Saturday, June 28, 2008

More on Creative Capitalism

I was just re-reading Ed Glaeser's essay on creative capitalism.  He talks about several examples of private social entrepreneurship.  But each of these examples are individual efforts or non-profit organizations.

He talks about Herbert Hoover's efforts to feed Belgium after WWI.  But that was a philanthropic organization that raised funds through voluntary donations.

He mentions the National Institutes of Health, a government institution, and points out that the private sector provides the innovation in the medical field because the government is unable to take the appropriate risks necessary to make bold discoveries.

He then mentions Rockefeller's efforts to eradicate hookworm in the south.  The problem is that these are not "creative capitalists" in the way that Gates spoke about in the speech that launched the site.  They are a wealthy philanthropist, profit maximizing firms and a wealthy (oft demonized) philanthropist respectively.

If Glaeser is really making a call to arms for hyper wealthy individuals to do what they can to help the poor why not just come out and say so?  The only connection to capitalism that the first and third example provide is that these individuals were able to create enormous wealth and use their private wealth afterwards to help others.

If this is what creative capitalism really means, there isn't anything to do because this is already the way that capitalism works.

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A Country's Standard of Living Depends on Its Ability to Product Goods and Services

If Standard of Living is narrowly defined as the ability to buy more stuff, I would say that this is generally correct.  Of all of the principles, this one is really the most subjective and could be described another way.

If a benevolent dictator knew no more about economics other than this principle what would happen?  China put a steel furnace in every backyard, if the plan had worked and China had successfully produced more steel than any nation on earth - would that have increased the Chinese standard of living?

Of course not, the standard of living depends on producing quality goods and services that people actually want.  And even that alone isn't enough.  The principle doesn't state it explicitly, but there seems to be an implicit suggestion that producing more stuff will raise the standard of living.  Even that isn't true - standard of living is a very subjective term. 

Say that there are two countries.  Country A is centrally controlled - they somehow figured out to match and even exceed the productivity of the typically laissez faire market, producing 25% more 'stuff' than Country B.  However, Country A also controls every aspect of private life as well, decide which stuff they can buy, how they use it, who they can associate with, when they travel and to where, what their job will be.

On paper, it appears that Country A is wealthier than Country B, but is their standard of living really any better?

I understand what Mankiw is getting at - the more successful the market, the better off its people tend to be.  What would be a better way to state this principle?

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Why Isn't Success Good Enough

There is a very interesting conversation going on over at Creative Capitalism. I haven't made it through everything yet, but what I have read so far is quite good.

Ed Glaeser writes "Mr. Gates’ speech reminds us that while laissez-faire capitalism has worked many miracles, it has never been particularly well targeted towards righting social inequities."

Why focus on the inequities instead of capitalism incredible adeptness in making life better for everyone, including and especially the poor?

There are hundreds of millions of Chinese and Indians that have been lifted out of abject poverty within a generation because of the power of capitalism. That is truly astonishing - why isn't this good enough? What hubris is required to think that an individual or individuals could improve upon the spontaneous order of capitalism?

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Thursday, June 26, 2008

Governments can Sometimes Improve Market Outcomes

I really, really, really wish that Mankiw had added two words.  "In Theory"

In reality, market failures are defined as "outcomes I don't like" and externalities are defined so broadly as to have no meaning at all.

So yes, government can, in theory, improve market outcomes, I just don't trust the lot of economically illiterate, moral degenerate scumbags currently in office do actually do so.

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Tuesday, June 24, 2008

Markets Are Usually a Good Way to Organize Economic Activity

If only this were as self-evident to everyone else as it is to me.

Look at the economies that are not organized into markets: Cuba, North Korea, the former USSR.  Not exactly places people were clamoring to get into were they?

And look at the examples here in the US: primary education is roundly, and correctly, criticized for being crappy - yet secondary education, which is organized as a market, is the best in the world.  Utilities & infrastructure are state-run monopolies (or regulated to the point that they might as well be) and continue to age, decay and not meet the lowest of expectations.

There isn't really an easy way to get where we are to a market in some of these areas, but I firmly believe that if we could get there life would be much better in many ways.

Instead we have economic illiterates clamoring for the nationalization of the oil industry and increased government interventions in everything from health care to the futures market.

If only politicians had to pass a remedial economics course before taking the oaths of office.

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The Future Price of Oil

Can anyone explain to me the mechanism in which 'over-inflated' futures of oil is causing prices today to rise? 

Or how regulating the 'Enron loophole' would cause "[t]he price of retail gasoline would fall by half, to around $2 a gallon, within 30 days of passage of a law to limit speculation in energy futures markets."

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Monday, June 23, 2008

Manipulation? Really!?

The left is trotting out the accusation that those evil speculators are manipulating oil prices.  They even cart out the evil bugaboo Enron (oooh, scary!) to make it seem more sinister.

This canard was repeated by one of my classmates, to which I responded:

I was just re-reading those numbers.  At 85 billion barrels a day I find it astonishing that anyone, even a government could buy enough oil to make a significant enough purchase to be accused of 'manipulating' the price.


85 BILLION barrels, at the bargain price of $100/barrel that is $8.5 Trillion/day.  How much would someone have to buy in order to affect the price?  1%?  That's $8.5 Billion dollars - for just one day.


The more I think about it the more ludicrous accusations of manipulation sound.

Those numbers are just mind boggling, and if they are within an order of magnitude, anyone that thinks that someone is manipulating the market is a fucking moron.

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Questions about Elasticity

One of the things that I like about amateur interest in economics is that you can make sense of it without getting deep into the math.  Its not that I'm not good at math, but my dyslexia makes memorizing formulas a bit challenging.  (thank god for spell check!)

My arch nemesis in engineering school was the physics of electricity - I had a hard enough time figuring out left from right, never mind getting directions out of it.

ANYWAY, I'm having a hard time keeping elasticity of demand straight.  It would seem to me that if something had a high elasticity then demand would stay consistent regardless of the changes in price.  I understand this is wrong and my issue is just in the way that I think about the word elastic.  (demand will stretch to the price)

Is there another way to think about elasticity that will lead me in the correction direction besides realizing that the way I want to think about it is wrong?

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Sunday, June 22, 2008

We Are All Slaves?

One of my classmates posted this:

Melissa, our assumption is that the United Statutes is a democratic country, on paper maybe, but in reality it's a capitalistic country. The man with the gold makes the rules. In other words, if you are poor you are nothing but a free slave. Slave, because you have no choice but to work for someone else and on their terms.

I stewed and stewed on this for awhile.  I originally just intended to leave well enough alone and ignore such obvious ignorance.  But I couldn't let it stand - responding thusly:

I can think of nothing more democratic than capitalism. The goods and services that are available are chosen directly by the people.

Capitalism drives so much choice that nearly every preference can be accommodated.

Careers aren't chosen for us by a faceless bureaucracy, they are the result of the choices that we make and the preferences that we exercise.

The comparison to workers as slaves is deeply offensive as it makes light the true plight of slavery - looking at the wealth that the average American (indeed even the poorest American) has it is difficult to imagine the American system as anything remotely close to the abject humiliation, cruelty and barren living conditions experienced by slavery.

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Trade Can Make Everyone Better Off

Really, its true - trade can make everyone better off.  A mistake most people make is to look at a slice of time, or a slice of people and ignore the huge effects that trade creates over time.

Yes, the workers at the textile mill that just closed down face a burden, some for a short period, some for a long.  But everyone else (including themselves) have access to cheaper clothing - this makes us better off.

It is very hard to image with any confidence the way things would have been - but would we really be better off without all of those goods that China sells us for cheap?  People get really angry when prices rise, why do they also get angry when prices decline?

Change is hard, but it incrementally gets us to a better place.

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Congress Must Be Doing OK

With an approval rating hovering around 20%, a full 10% under Bush's fantastic ratings - why is everyone so confident that the Democrats are going to expand their margins in Congress?

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Saturday, June 21, 2008

People Respond to Incentives

The other major flaw with most regulation is understanding that people respond to incentives.  They are typically written with a "assuming nothing else changes" mentality.

They raise taxes assuming people's spending habits or even citizenship won't change.  They raise the cost of doing business assuming that businesses will just pay them instead of finding greener pastures.

You can look at nearly any "market failure" as popularly described in the media and find government interventions in the background.  Enron and the re-regulation of California energy markets.  Rising healthcare costs and government subsidies of 3rd party payments.  Executive manipulation of earnings and caps on executive pay (at least the tax deductible parts).  Just look at the tax code could probably come up with a million distortions of behavior - some "good" some "bad."

The world would be a much, much better place if government officials had to take, and pass, a basic economic competence test, if only to learn this one simple lesson.  People respond to incentives.

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Friday, June 20, 2008

Rational People Think at the Margin

I have heard more than one person proclaim "if markets worked someone would have figured out something to replace gasoline" or something to that effect.

The truth is there are LOTS of someones trying to figure something to replace gasoline.  In the meantime we are all making small adjustments to our lifestyle and choices to cope with this additional cost to our budgets.

None of these changes are earth shattering - that is what is meant by "at the margin."  We are driving less, we are taking more public transportation, we are buying homes closer to work and we are deferring purchases that we would have otherwise made.

We aren't rushing out to buy a new home just because the price of gas is high - but if we are in the market for a new house, we will take its proximity to work or public transportation into account.  Its the billions and billions of little decisions like this that drive the economy forward.

When a company is looking for opportunities to become more efficient they don't look at redesigning the whole factory.  The look for opportunities to cut a penny here or a couple seconds there.  In the long run they add up to real money/productivity.

This is one of the most glaring failures of government programs.  They don't look to make incremental improvements, it is big bang or nothing.  No politician is ever going to run an election with the slogan "I made collecting taxes 1% more efficient."  So therefore, government never gets any better, it just gets more costly.

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Thursday, June 19, 2008

The Price Of Solicalized Healthcare

Do we really want government to enforce our wastelines? Do football players get exceptions? What about sumo wrestlers?

The report shocked the nation and prompted the government to pass legislation to force the Japanese to shape up. The laws to address what the Japanese have come to call "metabo" take effect this year. They've given the government and employers, long dominant forces in Japanese workers' lives, places at the dinner table in ordinary Japanese homes. They've also sparked a flurry of products to help Japanese keep trim or shed extra pounds.

One regulation, effective in April, requires all citizens over the age of 40 to have their waists measured every year. If a man's waist is more than 33.5 inches or a woman's more than 35.5 inches, they are considered at risk and referred for counseling and close monitoring. The government is also requiring companies to slim down their workers or face higher payments into the national insurance program.

The left will deny that this would ever happen here and then as soon as they had incentive to do this here they would do it. I have no doubts.

Wednesday, June 18, 2008

The Cost of Something Is What You Give Up to Get It

The second of Mankiw's 10 principles, I think that Mankiw intended it to be reinforce the concept of opportunity costs.  It is also important in another way.  The "correct" price of any good or service is the price that was paid for it.

You here a lot of people and pundits complaining that the cost of gasoline is "too high" as they rip out their credit card to pay for filling up their Hummer.  Or complaining that no one wants to buy their house at "fair market value."

This isn't to say that their aren't bubbles or depressed markets, but you never really know for certain that you are in a bubble or under-priced market until its over do you?  After all everyone was convinced that housing prices would never go down and that e-commerce had ushered in a new economy that didn't follow the normal economic rules.

Then reality set in and every figured out that economic rules still apply and we were in a bubble after all. 

Hindsight is always 20/20.

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McCain on the energy 'crisis:'

The Arizona senator called for more energy conservation, saying it was "no longer just a moral luxury or a personal virtue; conservation serves a critical national goal."

Anyone know of a better method to encourage conservation than high prices?

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Tuesday, June 17, 2008

People Face Trade-offs

Several of Mankiw's principles have a certain 'well duh' air about them.  This is one of those.  The amazing thing is that when people are forced to make these trade-offs they can get kinda pissed off about it.

I'm not certain what triggers this anger, but people can accept that in order to take that trip to Hawaii they may need to driver that car for an extra year.  Why is it that when you tell them that they need to  put some extra money aside to make sure that a medical emergency doesn't push them into bankruptcy they get all put out?

We face trade-offs from the moment we wake up in the morning (possibly even slightly before that) until the moment we close our eyes to go to sleep.  The most important lesson that people can learn is that government can't just make these trade-offs go away, they can merely move them around a little and hide the true costs of those trade-offs from us.

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Monday, June 16, 2008

The 10 Principles of Economics

Mankiw boils economics down to ten principles in his Essentials of Economics textbook which he views as the central, unifying ideas that drive the economy and economic decisions.

He defines these principles as:

1: People face trade-offs.
2: The Cost of Something is What You Give Up to Get It
3: Rational People Think At the Margin
4: People Respond to Incentives
5: Trade Can Make Everyone Better Off
6: Markets Are Usually a Good Way to Organize Economic Activity
7: Governments can Sometimes Improve Market Outcomes
8: A Country's Standard of Living Depends on Its Ability to Product Goods and Services
9: Prices Rise When the Government Prints Too Much Money
10: Society Faces a Short-Term Trade-off between Inflation and Unemployment

Over the next several posts I'm going to provide my views on each of these principles.

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Saturday, June 14, 2008

The Positive Study of Economics

I just started reading my Economics text book for the class I taking this quarter.  So far it is pretty interesting, though nothing ground breaking yet.

One thing that I find very odd is that it spends a not-insignificant portion of a chapter discussing the difference between positive and normative statements.

Why would an economics text go into philosophy in this way?  It almost appears defensive doesn't it?  Or is this just a way to justify the inclusion of opinion into the science?

Anyone have a good theory as to why this is covered in an introductory economics course?

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Wednesday, June 11, 2008

In Case You Were Wondering

Yes, this was me.

In the comments a number of people think that life in the past would be a piece of cake because we know more science and math.  Here is the reply I left in the comments.

For everyone arguing that knowledge of math and science is the key to success - I think you are underestimating the role of class in these times.

You will probably not know enough conventional wisdom to pass a sniff test in any time before the early 1900's. Also consider how the mainstream viewed certain types of discoveries - eg Galileo.

I don't think that you would be able to burst onto the scene and proclaim some hugely advanced truth - they wouldn't be able to understand it. To even have a shot you would have to walk everyone through the incremental steps to get you to the 'ah ha' moment - and that is only if you can ever get anyone to listen to you.

I personally don't think that a modern American would be able to deal with the vast amounts of physical labor that would be involved:
1) There is no in door plumbing or running water.
2) Electricity isn't available - everything is done by hand: cleaning clothes, carrying water, etc.
3) You will probably not be able to afford meat, at least not much - is your metabolism capable of handling an all starch diet?
4) You will need to walk everywhere you go.
5) You will need to deal with all of the aches and pains we pop pills for today.
6) Pollution is going to be much worse - what effect will that have on your health?

Monday, June 02, 2008

Screw Confucius

I like living in interesting times and I don't believe that there has been a more interesting time than right now.

Some people think that the internet has arrived and is mainstream, but we haven't seen nothing yet.  There will come a day where we view the dot com boom of the 90s as a quaintly as we view the Model T today.

I can only guess at what the future will look like, but my guess is that having a computer at home with your files on it, or your music on it, or your pictures on it, will be a thing of the past.

Now to a certain extent this exists today in various forms. You can share pictures with family and friends through Picasa and similar sites.  You can also pay sites like Amazon or Microsoft to backup your other data outside of your home.  You can even share video at places like YouTube.

Unfortunately, all of these services only provide the barest hint of what I'm talking about.  For one, none of them actually do everything that you need them to do.  For another, they either downgrade the quality of media that you are trying to share or store your data, but don't make it readily available to you.

Live Mesh provides a hint at what I think the future is actually going to look like.  In its current form it is very simple, providing the barest of features.  But even in that form it is quite powerful and in my opinion the biggest thing to come to the internet since Mosaic.

Via this glimpse into the future you can see how all of your data will be available to you anywhere that you can get an internet connection.  You can synchronize the data offline, share it with friends & family.  This limited beta also provides the capability to remote control any of your computers.  They promise that the client will be available to Mac and mobile devices, I hope that they also extend it to Linux and non-MS mobile devices like iPhone and BlackBerry so that the concept of anytime, anywhere, from any device can truly be realized.

You can also imagine how this could be extended to create photo albums, create personalized radio stations or video sites - without the inconvenience of limited quality.  You could create calendars and shared contacts.  You could store ebooks and read them from any device, edit your documents from the web.  On and on and on.  Because it is intended to be a platform, the extent of what can be accomplished is really only limited by the imagination of software designers.

Essentially, I see the need to have 'my' computer to become passe - in reality you will need a computer - because all of your needs will be available in one place, on one site as opposed to the conglomerate of different services that we all use today with data strewn about scores of websites and computers.

These are truly interesting times and technology like Mesh can only make them more interesting.

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I Hate Math

There are two very good (according to me) climate blogs at The Blackboard and Prometheus.  The main reason that I love them so much is that they are "believers" in Global Warming, but they aren't alarmist about it.

They approach the science as, you know, a science and attempt to look at and understand the data.  The other reason I probably like them is because the activist portion of the blogosphere seems to hate them because - well they look at and try to understand the data.

The downside of all of this is I don't get the math.  Not in the least.  I would like to understand, but all of that statistics just loses me.

The pale green solid and dashed curves represent the OLS (ordinary least squares) fit to monthly data from Jan 1975-April 2008, with dashed lines representing 2-sigma deviations for residuals. These bands should encompass approximately 95% of “weather”. The blue represents the 2C/century trend projected by the IPCC; 2sigma uncertainty for “weather” are taken from the OLS fit for 1975-2008 and applied to the IPCC projection. Small ‘+’ and ‘x’ indicate monthly measurements of GMST. The green circle are the 12 month Jan-December averages for each year. The red-outlined orange circle is the current annual average based on data for 2008.

Does that mean we are getting warmer, colder, staying the same or being invaded by aliens?

If anyone would be willing to translate all of the recent talk about falsifying IPCC reports or point me to a statistics for dummies site you would win my undying gratitude and admiration.

And what a treat that would be!

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Sunday, June 01, 2008

When is Forever Not Actually Forever?

A large number of states are targeting unclaimed refunds under unclaimed property laws.

Until the early part of this decade, retailers, manufacturers and the fulfillment companies that processed the rebates for them simply kept the unclaimed money. Now, all but a handful of states are banding together .... They believe consumers are the rightful owners. The upshot is that millions of dollars potentially could wind up in the states' tightly stretched coffers.

At the center of the debate is Minnesota-based Young America Corp., one of the country's top three fulfillment companies.

In a closely watched lawsuit, Iowa Treasurer Michael Fitzgerald is accusing Young America and its clients of not reporting millions of dollars in uncashed checks, as required by unclaimed property laws.

Sounds noble doesn't it?  Shouldn't all of those consumers be notified they have unspent dollars in their pockets?  Fortunately, we have a maverick who is willing to fight for the little guy.

Commerce Commissioner Glenn Wilson, ... now is challenging the ruling and fighting big business on behalf of consumers.

Because this is really all about the consumer, right?  After all:

"In our view, that's your money forever because the company has made an obligation to you," said Iowa assistant attorney general Layne Lindebak.

And what does forever actually mean?  Here is a quick look at how unclaimed property works:

As in most states, unclaimed property laws in Minnesota typically cover such things as abandoned checking and savings accounts, uncashed payroll checks, unclaimed safe deposit box contents, and stocks and bonds. States have three years to locate owners or beneficiaries. After that, the money goes to the general fund, which pays for the bulk of state programs and services.

So forever actually just means three years, then the state can just take your money - you know the money that is yours forever - and use it for whatever purpose they deem appropriate.
If you were paying attention, I cut a couple of words from the first snippet of the article.  Here is the sentence in full:

Now, all but a handful of states are banding together to lay claim to the cash.

Remember, no matter what words are coming out of a politician's mouth, it isn't about protecting consumers - it is about trying to get free money.

Politicians are nothing but bandits and thieves, they will speak to you in honey sweat tones, but that is only to lull you into a false sense of security long enough to pick your pocket.

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