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

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.

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.

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

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.

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.

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.

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.

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.

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.

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.

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.