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.