Wednesday, December 31, 2008

What Goes Up Must Come Down

This is apparently a fairly common New Year's tradition:
St. Petersburg, where New Year's Eve revelers have been known to fire guns into the air, is putting out a public service announcement this morning advising them not to do the same Wednesday night.

Last New Year's Eve, there were 16 incidents of stray bullets falling from the sky, and in two cases people were struck and wounded. One of the victims, David Mink, 24, of Clearwater, is featured in the PSA.
This is one of the many things I've learned from my wife, who has been a social worker for a minute now.

Tuesday, December 30, 2008

Emptying the Bottle: December '08 Links List

1) Belated Christmas present: a bat species named after a loved one.

2) Make a bet on your New Year's Resolution for weight loss.

3) "This is, I think, perhaps the worst financial crisis of all time, and is the direct result of the government's housing policies"

4) A watch that wakes you up at the end of a REM cycle.

5) Eye lid advertising. Seriously.

6) Busting a move around the world.

7) Charging Polly for a cracker.

8) Obama's new new deal could be just as bad as the old new deal.

9) Cleanliness is next to godlessness.

10) Create a blog, not a book.

*Check my Bookmarks to see what I find interesting on a daily basis*

Sunday, December 28, 2008

The Economic Stimulus Package, Part III

You can go here and here for my first two arguments against any governmental transfers to "fix the economy." But I've been thinking, maybe a stimulus package isn't all bad. One assumption I have is that for the last 200 years (since the industrial revolution) life have been consistently getting better. So maybe politicians aren't stimulating votes, but are instead creating a "temporal progressive tax" (patent pending). Taxing the rich, future generations, to the benefit of the poor, us. It may not be a free lunch, but it is a borrowed one.

Friday, December 26, 2008

Avoiding Xmas Deadweight Loss

Today marks the beginning of "Reverse Christmas." That is, instead of selflessly buying gifts for loved ones, we selfishly exchange those gifts for what we really wanted. This got me thinking, what exactly is the deadweight loss of gift giving?

One of the complaints about the economists is that they know the price of everything, but the value of nothing. Hopefully I won't sound like too much of a scrooge. The main question is: what is the benefit of giving gifts? Almost surely I am better equipped to buy presents for myself, yet I still enjoy giving and receiving presents. Why? I think it's because there is value in feeling known. We like it when people plan for us and when they know us personally, both which are essential for a quality present. So how can we avoid the mass present returning and not using (10% of money on gift cards is never be redeemed)?

I have two recommendations:
  1. Give guilty pleasures that someone wouldn't buy for themselves.
  2. Give in your expertise. Stick with what you know and specifically with what the receiver doesn't know. Essentially the goal is to give a gift that they couldn't as easily give themselves.

Wednesday, December 24, 2008

$86,609 for Twelve Days of Christmas

That’s this year’s cost, according to the annual “Christmas Price Index” compiled by PNC Wealth Management, which tallies the single partridge in a pear tree to the 12 drummers drumming, purchased repeatedly as the song suggests. The price is up $8,508 or 10.9 percent, from $78,100 last year.

Here is the story and here is an interactive chart.

Monday, December 22, 2008

The Economic Stimulus Package, Part II

I discussed the follies of the first stimulus package earlier this year, but bad ideas die hard. Currently Japan, Germany, Spain, India, the United States and many other nations are planning some kind of fiscal stimulus. What these governments are not recognizing is that to put extra money into the market, you must first take it out, either taxes or debt (future taxes). There is no new wealth created, only an awkward redistribution of resources (here is a video from the Cato Institute that explains it in more detail). There are at least six reasons why governments rarely improve economic panics: information problems, unresponsiveness, bias against innovation, political bias for constituents, rent seeking, and corruption. The graph below shows just how helpful the first stimulus package was:


Disposable income went up, but actual purchases didn't. But wait, wasn't it FDR's progressive government action that pulled America out of the Great Depression? No, says two UCLA economists:
After scrutinizing Roosevelt's record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.

So if government transfers aren't the solution, what is? Let's again look backwards and see what has worked in the past:
When [Margaret Thatcher] came to power in May 1979, the British economy, by every measure, was in worse shape than the U.S. economy is today. Inflation was out of control. Unemployment was high and rising rapidly. Job creation had been at a total standstill for almost a decade and a half...

Yet by sticking to her policies of lightened regulation, reduced trade barriers, privatization of a raft of publicly owned companies, reduced taxation, and the adoption of laws to prevent abuses of union power, Mrs. Thatcher achieved something few if any of today's economists have begun to consider. She achieved a genuine, productivity-led recovery that transformed Britain from perennial basket case into the Europe's most improved and vibrant economy.
There is something the government can do, less.

Saturday, December 20, 2008

Shoes Fly at Bush, Off Shelves

It seem like there's a profit to be made in political statements:

The shoe hurled at President George W. Bush has sent sales soaring at the Turkish maker as orders pour in from Iraq, the U.S. and Iran.

The brown, thick-soled “Model 271” may soon be renamed “The Bush Shoe” or “Bye-Bye Bush,” Ramazan Baydan, who owns the Istanbul-based producer Baydan Ayakkabicilik San. & Tic., said in a telephone interview today.

“We’ve been selling these shoes for years but, thanks to Bush, orders are flying in like crazy,” he said. “We’ve even hired an agency to look at television advertising.”

Iraqi journalist Muntadar al-Zeidi hurled a pair at Bush at a news conference in Baghdad on Dec. 14. Both shoes missed the president after he ducked. The journalist was jailed and is seeking a pardon from Prime Minister Nuri al-Maliki.

Baydan has received orders for 300,000 pairs of the shoes since the attack, more than four times the number his company sold each year since the model was introduced in 1999. The company plans to employ 100 more staff to meet demand, he said.

“Model 271” is exported to markets including Iraq, Iran, Syria and Egypt. Customers in Iraq ordered 120,000 pairs this week and some Iraqis offered to set up distribution companies for the shoe, Baydan said.

Baydan has received a request for 4,000 pairs from a company called Davidson, based in Maryland. He declined to provide further details.
Perhaps General Motors should throw a GMC Sierra at Blagojevich.

Tuesday, December 16, 2008

Saturday, December 13, 2008

The Auto Bailout is a Bad Idea.

The last bailout may have been questionable, this one is just plain wrong. Earlier this week the government's bailout of the automotive industry stalled in the Senate. As best I can figure, this is very good, but the story isn't over yet. The Bush administration is considering sending funds from the financial bailout to American car makers. Not only is this a clear misuse of the money's original purpose (a purpose still questionable), but it is also a bad policy decision.

To put is simply, these companies are not currently profitable in the United States. Compare General Motor's 2007 profits (-$38,730,000,000) to Toyota's (+$17,146,000,000). GM, along with Chrysler and Ford, are asking for taxpayer help because they have made bad business decisions. The biggest of these is promising too much in their 2,215 page (22 pounds) United Autoworkers Union contract. American car companies have almost double the labor costs compared to foreign companies who have plants in the US (graph). These labor differences are not bringing the poor into the middle class. The average auto employee makes $20,000 more than the average American. This problem becomes apparent when you see that GM's overseas (non-union) operations are still profitable. The solution is to allow these three companies to use the bankruptcy system, which was created for just this problem. They will then be free from impossible to keep union promises.

The response from the auto industry is that no one wants to buy cars from a bankrupt company. While I admit it does damage their reputation (which is being hurt right now anyways), it is certainly not death for these companies. In fact there have been several companies that filed for bankruptcy and have returned to profitability (Delta, Heinz, Quaker Oats, Pepsi just to name a few). There is even one guy promising to buy a bankruptcy car.

The auto executives have said "government getting a stake in the auto companies would allow taxpayers to share in future gains if they recover". The problem with this, as economist Don Boudreaux points out, is that the people already have a chance to share in any future gains; it's called the stock market. However millions of Americans and billions of people all over the world have chosen not to. Is it then okay for Congress to force us?

The failure of these businesses will not result in the disappearance of their resources. All the capital (cars waiting to sold, buildings, machines) can all be sold for more productive purposes. Just as important, the skills and talent of auto workers can also be sold to highest bidder in the labor market. Think of it as a bag of marbles. If a bag is breaking and not handling the marbles well, we should allow it to be thrown away. The marbles inside can be still be moved elsewhere. We lose the current organizational tool, but the resources can still be used. It is most likely that these businesses will simply exchange their old bag for a new one (bankruptcy). To bailout the industry is to stitch patches to a crumbling bag.

Also important to note is that these companies are not "too big to fail." First off, Americans buy more foreign cars than American cars (graph). Secondly, the size of these industries only increases the importance that they restructure. Once again, Don says it best: "the bigger the unprofitable firm, the more vital it is that it be allowed to fail." And with gas at it's lowest level in history (measured as a percentage of income), the restructuring into "green" business could actually hurt the industry.

With all the reasons not to support this bailout, why did it get through the House of Representatives. With 61% of the public opposing the bill, it seems the American people know something politicians don't, that this plan will not help. Or perhaps the almost $50 million the auto industry has given to congressmen this year is affecting their votes. I wonder exactly how much a politician costs these days?

I'll leave you with this final question: what if the government had bailed out the struggling piano industry in the 1960's? Answer: Americans in 2008 would have more expensive less quality pianos.

Wednesday, December 10, 2008

Culture in Diagrams

Below is a great video inspired by Indexed. Enjoy.

Monday, December 08, 2008

Ten Quotes Worth Quoting

Inspired by Justin, who has a healthy love of good quotes.

1) "The Bush administration, having entered office as social conservatives, leaves office as conservative socialists" - Brad DeLong

2) "Anybody who's married, and divorce is an option, you're going to get a divorce" - Will Smith

3) "In a modern democracy, not only can a libertarian be elitist; a libertarian has to be elitist. To be a libertarian in a modern democracy is to say that nearly 300 million Americans are wrong, and a handful of nay-sayers are right." - Bryan Caplan

4) "Country music is all about being cheated on, rap music is all about doing the cheating" - this guy

5) "I love these recession gas prices" - brother-in-law Brian Jones

6) "Being non-profit does not mean that you don't have profits as an objective. All it does is restrict what you can do with earned profits, meaning that they can't be dispersed to shareholders. As I was told at a meeting when I jokingly brought up the fact that my university is a non-profit, I was told by an older gentleman at my table 'Oh, we get plenty of profits. We just make sure we spend it all.'" - Phil Miller

7) "Extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue" - Barry Goldwater

8) "Democracy is truly the sacred cow of the modern world" - Bryan Caplan

9) "One can't explain an unusual cluster of errors by citing greed, which is always around, just as one can't explain a cluster of airplane crashes by citing gravity. Anyway, the greedy aim at profits, not losses" - Larry White

10) "Dave Ramsey discourages listeners from taking out any kind of debt, but he encourages them to save money for the future. Yet. the main source of savings is through banks, a system built on borrowing." - Edward Bynum (paraphrased)

Saturday, December 06, 2008

Bottlenecked Blog Personality Type

I recently came across a site that can take the text from your blog and determines your Myers-Briggs personality type. I've talked before about how I think I am an ENTP. However, typealyzer.com labeled me an INTP. It may have missed that I'm an extrovert, but there seems to be little difference in brain activity when writing between the two:

Thursday, December 04, 2008

Solutions to Traffic

This Sunday my 3 hour trip home from Thanksgiving turned into a 6 1/2 hour crawl. While sitting in standstill traffic on the highway I began to wonder what the problem was. Well clearly more people want to travel over Thanksgiving and Sunday is the most popular day to come back home. But consider this, 20 percent of all turkeys consumed in 2007 were consumed at Thanksgiving, but if you want a turkey during the holidays you can get one quickly and cheaply. Why then do I have to wait in line to drive home? The solution is to allow the market (that is prices) to allocate the scare resources of the road. Here are some practical ways to do so:

1) Raise the gas tax. The United States has one of the lowest gas taxes in the industrialized world. Of all the taxes we pay, the gas tax is one of the most efficient. For one it makes drivers feel the cost of their driving on others (in traffic, pollution, road wear).

2) Use giant screens to keep rubberneckers from wasting our time.

3) Turn our freeways into fareways. Like Six Flags, let people pay extra to cut in line. Have a special toll lane and use that money to subsidize other government projects.

4) The final and best way is to use congestive pricing. This is charging drivers more to drive in times of heavy use. The fareway tag could be used for this too.

5) Wait until everyone has a GPS with traffic conditions. Or as this fantastically named blog suggests, maybe electronic signs can give us the information.

Tuesday, December 02, 2008

I'm Published at LarkNews.com

Larknews.com, "a good source for [fake] Christian news," allows readers to submit article ideas. Mine was accepted and published this month:

Man tired of being used in sermon illustrations

SOMERSET, Pa. — Dan Felks, a local mechanic, noticed he was getting strange looks and sly comments around town a few months ago.

"People at the grocery store would smile at me and say, ‘I’ve heard about you,’" he says. "Some even talked about things I’d done in my past."

But it wasn’t until he dropped into Pine Grove Christian Fellowship one Sunday that he realized his old college roommate, pastor Pete Lancaster, was using him in sermon illustrations.

"I was going to surprise Pete, because I don’t attend church and I thought he’d get a good laugh out of seeing me," Felks says. "Then I heard him tell a story about an old friend who got drunk, fell into a reservoir and almost died, and I realized, my gosh, that was me."

Felks slipped out quietly and attended services for the next few weeks, hearing several more unflattering illustrations about himself.

"It was a little hurtful," he says. "I don’t talk to my customers about Pete’s colorful past. Why would he talk about me?"

Felks says their lives have gone in different directions since college, with Pete becoming a successful local pastor and Felks abandoning hopes of a career in computers and instead working in a transmission shop.

"I like to party. I like to have a good time. I’m not hiding anything," Felks says. "I’m not ashamed of myself then or now."

But he says being made the bad guy in each of Pete’s stories has strained the loyalty he still feels toward his friend.

"He only recalls the bad stuff," Felks says. "There’s this vibe around town now like, ‘Watch out or you’ll turn out like Dan Felks.’"

Lancaster has never identified Felks by name, but many people know the two were roommates. Some were even present for the events described. Lancaster says he regrets that Felks’ anonymity was breached.

"We had some fun times and some times I’m not so proud of," Lancaster says. Still, he says it’s fair game to talk about the people and events in his past to help people live better now.

Sunday, November 30, 2008

Emptying the Bottle: November '08 Links List

1) God is given 4-1 odds on existing.

2) Just who are the Heroes of Capitalism?

3) MEN WALK ON MOON, NIXON RESIGNS, U.S. ATTACKED, OBAMA

4) A good summary of research on whether WWII ended the Great Depression.

5) Ex-President of MTS, Anthony, practices the opening.

6) Maybe we need to bailout Santa too.

7) The hottest new Asian tourist spot, Obama, Japan.

8) Joe the Plummer takes a new job.

9) What kind of financial regulation do you want?

10) Only idiots actually pay their mortgage.

*As always, you can see what I find interesting on a daily basis*

Friday, November 28, 2008

Economics of the First Thanksgiving

Here is the real lesson, posted in full, of the Pilgrams' food shortages:

Feast and football. That’s what many of us think about at Thanksgiving. Most people identify the origin of the holiday with the Pilgrims’ first bountiful harvest. But few understand how the Pilgrims actually solved their chronic food shortages.

Many people believe that after suffering through a severe winter, the Pilgrims’ food shortages were resolved the following spring when the Native Americans taught them to plant corn and a Thanksgiving celebration resulted. In fact, the pilgrims continued to face chronic food shortages for three years until the harvest of 1623. Bad weather or lack of farming knowledge did not cause the pilgrims’ shortages. Bad economic incentives did.

In 1620 Plymouth Plantation was founded with a system of communal property rights. Food and supplies were held in common and then distributed based on equality and need as determined by Plantation officials. People received the same rations whether or not they contributed to producing the food, and residents were forbidden from producing their own food. Governor William Bradford, in his 1647 history, Of Plymouth Plantation, wrote that this system was found to breed much confusion and discontent and retard much employment that would have been to their benefit and comfort. The problem was that young men, that were most able and fit for labour, did repine that they should spend their time and strength to work for other men’s wives and children without any recompense. Because of the poor incentives, little food was produced.

Faced with potential starvation in the spring of 1623, the colony decided to implement a new economic system. Every family was assigned a private parcel of land. They could then keep all they grew for themselves, but now they alone were responsible for feeding themselves. While not a complete private property system, the move away from communal ownership had dramatic results.

This change, Bradford wrote, had very good success, for it made all hands very industrious, so as much more corn was planted than otherwise would have been. Giving people economic incentives changed their behavior. Once the new system of property rights was in place, the women now went willingly into the field, and took their little ones with them to set corn; which before would allege weakness and inability.

Once the Pilgrims in the Plymouth Plantation abandoned their communal economic system and adopted one with greater individual property rights, they never again faced the starvation and food shortages of the first three years. It was only after allowing greater property rights that they could feast without worrying that famine was just around the corner.

We are direct beneficiaries of the economics lesson the pilgrims learned in 1623. Today we have a much better developed and well-defined set of property rights. Our economic system offers incentives for us—in the form of prices and profits—to coordinate our individual behavior for the mutual benefit of all; even those we may not personally know.

It is customary in many families to give thanks to the hands that prepared this feast during the Thanksgiving dinner blessing. Perhaps we should also be thankful for the millions of other hands that helped get the dinner to the table: the grocer who sold us the turkey, the truck driver who delivered it to the store, and the farmer who raised it all contributed to our Thanksgiving dinner because our economic system rewards them. That’s the real lesson of Thanksgiving. The economic incentives provided by private competitive markets where people are left free to make their own choices make bountiful feasts possible.

Tuesday, November 25, 2008

Who Caused the Economic Crisis?

Below is one of the best lists of who's to blame. Thanks to Justin for the pointer. I do think the blame set on consumers and businesses is a little unfair. They were only following the incentives set up for them by government. Then again, government officials were just following their incentives set up by voters.

* The Federal Reserve, which slashed interest rates after the dot-com bubble burst, making credit cheap.
* Home buyers, who took advantage of easy credit to bid up the prices of homes excessively.
* Congress, which continues to support a mortgage tax deduction that gives consumers a tax incentive to buy more expensive houses.
* Real estate agents, most of whom work for the sellers rather than the buyers and who earned higher commissions from selling more expensive homes.
* The Clinton administration, which pushed for less stringent credit and downpayment requirements for working- and middle-class families.
* Mortgage brokers, who offered less-credit-worthy home buyers subprime, adjustable rate loans with low initial payments, but exploding interest rates.
* Former Federal Reserve chairman Alan Greenspan, who in 2004, near the peak of the housing bubble, encouraged Americans to take out adjustable rate mortgages.
* Wall Street firms, who paid too little attention to the quality of the risky loans that they bundled into Mortgage Backed Securities (MBS), and issued bonds using those securities as collateral.
* The Bush administration, which failed to provide needed government oversight of the increasingly dicey mortgage-backed securities market.
* An obscure accounting rule called mark-to-market, which can have the paradoxical result of making assets be worth less on paper than they are in reality during times of panic.
* Collective delusion, or a belief on the part of all parties that home prices would keep rising forever, no matter how high or how fast they had already gone up.

Sunday, November 23, 2008

The Gold Standard Debate

If you remember back to the presidential primaries my favorite public servant Ron Paul continually brought up the topic of the gold standard. Briefly, this is a monetary system in which paper notes (dollars) are freely convertible into fixed quantities of gold. This is different than the system used all over the world today, fiat currency . Here your money has no intrinsic value, only the mandate from the government that it must be accepted. For a brief history of the US dollar watch Part 1 of this video. Part 2 gives the usual arguments for the gold standard.

The main complaint about our current system is that is allows for too much government involvement. We've seen countries like Venezuela and Zimbabwe fall apart because the government prints too much money. Inflation is essentially an undercover tax. The more money that is printed, the less value your money has. Governments are able to bypass usual taxation roadblocks and do what they want. This is why Ron Paul says the gold standard can be so helpful. Tie money to a real resource and it takes the power out of the government's hand. In many ways Mr. Paul is right. The gold standard allows for less government meddling and the worry of inflation becomes extinct. But there is one major flaw to this argument.

The fiat system relies on a credible government that promises to never dilute the money supply. However, a nation on the gold standard essentially relies on the same thing. A country that changes to the gold standard can just as easily change back. So again, the system is based on the reliability of the government. However, I am willing to recognize that the gold standard can place one extra obstruction to bad policy, but it's not the solution.

The solution is to have a government with strong barriers to government interference. This can be done through strong constitution, which the US has one of the strongest (for being a relatively young nation we have one of the oldest surviving constitutions). A credible government can also be created by an effective press. With all the complaints against our media, it is still comparably free (Russia recently banned the use of "crisis" and "decline" on TV).

A final way to ensure an effective government is to become educated on the issues and voice them. Hence this blog post.

Friday, November 21, 2008

Can Zombies Predict a Recession?


I may be excited about American cultural drama Revolutionary Road, but I have to admit that doesn't necessarily give an honest window into my movie tastes. One of my entertainment guilty pleasures is zombie flicks, but maybe there is more social commentary than you think. It seems the production of zombie movies is correlated with social upheaval (click to enlarge):

Wednesday, November 19, 2008

Mark Sanford, a Republican Worth Reading

I mentioned earlier this year that my home states' governor Mark Sanford was proposed as a possible Veep pick for John McCain. Now The Economist has Sanford on their short list of suggestions for top dog in 2012. This especially excites me when he writes things like this:

Several questions led me to oppose bailing out the states. They are worth asking, even if you supported bailing out Wall Street.

Who bails out the "bail-outor"?

Washington is short on cash these days and will borrow every dime of the $150 billion to $300 billion for the "stimulus" bill now being worked on. Federal appetites may know no bounds. But the federal government's ability to borrow is not limitless. Already, our nation's unfunded liabilities total $52 trillion -- about $450,000 per household. There's something very strange about issuing debt to solve a problem caused by too much debt.

Do you now have to be a financial "bad boy" to win?

Community bankers tell me that they are now at a competitive disadvantage for being careful about who to lend to, because others that were less disciplined will get a federal bailout. This is also true for states. Those that have been fiscally responsible will pay for or lose out to the big spenders. California increased spending 95% over the past 10 years (federal spending went up 71% over the same period). To bail out California now seems unfair to fiscally prudent states.
The whole article is worth reading.

Monday, November 17, 2008

Revolutionary Road, The Movie

I can't remember the last time I wanted to see a movie this much.

Saturday, November 15, 2008

Why Did 122,842,625 Other People Vote?

I mentioned recently why I voted, but why did every else vote? Stephen and Steven, authors of the popular book Freakonomics, have an answer:

The Swiss love to vote - on parliamentary elections, on plebiscites, on whatever may arise. But voter participation had begun to slip over the years (maybe they stopped handing out live pigs there too), so a new option was introduced: the mail-in ballot. Whereas each voter in the U.S. must register, that isn't the case in Switzerland. Every eligible Swiss citizen began to automatically receive a ballot in the mail, which could then be completed and returned by mail.

Never again would any Swiss voter have to tromp to the polls during a rainstorm; the cost of casting a ballot had been lowered significantly. An economic model would therefore predict voter turnout to increase substantially. Is that what happened?

It goes back to the incentives behind voting. If a given citizen doesn't stand a chance of having her vote affect the outcome, why does she bother? In Switzerland, as in the U.S., "there exists a fairly strong social norm that a good citizen should go to the polls," Funk writes. "As long as poll-voting was the only option, there was an incentive (or pressure) to go to the polls only to be seen handing in the vote. The motivation could be hope for social esteem, benefits from being perceived as a cooperator or just the avoidance of informal sanctions. Since in small communities, people know each other better and gossip about who fulfills civic duties and who doesn't, the benefits of norm adherence were particularly high in this type of community."
Go here for some personal explanations from Chicago residents. I'll sum them up for you: "felt good," "my responsibility," "my vote counts."

Friday, November 14, 2008

First is the Worst, Second is the Best

Carpe Diem, a blog recently brought to my attention (thanks Justin) has a sadly hilarious post on the World Series of Poker champion:

The World Series of Poker ended this week at the Rio Hotel and Casino in Las Vegas, and Denmark's Peter Eastgate became the youngest-ever winner of the world title. He is very much the new breed of player: 22 years old, Danish, mathematically brilliant, who gave up a fledgling career in accounting to "turn pro."

As the winner of the main event Peter won about $9.2 million, but would he actually end up with all that money?

Denmark's tax rate is 45% on the first 4 million Danish Kroners (about $680,000) and 75% on income above that. Mr. Eastgate will owe about $6.7 million in Danish taxes, and will get to keep only $2.5 million of his winnings—just 27.23% of his prize. In other words, he faces an effective tax rate of 72.77%. Ouch.

Ivan Demidov of Moscow finished second and won $5.8 million. Russia has a 13% flat tax rate, so Mr. Demidov will owe about $755,247 to the State Taxation Service of Russia. After taxes, Ivan will still have more than $5 million, more than twice as much as the first place Danish winner.
I wonder if there is any correlation between players entered and the tax rate of their nation of citizenship? It sure makes a huge difference in payout.

Wednesday, November 12, 2008

Monday, November 10, 2008

Learning by Teaching: Langley vs. Wright Brothers

Here is something I learned while teaching my US History class. In the early 1900's several people were trying to build the first airplane that could carry a person. Samuel Langley of the Smithsonian Institute was given $50,000 from the Department of Defense (then called the War Department). During his demonstration in 1903 the plane fell apart and crashed into the Potomac River. Nine days later Wilbur and Orville Wright successfully made the first manned flight funded by their $1,000 in personal savings.

This reminded me of Thomas Friedman's solution to our future energy issues. In his book “Hot, Flat and Crowded” he states that it's not government subsidized research we need; instead we should invent 1,000 ideas in 1,000 garages and at least one of the projects should succeed.

Tuesday, November 04, 2008

Why I Voted

To put it bluntly, casting your ballot solely to effect the outcome of the election is irrational. Let me put it in an equation: (benefit per person from your candidate) x (300 million people) - (personal cost of voting) = Expected Utility of Voting

I'm believe that this equation equals a negative number for most, even if you're in a swing state. So you may ask, why did Harrison vote today?

1) To both make myself feel good and to support those who think like me.

2) My Republican votes for the United States Congress were votes for a divided government.

3) My Libertarian votes for President, Governor, as well as other minor positions were to call attention to my team. Every incremental vote gives the two major parties the incentive to move that way.

4) My reasons to not vote would have been at least partially motivated by my self-deceptive thoughts on my political superiority,

5) It gives me political season closure.

Friday, October 31, 2008

Thursday, October 30, 2008

Emptying the Bottle: October '08 Links List

1) Go here if you're tired of talking to a machine.

2) In Chess Boxing you need brain and brawn.

3) Why the financial crisis is like the game Monopoly or an Antarctic expedition.

4) A college scholarship for blogging!

5) Commit yourself to voting, or anything for that matter.

6) You know the economy is in trouble when this blog is created.

7) Thanks for the shout out James.

8) Countries in order of freest or states in order of freest.

9) Cheaters Dating Service, is there a worse place to meet people online?

10) Ken Jennings, who more money than anyone in TV history on Jeopardy, has a blog.

*As always, you can see what I find interesting on a daily basis*

Wednesday, October 29, 2008

Hard Questions About Abortion

Inspired by a great post by Steve, I'm reminded that this issue is still relevant. But I also remember how controversial and sensitive it can be. Instead of giving you my two cents, I'd just like to pose a couple of tough questions:

1) If it is made illegal, will we really make these women criminals? If so, what will be their punishment?

2) Should the punishment fall only on the doctors, when the women are clearly instrumental?

3) Is it in the Republicans interest to legalize abortion? To put it more bluntly, would they benefit more from keeping it controversial or by succeeding in banning it?

4) Would the Democrats be better or worse if they turned this debate into a states' rights issue? Give the power to the states (I believe it would probably fall about 30 allow and 20 ban) and lure many pro-lifers to the party.

5) At its core this is an issue about rights. A woman's right vs. a child's right. All would agree that a woman's right to have a child or not does not extend indefinitely. So at what point after conception does the right of the child supersede the right of the woman? Conception? 1 month after? 6 months after? Birth? 6 hours after birth?

Monday, October 27, 2008

Is Piracy Stealing?

This is a question I have wrestled with for a long time. Citizen Economists, a recent add to my blogroll, has a great post in defense of it:

First of all, the word “taken,” as it was originally used, was meant to imply that what you take is no longer there with the owner. In fact, the root of the word piracy itself betrays what it is supposed to mean. Pirates stormed ships forcibly, looted the occupants (not to mention murdered and God knows what else), and took away things that left the original owners without them.

This clearly doesn’t apply to piracy of music CD’s and software. If I download a song from a server, then the original copy is intact and nothing has been lost. To put a different spin on it, if I light a candle, and you (without my consent) light another candle from my flame and run away, can I charge you with having stolen my light? Is that piracy? I don’t think so.

not sure if I agree with this:

The overwhelming majority of people who illegally download software would never have bought it if they were unable to get if for free. So this argument falls flat.

and finally my favorite point:

It is never easy to download something illegally. You have to find a source, try and crack it, are in constant fear that updates will change something and render the software useless, etc. This is the reason why people pay money for software. They do it to avoid hassles. The very fact that people choose to buy software instead of trying to get it for free demonstrates this. The end result is this: People who would never have bought the software anyway are the ones who usually try and download music and software illegally. The others buy it to avoid the hassles of using non-genuine software.

The fact that people are still buying music and paying for software illustrates this principle. They pay for software even though they can get it for free. As long as companies make it as difficult as possible for their software to be copied illegally (it doesn’t have to be impossible), they will not lose sales since those to whom the software is worth the price will purchase it.

Friday, October 24, 2008

This Day in History

1861: The first transcontinental telegraph message was sent from California to President Abraham Lincoln.

1901: Daredevil Anna Edson Taylor became the first person to go over Niagara Falls in a wooden barrel. She was 63 years old.

1929: In the U.S., investors dumped more than 13 million shares on the stock market. The day is known as "Black Thursday."

1945: The United Nations' charter officially took effect.

1992: The Toronto Blue Jays defeated the Atlanta Braves in Game 6 and became the first team outside the United States to win a World Series.

2008: James Harrison Brookie gets a full time job teaching history at Bunn High School.

Thursday, October 23, 2008

Politically Incorrect Guide to Politics by John Stossel

Sometimes there is nothing more to add other than a strong encouragement to take some time this week and watch this special. Here is Part 1 about politicians and their promises:



Part 2: The Financial Crisis
Part 3: Rebuilding New Orleans
Part 4: Campaign Finance
Part 5: Farm Subsidies
Part 6: Conclusion

Monday, October 20, 2008

What is your most controversial belief?

Mine is that I don't support many seemingly innocent charitable causes. I'll give you three examples: cancer research, post-hurricane rebuilding, and faith based initiatives.

By asking for donations for cancer research, we are claiming that the price system is not sufficient. There are surely huge financial incentives to cure cancer (which I am told is a broad word for several different kinds of diseases). Even curing one kind of cancer would be extremely profitable. The market should be able to predict exactly how profitable, and put that much money into research every year. But remember, profit isn't the extra money greedy CEO's use to torture kittens. But they are an exact value that consumers place on a product. If you put more money into research than would come out in value, then you have done a disservice. That money could have been better spend elsewhere. Is there a valid reason to think that the market is undervaluing a cancer cure?

Another example is the large amount of resources being donated to help rebuild areas like New Orleans after huge hurricanes like Katrina. When money is given to these area, we are only subsidizing people to live dangerously below sea level. Why not do the same for houses near volcanoes or earthquakes (wait, we do that second one). That money would be better spent subsidizing their move to other, safer, parts of the country.

Barack Obama has stated that he favors these faith based initiatives. Here are his statements: "but they can also participate in federal programs as long as those are done in a way that is not encroaching on a separation of church and state, is open to the public and is not involved in proselytizing." I don't trust the government to produce many things, especially my religion. I strongly support the separation of church of state, for the benefit of the state and the church. A Christian charity that does not also preach the gospel of grace is hardly a Christian charity at all.

Now that I've confessed, what is your most controversial belief?

Friday, October 17, 2008

Clemson Econ Blog Talks Clemson Football

What better place to get an economist's opinion on Coach Bowden's buyout than from the head of Clemson's Economics department. On his blog The Sports Economist Skip Sauer makes an interesting point:
The fundamental point is that buyouts are not the key economic issue. The key issue is that coaches salaries, particularly in Tommy Bowden's case, are proxies for player talent. Bowden was paid $1.8 million per year in part because of his ability to stock the Tiger dressing room with loads of (largely uncompensated) talent.

The $3.5 million buyout is being paid out of a "rainy day" fund that has been built up specifically for this, or some similar purpose. The contract states that it will be paid out over six years, or about $600,000 per year. This is the right context: buyouts are a form of insurance in a high stakes game; tragedy triggers the "lump sum" buyout, but it is effectively an annual cost, part of the cost of doing business in major college football. Moreover, $600,000 is not a ton of money in today's college football world. And in the context of Bowden's salary and ten year's of coaching at Clemson, it's a decent reward for a pretty good job.

Wednesday, October 15, 2008

Missionary Dating (Not what you think)

In honor of Blog Action Day 2008 I'd like to give you some thoughts on this years topic, poverty. There is undoubtedly an increasing gap between rich and poor in America. According to The Economist, "the gap in America is bigger than in any other advanced country." That's not to say the poor are poorer, but the rich are getting richer faster. The Economist goes on to say that "thanks to a jump in productivity growth after 1995, America's economy has outpaced other rich countries' for a decade. Its workers now produce over 30% more each hour they work than ten years ago." But inequality is still a major political issue. So what is something that average Americans can do to help the situation? I propose Missionary Dating (no, not that kind of missionary dating).

One of the main causes of income inequality in America, is a direct result of "assortative mating." This New York Times article explains that Americans are increasingly pairing off by education and income level. They report that "the odds of a high-school graduate marrying someone with a college degree declined by 43 percent between 1940 and the late 1970s." The cause of this is increased college attendance and mobility. It is simply easier to find someone like you. In fact, Arnold Kling seems to think the main purpose of higher education is not training or signaling, but is a place to meet a qualified spouse. Greg Mankiw humorously claims "that Harvard is the world's most elite dating agency."

A 2003 study by a Brookings Institution economist showed that "a rising correlation of husband-and-wife earnings accounted for 13 percent of the considerable growth in economic inequality between 1979 and 1996." He is less confident that assortative marriage is on the rise. He thinks that men have always married similar women, it's just that these women now have the opportunity to get high paying jobs like their husbands. Nonetheless, the rich marrying the rich is on the rise.

This is one solution to solving economic inequality, that is if you think it's a problem. Let's not forget about the Tradeoff of Socialism and Capitalism. Maybe we should all marry someone poorer or less educated. But our effect doesn't have to be through a marriage contract. Traci and I have seen the many perks that come with having a middle class community (almost everything we own was given to us: furniture, cars, dishes, kitchen table, computer, bed, etc). One way we can close the divide is to engage ourselves and our families geographically and relationally in the lives of those less fortunate.

Tuesday, October 14, 2008

Best of the First 100

This being my 100th post, I'll celebrate by listing my favorite posts so far:
If you feel like I'm missing any of your favorites, put a link in the comments.

Sunday, October 12, 2008

The Trial of Charles Lynch

Thanks to Reason Magazine's Reason.tv (are you still not subscribed?) I learned about and was shocked at the outcome of the trial of Charlie Lynch. Shocked not only at the guilty decision, but at the lack of coverage in the main stream media. Thankfully, the internet enables such events to be heard.

Mr. Lynch ran a perfectly legal (by California state law) medical marijuana dispenser, but was recently convicted of five counts of violating federal drug laws and could spend the rest of his life behind bars. He was charged with "distributing marijuana, conspiring to distribute marijuana and providing marijuana to people under the age of 21" and "faces a minimum of five years in prison." Read the rest of the details from Reason Magazine.

Because of the 2005 decision in Gonzales vs. Raich, the federal government can use the "commerce clause" in the Constitution to regulate all commerce of the states. This allowed the prosecution to have jurors "dismissed for cause. They were basically dismissed because they believed or at least understood California State Laws regarding Medical Marijuana." Essentially they wanted jurors who didn't know about or understand the legality of Lynch's store under California law.

Dissenting Justice Clarence Thomas explains the folly of this decision; "if Congress can regulate (medical marijuana) under the commerce clause, then it can regulate virtually anything - and the federal government is no longer one of limited and enumerated powers." The Tenth Amendment is clear: "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."

Here is a Reason.tv video explaining the medical marijuana issue and Charlie's court case in more detail.

Lynch's sentencing is on November 24th.

Here is a website dedicated to supporting and assisting Charlie and his family: www.FriendsofCCL.com

Friday, October 10, 2008

Mock Turtle Soup Alumni Wisdom

Now that my time at Clemson Univerisity is over, so goes my involvement with Mock Turtle Soup, Clemson University's comedy improv group. Thankfully, those who have come before me have created an alumni page. Below are some improv advice from previous members:


"You have to lose your Cool Card before you can have fun!" - Jenna Lappi

"My best advice is to let the funny happen in a scene and don’t try and force the scene to be funny. The scene will take care of itself. If you have to play an excited character then make them do cocaine or meth…it gets the crowd every time!" - Zach Burroughs

"Always try and use your 3rd idea from a suggestion." - Jason Underwood

"Learn to trust - trust the suggestion, trust your teammates, trust the audience, trust the scene, and most importantly, trust yourself. Sometimes, that can be all you have. But really, that is all you ever need." - Alumni site creator Cheryl Swit

"Funny is funny, don’t force jokes." - James Robilotta

"Respect and love each other (better than I did). Work to overcome fear (more than I did). Remember that improv is art, not necessarily fine art, but art nonetheless. In light of that, strive for excellence and quality. The end goal of improv is to entertain - it is not for us, it is for the audience, and what serves them best. At the end of the day, remember that this is just an improv student organization. Perspective is crucial - there's a lot of things that are more important than MTS. People are one of them. I guess that's about it." - Justin Scott

Don’t be satisfied with simply “college improv”. - Harrison Brookie

Thursday, October 09, 2008

Top 5 Surprising Statements

1) More people die from gun suicides than homicides.

2) Teens are waiting longer to have sex than in the past.

3) China now has the most internet users in the world.

4) OPEC has almost no effect on world oil prices.

5) The poor and minorities are not overrepresented in the military.

Tuesday, October 07, 2008

Paper: Reforming Campaign Finance Reform

With one of the presidential candidate's names on the most recent attempt to reform campaign finance and the other raising more money than any other candidate in history, this issue is more important than ever. Here is a research paper I wrote in April of this year about the topic. It's kind of lengthy, so I put the intro and conclusion below. The whole paper is attached.

Introduction
American democracy was formed on the idea that politicians are supported or opposed by the people and the people show their requests by voting. The power that money has over the political process is seen as a historical and international problem. In this paper I will discuss what the American government has done in an attempt to hamper the influence of money over politics. I will then discuss the affects that the current campaign finance reform has over the process today. I will then briefly discuss the importance of money actually plays in politicians voting decisions and whether public financing will solve that problem. After that I will present the subject as it is framed in many debates, as expression vs. equality. Then I will briefly discuss why elected officials, from a self-interested model, would support and sometimes push these laws. Finally I will present my recommendations on what, if anything can and should be done to ensure American democracy is functional.

Closing
Since the 19th century the federal government has been trying to regulate and control the flow of money in and out of politics. Major legislation in 1925, 1971, and most recently in 2002 have all made small steps to completing that goal. However, no legislation has been able to solve the problem. Disclosure have been very beneficial in realizing just how much money is going through the process, but limiting special interest money from influencing candidates has yet to be seen.

Finally, the worry over the influence that donations have over elected officials could be looked at as just another form of political participation. Campaign donations, protesting, writing letters to representatives, and even voting are all different types of political involvement. Politicians trade votes, just like they trade money, for policy decisions and these policy decisions usually come at the expense of others. Is it possible that campaign donations should be applauded, as voting is, as just another form a political participation?

Here's the full paper.

Sunday, October 05, 2008

"The Bright Light of Accountabilty"

When a bill has to be passed "to avoid economic catastrophe", there is clearly nothing you can't add to it. Democrat majority whip James Clyburn said: "We came together in a very strong, bipartisan way to deliver this decisive victory for the American people." Whether the bailout is a victory or not is still in question, but the $100 billion in pork added surely isn't. House Speaker Nancy Pelosi rejoiced that the "The bright light of accountability will protect the taxpayer." Accountability? From these people?

Taxpayers for Common Sense list the Top 10 Sweeteners in the Bill:
1. Sec. 503. Exemption from excise tax for certain wooden arrows designed for use by children
2. Sec. 317. Seven-year cost recovery period for motorsports racing track facility
3. Sec. 308. Increase in limit on cover over of rum excise tax to Puerto Rico and the Virgin Islands
4. Sec. 301. Extension and modification of research credit
5. Sec. 504. Income averaging for amounts received in connection with the Exxon Valdez litigation
6. Sec. 601. Secure rural schools and community self-determination program.
7. Sec. 201. Deduction for state and local sales taxes
8. Sec 502. Provisions related to film and television productions
9. Sec. 325. Extension and modification of duty suspension on wool products; wool research fund; wool duty refunds
10. Sec. 309. Extension of economic development credit for American Samoa
We must ask less of our government. Not that they perform more poorly, but that they just perform less often.

Friday, October 03, 2008

Reader Request: Government Regulation

Here is a question from my brother and Bottlenecked reader, Brad Jones:

What are the benefits of government regulating the market? Or why is everyone so pro-regulation? Any good reasons?

I believe regulation does and will always hamper economic growth. The free market allocates resources to their highest valued use and any government intervention with distort that process. That said, I believe there is a place for it. The only time that I support government regulation is when public money tied to that industry. For example, the FDIC's main roll is to be the lender of last resort to depositors. This means that no matter what happens to my bank my money is guaranteed, up to $100,000, by the federal government (although the new bailout plan could increase this). The purpose of this is to stop runs on the bank in times of panic (like in the Great Depression). Government regulation of the banking system makes sense because these banks have access to the public purse. If they fail, the taxpayers are partially responsible. As I've said before on the bailout of Freddie Mac and Fannie Mae, you cannot privatize the profits and socialize the risk. Daniel Mitchell of the Cato Institute says it like this: "Capitalism without loses is like religion without hell."

Let me state the obvious for a second. Despite all the problems the credit industry is having right now, we are much better off for having complex lending system we have today. Our system allows you to save for emergencies, for your next house, or for your small business. It then takes that those savings and turns them into loans for other people's emergencies, for their next house, or for their small business.

However, just because there is government funds in an industry doesn't mean regulation is the solution. It shouldn't come as a surprise that government officials usually think the answer is more government. The first option should always be to remove the government funds. This is the question I always ask when government intervention is proposed: Why would the market not take care of this problem alone? It may not always have a "fair" result, but it almost always has the best possible result. As my wife said last night responding to calls for fairness from the VP candidates: "this isn't Mario Kart, you can't get all red shells when you're behind."

As always, I enjoy answering reader requests, so feel free to contact me with your own.

Wednesday, October 01, 2008

The Bailout Still Looms

Tired of reading about the bailout? Then you can just sit back and watch. Take 5 minutes and consider that your representatives in government are still considering socializing the financial markets.



Update: This Wall Street bailout may be a complicated issue:

Yet predictions of a sea change towards more invasive government are premature. The Depression witnessed a pervasive expansion of the federal government into numerous walks of life, from trucking and railways to farming, out of a broadly shared belief that capitalism had failed utterly. If Mr Paulson and Mr Bernanke have prevented a Depression-like collapse in economic output with their actions these past two weeks, then they may also have prevented a Depression-like backlash against the free market.

The Senate's approval of a 25 billion dollar loan guarantee for the US auto industry sure isn't. It seems the best time to ask for a little government money is when someone else is about to get a lot of government money.

Tuesday, September 30, 2008

Emptying the Bottle: September '08 Links List

1) Should the Chinese complain about jobs being shipped to Spartanburg, SC?

2) What prominent economists think about each candidates on the issues.

3) "How's my driving" isn't just for truckers anymore. It's also for teenagers.

4) Google avoids pirates by shipping out to sea.

5) My favorite newscaster gets punched for exposing the cover up.

6) My hometown Greenville goes even greener.

7) Historians rank Bush as the worst president ever.

8) This guy linked to my blog, but I have no idea how he is. Has this ever happened to anyone else?

9) My favorite sketch group, Derrick Comedy, just released the trailer to their full-length movie, "Mystery Gang."

10) A LOST theory on time travel to hold you over until February.

*As always, you can see what I find interesting on a daily basis*

Monday, September 29, 2008

V-O-T-E Go Democracy!

Voting is light cheering at a football game, you don't do it to effect the outcome. Alone, your loudest scream will never encourage your team or disrupt the other. Instead you cheer so everyone near you knows who you support.

Thursday, September 25, 2008

Bailouts, Let's Trust the Experts

The regular response I've heard on the $700 billion bailout is that the issue is too complicated and that that we have to trust our politicians to get informed and make the right decision. Instead, I suggest we turn our trust over to the experts of the economy, not the experts of reelection.

Quoted by Greg Mankiw:
"The decisions that will be made this weekend matter not just to the prospects of the U.S. economy in the year to come; they will shape the type of capitalism we will live in for the next fifty years. Do we want to live in a system where profits are private, but losses are socialized?"

Said by Arnold Kling:
"Today, it is clear that the U.S. financial sector needs to shrink. As another one of your [he is talking to Ben Bernanke] former classmates, Ken Rogoff, has pointed out, the financial sector has accounted for an unusually large share of corporate profits in recent years. It is time for this country to shift talent and capital elsewhere. In order for that to happen, some firms in the industry need to tighten their belts, some weaker firms need to merge with stronger firms, and the weakest firms need to fail. As tempting as it is to intervene in this process to try to make it more orderly, dislocation is inevitable, and intervention may only make it worse. We have excesses. Too many housing units. Too many "homeowners" who don't have equity in their homes and never did. Too many banks and financial institutions. The excesses need to be worked out by the markets."

Posted by Naked Capitalism:
"First, let's focus on the aspect that should get the proposal dinged (or renegotiated) regardless of any possible merit, namely, that it gives the Treasury imperial power with respect to a simply huge amount of funds. $700 billion is comparable to the hard cost of the Iraq war, bigger than the annual Pentagon budget. And mind you, $700 billion is not the maximum that the Treasury may spend, it's the ceiling on the outstandings at any one time. It's a balance sheet number, not an expenditure limit."

Said by Arnold Kling:
"1) Today's economy differs from that of the 1930's. Then, it may be that the financial sector may have contributed to the downturn elsewhere. Today, the financial sector is the downturn. 2) The bailout blends finance with government. It is the Fannie Mae and Freddie Mac model, writ large. As we saw with Freddie and Fannie, when you blend finance with government, the firms have an incentive to manipulate the government and government has an incentive to meddle with the firm. 3) Trying to tweak the bailout to try to redistribute the pains and gains so that taxpayers come out better and shareholders/executives come out worse is beside the point. If you put lipstick on a pig, it's still a pig. 4) The housing market is out of balance, in part due to excess home borrowing. Until it is in balance, no one will know what mortgage securities are worth. Attempts to prop up home borrowing, by freezing foreclosures for example, are counterproductive."

Said by Bryan Caplan:
"My conjecture: If Paulson's bail-out were funded by a permanent tax increase sufficient to raise $700B in present value terms, it wouldn't stand a chance. The minimal public outcry, therefore, hinges on "debt illusion" - the mistaken view that debts, unlike taxes, never really have to be paid."

A petition signed by over 100 economists:
"As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan:

1) Its fairness. The plan is a subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise. 2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards. 3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America's dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.

For these reasons we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come."

Also, here a long series of economists asked the same three questions:
1. How bad is the current market situation?
2. How bad are the current proposed bailout plans?
3. What's the one thing we should be doing that we're not?

If you're not skeptical yet, here is a quote from the actual proposal: "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

Wednesday, September 24, 2008

More Places to Watch Videos Online

Here is a list of some sites that contain some excellent videos.
1) Reason.tv: A series of video documentaries and interviews that take a hard look at the variety of threats to our liberties -- and celebrate what it really means to be free.
  • Immigration: Let them in already! 
  • Here is a less academic but still interesting explanation of how Mexicans are a lot like machines.
2) TED stands for Technology, Entertainment, Design. This annual conference brings together the world's most fascinating thinkers and doers, who are challenged to give the talk of their lives in 18 minutes.
  • Debunking third-world myths with the best stats you've ever seen (watch the first 5 minutes) 
  • Here are some underwater astonishments, watch until the end.
3) John Stossel regularly does what most newscasters should be doing, saying "Give Me a Break!" to shortsighted thinking.
  • Oil Prices and Price Gouging 
  • Here Stossel answers the question: Aren't Sweatshops Exploitive?

Monday, September 22, 2008

Ron Paul Explains the Housing Crisis, 5 Years Ago

If you haven't seen this election as an attack on reason you're not listening. Is it any surprise that our most honest politicians are our least popular? Read the whole 2003 speech to the committee here. Hat tip to Justin for hat tipping to Michael.
The connection between the GSEs and the government helps isolate the GSE management from market discipline. This isolation from market discipline is the root cause of the recent reports of mismanagement occurring at Fannie and Freddie. After all, if Fannie and Freddie were not underwritten by the federal government, investors would demand Fannie and Freddie provide assurance that they follow accepted management and accounting practices.

Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

Despite the long-term damage to the economy inflicted by the government's interference in the housing market, the government's policy of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.

Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever. In fact, postponing the necessary, but painful market corrections will only deepen the inevitable fall. The more people invested in the market, the greater the effects across the economy when the bubble bursts.

No less an authority than Federal Reserve Chairman Alan Greenspan has expressed concern that government subsidies provided to GSEs make investors underestimate the risk of investing in Fannie Mae and Freddie Mac.

Saturday, September 20, 2008

Business and Bailouts

In my last post, a statement was made that I feel is too important to leave in the comments:
I've heard these arguments [that price gouging for gasoline is actually good] so many times, and I'm always struck by the idea that if they're all true, then there is actually no such thing as corporate greed. Which keeps me skeptical.

Another thing that keeps me skeptical is the incredibly large amount of smart people who are blaming deregulation for our current financial crisis (http://tinyurl.com/4dafng). It seems very likely that not all regulation is bad.
To my understanding, these statements are half truths. AIG failed because they jumped into a new and very profitable insurance market that they did not fully understand. This could be for one or of two reasons: 1) they mistakenly took a risk and lost, which is the nature and success of capitalism or 2) they knew the government thought they were "too big to fail" so they correctly took the risk knowing the taxpayers would pay for the loss. The second is an instance where I believe corporate greed is not only existent but harmful. But don't misunderstand what I'm saying. If the second is reality, it is not AIG I blame. It is the government financiers who allowed them into the public purse.

The second statement is equally half true. Yes, I believe deregulation is at least partially to blame for Freddie and Fannie's failures, but again the blame falls on government not business. I blame the public officials of the 1970's and since who felt it was their duty to "work with mortgage lenders to help people get lower housing costs and better access to home financing." Freddie and Fannie are GSE's, Government Sponsored Entities. You cannot be perceived to be backed by the federal government and not be regulated. The profits went to the firm, but when the risks were bore by the taxpayers. The problem is not with greedy Fannie and Freddie, but instead with the government putting its gun where it doesn't belong in order to gain political support.

The importance of this bailout is not so much a worry in the short run. The problem is instead one of moral hazard. When you insulate people from risk they act more risky. When you force people to wear seat belts, they drive more dangerously. When you bail out lenders and borrowers for bad loans, you only increase the likelihood of loans like that being made in the future.

I don't see businesses as greedy or moral. I see them as organizations that seek to allocate resources to their highest valued use. Instead of conniving snakes, they are instead much more robotic. Simply responding to increases and decreases in prices. Price goes up, there is more money to be made, so they produce more, which pushes prices back down to marginal cost. Prices go down, there is less money to be made, businesses leave the market or produce less, and the price moves back up to marginal cost. This is not only a theoretical model, but is how markets look.

However (and this is a big however), the government regularly steps in to "protect" the people through regulation. People shouldn't spend $5 a gallon for gas, so let's punish businesses for increasing prices when supply is limited. People shouldn't pay $1000 a month for rent in NYC. So let's cap the price and let prejudice landlords divvy up apartments based on their own preferences. People should all have the oppurtunity to own their own homes. So let's help these sub prime borrowers get some debt they probably can't pay off. And here's the best part. Let's convince the American people it's good for them too.