Sunday, December 30, 2007

Hillary's Magic Wand

My friend's support for Clinton encouraged me visit her site and poke around. While scanning the endless and all-too-familiar prattle of empty promises, I discovered a rather strange campaign promise of "ensuring our trade laws work for all Americans"

I don't think the former first lady realizes what a tall order that is. Freer trade will harm some farmers, steel workers, and other competitors of foreign imports. Protectionist policies will harm all other Americans. In competition, there must be losers.

Mrs. Clinton's efforts to retrain them does not make the issue disappear. If they wanted to be retrained, they would have quit long ago. If all that was stopping them was the $440 million she wants to send to Trade Adjustment Assistance (TAA) program, then now the taxpayers are the losers.

Granted, it's not impossible for everyone to come out ahead in this match up. But given the uncertainty of finding a new job and constant calls for less trade, I wouldn't place money on this alleged Pareto improvement fulfilling its promise.

Saturday, December 29, 2007

The Exaggerated Cost of Low Prices

My mom hates Wal-Mart, something we inevitably bring up whenever I come home. And because I love driving her crazy, each Christmas I buy at least one of her presents from the discount retailer.

Yesterday morning while saying goodbye to my parents to go through security, I let her know where I got that the orange chocolate she likes so much. "But David!" she said. "They treat their workers so badly." I didn't have time to go through all the reasons why that statement was wrong, so I just reminded her that they are not slaves. People choose to work at Wal-Mart.

Granted, many of them don't have much of a choice. But their situation is not the employer's fault. And when you understand that because they are "treated poorly" (as in no generous health benefits), Wal-Mart can offer more jobs to people who need them the most, it's hard to call them evil. The employer/employee relationship is one of exchange, not serfdom. The only things employers owe to employees is what they promise.

This recent article
by the Economist (indirectly) notes how powerful these low wages (and thus low prices) can be to those that need the most help.
Jerry Hausman of the Massachusetts Institute of Technology and Ephraim Leibtag of the United States Department of Agriculture, show that Wal-Mart's move into the grocery business has lowered food prices. Because the poorest spend the largest part of their budget on food, lower prices have benefited them most.
It's not just that the costs of low prices are exaggerated; the benefits are often shunned.

A Bet Four Years In the Making

With the Iowa caucuses looming, my visit home was replete with the underlying theme of politics. This particularly came up when I had lunch with Jon, a headstrong Democrat and old friend from high school.

I told Jon that while I think all politicians are slime balls, I support any Republican. No, it's not because I count myself among the GOP, but because the Democrats control both the House and the Senate. Someone needs to watch them (as no one watched the Republican-controlled government from 2000-2006). Jon disagreed. As a Hillary supporter, he thought she would set all things right. Besides, the GOP is evil and the worst Democrat is better than the best Republican. (I might be over-simplifying a bit, but not by much.) I thought a Democratic president (assuming the same party in Congress) would cause spending and deficit to rise. Jon agreed on spending but claimed the deficit would fall. More social spending would be corrected by lowering war spending and, most of all, a higher capital gains tax.

After a few discussions we decided to have a bet. With $20 riding, if a Democrat--any Democrat--is elected president and if both chambers of Congress will stay Democratic until 2012, then I predict that at the end of the next president's first term, the government deficit will increase. Jon figures it'll decrease.

According to the U.S. National Debt Clock, today's debt stands at $9,126,556,172,755.16 ($9.1 trillion). I really hope I'm wrong.

Thursday, December 27, 2007

Barzan

Today for my last excursion in Qatar, I went to Barzan.


It was used as a lookout for pearl divers (which used to be a big thing here), oncoming ships, and as a lunar observatory. There are two towers, and were built in 1910. Here’s the second tower, as seen from the one above.


My mom and I drove through a little town to get there, but by the towers there was no one around at all. When we got to the first tower, there was a door. I hesitated, then let myself in.


They sell picture frames here that have a door such as this over the picture and you open it up to see it. I assumed it was traditional here, but this was the first time I had seen a door like this. The immediate inside was full of trash, and there were stairs to the side. I went up the stairs to the landing and it was small.


I went over to be inside under the tower


and saw a guano covered ladder. I couldn’t not climb up it, so I went up to the top of the fort, knocking down the guano and I went up.


As I was climbing up, I could hear a bunch of birds fly away. The top wasn’t that big, but it did have a bit of guano.


But it did have a great view of the other tower


and of the city of Doha.


My camera batteries died after I took my first picture from the top, and I left my camera bag at the base of the tower since I had to have both hands free to climb up. So I had to climb up twice, since I had to climb down to get new batteries. I then climbed it a third time after I gave my mom the camera so she could take a picture of my at the top. I think the birds were glad that I was gone.


We then walked over to the other tower. I couldn’t go inside, since the door was inside a fenced off area on someone’s land. By this tower there was a little creek and it was green around it. It was the most green that I’ve seen my whole time here. I guess I didn't realize how much of a desert this place is until I was shocked to see something so green.


There was a courtyard by the tower that I could walk around in,


but it had litter everywhere.

This was a fun little place to visit, and it was only about half an hour from my mom’s apartment. It seemed like no one had been there in a long time, even the trash looked old. Even though the towers look desolated, the area around it had built up. The pictures I had seen of it before (on the link at the top and in other places) have just the towers in the desert. But now there were little dwelling places all around, with construction going on as well. Hopefully someone will clean up the place and the towers won’t fall into complete disrepair in the future.

Monday, December 24, 2007

Al Souq

The souq is the traditional shop/market of the Mideast. There is a big souq in Doha built where a fort was.


The souq has many, many little stores inside. There are a lot of pathways, and it’s easy to get lost and turned around. The alley ways go in all directions and feed into the main street on the inside or to the road on the outside.


In the shops there are all sorts of things for sale, like swords, Iraqi money, clothes, and food. There are also various restaurants. Phonographs are quite popular, for some reason.


Fancy decorations are available,


as are pictures and other random things,


not to mention a boat or two.


Instead of shopping carts, there are old men with wheelbarrows who will cart around your stuff for you.


Close to this souq is the old souq, which has the pigeon masque outside of it.


There are a lot of pigeons.


Across the road from this there are the gold souqs. There are at least ten of these all bunched together.


The souqs are fun to walk around and look. It’s good because there are touristy things to buy (like little magic genie lamps, post cards, pictures, etc.) but also real things that natives buy (food, clothes, pots and pans, etc). You get a good mix of enough foreigners so you can get by in English, but also enough natives so not everyone speaks English and you have an authentic feel.

Sunday, December 23, 2007

Where the Money Goes

The other night I attended a dinner party with the folks. Since the caucus is just a few weeks away, politics was on everyone's lips. One guest was particularly angry about outsourcing. While he has no problem with it in general, he disapproves when firms outsource (or employ illegal immigrants) but the price of the good does not fall. This is an interesting concern and one worth exploring. Let us consider some of the possibilities where these savings go to and if/how that improves social welfare.

Quality. If you can spend three dollars to increase the value of a good by four dollars, that's a lot better than dropping the price by three dollars (two ways to spend three bucks). Quality's harder to measure since you actually might never experience it: the product could be offered in more colors, have better consumer service, be more durable, and so on.

Investment. Related to quality but more general, the savings from product A could be used to better or even create product B. This, I imagine, becomes particularly common as firms become bigger since their assets are spread out more.

Dividends. Perhaps the money is instead sent outside the firm to stockholders as a payment for holding their stock (called a dividend). Smart investors know that good dividend payments mean a stable company. Increasing the dividend will attract new investors, encouraging existing holders to buy more stock and discourage them from selling what they have. This is ultimately a form of investment: a way to secure even more funds to finance things like investment and quality. It's just more long term than the direct approach.

Bonuses. This is a lot like dividends--the best way to secure a good CEO is to pay the CEO (and underlings) a good hunk of money. However, this could also be a bad sign in the form of a principal-agent problem: the CEOs don't need the additional incentive to keep working at the firm, or they are not worth the additional payment. However, since--to my knowledge--bigwig bonuses rarely/never equal total savings, the effect is likely ambiguous. Note also, bonuses are one time increases in pay, while outsourcing/immigrant savings accrue every year. And again, it is possible the upper management deserved the payment.

Material costs/Debt. Contrary to popular belief, firms don't like increasing their price. It can ruin a reputation and give the competition a sudden leg up (for most products, people are very sensitive to price). Thus when costs begin to creep up, or sudden expenses appear, the firm tends to foot the bill in hopes it can weather the storm without increasing its price. Thus, in a round-about way, lowering costs through outsourcing can effectively lower the price, not by actually lowering it but by not raising it despite the pressures to.

Setting aside the real, but small, impact of functional embezzlement, there are real social gains to corporations lowering their costs. Even if we assume that the costs mostly translate into profits, those gains generate an incentive for entrants to compete, offering opportunities for more choice, lower prices, better products, and smarter management. And we haven't even touched on the gains to the new workers.

Markets in Everything; Qatari Edition

In Qatar you don't have to worry about mowing your lawn, but it is dusty. Sand blows around all over the place, and cars get covered in the dust and sand quickly. So people here wash vehicles like people mow lawns in America. Once a week a guy comes by and washes my mom's car. It is definitely necessary here.

Saturday, December 22, 2007

"Riding the dunes is like dancing salsa."

Here's my second post on vacation in Qatar (this is the first).

Today my parents and I and some American friends headed south of Doha to the sand dunes and the Inner Sea – a part of the Arabian Gulf (don’t call it the Persian Gulf here) that juts into Qatar. (You can click here and zoom in on the southeast corner of the country right next to Saudi.)

We went in two SUVs and drove until the road ended. There were some camels there,

and I hoped on one for a short ride.


Our drivers/guides deflated the tires a little bit and we drove into the desert, leaving any roads behind us. Unlike the rocky desert in the northern part of Qatar, this was all sand.


I have no idea how they knew where they were going, but they did. We stopped off at a pool of water that is left from high tide of the gulf.


We got back in the SUVs and kept driving. And this was quite the drive. We would go over the dunes, with the driver gunning it, then we would go down big dunes with the car turning sideways. It’s hard to grasp with a picture what it was like or explain it. The closest thing is a roller coaster with a car. My feet would be airborne and my camera would jump off my lap as we went up and down. We would drive on top of a dune a few feet from a 50-100 foot plunge. We went up and down all sorts of dunes like this.


This was about the angle we were at a lot of the time. The dark ground on the left was the flat ground.




They had walkie-talkies in the car. The best was when they started talking in Arabic, then suddenly we would both at the top a huge dune next to each other like a race. Here’s one hill where we went down almost completely sideways.


As we were sliding down the dunes, I asked our driver if he's ever seen cars flip over. He said "plenty of times." It wasn't the most reassuring thing I've ever heard.
The height and slope are hard to picture, but this is what it looks like from the rear view mirror.


In the car we were listening to American hip-hop and Latin music, though when we first started going on the dunes he put on music from Pirates of the Caribbean. As we were driving, our driver told me “riding the dunes is like dancing salsa.” We drove for about 45-60 minutes in the desert jumping over dunes, when suddenly we were at the Arabian Gulf.


The land in the distance is Saudi Arabia. I put on my bathing suit and went for a quick swim.


The water was great. I only wish that we could have spent a few hours there. But after half an hour or so, we piled back in and drove back up to the road, filled the tires with air, and came home.

Al Zubarah

My parents moved to Doha, Qatar and for Christmas I have come to visit. And so channeling my inner King Holler, here's what I did my first full functional day in the country.

I went to the west side of the country with my mom and two other people she knows. We were going west across the country on a highway, and stopped to look at some camels on the side of the road.


They were behind a fence, and were being raised the way Americans raise horses. The desert isn’t sand like I expected, it is mostly hard ground and rock.


We then went to the al Zubarah fort. It was built in 1938 on the ruins of a destroyed castle and used as a defense against Bahrain. The holes in the building were meant for guns to shoot out at intruders. The fort was then used as a jail as late as the 1970s, and as a Coast Guard place until the 1980s. It was then turned into a museum.

When we got there, there was no one there. We just walked on in and went around. After a while some other people arrived.



After going around the fort, we went to the Arabian Gulf. I waded out, it is really shallow and I couldn’t really go swimming.



Then we went to al Zubarah town. It was build in the late 1600s, and most of it has not been unearthed. In its day it was huge – some European maps called all of Qatar Zubarah after the town.



Coins from India, China, and European Africa have been found there. The city is estimated to be 2,000 by 800 meters. It will be much more impressive if it is ever fully excavated. Like the fort, we just walked on in. There wasn’t a place for anything official, it was completely self guided.



On our way home we stopped by the Emir's personal zoo, and could look in through the fence. He had various animals (mostly African) including the oryx - the national animal of Qatar.



The animals were hunted to extinction in the wild, but the Emir's herd was so successful that some were reintroduced back into the desert.

Sunday, December 16, 2007

Cramer and Paul Channel Friedman

Jim Cramer talked to presidential hopeful Ron Paul recently concerning adding oversight to the Fed Reserve. Their conversation bears a similar cord Russ Roberts interview (transcript) with the late Milton Friedman last year on EconTalk. The lack of transparency is so severe, the potential for disaster so high, Friedman said
I've always been in favor of abolishing the Federal Reserve and substituting a machine program that would keep the quantity of money going up at a steady rate.

Sunday, December 09, 2007

Speaking of Moral Hazard....

I hope my money and banking students can answer the following:
Was the Federal Reserve justified in its role in preventing the bankruptcy of LTCM? In answering this question, be sure to address issues of moral hazard and the key goal of the central bank.

Saturday, December 08, 2007

No Long Term Fix

President Bush is mistaken if he thinks he--or Congress--can "fix" subprime mortgages. Force banks to give people, even a few people, a lower rate than agreed on and you set a precedent for abuse. While their situation is unfortunate, borrowers are not victims. If you treat them as such, years from now they will gamble as though they cannot lose.

AP paradoxically called Bush's plan a "no quick fix" but it's the long run that could prove more disastrous. Give a man a Pinto and he will drive like a saint. Give him a tank and he'll drive like however he wants.

Sunday, December 02, 2007

Our Utopian Society

From an article on Salon about the history of cleanliness, I found this quote to be interesting:

In the 19th century, Harriet Beecher Stowe, who wrote "Uncle Tom's Cabin," said she dreamed of a time when there would be one bathroom in an American house for every three or four bedrooms. People at the time thought that was just crazy utopian, just so over the top compared to what they were used to. Now a luxury apartment across from the Metropolitan Museum in New York City has more bathrooms than bedrooms.


Last Christmas I visited a great aunt of mine who lives in an old house in rural Ohio. She still doesn't have indoor plumbing; she has an outhouse and a pump in the kitchen for her sink. It's amazing how far we've come in the past couple hundred years, especially in things we take for granted like the number of bathrooms in our houses.

The Cure Is Worse Than The Disease

An FDA report will be discussed tomorrow concerning the agency's poor performance. The agency claims it simply needs more funding which it will use to centralize its work and add management positions.

It would make more sense to return the agency to an advisory status. This would drastically reduce its costs and could accomplish a handful of things really well instead of doing many things poorly.

Throwing money at a problem rarely solves it--the organization must have to have a strong incentive to use resources wisely. Companies have an incentive to make a safe and useful product. Dangerous ones will slip through, but at least the error is self-correcting. When things go bad, the drug is pulled. The FDA, however, is rewarded when it turns out most drugs--even good ones that can save lives. And this error doesn't disappear. People continue to needlessly die.

The question is not if free markets or government is perfect at screening disease. Neither is perfect; it's a useless inquiry. The question is which one is most robust against error: a single government agency or the collective wants and constraints of millions of interacting people.

Thursday, November 29, 2007

Employment Is Cooperation

The Democratic candidates refused to cross a picket line of striking writers yesterday (thus canceling their debate), affirming their general support for the guild strike. As private citizens, it is their right to support or not support whomever they wish and they were put in the position to make one decision or the other. But their actions contribute to a disturbing conclusion emerging about the strike: the writers are downtrodden workers and the studios are the greedy extortionists.

Such a story is simplistic and deceptive. Employees are not victims and employers are not slavers. They work together in mutual cooperation; a strike is not a rebellion. To my knowledge, neither party (the Writer's Guild or the studios) use the law to force one to cooperate with the other. But the studio is increasingly seen as immoral and greedy.

This is no doubt in part due to the seemingly reasonable request of the guild--compensation on new media. Yet studios shoulder most of the risk for new projects and the risk is high. Most shows fail tremendously and it makes sense that the studios are trying to shoulder against that risk with enhancing the gains from the rare success. The point is it is not at all clear what the compensation--if any--should be. There are too many factors to take into account. Outsiders should be the last people to take sides. Let the informed decide for themselves.

Keeping us safe from leaves in the road

I'm tend to be skeptical of government's efforts, and this is another example why.

Grandmother Betty Davies has swept the street clean outside her house for the past 62 years without so much as raising an eyebrow.

The 88-year-old widow prides herself on keeping her front doorstep and pavement pristine.

But after one of her daily tidy-ups, a council worker knocked on the door of her home in Splott, Cardiff, to warn her she could be taken to court.

Mrs Davies was told she could be breaking litter laws and might be fined for brushing the leaves into the roadway.


So if a leaf falls from a tree to the road, that's okay. But if a leaf falls two inches from the road and you sweep it the two inches, that's a date in court.

Fortunately in this case sanity prevailed and the local government had to back down from fining an 88 year old woman for keeping things tidy.

Sunday, November 25, 2007

Panic Is Not Growth

In 1773 famed French astronomer Jérôme Lalande predicted that a comet would smash into the earth in 1789, destroying all life. Terror swept the country and church attendance skyrocketed.

But it was all for not. Lalande published his results and true enough, he predicted a disaster, but with only a chance of 1 in 64,000. As the panic subsided philosopher and mathematician Marquis de Condorcet noted that at least the sharp rise in unleavened bread boosted the economy.

The parable of the broken window was still 77 years away, so we can at least be sympathetic to the philosopher's poor economics. But that does not make the claim valid. The panicked purchase of leavened bread no more betters the economy than the purchase of bomb shelters during the Millennium bug scare. If it was truly this easy to grow the economy, then government agencies should relay false reports every few years predicting mass calamities. We'd be swimming in toilet paper, but we wouldn't be wealthier.

Source: The Measure of All Things. Ken Alder

Friday, November 23, 2007

Want Nothing Day

As the sun sets, another Black Friday concludes as does its perverse cousin, Buy Nothing Day, an anti-consumerism group.

What's strange about Buy Nothing Day is that activists gather outside stores and in shopping districts. The protest is directed at a group the vast majority of whom are buying things for others. If the goal is to assuage consumerism, their actions would merely shift the buying from the gift-giver to the gift-receiver. If they really wanted to be effective they would target those that accept gifts and do not give them. Cut consumerism off at the source.

Thus Buy Nothing Day protests should focus on the "purely greedy," the infants, toddlers, and kids who ask for, and often demand, mass-produced consumer products. Do not blame the shoppers who are merely following their wishes, and, arguably being the least selfish and contributory to "over-consumption." Protests should be outside Santa, not Sears.

Thursday, November 22, 2007

Happy Thankskeeping Day

John Stossel reminds us that Thanksgiving is really a celebration of private property, not community and hearth. The Pilgrims starved for their first two years in the New World because communal farming doomed them all. When they finally instituted private property, no one had an incentive to shirk; everyone worked harder. The result was a bumper crop and, in time, a new holiday.

HT: Matt Huber

Tuesday, November 20, 2007

To the Masses Go the Spoils

Last night during industrial organization, Alex Tabarrok told us something only an economist could truly appreciate: "People in China are now dying of cancer and this makes me very happy." It makes me happy as well. Yet we are not motivated by malevolence but a recognition of how humanity progresses.

As China becomes wealthier, its people no longer starve or work themselves to death. Instead they live longer and die of of other ills later in life. And in their wealth they gain the ability to pay to assuage their suffering. Firms the world over now have extra incentive to develop cures not just for cancer, but Parkinson's disease, Alzheimer's, and other aliments which tend to appear later in life. For most of human history, it was an extra burden to want something popular or common for everyone else wanted the same limited supply. But under capitalism, wanting what is popular often translates into getting it easier. Common diseases are rarely death sentences, a trend that is likely to intensify in the near future.

Saturday, November 17, 2007

A Multitude of Villianies Do Swarm Upon Us

Set aside the rampant talk on the campaign circuit about universal health care. Table arguments for protection at the cost of fundamental civil liberties. It is possible there is a candidate who would bring yet more nonsense to next year's election: Lou Dobbs.

Right now trade and immigration--especially immigration--are in party platforms. Despite that these issues are pretty much the same (both move jobs to foreigners), each of the parties treats them differently. Democrats don't like free trade, Republicans don't like illegal immigration. A crude line to draw, but useful.

Lou Dobbs, on the other hand, doesn't like either. At least he has the virtue of consistency. But if he would enter the race, his popularity would surely encourage candidates to call to assuage both instead of neither. Dobbs doesn't even have to be a viable candidate, he merely needs to make enough noise on the campaign trail. And when you're as popular and opinionated as Dobbs is, such a feat is as second nature as breathing.

HT: Mike Mills

Thursday, November 15, 2007

The Oath of Office

Senator Dodd:

Imagine if you will interviewing an applicant for a job opening you have. The first question you might ask is whether the applicant understands the job description. Let's imagine this applicant fails to understand even the most basic requirements of the job. You would be surprised, perhaps confused, as to why the applicant wasted everyone's time by failing to do even rudimentary research.

So you should understand my surprise, and my disappointment, when you failed to grasp the job description for the job you currently seek. To wit, in the debate tonight, you stated that "When you take the oath of office, on January 20, you promise to do two things, and that is to protect and defend the Constitution of the United States, and protect our country against enemies, both foreign and domestic. The security of the country is number one."

Sir, Article II, §1 of the Constitution lays out very simply the job description--the oath of office--as such: "I do solemnly swear (or affirm) that I will faithfully execute the office of President of the United States, and will to the best of my ability, preserve, protect and defend the Constitution of the United States." The President has but one duty, and that is to defend the Constitution. While the argument can be successfully and articulately made that national security is a component of defending the Constitution from its enemies, it is not the chief objective. This is not an issue of vague language or unclear intent by the founders. The Constitution is unambiguous on its supremacy. Article VI states, plainly, that "This Constitution . . . shall be the supreme law of the land." Were the values of the Constitution to come in conflict with national security goals, then the Constitution, and the Oath of Office, make clear which choice the President must make.

Security, sir, is emphatically not "number one," The Constitution is. I hope that going forward you take some time to read it, with particular attention to Article II. Should the people choose to elect you, it will be your job to uphold that document--and no other.

Tuesday, November 13, 2007

The Economic Report of EVE

EVE Online (an MMORPG) hired an economist back in June to better understand how their simulated, primarily player driven economy functioned. Dr. Eyjólfur Guðmundsson, former dean of business and science at the University of Akureyri, is the first economist to be hired in the gaming industry in this regard.

He released his first quarterly report yesterday, enumerating the challenges, advantages, and conclusion of analyzing a digital universe. The focus of the report concerns inflation and offers yet more evidence that the price level is driven by too many dollars chasing too few goods.

Right now, EVE is experiencing deflation despite the fact that the computer is adding more money than it is taking out. New players are currently out-pacing the growth in the money supply--there are more credits (ISK), but many, many more goods. However, inflation can still crop up in the long run if the supply continues to increase and the player growth stagnates.

Inflation in EVE can be a real problem for the company's bottom line. Rising prices make it harder for new players to join the game and could dissuade them from playing. It makes business sense keep the price level steady. In other words, we will likely see more economics PhDs hired in the future by big gaming companies. I wonder if any of them will be someone I know.

Monday, November 12, 2007

There Ain't No Such Thing As A Free Expansion

I hope my money and banking students can answer the following:
True or false (and justify your answer).

Expansionary monetary policy suggests TANSTAAFL/TINSTAAFL.

Sunday, November 11, 2007

Trading With Prometheus

South Korean farmers are erupting in anger over the trade talks with the U.S. Fearful that American produce will flood their market, calling that their livelihoods are threatened and the agricultural sector will collapse. I'm sure such phrasing gets a lot of support in Korea, as labor unions are sympathized here.

But few mind when technology threatens jobs. Farmers rally against imports, not hydroponics: life should be autarkist, but not archaic. Few tears are shed when a new technology wipes out old jobs. Luddites are rare, particularly in today's society. But protectionists always seem to have the ear of the public.

It's strange because trade and technology are functionally the same. In both cases, a good is made cheaper. In both cases, jobs are lost to those that can do the same for less. In both cases, there are winners and losers. In both cases, society changes in unpredictable ways. People are perfectly willing to erect trade barriers to "protect jobs," but the same does not go for outlawing technologies. Such arguments center around the ethics of playing God, not ensuring employment.

If you like technology, if you think it makes us wealthier because it swaps the cheap with the valuable, then you are right. We get to do more with less and we are better off for it. But what difference does it make if the goods transform by man instead of machine?

Monday, November 05, 2007

The Writing's On the Sign

Day One of the writer's strike leads to an interesting economic question. Not if writer's deserve a cut of new media revenue. Or how long a company should holdout before serious negotiations begin (though the strike does dispel the myth that firms care only about short-term profits and won't shoulder a huge expense for a long-term gain). No, the question is why are the slogans so uncreative?




Presumably, the WGA would be interested in conveying their side of the argument for the national news media, a capacity that increases as the writing improves. Pithy slogans, especially concerning the topic at hand, would certainly serve the organization better than simply "On Strike" paired with a cheesy lightning bolt/pen (note the illustration's better than the writing). The three signs pictured here seem to be making up the vast majority of them, mass-produced by the Guild.

Thus the puzzle. It only takes one person to make a good slogan that thousands can use. With over 10,000 in its membership, why didn't some of them come up with something better? They are writers, after all; this should be second nature, at least to a few. And it's not like they didn't know the strike was coming; the picture of the man in the clearly written shirt is a member passing out material three days ago. Even if you claim that they just have a bunch of generic signs "just in case" it begs the question, why aren't the generic signs interesting? You'd think their potential for reuse would make them more likely to be pithy, not less.

Strikes are costly, not just for the studios but for the writers. It's in their best interest to sway public support to their side in order to encourage their employers to fold sooner. Perhaps this is evidence that the studios really are paying them more than they contribute. Maybe they don't deserve any new media revenue.

Saturday, November 03, 2007

Calling India

A student sent me this video after our class on outsourcing and trade. I made the claim that one reason, perhaps the core reason, why people don't like international trade is for what are ultimately racist attitudes. It's about "us" versus "them." Protectionists make ultimately flawed economic justifications which are often inconsistent with other opinions they have about the economy.

I hasten to point out that there are some good reasons for a company to hire from it's native population. Cultural differences, for example, can be costly for customers to interact with (i.e. discerning through accents). However, people in practice seem to be unwilling to pay the higher price needed to ensure that common cultural ground.

The line between racism and issues of quality is a hard one to draw, but the video has clear examples of both.

HT: Ritu Joshi

Wednesday, October 31, 2007

Who's To Blame

There's been a lot of talk lately on sub-prime mortgage rates and massive number of defaults that currently plaguing banks. Despite their problems, people are quick to blame banks and demand a bail out for the loans.

On NPR a few days ago, I heard a commentator note that it doesn't seem fair virtually no banks will go under while countless lose their home, as if it's solely the bank's fault. Missing is that banks are failing because people have default--not the other way around. A lot of people tried to buy something they couldn't afford. They didn't investigate if they could afford it. They are now paying that price.

It's certainly sad to see people think they could have something only to have it taken away from them. In some ways it's sadder than if they never had the chance in the first place. But there was no con artistry here. Just some banks offering people a way to become homeowners and many on both sides not asking tough questions. Both are shouldering the blame, as they should. Don't cheapen it by treating one of them as a victim when it's really just a bunch of bad financial decisions.

Saturday, October 27, 2007

Family Feud

It often astonishes me how it is that libertarianism can cause such a visceral reaction, especially when people seem to misunderstand what it's about. My brother, who to his credit does step up to the plate every so often on L3, wrote in a thread:
My brother, David, is a libertarian and I find his blog http://lawlegislationandlunacy.blogspot.com/ to be filled with garbage centered around the idea "anything Government does is Bad and anything Private Enterprise does is Good". He's also graduate student in economics and hasn't spent much time in the real world. As much as I've seen libertarianism is a nice-sounding theory that degrades into abuses of power when it comes in contact with reality.

PS He doesn't get much traffic on his site so everyone please go there and comment on his blogs. At the least, they can be worth a laugh.
This is very disturbing. I don't necessarily mind my brother's tone (I'm used to it) but this blog is over two years old and he still doesn't understand what a libertarian is. This seems like a good opportunity to clarify a few things.

Libertarians do not believe that anything the private sector does is good. That's absurd. There are a myriad of problems that crop up, from corporate corruption to lead paint in toys. No reasonable person would claim the private sector is a bastion of perfection--nothing is that grand.

The question we must ask ourselves is not what is perfect but what is more likely to be punished for error: markets or government. In a free market, firms that don't deliver what people want go away. Fraudulent companies go bankrupt. Lead toys don't sell. In government, failed agencies stick around. That is not to say that some bad firms last longer than one would think or some agencies don't improve thanks to public outcry. And indeed, there are some things government does that is quite good. But for any given circumstance, the free market check is much more reliable and robust than a bureaucratic check.

A common criticism I get is that I live in academia and thus am not in touch with the real world, a strange criticism to be sure. Setting aside the fact that most academics are strictly not libertarians, my discipline--economics--is dedicated to understanding how the real world works. There's certainly something to be said for putting theory to practice but what you gain in experience you lose in perspective. People outside the ivory tower complain that the free market doesn't help one particular group (a group they are usually connected with) and thus is bad. I welcome such opinions, but I beg everyone to understand that creating a wealthy society can't be just about them; it's about everyone.

Thus I encourage you to engage in the conversation. If you read a post that makes you laugh, stop and ask if that feeling is justified. If you have constructive criticism, feel free to comment. I'll be happy to explain my argument. And who knows: I could be wrong. It's been known to happen.

Tuesday, October 23, 2007

The Myth of the Inept Law

Every single state in the Union is filled with strange laws, some frighteningly intrusive. To those that simply say "no big deal, these laws are rarely enforced" consider the court case Samples v. Moore from Georgia, 1987.

Ms. Samples and Mr. Moore have been cohabitating for 14 years. When they decided to start living together, they made a straight-forward agreement: they would use her money to provide living expenses and he would save his money for their mutual early retirement. However, he moved out and is now living with another woman. Ms. Samples believes he was playing her the whole time, living off her and saving his money for himself. Fraud is at play.

In order to seal the deal, Samples agreed to start having sex with him. In fact, she indicated that this was a tipping point for him to go along with the agreement. But as it turns out, premarital sex in Georgia is (was?) illegal and "a contract to do an illegal or immoral thing is void." The judge threw out the case.

Even if no police officer enforces it, a law on the books can still ruin your life.

Thursday, October 18, 2007

Barking Up the Wrong Rain Forest

Robert Naiman at the Huffington Post has misplaced fears in free trade. Citing the upcoming trade agreement with Peru, Naiman writes the agreement "would give U.S. oil companies powerful new rights to exploit Peru's Amazonian rain forest...Indigenous leaders in Peru have rejected the agreement."

If the problem is the government will give US companies rain forest that others agree on, then the fundamental problem is government owned land, not free trade. If the indigenous people owned the land, then they could decide if they wished to lease or sell it to others. With free trade, they could get more money for what they would be willing to sell, allowing them to enhance their life in other ways.

Free trade is not the problem. A lack private property is.

Monday, October 15, 2007

Incentives Matter

In the 1970s union leaders were concerned about the stress that air traffic controllers were under. They asserted that a sign of stress was if a controller nearly caused a collision. So a policy was enacted that if a controller had 2 or more near misses in a month then the worker would have a two week paid vacation. This graph illustrates the effects of the policy:

Thursday, October 11, 2007

Creative Destruction

Via Freakonomics, here is a list of industries that are predicted to not be around in 10 years, or have a greatly diminished presence.

It's sad when people lose their jobs, but the reasons for the loss of the industry are because life has changed for the better and the industries are no longer necessary. For instance, film manufacturing has been plummeting, but yet society is better off with the elimination of those jobs as people prefer digital cameras.

Tuesday, October 09, 2007

The Poor Shall Inherit the Earth

Russ Roberts recalls his excellent interview with Thomas McCraw about his recent biography of Joseph Schumpeter. Schumpeter was a great, insightful economists who grasped the essential elements of capitalism.

Roberts quotes Schumpeter, saying
Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within reach of factory girls in return for steadily decreasing amounts of effort.
People often forget that the most money in capitalism is in pleasing the masses, not only the rich or well-to-do. It is certainly a victory a great feat that Philo Farnsworth invented the television. Cynics might comment, though, that only the rich could afford them. Which is why it is far more grand, far more impressive, that capitalism made them commonplace. That is the great success story: not the creation of wonders but the process of making those wonders so common, they are mundane.

Monday, October 08, 2007

The Way Things Were

Maryland State Delegate Justin Ross on today's Kojo Nnamdi show proudly proclaimed that we should do "whatever it takes" to curtail the violence and gangs that accompany drug dealing in poor urban neighborhoods. Thus, Ross concluded, we should discourage rap music.

If Ross really wanted to get rid of drug violence, he should look into a cause far more responsible than a catchy tune. Like Prohibition in the 1920s and 30s, the ban on drugs makes the black market (and its related gangs) the only alternative. Without normal police protection, it should be no wonder the drug trade is so violent. Lift the ban on drugs and the drug violence will disappear. If Ross is truly dedicated to "whatever it takes," he should be happy to comply.

Tuesday, October 02, 2007

Bordering on Efficient

Sometimes the slow pace of government work can be a good thing.

Mike Madden writes of the failing attempts to restrict border crossing. While satisfying the isolationists that something is being done about immigration, people continue to cross over into the States. A trial system of cameras, sensors, and other equipment was supposed to be ready by now, but the "virtual fence" still has glitches. Some of this certainly due to adapting the new technology but it's hard to believe none can be blamed on good ol' reliable government waste.

Saturday, September 29, 2007

Understanding Economics

On last night's Real Time with Bill Maher Maher admitted he doesn't understand economics. (He apparently took a course in college and didn't get it.) But when looking at the economy, his gut reaction is pessimistic. The housing crisis. Foreign ownership. And President Bush is at the helm of it all.

Economics is counter-intuitive and so it should be no surprise that people have trouble with it. It should also be no surprise your instinct is often wrong. All of the issues Maher listed are each a small piece of a much larger puzzle.

The housing crisis. Housing is one sector of the economy. It's a big sector, but compared to everything else, it's small. It's certainly connected to many other parts, but the same can be said about any facet of any economy. A housing crisis doesn't mean an economic crisis just as a lite candle doesn't means your house is on fire.

Foreign ownership. China (let's set issues of methodological individualism aside) may own our mortgages but that does not mean panic should follow. So what if they own them? What's missing is a reason to care. When someone hears "they" own our stuff there's a xenophobic gut reaction of fear. It's groundless. "They" invested in our economy and so China have less of a reason to work against us.

President Bush is at the helm. Economics is not about one person "at the helm." Economies are based around countless interactions among billions of people. The President of the US has an influence, but so does celebrities, CEOs, other leaders, entrepreneurs, inventors, teachers, bankers, machinists, managers, and legions of others. No one person is in charge.

Domo Arigatou, Mr Doctoros

The laws of economics knows no borders.

As calls for universal health care fill the campaign talking points, let us take a moment to learn from other countries. Drs. Michael A. Glueck & Robert J. Cihak wrote earlier this year concerning Japan's failing health care system. It should not surprise any economist: doctors have barely a few minutes per patient, people are being denied care, resources are strained, government debt continues to skyrocket, and "[p]atients are told they¹ll never get better, even when treatments exist, and many are not even informed of their diagnoses."

When you give something away for virtually nothing, people will use more of it, even when they don't need to. It's not merely that universal health care, causes waste. It really isn't "universal" because so many people are forced out. It's not even "health care;" it kills people.

HT: Matt Huber

Tuesday, September 25, 2007

The Boston Research Party

In the season premiere of Boston Legal, one of the named partners enlists the main character to defend her from Stanford University. She originally said she'll donate money to fund a study on climate research but pulled the three million when she discovered an oil company donated 100 million for similar research.

It would be foolish to think a study is treated the same when its chief financiers have a vested interest in a particular outcome (just like climatologists have a vested interest in pushing other results). But it would be sloppy to conclude thus the study is bunk and has no value whatsoever. An incentive to lie does not translate into an act of lying; other incentives can counteract and overcome that motivation.

But skepticism is something people should hold in abundance. If Shirley Schmidt wishes to pull it away upon discovering this other financier, why shouldn't she be allowed to? It is her money and she can tag on any requirements she wishes. Stanford doesn't have to accept the dough and perhaps encouraging universities to choose between the hundreds of millions from a few and the millions from hundreds would add a diversity of research, and thus conclusions, and thus something close to the truth. Not everyone has to be invited.

Monday, September 24, 2007

Book Review: Nothing is Sacred

I was familiar with some of Robert Barro’s academic work, but not the man. I then read this article and decided to read his book Nothing is Sacred.

In the beginning of his book Barro briefly narrates personal stories with various famous economists and characters. I liked the stories, they offered a more human side to people I only know of in a more technical aspect.

He then touches on many brief economic issues, ranging from the drug war to dollarization to oil. The none of the issues were covered in depth, but rather gave a good introduction into far reaching topics.

All in all I enjoyed the book and learning more about this Nobel Prize candidate. Most of the economics I didn’t need to read, but it was a worthwhile to skim through. To someone who hasn’t studied economics and wants to know more, this would be a good book to have. To people who have studied economics, it could be good to go through (I read it in about two hours) to learn more about one of the most influential economists in the past 30 years, if for nothing else then his short tales on other economists. Here’s hoping that Barro will be another classical liberal to win the Nobel Prize.

China Slides Down

During the World Economic Forum in Dalian, demographer Nicholas Eberstadt issued a warning to China concerning it's population: it's too small. China needs to abandon it's one-child policy if it is to ensure a strong and continuously developed economy in the future. By 2030, its population is currently projected to start decreasing and leading up to that, its senior citizens will continue to balloon. Eberstadt goes into more detail in this AEI article:
The true wealth of modern countries resides in their people--in human resources. China's people are not a curse--they are a blessing. The Chinese people, like people elsewhere, are rational, calculating actors who seek to improve their own circumstances--not heedless beasts who procreate without thought of the future.
Free markets work best with lots of people with free minds. If China truly wants to embrace the full strength of capitalism's virtues, its well advised to let the people be fruitful and multiply.

Sunday, September 23, 2007

Deflationary Pressures

It's very common for economists to adjust prices and wages for inflation. It's a good practice, but often mistaken for the only adjustment needed to make the price "real." One of the points I've been harping on my class is that quality matters as well and for some products, easily overcome the increase in price. Few pictures illustrate this idea as well as the following:

(Note both of those have a memory of one gig.)
HT: Mike Mills

Saturday, September 22, 2007

Costs, Benefits, and Global Warming

Last night on Real Time with Bill Maher Bjørn Lomborg argued before the panel that global warming is not the problem society should be focusing on; there are many other problems that are more important. After the video feed ended the panel didn't quite get it. Rob Thomas said "I have no idea what that guy was talking about." Allow me to explain, Rob.

Lomborg is saying that there are all kinds of problems in the world: hunger, disease, war, intolerance, climate change, and so forth. Some of these are big problems, having a very real impact on those affected. Suffering and dying. But some are not big problems. They're still problems, like a broken leg or getting your car towed, but compared to larger issues, they aren't that scary.

Lomborg is also saying these problems also differ in our capacity to solve them. Both cancer and malaria are deadly but, in developed countries, malaria's easier to cure so there's much more focus on cancer. Since society only have so many resources (time, money, personnel) to devote to solving problems, the smart thing would be to focus on the big problems that are relatively easy to solve; that way we can do the most good.

Global warming fails both criteria. It is very expensive to solve and not that big of a deal. There should be more focus on making it cheaper to mitigate the problem: focus on making good solar panels, not installing lots of crappy ones. Going to the moon's a lot cheaper in 2007 than in 1907. Lomborg is asking us to prioritize better.

Wednesday, September 19, 2007

Cringle 2008

Bill Maher, in the most recent episode of Real Time, defended universal health care on the grounds that government isn't always a bad thing, you just need the right people. True, government is just a place where people do things--it's not good or bad. But when you don't have to rely on people volunteering payment, where do you find this amazing person who side steps paying back cronies and cuts corners? Where is this superman who knows when people are selfishly demanding care they don't need? As much as I'd like to elect Santa Claus, I don't think he's available.

Monday, September 17, 2007

How to Save Money on Books

I recently went to my grandmother’s house. While I was there she gave me the book “The Complete Arithmetic” published in 1905 that was in my grandfather’s possession. What I found to be the most interesting is that it is meant to be used for years five to eight. When people were poorer and couldn’t place as much of an emphasis on education as we do today, all four years could be taught from one book instead of requiring multiple purchases.

Another thing I found interesting was that some of the word money problems involved fractions of a cent. Inflation has since eliminated that from our math books.

Saturday, September 15, 2007

You Shouldn't Take It With You

An anti-trash activist (I didn't catch her name) spoke on NPR yesterday encouraging people to try her experiment. Instead of throwing things away, she said, people should carry everything that doesn't go into their compost in a trash bag with them to raise awareness about how much people throw away. There's too much waste, she said. People are just too selfish.

True, waste is expensive which is why people are always trying to reduce it. But only up to a point. Disposing garbage is still quite cheap: evidence this activist is more single-minded than revolutionary. While she tries to guilt us into paying more for effectively nothing, we have to smell her garbage. Talk about selfish.

Wednesday, September 12, 2007

UK Kicks Around Fans

It's amazing how if you choose the right words to describe someone, you can justify anything. The UK is looking to restrict free speech, penalize people for breaking their own property, and disallowing them from buying and selling things. Sounds bad? It's ok: it's to stop "hooligans," or people who really enjoy sporting events.

Granted, sometimes those activities can lead to punishable offenses. But restricting them in general? Could prevent that nasty stuff, but it's just as likely (if not more so) to give the police a way to push everyone around.

Sunday, September 09, 2007

Wikipedia Landmark

Wikipedia has just made its 2,000,000th article, five and a half days before I originally predicted. There's still some question over which article is the 2 millionth, but it looks like the consensus is focusing on El Hormiguero.

Thursday, September 06, 2007

Santa Brings Limited Trade

The Epoch Times mistakenly noted that New Zealand and China settle on a free trade agreement by Christmas. If it takes that long to settle negotiations, it's not free trade. Free trade is the absence of legal barriers to exchange between countries. If it was truly a free trade agreement, it would take less than an hour to write and be a few paragraphs long. Limited trade would be a more accurate term.

This is not mere semantics. When "free trade" fails to live up to expectations, protectionists often call for more barriers to "fix the market" and "level the playing field." Little do people know, fewer barriers would make a real and positive effect. It's the gift that keeps on giving.

Sunday, September 02, 2007

From Reality, Not Ideals

Fr. Shay Cullen at Pinoypress gives a gut-wrenching depiction of helping the poor while working with Mother Teresa. And yet her explanation for poverty—the rich who don't give enough--is misplaced. Injustice doesn't thrive because "the rich refuse to put aside their greed and build a just society." People are greedy everywhere, but some countries are rich and some are poor.

It would be nice if other people were more chartable, but that's not the world we live in. One shouldn't make suggestions for a better society based on how people should be. That tends to do more harm than good. If I assume that I can fly, I might jump off of a cliff or push others off to show them they are deluded. Travesty would follow. It would be far more humane—though less ideal—for me to acknowledge my flightlessness and take the time to build an airplane.

Wednesday, August 29, 2007

Pay Your Enemy

James Miller at Overcoming Bias recently asked why people support imprisonment but not torture. One commenter suggested that because some people enjoy torturing others, it hampers their incentives to restrain its use. James replied: "This is a valid argument against torture but it is even a stronger argument against the use of fines as a form of punishment."

An excellent point: why should someone pay the state when they break the law? Not only does it give the government a powerful incentive to abuse its power (see recent Virgina speeding laws), it also assuages the deterrent effect to those with a great deal of faith in government. "Sure I have to pay $100 but at least that money will go to help people." It seems more reasonable to make people pay someone they don't like. Most, I suspect, would rather see $100 go to the state than $50 go to their enemy.I can think of three ways to pull this off, but none are ideal by any means.

1. Pay to a customized "bad guy." In theory, everyone has some person, organization, or idea they don't like. Greens hate oil companies. Free traders look down on protection-seeking unions. Catholics detest abortion clinics. When one group breaks the law, make them pay the other group. The problem is knowing who's who. Sure, there's a lot of information out there but firms may not be so willing to hand it over (and the government might actually prefer that information to money so we'll be right back where we started). And still, some information is hard to get: ex-lovers rarely get along but it'll be costly for the government to figure out who dated who.

2. Make the punishment fit the crime. The logistics of this are a lot easier: tailor each law to an organization that would probably be at odds with the accused. Hunt without a license? Donate to PETA. Drunk driver? Send money to AA. Of course the problem becomes how will these organizations respond when they find out they are being paid when other's break the law? How much will it take before Disabled American Veterans starts encouraging people to park in a handicap space?

3. Send to everyone's hate group. Virtually everyone in this country hates neo-Nazis and the KKK. Why not assemble a list of such groups and the accused must send money to one at random? This would certainly mitigate the problems in 2. But the issue becomes how many organizations like these are there? 100? Maybe 200? Even accounting for deterrence, that's hundreds of millions of dollars (maybe billions of dollars) sent to just a handful of organizations each year. What happens when the KKK has a billion dollar endowment? Forget possible terrorist attacks; think how many people would suddenly like to join, or even start their own hate group!

Clearly there are some tweaks to work out.

All Things Just Keep Getting Better

Today on NPR, labor economist Eric Hurst was on to debunk the common myth that Americans are working harder and harder. In truth, leisure time over the past fifty years have risen. Men are spending more time not working than their counterparts from half a century ago. Women are spending more time in the office, but they are working less in the home--housewives are no longer the standard. Indeed, Americans work little compared to other countries with 18% working more than 48 hours a week. Compare this with other countries, especially developing countries. In Peru, half of all surveyed work more than 48 hours a week.

Hurst chalked up this increase in productivity to modern inventions--dishwashers, microwaves, and so forth. All true. But one cannot ignore the role of a rising population and the division of labor. Housekeepers are no longer for the rich. Not only are people earning more, not only are they--on average--working less, there are now far more people earning more and working less. It astonishes me how people can be so pessimistic about the future.

Tuesday, August 28, 2007

Economics from a Billionaire

Via Gregg Easterbrook, billionaire Sam Zell makes economics videos. The main video now is on Sarbanes-Oxley. It describes its destructiveness, despite its good intentions, in song form. His 2003 Wired Exports also teaches a good lesson.

Sunday, August 26, 2007

Business, Not Market, Failure

With the return of Real Time with Bill Maher this past Friday, Maher's tackled Chinese imports with a well-worn fallacy: bad business means a failed market. The two are rarely one in the same. When a business make a bad decision and they are punished for it (as Chinese manufacturers are experiencing) that's a success of market activity.

The costs of such sloppiness is exactly why we can trust markets to handle so many complicated problems. It is not perfect, but compare mistakes made by CEOs to those of politicians. In government, blame is more likely to be passed than shouldered; failure is more likely to persist than be purged.

Thursday, August 23, 2007

Quote of the Day

From Radley Balko at Reason:

Imagine how this sounds to the average Iraqi. "America is fighting this war for your freedom and safety. Also, we're drawing all the world's worst terrorists into your backyard so they blow up your markets and police stations, and steer clear of ours."

Wednesday, August 22, 2007

Big Teacher

Panic creates a desire for protection, but that doesn't mean it has to be compulsory. Tonight on Kudlow and Company (I'm having a lot of Kudlow articles lately), former Labor Secretary Robert Reich debated Steve Moore from The Wall Street Journal editorial board on the topic of financial literacy.

Illinois recently passed a law that anyone taking out a loan must take a mandatory counseling. Reich smartly argued against the mandatory counseling but strangely argued in favor of banning "predatory loans." If Big Brother has no place in forcing adults to learn about options (and I don't think they do), then what a conclusion it is to claim the government does have a role in denying people options altogether.

Alienation of Economics

The sloppiness that appears in time of a change in the market continues to astound me. Tonight on Kudlow and Company Senior Market Strategist at Delta Global Advisors, Michael Pento, argued our economy is weakening because more and more foreigners are staking a claim to federal debt. Twin deficits (the budget deficit and the so-called trade deficit) are the poison of the economy.

I agree that the high level of government spending is a bad sign, but what difference does it make who's lending Congress the money? The best way to counteract this sloppy spending is to grow the economy with trade and technology, not by retreating to isolation at the expense of American people. That would be a double hit to the economy.

Tuesday, August 21, 2007

Weller On Incentives

Tonight on Kudlow and Company, Christian Weller, senior economist at the Center for American Progess, argued there would be no moral hazard problem if the government bailed out people's mortgages.

I'm not sure what's going through Weller's mind but when you pay for people's bad decisions, you don't create much of a reason for them to avoid mistakes in the future. And you certainly can't expect other borrowers (or lenders for that matter) to be cautious in the future after you proved there's a safety net just aching to spring up.

Making Plans Centralized

Today on NPR's Kojo Nnamdi Show, guest Lee Gutkind discussed his new book Almost Human: Making Robots Think. Partway through the interview, Gutkind proclaimed that society needs to figure out what we want robots to do in our economy. Arguing for a massive convention of various disciplines such as (doctors, roboticists, industrialists and so forth), he said this meeting could plan "once and for all" what robots will do.

Gutkind's desire for planning sounds nice but is strangely placed. There was no such meeting when the Internet first appeared and after an admittedly hectic discovery process, we have learned what works as an online business and what does not. Gutkind's flaw lies in believing there is no planning going on in the realm of applied robotics but in truth there is a great deal of design. But unlike the centralized organization of a few that Gutkind imagines, the planning that is going on now is echoed across millions of minds in thousands of companies the world over. Through the activity of the market, we will learn where robots work well and where they don't. It'll be messy, but it will work far better than a handful of people meeting at a Holiday Inn.

Welfare for Millionaires

Gregg Easterbrook at ESPN rants on handouts for our millionaire ex-presidents. I can't put it any better than he did (including his conclusion), so here it is.

Wealthy ex-presidents reach into your pockets: Recently, the Congressional Research Service announced the federal subsidies requested for the coming fiscal year by ex-presidents Jimmy Carter, George Herbert Walker Bush and Bill Clinton. Globe-trotting Carter asked for only $2,000 for travel; Bush and Clinton, both millionaires, wanted $50,000 from taxpayers for travel. Bush said he needed $69,000 for "equipment" and $13,000 for postage. Is Bush planning to mail 32,000 thank-you notes next year?

What's really offensive is that all three filed for the maximum presidential retirement payment of $191,000 annually. All these guys are wealthy, the elder George Bush having significant inherited wealth, yet all want taxpayers to hand them pensions seven times higher than the typical Social Security sum. This is extra galling because Carter and Clinton aren't even retired! Carter continues to write books that sell well; Clinton is active on the corporate speaking circuit, having earned an estimated $10 million speechifying in 2006. Clinton prattles on and on about the horrors of inequality, yet demands $191,000 in bonuses from taxpayers whose median household income is about 1/20th of his estimated $10 million. Why didn't the three ex-presidents request no pension at all? That would have been the dignified thing to do.

To top it off, Clinton requested $79,000 for telephone service. It is impossible, physically impossible, to spend $79,000 on telephones! If Clinton had a 10-cents-a-minute long-distance plan, he could talk long-distance 24 hours a day, 365 days per year -- and you can imagine Clinton doing this -- yet fail to burn through $79,000. The most expensive package offered by Verizon Wireless is an international super-phone with unlimited texting and four hours of talk time daily; this sells for about $3,000 per year. Clinton could purchase two dozen of the most expensive cell accounts available in the United States for the tax-subsidized telephone budget he requested. Is Clinton's $79,000 phone request fraud, or is Clinton planning to use the money to buy phones for staffers working on his private speaking business? An ex-president who had financial problems might legitimately turn to the taxpayer. For all three living ex-presidents to be quite wealthy yet demanding public subsidies is shameful -- to say nothing of a failure of leadership.

Monday, August 20, 2007

Lou Dobbs Thinks I’m Dumb

Last year the Independent Institute issued a letter on immigration. The letter argued that immigration is not all bad for the country and in fact makes us better off as a whole. I signed the letter, agreeing with its premise. It was a short and simple, and now over a year later Lou Dobbs picked up on it. Economist Alex Tabarrok from George Mason University appeared on his show recently, and can be seen here. Dobbs took the arguments given by simply responding that the signers are "idiotic," "dumb," "jackasses," and "completely out of their minds." I can’t say I agree with Powell’s extreme open border position, but I still think more immigration will make America better, even if that makes me dumb.

Sunday, August 19, 2007

Trade With Your Friends

James R. Lilley, et al. are urging Congress to pass a trade agreement with South Korea which would reduce various trade barriers between the two countries. Congress, if they dare to be consistent, should follow Lilley's advice.

Trade sanctions are readily imposed on the country's northern neighbor. If the legislature recognizes that less trade is detrimental to a country, then clearly they should understand more trade is beneficial to it. Congress must lower trade barriers to South Korea, unless they believe that this democratic country of 50 million is actually part of the axis of evil.

A New Record Looms

The English Wikipedia is looming on its two millionth article. Based on this information, I estimate that the new landmark will appear on approximately September 14 at 9:34 pm. (However, given that as one approaches the two millionth article, article creation is likely to increase, the time of creation might be much earlier, possibly in the early afternoon or late morning.

Thursday, August 16, 2007

Capitalism 101

Tonight on The Daily Show John Oliver and Jon Stewart jokingly argued that China's use of lead paint in toys is an example of how "they do capitalism better than we do." Not bothering with oversight or quality control, the Chinese factories (and the American consumer) can save a great deal of money.

If only they knew how much they were joking. Contrary popular belief, capitalism is not merely about reducing costs but reducing costs while still providing people with something they want. And this is why capitalism works. It's not that bad decisions won't happen, it's that they won't be rewarded. And already we see capitalism working as Chinese factories become less popular and are put under pressure to raise their standards. It's a loss for the manufacturer, but yet another victory for markets.

Edwards Plans to Punish the Weak

John Edwards has been running all over Iowa lately promising a higher minimum wage, stricter work safety laws, and a crackdown on "predatory" lenders. These, strangely, are supposed to "reward hard work."

The minimum wage does not reward hard work. It does, however, reward people who deserve a raise but don't argue for one. It also punishes those who have the hardest time getting a job.

Safety laws do not allow hard work to be rewarded but make it more difficult for companies to pay their workers what they deserve. Looks like more people will have to take a larger chunk of their compensation in the form of additional handicap ramps.

Making a loan harder to get isn't going to help those who need a loan. Sub prime rates (loan deals offered to those with a poor credit rating and require a lot of collateral, usually a house) are options that people don't have to take. Here we see the free market offering a chance to those who need it most and Edwards wants to see that option ripped away.

Sunday, August 12, 2007

Hustle and Woe

While driving home tonight DJs on a local radio station sparked a massive discussion on various "hustles," or ripoffs, people encounter in our daily lives. Listeners called in with example after example: cell phones, bottled water, condos, computers, cable/internet, parking, college tuition, stadium tickets, casinos. The great paradox is that even as people say these are ripoffs, they buy them. The DJs bemoaned the price of cable and internet, claiming cable in their age could be paid with a paper route. What they ignored is that such service included far fewer channels, no internet, and no On Demand service (the last of which one of the DJs praised).

These things are not really ripoffs, as evidence that people keep buying them. What sort of person buys somethings he knows he doesn't want? Most of these examples are really opportunities for people to wish stuff was cheaper, but that's nothing special.

Granted, some products are truly ripoffs--some things are not worth the price you pay for it. But such products don't hang around for long. Nobody called in claiming New Coke was a ripoff. The only true hustle out there are taxes, money that generally goes to those you don't know and probably don't care about it. The very fact that most of these groups can't make money through donations demonstrate that. And there's no way to opt out (short of leaving the country). If you don't buy a cell phone, your life is a little less easy. But if you don't pay your taxes, you go to jail. Woe is me.

Iowa Matters for Another 21 Weeks

There's been a lot of coverage lately on the Iowa Straw Poll, as meaningless as it is. For example, Mitt Romney just won it on the Republican side even though two major contenders (McCain and Giuliani) didn't attend the event. No matter--the caucus is still another five months away.

Here's the thing about Iowa. Many (especially candidates and news media) justify Iowa's early selection becayse Iowa is a wonderful cross section of the country. A lot of people know better. Sure, Iowa's typically a swing state but it's filled with farmers and very few cities (and zero metropolises). It has few immigrants and minorities. Educational scores are way above average. Incomes are way below average ($28,340 versus the national average of $40,000--though different costs of living distort this comparison somewhat).

Some say the reason we still have Iowa caucuses so early is so farmers can get candidates to support massive farm subsidies. That is certainly part of the reason. But most Iowans aren't farmers. Having grown up in Iowa, let me tell you the real reason we love being first: we like the attention.

Usually when Iowa makes the national news it's about the Mississippi flooding or another tornado showing up. There's little attention paid to the people of the state; all news has somber undertones. But once every four years, we matter. It has nothing to do with farming or our "amazing" representation of the country. It's all about seeing Wolf Blitzer reporting from Davenport or candidates debating at the University of Iowa. We like it when the state is mentioned in the same sentence not containing a reference to a disaster or corn. It's all about feeling special. This is why some of us get so angry when important states like California complain, even if it is justified. But at least we'll always have James Kirk.

Wednesday, August 08, 2007

The New Oedipal Complex

Bryan Caplan's new book has an interesting analogy:

Oedipus wanted to marry Jocasta. Jocasta was Oedipus' mother. But Oedipus did not want to marry his mother: He put out his own eyes when he found he had. Similarly: The median voter wants protection. Protection makes the median voter worse off. But the median voter does not want to be worse off. The efforts of both Oedipus and the median voter backfire due to their false beliefs. For Oedipus, the false believe is the Jocasta is not his mother; for the median voter, the false belief is that protectionism is good for the economy.

Wednesday, August 01, 2007

Tariff Changes

I hope my micro students can answer the following:

In 1828, the US Congress passed the “Tariff of Abominations.” The law established various very high tariffs on imported manufactured products to protect northern factories. However it pained southern states who bought much of their manufactured goods from either the north or abroad. Five southern states—lead by South Carolina—refused to collect the tariff and forced a compromise with the US government. The average tariff dropped from 50% to 15%. Illustrate the effect of this drop in the tariff on the market for boots. (Use the average tariff rates for the tariff rates on boots if you wish or need to.) Be sure to indicate changes in deadweight loss, tax revenue, producer surplus, and consumer surplus.

Tuesday, July 31, 2007

Diddy On Asymmetric Information

I've heard that P. Diddy (or just "Diddy" if you are up on the culture) recently put a wanted ad for a new assistant on You Tube. After getting countless responses he's had to make people be aware of other requirements, among them a college degree.

The casual observer might wonder why an assistant to a rap mogule would ever need a college degree--what does Shakespearean literature or chemical theory have to do with getting cheesecake at three in the morning? But my students would know better. Diddy is making use of both screening and signalling.

A college degree is a signal to others that the holder is smart, mature, and dedicated (as well as possessing Diddy's lofty requirements of being able to read and write). Knowing that such a degree genuinely conveys this critical information, Diddy has decided to screen out anyone who doesn't have a degree. It is not that someone who doesn't have a degree isn't automatically smart, mature, and dedicated (and literate). Indeed, he is surely excluding valuable people by making this requirement. But his time is scarce and a degree requirement is an easy way to eliminate a great number of candidates.

The other screening he does (watching all the video applications, later phone interviews, etc) will be made much easier. And as the number of candidates narrow, the signals that they must send will become much more potent than being able to read. But these two common strategies to combat adverse selection will surely play a prominent role in Diddy's search.

Don't Panic

Yesterday on NPR I heard an interview with an author (I didn't hear the name) about his new book (I didn't hear the title, either). What caught my attention was that the author implored listeners and readers to reduce the amount of resources people use. That grocery stores give away plastic bags for free should be a crime, he said. Most economists have a different view: don't panic.

For example, one should ask why do stores give away plastic bags? They certainly didn't get them for free--why give them away? The answer is pretty obvious (customers demand it) but the lesson is not. Plastic bags are clearly cheap (if they costed a dollar each, I'm sure most stores wouldn't give them away) and because they are so inexpensive the resources that made them are relatively abundent. (Plastics take very little oil to make and tend to be made out of the part of crude oil that's low quality.) If some component of plastic bags becomes more scarce, the price of bags rises and people adapt. Stores might charge people for bags, creating an incentive for customers to bring in their own cloth one (something this author suggested everyone do even though this scarcity is not yet occuring).

People have a very hard time understanding that as long as people have an incentive to innovate, we will always be able to solve new resource problems that come our way. That has been the great trend of human history. Every time doomsayers claim we've reached a limit to technology, they've always been proven wrong. The author noted that all animals when they've used up their resources start dying out. He proposed that since humans are no different more countries should start exploring a one child policy to reduce "overpopulation." But people are fundamentally different than animals. We have the capacity to create (farm, invent, etc) the resources we need for our survival. This fundamental difference insures us against ourselves. Mandating we all conserve now takes away from that capacity and diminishes the incentive (fewer inventors and less profit opportunity). The best thing you can do for the environment and the future of humanity is, in the words of a great book, Don't Panic.