Those from my old stomping grounds--Beloit College--might point out there were some activities the Alliance did that were not "raising awareness." This might be true, but most of what they did involved parties and papering the campus with fliers about yet another LGBT issue.)

I think the drive to spend so much time raising awareness comes from our democratic system. If we merely "raise awareness," then our representative will change things. We don't have to take action; the how is someone else's problem. Now it's true that getting people to pay attention to something is a critical first step (a lot of economics is in this stage as most people don't know certain laws are tremendous problems). But when we pass the point, the next step is do something about it, even if that doing something is writing to a congressman or proposing a plan of action. The obsession of only pointing out all that is wrong is a tremdenous problem and people need to be made aware of it.

Tuesday, October 10, 2006

Yes Logo

It's been a while since I posted and recent discussions and thoughts I've had has led me to the desire to defend on of my favorite captialist institutions: advertising.

Advertising's an amazing invention. It creates an incentive for people to provide a quality service without charging people who use it. It's free. Okay, it's not completely free as I have to watch it (though even here there's a strong pressure to make ads more entertaining) but as a poor grad student, I'd rather have an opportunity to take a bathroom break than open my wallet. Even something as simple as the brand itself offers massive bonuses to the consumer.

A random walk on Wikipedia today reminded me that there exists people like Naomi Klein who think branding creates a harmful consumer culture. Her book (No Logo) mostly focuses on the plight of the worker in developing countries and the evils of when firms concentrate into corporations. But let's not forget that because large companies exist, their brand becomes paramount and they gladly sacrifice short-run profit for long-run gain.

Our consumer culture is awash with examples. Google is my favorite (I use several of their products every day--including Blogger--and I have never paid the company one penny) but we see others. NBC now offers some of its primetime shows for free online. (Yes, there's advertising for these episodes but also note there is much less.) Phillip Morris advertises that they give advice on how to quit smoking on their website. Microsoft gives away some of its software. Nike sponsors athletic teams. When a company becomes very large, its brand becomes much more valuable and the firm will take more care to defend it.

This is not a perfect process and some might complain that the corporations' motivations are merely to help itself. They would be right but so what? Does it matter if they are more concerned about make profit than doing good when both are accomplished at the same time? I doubt the hungry care why Kraft Foods donates meals.

Friday, October 06, 2006

Contest of Wills

Protests serve two purposes: to generate change and to make the protestors feel good because they think they are generating change. Often there is the latter without the former.

While heading to my car after class last night, I passed one of the campus quads which was crowded with protestors. There was no event in particular they were protesting, except perhaps the protest of another group. (It's hard to tell who was protesting whom.) On one side was a crowd of about thirty student insisting homosexual marriage should be legal (Virginians will vote on this issue in November). On the other side was an equally large crowd of people arguing marriage should only be between a man and a woman. There was one police officer walking between them, though actively restraining no one.

Each side seemed intent on making sure the other side could see their posters, as if pictures and slogans would change the mind of anyone who is already participating in a protest. They seemed far more interested in their opponents than the trickle of passing students who had no clear allegiance. Neither side talked to each other.

There's politics and there's the real world. This is a clear demonstration that the two rarely have anything to do with one another.

Tuesday, October 03, 2006

Unintended Consequences

My father recently worked in Afghanistan doing USAID. In Pakistan they drive on the left hand side of the road, like England, but in Afghanistan they drive on the right hand side. The Pakistani cars have the steering wheel on the right side of the car, which the Afghanis import. Due to driving on different sides of the road my dad said that there are accidents and deaths caused by people not being able to see well while driving a car that wasn’t made to be driven on the right side of the road.

Sunday, October 01, 2006

October's Most Random Wikipedia Page Is...

Alternate spellings of "the". I didn't want to have another list for October but come on, "alternate spellings of the word 'the'"? The fact that the first item on the list is "teh" as a common typo is really why this page gets the award this month. The article gives details as to why its a common typo and which programs autocorrect the mistake. It even offers instances where this typo--because it's often a mistake--is actually a "correct" spelling.

Friday, September 29, 2006

Every Move You Make

I've been an economist (or student of economics, depending on how you define "economist") for about five years now and one constant are people asking me about the economy based on the latest changes. Don't get me wrong, I like questions. But sometimes these questions are based on the latest news in some minor adjustment of a commonly reported number. The DOW dropped twenty points. Oil prices slipped. The Fed is rasing interest rates. They don't really matter.

The same thing happens on news shows, especially financial ones. Part of this is neccessary because investors want to know about every tick (which you can't know about but they still want it) and part of this is wanting to fill up airtime. But the conversation is always the same and almost daily: is the economy a bear [doing poorly] or a bull [doing well]?. The latest tick of the market is always at the front of the debate as critical evidence.

Let me tell you a little secret. You cannot determine the quality of the economy by merely looking at the latest adjustment. Rarely does a one time gain or loss matter (it only makes a difference if it is very, very large). The market has error, it has trends, it has noise and it has risk. Each change is an attempt to determine what the price should be; each indicator is subject to the messiness of that discovery process.

Let me close with an example. Copper is probably my favorite economic indicator. When the price rises, it signals people want more copper and because copper is used for many things but people rarely store it these people probably want it for production purposes. But copper just jumped because, in part, of the possibility of a strike. Does that mean the economy is doing even better because the price rose? Not at all. Does that mean the economy will enter a recession because of the strike? Again, no. What matters the trend and what's going on beneath the numbers, not every single adjustment in the value. Prices are like people: you should learn why they are as they are if you want to understand what's going on. Stalking won't help.

Wednesday, September 27, 2006

Straddling the Siren Song

Last night during my Austrian economics class I argued that some of the mathematics in neoclassical economics is useful for a few things, a sentiment some (all perhaps?) of my classmates did not share. Jason Briggeman challenged me to note one insight the Cobb-Douglas production function (one example I offered that could be useful to economics) but the conversation went in another direction and I was too tired to backtrack to his inquiry so I could address it. After class I promised to answer his question in a blog post so here it is.

The C-D production function is a pretty uninteresting claim: GDP depends on how much labor and how much capital a country has. However, if we combine it with the Solow growth model we can use it to prove the existence of convergence (poor countries grow faster than rich countries). In the real world, absolute convergence (all countries converge) is a myth however conditional convergence (countries with similar institutions converge) is quite real.

We do not need C-D or Solow to learn this--we can simply look at the data--but it does help explain why this happens in a clean but still useful way. Similarly, we could use pure math to explain or demonstrate conditional convergence but that would be of little use; words are much more appropriate for that. In my defense of math in economics, I ask that Austrians recognize something they've always asserted: people are heterogenous. One person may instantly grasp the intitution of convergence while another may be assisted in the calculus. To dismiss all of mathematics in economics is to deny a potential tool economists can use to demonstrate how the world works. To embrace it completely is also a mistake for it nullifies the most important questions. Mathematics misses the point in some ways, but is appropriate in others.

Math in economics is a siren song. It is beautiful and pure, but also dangerous if we focus too much on it. Yet if we completely avoid the music we will deny ourselves valuable knowledge and drastically limit where we can go (Odysseus had to travel past the sirens' island in order to continue his journey). Economists must learn to straddle this siren song: to hear it but not to succumb to it. If we can force ourselves to stay grounded, like the hero The Odyssey who tied himself to the mast of his ship, we won't miss what can be learned from mathematics nor will we drown in a barren attempt to worship this dirge.

Friday, September 22, 2006

Processor Neutrality

When I hear phrases like "net neutrality," I think of processors. Few people build their computer; most people buy a ready-made one. Any expert will tell you it's better to build your own because it costs less money, you have more customization for what you want the computer to do and you can combine the best parts in a way Dell or Gateway won't. Still, building a computer costs time and requires technical expertise so most people don't do it.

Net neutrality, or legally requiring Internet service providers to treat all data on their networks the same, is much like making a law demanding all computer manufacturers to build the same computer. Dell computers are good for some things but not others; same with Gateways and E-Machines. Similarly, using one provider may make life easy for some websites but not others while another provider will be good for a different mix. Different goods for different people. One could pick and choose all the best parts, like some do with computers, but such a feat is very costly both in time and money.

Yet if government requires net neutrality, they've removed a strong reason to improve their product. There's less profit in the Internet, so there's less incentive to better it. If firms had to use the same item for just one part of their product people would see why the whole good would deterioate. Why few understand this basic idea for net neutrality is beyond me.

AEI has a good article on net neutrality here.

Thursday, September 21, 2006

The Wisdom of Tullock

While on the History of Economic Thought website, I read about my current professor Gordon Tullock. His page on the site linked to an article he wrote, Smith v. Pareto. The abstract, in its entirety, reads:
This paper argues that we do not and cannot actually use Paretian criteria, therefore, I recommend that we stop pretending we do.

Watch Your Language

Leaving for class this morning, I heard Nobel prize winner Joseph Stiglitz on NPR discussing his book, Globalization and Its Discontents. He surprised me because he remarked that globalization could, on average, be bad. Sure, it could be bad for some people (it often is, in fact) but on the aggregate?

As it turns out, Stiglitz was treating legal globalization and real globalization as the same thing. The latter relates to the process of connecting institutions (economics, social, political, etc) across the world over. The former describes how much of that connecting people are allowed to do.

I only realized he was doing this when he explained that the free market could solve most or all of the problems "globalization" creates. For example, legal barriers embodied in "free trade" agreements allow for tariffs on certain crops, harming people in poor countries who want to export their food to the US and other protected countries. Stiglitz correctly noted that a free trade agreement could only be a few pages long; the only reason why the current ones are so massive is because they are stuffed with exceptions and little rules.

By mixing up the legal and the real definitions of globalization, I fear that people will cite this great economist as grounds for diminishing market activity, not expanding it. It reminds me of an incident when a law student claimed firms wouldn't engage in free trade because they wouldn't follow the restrictive rules of a treaty. Just because a law might say the sky is purple, does not make it so.

Sunday, September 17, 2006

The Law Is a Tramp

When I see an immoral piece of legislation, one that tells people how to live their lives, and then I hear people get around it with technicality, I smile. Tonight on 60 Minutes there was a segment on online gambling, which is illegal in the US. But companies find ways around that by being located overseas and then advertising the same domain name but with a .net web address instead of a .com. This .net address labels itself as an education site (where people learn to gamble), getting around the law while directing people to the .com address (where people actually gamble). Genius.

For some reason, the reporter had a problem with this and I saw two different answers. One was cracking down on the law, which is clearly worse. The other is to making the gambling illegal, not because that would be the moral thing to do but because then the government could regulate it. Apparently, it needs widespread control.

How did 60 Minutes come to this conclusion? They gave a 16-year-old a credit card and then lamented about how easy it was for him to start gambling. Of course it was easy; that's one of the great things about Internet commerce. It's built to be easy. But the viewers are supposed to conclude that it's the company's job to police someone else's child and someone else's credit card.

In a world where anyone can grab that bit of plastic and use it online with the ease of using a turning on the television, it is clearly the cardholder's responsibility to keep track of their card. If you have a kid in your house, you childproof the stairs, block some TV channels and keep your credit card in your pocket. Just because, on average, you're giving money to casinos does not mean they are your babysitters.

Tuesday, September 12, 2006

The Rant, the Recount and the Petty Ridicule

Last night, Mike sent me this link containing video of Keith Olbermann's 9/11 commentary. Granted, I thought it was rather long and some parts were a little strange but he makes a critical point: five years later Ground Zero is still empty. No memorial, no construction.

To me this speaks of government bureaucracy, infighting and politics. If Donald Trump was in charge of rebuilding the WTC, we'd be halfway there by now. (Trump World Tower, a 72-story residential building, took only two years to complete.) Sadly Olbermann's focused on the blameful Bush rather than take a stab at government in general but we can only hope for so much. A favorite passage:
Instead they bicker and buck pass. They thwart private efforts and jostle to claim credit for initiatives that go nowhere. They spend the money on irrelevant wars and elaborate self-congratulations, and buying off columnists to write how good a job they're doing instead of doing any job at all.

Shortly after the video hit the internet, NewsBusters, a self-proclaimed "liberal media" watchdog, posted this article which recounts Olbermann's commentary but never seriously refutes it.

Another NewsBusters article accuses Olbermann of using Ground Zero partisanly while complaining others do just that. Perhaps it was mere politics (though in this case the point was to show everyone that nothing has been done rather than use it as a prop for political grandstanding). Also note that when one side of the aisle legitimately accuses the other of doing something wrong, the other side paradoxically attempts to save themselves by throwing the accusation back. They don't refute it--indeed sometimes they agree they did wrong--they just say others do it too as if that makes it alright. But somehow I doubt "well my neighbor tried to kill someone, too" would hold up in front of a judge. It's sad it works so well in the court of public opinion.

Saturday, September 09, 2006

How the West Was Bureaucratized

You'd think after a couple hundred years of the American government pushing around Native Americans, telling them how and where to live their lives, it would finally leave them alone. Not so. A couple of days ago, the US Department of the Interior shot down an agreement between Private Fuel Storage (PFS) and the Skull Valley Goshutes reservation.

The agreement was pretty simple: let PFS dump spend fuel rods (nuclear waste) in an 820-acre corner of your 18,540-acre reservation and this coalition of energy companies will pay the reservation for the right to do so. For the record, there's 125 members of this reservation of which only 30 actually lives there. Sounds like a pretty sweet deal.

But in its infinite wisdom, the Interior stepped in and vetoed the deal, citing health risks and transportation problems. It's pretty clear the health concerns are bogus; the site occupies only 0.04% of the entire reservation. And the Goshutes aren't morons, either (see this link). So let's consider the transportation argument. Salt Lake City currently pays to dump some trash at the reservation, requiring 130 trucks a day along the two-lane State Route 196 (it appears the Department of Transporation is unwilling to expand the road). Because a recently declared state park blocks the path of a railway, the plan would require two additional slow moving trucks a week along that busy stretch of land.

This is a cruel joke played on the Goshutes: a government agency denies them their freedom because of the actions (or inaction) of other government agencies. In the wake of the decision, U.S. Rep. Jim Matheson declared "Utahns stand united against the East Coast dumping its nuclear garbage on the West." But only at the cost of accepting the East's most dangerous waste: bureaucracy.