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 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.