Wednesday, June 30, 2010

Happy Birthday Bastiat!

Here's some of his best works. Here's another great work: Economic Sophisms. Here's a bio.

Tuesday, June 29, 2010

Inequality and Debt

Krugman recently posted these slides on economic inequality and if it is related to economic disasters. He measures inequality by how much of the total wealth the top 1% own (which isn't bad though I'd prefer a Herfindahl index, which is commonly used to measure the concentration of firms in an industry, or the Gini coefficient, which is used to measure income inequality) and notes how it follows household debt (which of course isn't the same thing as a recession but I think he's using debt as a proxy for financial instability...whatever). I can only assume Krugman is using the data from slide 9 and adjusting the debt by housing assets. People borrowing in step with the value of their house isn't news.

Admittedly, there appears to be a connection and Krugman proposes three explanations.
1. Coincidence
2. Common causation –e.g., neoliberal ideology
3. Actual causation: inequality somehow creates macroeconomic vulnerability
He admits he doesn't have an explanation for option three.

But between common causation and actual causation he misses one: reverse causation. People borrow because they spend it (you don't just borrow for fun, after all; you have to pay interest on that money). With lots of people spending more money, much of it flows into the hands of the wealthy in the form of dividend payments and large bonuses for successful quarterly earnings statements. Yes, some of it will go to workers in the form of higher wages and new hires, but from what I understand about corporate structure, the sum of the lower 99% will be less than the sum of the upper 1% so the very richest get wealthier compared to everyone else.

You could try to tell the story the other way: greater inequality encourages people to borrow so they can "keep up with the Jones's" but people tend to compare themselves with their neighbors, not their bosses. The debt tends to go with the bottom 99% but the graph shows the top 1% with a larger share. We don't really know what's happening to the various income levels of everyone else, again highlighting the use of following an index that includes everyone: not just the very top.

Wednesday, June 16, 2010

In the Chipmunks Alvin Was the Leader...

In case you haven't been paying attention (or are more concerned about bigger news items), on June 8th the Democrats in South Carolina had their primary for the Senate campaign. To everyone's surprise, the winner was Alvin Greene: a man with no job, no campaign staff, and no known financial support.

When I first heard about Alvin Greene, my first thought was election manipulation. But as I learned more about it that seemed less likely. Polling places dropping the ball would need to be more systematic than is reasonably plausible and fraud on this scale would require massive resources. If Greene was behind it (perhaps using illicit resources the public doesn't know about) then his win would be more planned out. He'd at least have a website and be more eloquent when talking to reporters. Republicans simply don't have a motive to commit the fraud. DeMint, the Republican incumbent, won by nearly ten points and the Democratic party basically ignored the primary race. Remember, this is the state that tried to get the Confederate flag flown over its capital. It doesn't make sense that Republicans would pull such a desperate act (this also goes to the even stranger and less relevant accusation of a plant).

It's still very early to tell; perhaps various investigations will reveal an elaborate conspiracy. It's still a mystery how he got the filing fee. But right now my best guess is the following simple story:

Alvin Greene's life was in the toilet. He had no job, no prospects, no plan. Then he got a windfall: perhaps it was an inheritance, or from criminal activity. Maybe he really was saving (though longer than the claimed two years). Not sure what to do, he runs for Senator. Yeah, he probably would have been better off going to a technical school, but maybe he's a poor student or just didn't want to put up that much effort. He has a degree in political science, after all, and it hasn't seemed to have done him any good. But a senatorial candidate? That's easy and potentially very impressive on his résumé. In his mind, he didn't need to win; he just need to fill a gap in his employment history and make himself sound more impressive to potential employers. Yeah it sounds crazy, but I'm not the first person to question his mental health.

But then he won, mostly because no one paid attention to the race. Being listed before his opponent and sharing a name with a famous singer surely helped two. Cameras descended on Greene, especially after people learned about the felony charges. In his heart of hearts, Greene knows he doesn't deserve this. But admitting that would require him to take a hard look at himself and come to terms that not everything happens for reason. It's hard to recognize that you got something you didn't earn so Greene tells people he wasn't surprised by the results (really!?) and insists he went all over the state campaigning, though he can't remember any towns he went to.

Whatever the reason, this is a vivid example of what happens when a lot of people see their vote as cheap talk. Stampedes only happen when the entire herd runs to Greene pastures.

Saturday, June 12, 2010

Reporters Will Be Reporters

An interesting article at The Atlantic by Hanna Rosin puts a lot of emphasis on a claim that more people want girls over boys.
Polling data on American sex preference is sparse, and does not show a clear preference for girls. But the picture from the doctor’s office unambiguously does. A newer method for sperm selection, called MicroSort, is currently completing Food and Drug Administration clinical trials. The girl requests for that method run at about 75 percent.

So there are scientific polls which conclude that people have equal preference for boys and girls but Rosin relies on the sperm clinic survey method instead. But that's a non-random sample: a fatal mistake (and disturbingly common for reporters, especially when shows tout their online polls). What these clinics are really saying is that people who can afford to try to control the sex of their child prefers girls. Rich people like girls.

Rosin might claim that this makes sense: wealthy people prefer girls because wealthy people have the resources to see where the global trends are going. They know a girl will, on average, be more successful than a boy. But that doesn't fix the problem of the scientific surveys: if wealthy people preferred girls and everyone else were indifferent, then you'd still see a slight preference for girls on the aggregate. If everyone else preferred boys, you'd see a preference for boys because there's a lot more non-rich people than rich people. It would be a pretty amazing coincidence if it all evened out nicely. (I don't know if these studies controlled for income, which would be interesting to see.)

There's a better explanation. Without trying, wealthy people tend to have more boys and poor people tend to have more girls. Wealthy people are just using the clinics to balance out these natural tendency to have more boys. Their preference of girls at the clinic is evidence of their equal preference at the nursery.

Back to Basics


Friday, June 11, 2010

Public Choice and Police Videos

Here's an excellent piece on video-taping police while they do their jobs.
In at least three states, it is now illegal to record any on-duty police officer...The legal justification for arresting the "shooter" rests on existing wiretapping or eavesdropping laws, with statutes against obstructing law enforcement sometimes cited. Illinois, Massachusetts, and Maryland are among the 12 states in which all parties must consent for a recording to be legal unless, as with TV news crews, it is obvious to all that recording is underway...When the police act as though cameras were the equivalent of guns pointed at them, there is a sense in which they are correct. Cameras have become the most effective weapon that ordinary people have to protect against and to expose police abuse. And the police want it to stop...As journalist Radley Balko declares, "State legislatures should consider passing laws explicitly making it legal to record on-duty law enforcement officials."

Balko's advice, sadly, will probably not be followed. Polices officers are unionized and not getting their support easily translates into the deadly "soft on crime" label during an election. The public, in contrast, has a generally high opinion of police officers so painting yourself as questioning their honesty doesn't help you much.

Thursday, June 10, 2010

So Many Things...

The authority does not have authority to do whatever they want to do.
That's Jackie Jeter, president of Local 689: Washington's Metro system's union workers. That, by the way, is the comment she issued on two employees being reinstated after the Metro system fired them. One was fired for being involved in a fatal car crash. It's up for debate if the driver was responsible for it (Metro believes he ran a red light). The other driver punched an off duty cop dressed as the McGruff the Crime Dog. That's not as bad a fatal car accident, but there's no doubt that it was his fault.
"Yes, he made a stupid mistake," Jeter said. "Should he have lost the job he had been on for eight years because of a silly mistake?"

Wednesday, June 09, 2010

Where Was This Picture Taken?

Answer in the comments.

Great Words On Macroeconomics

It's not clear that you can write down a consistent model in which this works, but it is not clear the world behaves according to a consistent model.
That's Brad DeLong commenting on fiscal austerity translating into greater confidence in the stability of the economy of the government in question, thus heralding a recovery. But while the model's elusive the empirical evidence is hopeful.

Tuesday, June 08, 2010

Rent Seeking in Everything

It turns out more people like Wal-Mart than I thought. A Wall Street Journal article yesterday exposes that many of the "grassroots" campaigns trying to block local Wal-Marts are actually backed by their competitors. This isn't really a surprise; what's news is that these competitors organize and/or expand the campaigns through a company called Saint Consulting Group, a firm which specializes in making the astrotruf seem genuine.
For the typical anti-Wal-Mart assignment, a Saint manager will drop into town using an assumed name to create or take control of local opposition, according to former Saint employees. They flood local politicians with calls, using multiple phones to make it appear that the calls are coming from different people, the former employees say.