Polar Kodiak's Den

Great Galbraith Quote

2007-07-09T22:33:00.000-07:00

"In a well-run and well-regulated community, with a sound school system, good recreational activities and a good police force - in short, a community where public services have kept pace with private production [emphasis mine] - the diversionary forces operating on the modern juvenile may do no great damage. Television and the violent mores of Hollywood must contend with the intellectual discipline of the school. The social, athletic, dramatic and like attractions of the school also claim attention of the child. These, together with the other recreational oppurtunities of the community, minimize the tendency to delinquency. Experiments with violence and immorality are checked by an effective law enforcement system before they become epidemic."

-The Affluent Society, pg. 191.

The Costs of Fixing Potholes

2007-04-12T07:26:00.000-07:00

Every now and then, I check back on Seattle and Washington state politics, if only because it helps keep me connecting to my old stomping grounds and because it provides a refreshing change of pace from the usual Washington swamp politics that roll around.

Perfect example. Anyone who remotely follows Congress knows that every couple years they pass a "public-works" bill for highway, roads, etc. funding for the subsequent five years or so. Anyone who reads up on these bills can sum them up in one simple adjective: "behemoth."

One of my favorite adjectives, btw, kind of like how Elle Driver likes "gargantuan." However, unlike the cycloptic foe in Kill Bill, I am creative enough to find enough instances to use said adjective...like describing the massive scope and cost of federal public-works bills. These gargantuan (ha! Using Elle's adjective too) reams of legislation generally exist in the realm of some $250 billion over five years and are so stuffed with pork that it makes even the most lazy Jew flinch.

So what does all this have to do with Seattle politics, you ask? (Or don't - either way, I'm going to say anyway)

Just as there's too much spending in Washington, D.C. on projects that shouldn't get it (we all remember the legendary "bridge to nowhere" of Ted Stevens lore), there's not nearly enough in Washington state for re-building the SR 520 bridge. Just to contrast the "bridge to nowhere" with the SR 520, the longest floating bridge in the world. It carries commuters across Lake Washington, from the semi-affluent East Side (think Redmond, WA, where Microsoft is based) to downtown. On the East Side of Lake Washington, the SR 520 also connects with the I-405, one of the two main arteries that carry people up and down the West Coast (the other, naturally, being the I-5...which is like the I-95 on the East Coast).

So you could say that the SR 520 is relatively important.

Unfortunately, it's also falling apart. Washington state - to my knowledge - hasn't built a new highway in three decades and it hasn't revamped any of its existing ones. The SR 520 bridge alone is over four decades old. The damn thing could fall apart during a windstorm or an earthquake (by the WA-DOT's own admission)...both of which Washington is dreadfully overdue for. So you can understand that when I found out that Washington state is dreadfully underfunding the rebuilding of the SR 520 bridge, you could say that I became a little upset.

Not surprised, mind you. After all, this isn't exactly the first time that it's happened. The Washington state legislature is notorious for its lack of forethought...which is one of the reasons that Seattle has some of the worst traffic in the nation. The Reason Foundation put out a very interesting study regarding the future needs infrastructure-wise of commuters by 2030. They estimate that traffic in Seattle by 2030 (ceteris paribus) will be worse than Los Angeles is now.

Anyone who's heard of what traffic's like in Los Angeles now probably just felt a shiver run down their back. Anyone who's actually driven in Los Angeles before probably began shaking visibly.

What's causing all these problems, anyway? I don't agree with the Reason Foundation's claim that we simply need more roads - though it would certainly help. Actually, according to a study that the Federal Highway Administration put out in 2005 found that bottlenecks and traffic incidents (i.e. accidents) accounted for nearly two-thirds of all sources of congestion from 1993-2003. Take a look at the pie chart:

Bottlenecks and traffic incidents (particularly) can both be solved by smarter city planning...not necessarily more roads, but a more organized means to direct traffic. Personally, I think those highway signs that give up-to-the-minute info regarding traffic times across various freeways are awfully helpful. They definitely help in Southern California, that's for sure. It'd be tougher in Washington state, since there simply aren't that many freeways to choose from, but anything that gives commuters a leg up in traffic can only help congestion problem.

As for bad weather...well...we all know that won't be changing in Seattle anytime soon. But in any case, the same study also has a spiffy little index (about 3/5ths down the page) about commuting times in Seattle. The graph at the bottom of the page, Figure 3.17, Potentially Congested Highways by 2020, should be a chilling look into the future:

So do we need more and more roads? Yes, we do. As cities get larger and larger, as suburbs sprawl and sprawl, and as "exurbs" fill up from people who can't afford the suburbs, we do need more roads to accomodate them. This does mean that cities, states, and the national government are going to have to spend more money to build and upkeep those roads.

But more than that, it means we have to think smarter about how we get from one place to another. That means smarter city planning to avoid bottlenecks...and yes, it does mean vastly expanded public transportation.

Before any of that can get done, though, governments should start by fixing the 520.

The Economics of a Healthy Diet

2006-10-30T16:24:00.000-08:00

Disclaimer: I only have 45 minutes to write this before class, so you won't have to endure a long, enduring rant.

The economics of obesity are staggering. The North American Association for the Study of Obesity (NASSO) tags the deaths in the USA alone due to obesity and obesity-related factors ("diabetes, high blood pressure, high blood cholesterol, heart disease, cancer, gallbladder disease, liver disease, lung diseases, arthritis, sleep disorders, and premature death") at a freakish 300,000 per year. That's over half as many deaths per year as from cancer (550,270, just in case you were counting). If that isn't a chilling statistic, I don't know what is. Am I going to go out on a limb and say that all 300,000 of those were preventable? Of course not. I know how easy it is to gain weight, especially when you're working full-time with a long commute each day. You feel exhausted from sitting at a desk all day and the least thing you want to worry about is what you're eating or spending another 30-40 minutes exercising. In a span of four months, I gained twenty pounds...and I can guarantee most of it wasn't muscle.

Still though...300,000 deaths per year? That's atrocious.

Now, the libertarian in me wags my finger at the statistician in me, reminding me that people have the right to cram whatever they want down their throats and it's hardly my responsibility to tell people what they can and cannot eat or how they should spend their day. It's the same reason that I don't mind that people smoke (so long as they blow their smoke upwards and not, y'know, in my face). In fact, eating is even less dangerous to my health: while I could receive some damage from second-hand smoke, I certainly can't pay any penalty for someone else eating a 10 oz. rare steak, along with some french fries and chug it all down with two or three cans of Coke...right?

(*coughs* We're going to ignore the fact that I've done that before, provided that you replace Coke with that of the diet variety...)

Well, I certainly could be paying a price. Two, in fact. The first is the indirect one - that people who eat unhealthy diets are more likely to become obese and contract obesity-related disorders and diseases like the ones mentioned above. When these disorders kick in, they put a significant (and mostly preventable) strain on the medical profession, much of which is already strained to the limit by less-preventable troubles (think cancer, old age, or fatal accidents). Seeing as how there aren't many private hospitals out there that most people can afford, this puts an even greater strain on the public health system. Since cities, states, and the federal government can never seem to find enough money for hospitals, that keeps the supply of them (along with their necessary components...doctors, nurses, etc.) stagnant...or falling, in some cases.

When you have an already-stretched supply straining under the weight of baby boomers that are getting older, you have trouble (and no, I'm not blaming baby boomers for this particular problem...well...okay, maybe just a little). Now add a few million more Americans whose belts are already at the breaking point coming into the ER because they collapsed from exhaustion while trying to climb a flight of stairs and hit their head on the railing...well, that's worse.

Another scary stat: roughly $100 billion a year goes to treating obesity-related health problems. Again: stagnant supply, rapidly rising demand...bingo! Higher costs. Prices rise for everyone, including those who aren't quaffing from the deep-fried cholesterol spring. So I have to deal with higher prices on that end, thank you very much. Not to mention it means I have to make an appointment for something as routine as a physical over three months in advance.

There's another problem, too. I'm not just a consumer; I'm a taxpayer. Even though the United States doesn't have universal health care, I still pay payroll taxes for Medicare and Medicaid (health-care assistance from the government to the elderly and the poor, respectively). When their premiums go up along with everyone else's due to the obesity pandemic (epidemic is a serious understatement), my tax burden upon them increases by taking away funds that otherwise would be spent on other programs. At the very least it would keep the deficit from rising that much more.

Am I suggesting that fat people shouldn't get health care? Again, of course not. Everyone could help out in helping people live more active, healthy lives. Companies could just as easily hire in-house physicians to do complete physical workups on their employees to help spot obesity problems early, when they're not nearly as much of a financial strain on anyone's health care costs. Not to mention that in-house physcians could become a huge asset to any employee: instead of having to wait three months for an appointment (like me), employees could just go see their company physician, who can give them tips to live a healthier lifestyle. It's in the company's best interest to have healthy employees: with better help comes more energy, fewer health liabilities...which all add up to more productive workers. Companies don't need to become nanny-corporations for the sake of the country...but because it helps the bottom line.

This proposal is slightly more ambitious than the CDC's, which suggests more modest interventions and such instead of longer-term solutions. Even theirs puts the cost of such interventions at less than a dollar per employee. By any measure, that's a whole ton cheaper than the cost a company has to pay in fatter health-care costs for their employee's health insurance.

Does this proposal invade the personal rights or responsibilities of individuals to eat what they want, when they want, without having a doctor pester them about their weight? I don't exactly consider "the right to be free from pestering" a constitutional right, so that's a bit moot...seriously, though. Would this lead to some sort of battle to hire only the healtiest workers, leaving the more overweight among us jobless? The idea that employers would hire people based not on what they know but on their pants size seems a little silly by any stretch of the imagination. Even in the ludicrous world in which that did happen, companies would try to hire healthier employees anyway, in order to minimize the potential health care cost to the company's bottom line.

Are companies the only entities who have a vested interest in keeping healthy? Noppers. We all have our own responsibilities to ourselves, our families, our firms, and our country.

We're all going to die sometime, true. In fact, the vast, vast majority of us can't choose the way in which we will eventually expire. But at least we won't have to worry about the indignity of our next of kin having to request an "XL" coffin for us when we do.

Neat Graphs

2006-08-14T11:19:00.000-07:00

Just to show that we're not totally immune from price changes at the pump...(click on the images for a larger version).

Another series of graphs, showing that this particular oil shock isn't like the ones of the '70s...

And just for kicks, one more showing that our economy is becoming increasingly productive with the oil that we do have:

FOMC

2006-08-08T11:22:00.000-07:00

The Federal Open Market Committee (FOMC), otherwise known as the Federal Reserve, a.k.a. Bernanke and Co., declined to raise interest rates today. They're still at 5.25%.

Boo.

And we have a winner!

2006-08-04T06:37:00.000-07:00

The top spot for "most cowardly" politicians now goes to two members of the Seattle City Council, David Della and Nick Licata, for their proposal to put the Alaskan Way Viaduct tunnel replacement plan to the voters. This top spot has been stolen away from the state of California's legislature, who I'm sure will find some way to reclaim the spot soon.

I think I know David Della, actually. I remember growing up down the street from a "Mr. Della." I used to hang out with his son, Brett. Of course, seeing as how Della isn't exactly a unique name, I could be completely wrong.

In any case, I think putting this proposal to voters is a stupid idea. Why do we bother voting for politicians anyway at this point? I mean, if every single proposal is going to end up going to the voters anyway because of City Council members who can't make a decision by themselves to save their lives, or lawsuits by "citizen activists," or whoever, why even bother paying the salaries of politicians?

Agree to the proposal or work to defeat it...but for heaven's sake, quit making the entire business of running the government to a vote! We elect politicians for a reason!

The Case for "Soft Paternalism" (At Least for Saving)

2006-08-02T13:59:00.000-07:00

Back in early April, The Economist had this article about the rise of what they call "soft paternalism." The idea behind "soft paternalism" is that the state uses rewards and incentives to moderate or temper behavior instead of punishments and criminal sanctions. The Economist is of the opinion that "soft paternalism" is much more dangerous than "hard paternalism" because it's so much more subtle and psychologically manipulative.

I disagree. I don't know what economists that they're consulting, but the alternative reading that I've done on the subject suggests the complete opposite in the newest and most popular form of soft paternalism - automatic enrollment in 401(k)'s. At the moment, you have to fill out a small mountain of paperwork to enroll in a 401(k) program and the prospect of voluntarily stuffing money into a savings account you won't see for years (or decades) is rather depressing, especially if you noticed a particularly spiffy tie (guys) or a hot pair of shoes (girls) on the way to work.

Ugh. What a comment. I am becoming too Swamp-esque. Anyway, moving on.

So the incentives for putting money into a 401(k) savings account ain't too spectacular, at least in the short run. In the long run, they're spectacular, because you'll probably get a better return on your investments (unless you put all your money into an Enron or Worldcom and don't diversify) than you could probably get anywhere else. Not to mention that you'll be helping the gargantuan current-account deficit by allowing companies/the government to borrow money from domestic sources rather than mucking about in China for investors.

For those of you who are patriotic and have no earthly idea what I'm talking about, think of it this way. Companies and governments (especially governments) borrow money when they don't have enough of it themselves. To, say, buy a new office building (if you're a company) or go to war and are too ~~timid~~ cowardly to raise taxes (if you're a government). Now, companies or governments can borrow money from domestic investors or foreign ones. If they have to go abroad, all that money that they have to pay in interest payments gets sucked out of the economy and becomes part of the current-account deficit that you've probably all heard of. Just for reference, our current-account deficit is just a shade over $800 billion, or nearly 7% of GDP.

Think of the current-account deficit like this. Companies and governments can only borrow as much money is being saved by banks or individuals. Say there's $100 that can be borrowed in the U.S. from domestic sources and the combined total of corporate and government borrowing is $120. Companies and governments (especially governments) aren't going to halt their spending plans just because they can't borrow from Americans - they'll look offshore if they have to. That $20 that is borrowed from foreign sources is our current-account deficit.

Companies (and particularly governments) would much prefer to borrow from domestic sources, because then they don't have to go through the bothersome process of converting their currency (and paying the fee that comes from massive transactions on this scale) to finance the buying; governments would much rather keep their bucks in the national fold.

Now that my kinda-sorta-tangential explanation is over, I can get back to why automatic saving in 401(k)'s kicks ass. When you put your money in a 401(k), it doesn't just sit there in a black box and mysteriously accumulate. No sir - that money is working hard, and not just for you. 401(k)'s put money in stocks, bonds, etc. The borrowers of that money - be it the government to ~~buy votes~~ expand entitlement programs for the elderly or companies through the purchase of stock - will use those funds to finance their operations. And they'll be doing it by raising money from domestic sources - namely, you, the chap (or chapette) whose employer had the foresight to automatically enroll you in a 401(k). They win (they get the cash), you win (you get a return on your investment better than the 0.15% that your checking account is giving you), and the American people win (lower current-account deficit, more money circulating about here at home).

So why does the government need to step in anyway? If more people knew about this, then clearly they'd enroll, because it's in their long-run self-interest.

Eh heh...and here we come across one of the biggest problems of capitalism. Theoretically, of course, it is in everyone's long-run self-interest to save more money for emergencies or retirement. But given that the national savings rate has been consistently negative for a while now (sure, it doesn't include capital gains, but even controlling for that there's no way it's at the relatively safe concensus of 10% of earnings) it's clear that it's going to take a bit of an extra push to get people to save their money for the future. Most people just don't always actively think about their long-run self-interest; that is, expend the extra effort/restraint needed to do so. Automatic enrollment can provide that push.

Since when is it the government's job to make sure that people save money, anyway? Why reward laziness by having the government nanny people around? This is the question that The Economist asks.

Here's my answer - sure, it's not the government's job to have a safety net that breeds a culture of laziness and complacency. I would never suggest something like that. However, in this respect, it is warranted. Not because of some abstract idea of government as eternal protector, but because the government has an interest in keeping as many people off its poverty rolls as it can. Surely no one begrudges the government the right to try and make everyone better off so that it doesn't have as many dependents clamoring for government handouts?

By protecting employers who start an automatic enrollment plan (with the voluntary opt-out), the government boost participation in these programs. By helping the individual make one choice, the government gives a more affluent person (in the long run as their savings build) many more choices when they retire instead of existing on subsistence government handouts.

The New Smear Tactic

2006-07-31T11:11:00.000-07:00

I was bumbling around the blogosphere (as I am wont to do) and came across this editorial detailing the story of Gary Lankford, who, while on the Ohio Republican party payroll, promoted the bald-faced lie that the Democratic gubernatorial candidate, current U.S. Rep Ted Strickland, was gay.

Oh, and his wife of 20 years was gay too.

Feel free to digest that for a moment. I'll wait.

This is distrubing on so many levels that I'm having trouble keeping them all organized. Okay, most obvious one first:

1) Just the facts, ma'am. This is a bald-faced lie that has no evidence of any sort to back it up. Merely a slanderous insinuation for the purpose of hurting a Democratic candidate in an important election for Ohio.

2) Your bile is ready, sir. This sorry episode takes smear tactics to a whole new level. Suggesting that someone is unfit for public office because he's gay (which both Strickland and his wife are decidedly not)? Disgusting.

3) Being homosexual doesn't show up on an x-ray. How do you prove something like someone's sexual orientation anyway? May I heartily suggest that someone find a callgirl and perform a public show (at Mr. Lankford's expense, naturally) for Mr. Strickland. If he demonstrates visible excitement (at the biological level, mind you) then I think we can conclude a few things.

Hmm...nah, a nut like Lankford might think that's a little obscene.

I know! We'll put some cameras in Strickland's bathroom, along with a relatively tall stack of dirty magazines. It'll be like a reality tv show.

Then again, that might be considered rather promiscuous. Well, if those two options are out, I'm fresh out of ideas. Personally, I think both those options should be considered, because clearly 20 years of marriage to a person of the opposite gender clearly isn't proof enough of someone's heterosexuality.

4) Who cares? Besides whack jobs like Lankford, who honestly cares about whether their Governor might be gay? Who would honestly change their position on a bill, for example, based on their sexual orientation? "Well, normally I'd veto this bill allowing the dismemberment of kittens for public entertainment, but since I'm gay..."

Yeah...no. Who in their right mind would think that someone who is elected by the people to do their business would let such a personal decision influence their policies?

...

Okay, that last part was a poorly-worded explanation. That's just me pulling out my "politicians should be more technocratic!" cap again. But you get the idea.

This is a repugnant story of smear tactics at their very worst. It does not bode well for American politics if this sort of behavior is not punished and punished severly.

The UN

2006-07-26T09:00:00.000-07:00

Everyone should read Evan's diatribe against Kofi Annan.

This is primarily an econ blog, but sometimes current events just trump everything else.

Heritage Roundtable

2006-07-19T10:46:00.000-07:00

Went to a roundtable discussion at the Heritage Foundation last night. It was only five bucks to get in, there was an open bar (a pleasant surprise; I thought I was going to have to pay), good company, and the discussion itself was all in very good fun.

The topic was, "Are libertarians anti-Left or anti-State?"

Marc and Evan, I'm certain you guys would have had even more mirth than I did, because you know the blogosphere much more than I do. The panel was composed of Matthew Yglesias, of TPM Cafe, fulfilling the role of token liberal and moderator; Nick Gillespie, editor-in-chief of Reason magazine, as representative of libertarians; and Jonah Goldberg of the National Review, the quintessential Conservative.

Goldberg spent his opening statements attacking the libertarian assaults on tradition; Gillespie spent most of it saying that people shouldn't follow "bullshit traditions for the sake of tradition" if it had no relevance in the real world, then promptly began throwing tee-shirts with the Reason logo on them into the surprisingly packed audience. (My guess is that about 200 or so people were in the auditorium).

No, unfortunately, I wasn't able to snag one. A guy in his mid-twenties dove over me to grasp the one that came my way like Kramer leaping for the football at that NY Giants game. I emerged without a free garment, which is a little dissapointing, but on the other hand, I was sitting next to an attractive girl who I had struck up a conversation with, and getting into a mosh pit for a free tee-shirt seemed somewhat counterintuitive to my objective (not like it really mattered; I never got the chance to ask her for her number).

But back to the debate. The man who introduced the three panelists insisted that we operate by the British rules of debate (think the Prime Minister's Questions; if you haven't, go watch it on C-SPAN and wish that our Congress got to do that), since those were the rules that he was raised on. In other words, every time Goldberg or Gillespie made a particularly incendiary comment, there was a smattering of boos, hisses, and "For shame, sir!" that erupted.

Like I said, fun times.

The main points of contention were threefold, covering the issues of:

how "organic" society is and how it evolves (and if it should evolve)
English monarchs
Housing Regulations and the Reasons by which We Do the Things We Do

If this sounds like a Jeopardy board instead of a roundtable debate, I don't blame you. I was consistently reminded of Celebrity Jeopardy SNL skits, with Yglesias playing the irritated Trebek and Gillespie & Goldberg switching off between who was Sean Connery, taking potshots at the poor, defenseless liberal whenever they had the chance.

One of the debates involved whether or not society changes. Goldberg tried to make the point that society improves by staying true to "tradition" because through tradition, the bad parts are weeded out, and the "wisdom of the Ancients" shouldn't be disregarded. Gillespie said that slavery used to be part of the "wisdom of the Ancients" too and that tradition should be able to be justified in contemporary society in order to justify its existence. To demonstrate that the "Ancients" weren't always great, he brought up the English monarchs and how their "wisdom" wasn't so wise. He also asked Goldberg to name two, to which the Conservative replied, "Oh no, I'm not taking that bait."

How the names of two English monarchs constitutes bait is beyond me, but he also said that the most powerful English female monarch was Victoria (I'd say Queen Bess), so maybe there were darker forces at work here.

The Housing Regulations bit went like this:

Goldberg: I hate intellectuals and their constant harping about how believing that people do things for one reason. Intellectuals like Tim Russert (Tim Russert? An intellectual? I laugh.) always want "The one reason why we should go to war with Iraq" or things like that. But no one does anything for one reason. When you buy a house, you ask a lot of questions: what are the schools like...what is the neighborhood like...does it have a roof...
Gillespie: Does it have a roof? Of course it has a roof!

[Everyone laughs]

Yglesias: Because of the building regulations.

[More laughs]

Gillespie: Oh yeah, it's big business trying to take our roofs away. If it weren't for the government building inspectors, not one house would have a roof. Some grand conspiracy by big business.

[General Uproar]

I was laughing too hard to remember where things went from there. All in all, it was a good five dollars well-spent.

Pricing Pollution

2006-07-07T13:15:00.000-07:00

One of the first things that you learn in economics is what can and cannot be included in things like GDP. Almost always the question of externalities comes up. Externalities are parts of supply and demand that aren't directly influencing the buyer or the seller, but instead a third party that is not present at the transaction. The best example is one that most people in the Northeast are at least somewhat familiar with:

A coal power plant in West Virginia builds extremely tall smokestacks for its putrid filth that it pumps out. The smoke rises high above the residents of that particular portion of Appalacia and is carried by air currents up into the Northeast. The supplier (the power plant) gets low costs on its production and the consumers (the homes/businesses supplied by said power plant) get cheap energy without having to worry about all that nasty pollution caused by the removal of sulphur from the coal and the burning thereof. The locals don't have the pollution because the smokestacks are so high that it floats right on over them.

Now, the Yankees up there in the Northeast aren't getting cheap power or jobs at the power plant; they're just getting screwed by a supply/demand transaction hundreds of miles away. Pollution is considered the quintessential externality.

Until the Kyoto Protocol came around, anyway. The Kyoto Protocol allowed for the development of what is now considered the most effective way to tag a price on pollution: let the market do it. I've heard whispers about a "green GDP" that's being conceived of by some government ministers in China to take pollution into account as a drain on GDP, but I'm not going to buy into that until it's official policy. It's still in the developmental stage anyway.

Right now the best way that we have to price carbon dioxide, one of the worst greenhouse gases, doesn't even exist here: the Emissions Trading System (ETS). We actually already do have an ETS for sulphur dioxide, which was set up back in 1990 by the Clean Air Act. By 2010, emissions of sulphur dioxide should have been halved from their '90 levels. Cool peas.

"But Josh, how can you, a quasi-free-market-wannabe-economist support such a scheme? It's that darn gov't tellin' us little people what to do!!! Yer a sellout!"

Oh, hush. I'm not a sellout and if you think you're going to get back onto my blog with that mouth, you can forget it. Anyway, moving on.

The beauty of this "scheme" is that it couples a goal that helps the greater good - lower pollution emissions, less global warming, lower health care costs from things like skin cancer, fewer government payouts to those unfortunate enough to have those maladies, and ultimately a lower budget deficit - with a market mechanism.

Here's how it works: let's say that the U.S. emits 100 million tons of carbon dioxide a year. The government auctions off 100 "emissions credits," each worth 1 million tons of legal carbon dioxide emissions. If you buy one credit, you're allowed to pollute up to 1 million tons of carbon dioxide for that year. Anytime during then you can sell any unused credits to someone else who is interested in paying for the right to pollute. If a company doesn't pollute as much as it thinks it will, it can always get a little extra cash by selling their surplus credits to someone else. The credits are only good for a year and they can only be used once, so there's no possibility of "saving up" credits or hoarding them. If the price is too low, then polluters will as many credits as they need (or as many as they can get). If the price is too high, it makes sense to adopt cleaner-burning processes or pollution controls so that the number of credits that need to be bought remains as low as possible.

Here's the trick: the ETS works like a game of musical chairs. Every time you start a new round, you pull one chair out of the circle. Same thing with the ETS: every year, the government reduces the number of credits that is auctioned off to meet a target.

Let's go back to our 100 million ton of carbon dioxide country again. In year 1, there are 100 1-million-ton credits sold. The government wants to decrease carbon dioxide emissions by 10% over 10 years. In year 2, there are 99 1-million-ton credits sold. In year 3, there are 98 sold, and so on. As supply dwindles, the price of pollution should rise. If the government is transparent with letting companies know how many credits they will sell in the future, companies can plan ahead and begin adopting cleaner technologies earlier.

However, the government has to realize that there is a danger. Something like this happened in France a month or two ago. Pollution emissions came in lower than expected and suddenly there was a gap between the emission credits that France allowed and the actual amount of pollution it was belching out. If pollution emissions are cut below the cap set by the government, suddenly the supply of credits (albeit dwindling) is suddenly plentiful relative to the demand.

What happened in France? The price of pollution emissions crashed. If this keeps up, more companies will by the credits, pollute more, and France will bring itself right up against the cap again. Assuming, of course, that the price of the credits makes it economically viable to pollute instead of adopt cleaner technologies.

Put it this way: say that it's more profitable for companies to buy up the credits if the cost of each credit is $20. It costs them $25 per ton to use cleaner technology or pollution controls. If the price of the pollution credits is $30 a ton, it makes more sense to use the cleaner technology. If the price falls to $20, buying the credits is more cost-effective.

So there is a bit of a conundrum with these government-imposed caps: total pollution will fall, but only as slowly as the long-term goals that the government sets in the first place. Policy cannot risk becoming schizophrenic on the issue, lowering the cap just to keep the "slack" out of the market if total pollution falls below target levels due to innovation, conservation, or technology. Not only that, but a government that gets in the habit of lowering the total cap could just as easily be replaced by one that wants to raise the cap under the aegis of promoting business.

Guarded, incrememental, predictable, and steady reduction in total pollution allowed, distributed among polluters by a market mechanism, is the most effective way to reduce pollution in a cost-effective manner.

The Inflation Balloon

2006-06-11T18:50:00.000-07:00

I'd just like to preface this post by pointing out that yes, once again, Jim Cramer is an idiot (see here for my original rant). He was ranting on Friday (I was unfortunate enough to skip over his show for a split second) about how Ben Bernanke's rate hikes were foolish, but the 15 prior to that that Greenspan oversaw weren't that bad. Hmph.

Anyway. I thought I'd expand a bit more on the Chicago Tribune piece I mentioned in the previous post.

Think of the economy as a big balloon. You don't want the balloon to become too filled with hot air, otherwise it'll explode. On the other hand, you don't want it to become too deflated, because then you'll fall. The trick is to find the proper balance between air pressure and how many sandbags you have to propel you upwards at a nice, steady pace.

In your balloon basket, you have two pilots. Now, they can talk to each other, but they are co-equal partners and aren't technically allowed to tell each other what to do. For sake of argument, let's call one of these pilots Denny and the other one Benny. Now, let's just assume that Denny is bright-eyed and wants to soar with the birds...in other words, he wants the balloon to go as high as possible. Benny thinks heights are okay, but knows that both of them get vertigo when the balloon goes up too high, too fast. So it's in Benny's interest to make sure that whatever Denny does doesn't get out of hand and to keep the balloon on a level, steady course.

Unfortunately for Benny, Denny happens to be a bit ignorant of how the balloon works, so he'll start tossing sandbags off the balloon as fast as he can. The balloon rises. Denny, in a fretful burst of selfless responsibility, turns the hot-air burner down to try and prevent the balloon from rising too quickly.

The little situation above isn't the greatest example of the economy, but it's simplistic enough to work. For example, if I had said that Denny was in the pocket of the sandbag companies and wanted to make sure that the balloon company that Benny and Denny had rented their balloon from bought plenty of sandbags, or that the higher the balloon went, the more likely it would become tougher to control it due to the high winds, or that Denny hired Benny and was responsible to a great deal of his friends back home to break the world record for balloon height...then we might start getting a more representative picture.

For those of you keeping score at home...or for those of you that aren't fond of imagery...

Denny --> Allusion to Dennis Hastert, Speaker of the House of Representatives
Benny --> Allusion to Ben Bernanke, Federal Reserve Chairman
Sandbags --> Fiscal spending by the fed. govt.
Hot-Air Pump --> The money supply, controlled by the Federal Reserve
Upward Trajectory --> Economic growth
Powerful Winds --> Inflation

Make no mistake: inflation is more than just a number that's released every month. Inflation's like a virus within the population. Not only does it cut away at any gains you may have made, but it also terrifies and panics you. It's hard for anyone under the age of 35 or 40 to understand. We live in low-inflation times. If you ever want to wonder about how crushing inflation can be, ask anyone who fell upon hard times during the early-mid '70s.

A better time to go to understand just how debilitating inflation could be, though, would be Germany around 1932. Hyperinflation was running rampant as the Reichsbank (the German central bank; became the Bundesbank, which eventually gave way to the European Central Bank) printed German marks as fast as the mint could churn them out in order to help get some money in the pocketbooks of Germans. Artificially-produced demand caused the prices of everything to soar, which caused the Reichsbank to print more marks, which in turn...

Well, you get the idea. But even if you don't, think of it this way: prices of ordinary goods going up so fast that instead of getting paid every two weeks or so, you get paid twice a week. Instead of going to the bank the next time you get a chance, you get paid in cash, and you only have a few hours to spend it before everything becomes so expensive your paper money is now worth a few cents on the dollar. Forget about trying to save money; that's just foolish. Why stuff money into a bank that's likely to fail anyway while the hard-earned cash you put inside it depreciates by the second?

But you don't care about that, do you, Jim Cramer? No, you probably never took a history course in your life. All you care about is how much it costs your precious multinationals to borrow more money from foreign investors like China, blow our capital-accounts deficit even further out of proportion, and finance their hostile takeovers of smaller, more innovative companies.

Inflation is a beast perpetually lurking in the shadows, looking for healthy, plump economies to swallow. Anyone who thinks that 3.5% inflation is tame in a world with China and India bringing more and more workers into the global work force is foolish.

Terrific Article

2006-06-07T06:18:00.000-07:00

Fantastic job by the Chicago Tribune in this article about the immense dangers of inflation. My own thoughts on that and why The Wall Street Journal is filled with shortsighted dunderheads [hopefully] this evening.

Immigration, ctd.

2006-05-20T13:44:00.000-07:00

So I happened to notice this article in the Times (LA, mind you, not that snooty NY Times) about Sen. Salazar slipping a rider into the immigration legislation there about English being the "common and unifying" language of this country and whatnot. But hold your horses...this isn't the federal govt. mandating English as the official language, like more than twenty-plus other states. Immigrants that don't speak English, after all, won't be unable to get their benefits. What this really does is raise the standard for immigrants to pass their residency requirements by knowing slightly more English than is currently required. So in other words, all that's going on is one little tweak which is getting a whole lot more media than it's really worth because no one can debate this issue sensibly...

Sounds a whole lot like No Child Left Behind, doesn't it? :D

Anyway. So let's get past the fact that Congress isn't doing anything new here other than making a proclamation so it looks good when they're running for re-election and get to the heart of the matter:

Should English be the official language of the United States?

I don't particularly see why it should. Either no benefits or other government programs would really be influenced by the new official primacy of English, it would be an empty proclamation (as in the case above). The other case is that the action would withhold benefits if people didn't learn English, in which case the government is discriminating against people because of their current choice of language. That's something that I bet people are just itching to do. "Let's punish people because they can't speak our language!"

By the same token, let's punish people who don't have the internet. After all, they're not working in well-paying jobs that send the government higher tax revenues. Oh, and people that wear bellbottom pants because they're so out of fashion. Or people that wear toupees because they're not supporting the nationally-vital hair regrowth industry.

Okay, those are unfair comparisons. But think of it this way - to succeed in America, to really succeed, you need to know English. It's as simple as that. There's no parallel corporate ladder in this country for people that can only speak Spanish, French, Aramaic, or Swahili. Think about a top management position. To conduct any sort of business with any other company, you would have to know English. It's not as though there's a separate "Spanish-speaking only" economy that exists inside the United States which intersects the mainstream one at no points whatsoever. Not a sizable one that could threaten the mainstream, anyway. If the benefits of learning English outweigh the costs of time, money, and effort needed to learn it, people will learn it. Those benefits rise exponentially as someone moves up the corporate ladder.

Furthermore, let's not forget that there's other avenues that immigrants and their children mesh with their english-speaking breatheren: schools. Even with English as a Second Language (ESL) programs, these are not large enough to teach children entire cirricula of schools. Sooner or later, they're going to be plopped into English-speaking classes.

The stats bear this out. Take a look at this graph from the Migration Policy Institute:

Table 1: Percent of Children Who Speak Only English by Generation and Group

Anyone notice the first column? Hispanics. The second? Mexicans. By the third generation of immigrants (grandchildren), a majority only speak English. Seeing as how natural births are outnumbering immigrants, I think we'll be okay. No need to worry that somehow there will be these self-contained Spanish-speaking ghettos where only Spanish is taught...or any other language, for that matter.

Ever been to Chinatown in any city? Sure, the FOBs (Fresh off the Boats - a term for newly arrived immigrants) may not know English, and those that do prefer to use Chinese, but most people have some grasp of the language.

When was the last time you heard someone cry about how the Chinese are going to take over our country? Yeah, I didn't think so.

So don't worry about Hispanics coming in and taking over America with their non-English-speaking ways. It's simply not going to happen. And you can take that to the bank. They still speak English there.

Galbraith

2006-05-01T16:32:00.001-07:00

I'm going to step aside from the small war that's evolved over my immigration letter to deliver some sad news.

John Kenneth Galbraith died on April 29th, 2006. He was 97. He was also a monumental influence in the world of economics. It's because of much of his work in The New Industrial State that Industrial Organization (IO) Economics now focuses primarily on oligopolistic models instead of those of perfect competition.

Now, that probably means something close to zero for most of you, and about even less for the rest. Well, think of it this way. Before Galbraith came onto the scene, most industries were assumed to act under the aegis of perfect competition.

There is a significant difference here. Under the "rules" of perfect competition, firms can't influence prices...they're considered "price takers." They take whatever price the market offers for them. That market, of course, is composed of lots of buyers, none of whom have enough influence to single-handedly "make" the price. Everyone - in a world of perfect competition - is subject to market forces; no one can game the system.

The original example that every student of economics learns is the agriculture market. You have hundreds upon thousands of sellers (farmers) and hundreds of thousands of buyers (humanity). If someone buys a whole lot of...say...corn, the demand won't stretch supply to the brink of a shortage. By the same token, if one more member of the city folk decides to go into farming, after being inspired by the terrific game Harvest Moon, then the supply won't be so enormous that the price of corn will crash. Everyone's a price taker.

Well, think about the runs on the gold market. Or how labor unions constrict who can be hired. Or the car industry, with a dozen-odd car companies ruling the market. Or how U.S. Steel dominated the market for decades, with only a few fringe companies even hoping to compete. Or how OPEC openly conspires to raise or lower supply to directly influence the price of oil. Or...you get the idea. In all these instances, the markets were assumed to be under the guise of "perfect competition" with all players operating at similar levels of achieving "economic profits," i.e. earning the same return on their investments as everyone else.

Raise hands everyone who thinks that $200 for Microsoft Office is fair competitive market value.

Mm-hmm. Didn't think so. But some early economists would have.

Enter Galbraith. Now you have more widespread adoption of the models that restrict markets to only a few players instead of dozens or hundreds.

But he also had another contribution, too. When you look at early economic models of competition and markets, you'll notice there are two entities which are starkly devoid in those models: unions and the government. Until Keynes - and a lesser extent Galbraith - the only purpose that unions and government had were to create unemployment (by raising the cost of labor above the equilibrium wage and making firms reluctant to hire workers) in the former case and screw up markets (such as rent control, which causes demand to outstrip supply in the real estate market) in the latter. Galbraith showed that, in fact, most industries were far from perfectly competitive.

Galbraith saw something different. He saw that big business, big labor (well, labour - he was Canadian by birth) and big government could work together to dominate the economy.

His biggest contribution, though, was in the realm of infrastructure. In 1958, The Affluent Society, Galbraith said the following:

"The line which divides our area of wealth from our area of poverty is roughly that which divides privately produced and marketed goods and services from publicly rendered services. ... In the years following World War II, the papers of any major city - those of New York were an excellent example - told daily of the shortages and shortcomings in the elementary municipal and metropolitan services. The schools were old and overcrowded. The police force was under strength and underpaid. The parks and playgrounds were insufficient. Streets and empty lots were filthy, and the sanitation staff was underequipped and in need of men."

Look at the quote above and tell me that the very same statements he made in 1958 don't resonate now.

Galbraith's work on the need for massive investment of public infrastructure was one of the driving forces behind the "War on Poverty" of the 1960s, as Galbraith was a major advisor to JFK and LBJ...he also worked for the government during FDR and Truman. He was a major influence in those administrations and whether you agree with those policies or not, Galbraith was a big factor in the push to increase public investment in goods & services.

He wasn't without his detractors. The notion of the business/labour/government trifecta dominating the economy ran counter to many laissez-faire economists; he and Milton Friedman had a number of sparring matches. Galbraith's ideas were seen as pro-aristocracy, with an out-of-touch elite making decisions instead of market forces alone.

Despite his critics - many of whom had some valid points - Galbraith was a giant of economics and his passing will be sorely missed. There aren't many like him anymore and we should all mourn his death.

Immigration

2006-04-07T11:56:00.000-07:00

Mishri let me know about this editorial on illegal immigration. I refuse to post any of the text of it here because of its vile, repugnant content. I will, however, post my response, which I sent in to The Observer this afternoon:

"I take umbrage at Natalie Toomey’s editorial, “In Immigration Battle, English is Losing.” The list of hypocrisies, logical holes the size of Mack trucks, and contradictions is too numerous to go through, so I’ll try and stick to a few.

I was unaware that people speaking Spanish was mutually exclusive with “life, liberty, and the pursuit of happiness.” I had no idea that Belgium, a nation with two very large and distinct language groups, expected their citizens to speak their “national” language. Or that Brazil would choose Arabic to print on its ballots when its four languages are Portuguese (the official language), Spanish, English, and French.

Ms. Toomey makes the contention that English is the “primary” language of the United States. Sure, English is the language that’s spoken by nearly all Americans, but it’s never been the only one. Ever heard of Germantown, Pennsylvania? Guess what the “primary” language was when German settlers moved there in the 18^th and 19^th centuries?

It wasn’t English. Same is true for most of the Upper Midwest.

When I’m not in school, I live in California. Southern California, to be precise. That nest of vipers that are seething with illegal immigrants who hate English, if you believe Ms. Toomey. Just to give you an idea of my proximity, my coworker this past summer told me that his father was “disappointed” in him for not joining the Minutemen, whereas all his friends had. Despite that, I don’t feel like I live in Mexico. There is law, order, and signs in English. People have jobs and even if I have trouble ordering a quesadilla at the local Rubio’s Fresh Mexican Grill (something I am comfortable enough to do without feeling like my American identity is threatened), the server can generally speak enough broken English so that I never have to send my order back.

Make no mistake: immigrants are learning English. No one wants to be a cashier or a manual laborer forever. To succeed, really succeed in America, you need to learn English.

But that’s not even my main point. Many of these immigrants have children. Children go to school. Ms. Toomey seems to see this as something wrong and immoral, but she fails to realize that children learn a great deal at school. California leads the way in providing English as a Second Language (ESL) programs to kids. No one is suggesting that students should be learning classes in Spanish, but it takes some time for kids to learn an entirely new language. And they are learning English.

Ms. Toomey laced her editorial with hyperbole and remarks that make me wonder how tolerant a person she truly is. Name one state legislature, Ms. Toomey, that is seriously considering making Spanish-only road signs, or Spanish-only ballots, and I will gladly retract this entire letter.

Until then, keep your ignorant hatemongering to yourself.

Josh Kaushansky is an undergraduate student at American University."

I'll post a less fortune-cookie-logic one-liner entry on my deeper thoughts concerning education a little later.

Wealth, Philanthropy, and Welfare

2006-03-01T20:26:00.000-08:00

The Economist magazine recently published a survey (an in-depth exploration) of wealth and philanthropy. It presents many interesting perspectives on how the super-wealthy use their wealth for helping the poor and really illustrates how the super-rich aren't all so bad.

The most important change over the past fifteen or twenty years has been the culture of giving, particularly among the super-wealthy. Ever since the Reagan '81 tax cuts and the huge explosion in disparity between the poor and the wealthy (the top tax bracket was slashed from 70% to 37%, in case you were wondering), there has become the very real question of what should the super-wealthy do with the money that they don't need to spend on real estate, education for their children, health care, luxuries, and gaudy scupltures?

This is where Andrew Carnegie, captain of U.S. Steel, comes in. As he said:

“This, then, is held to be the duty of the man of wealth: First, to set an example of modest, unostentatious living, shunning display or extravagance; to provide moderately for the legitimate wants of those dependent upon him; and, after doing so, to consider all surplus revenues which come to him simply as trust funds, which he is called upon to administer, and strictly bound as a matter of duty to administer in the manner which, in his judgment, is best calculated to produce the most beneficial results for the community /the man of wealth thus becoming the mere trustee and agent for his poorer brethren, bringing to their service his superior wisdom, experience and ability to administer, doing for them better than they would or could do for themselves.”

In other words, those who have excess wealth have a moral obligation to use whatever's left over to improve the well-being of those who are not so fortunate and to do so in their lifetimes. Not exactly a ringing endorsement of an established aristocracy, that.

Let's face facts, though - with exceptions few and far between, the super-wealthy didn't really invest particularly much in philanthropy between Carnegie's time and that of the past twenty years or so. One reason in particular is because there weren't that many in the first place; during World War II there was an extremely high tax placed on income; the highest tax bracket reached 90% of income.

A quick sidenote: for those of you complaining that giving one-third of your income to the federal government is too much, it could (and has been) a whole lot worse.

With an income tax that high, there aren't many people who could earn enough to really pass on copious amounts of cash and estates to their children. That high-tax regime lasted until 1961, when President John Fitzgerald Kennedy cut taxes on the wealthiest taxpayers from 90% to 70%, where it stood for another twenty years. And yes, I do mean the Democrat.

Even with that tax cut, the number of people wealthy enough to give large sums of money to philanthropy was quite small. The following graph displays the Gini Coefficient (a measure of income inequality) of the a number of countries from World War II onward. The lower the number, the more egalitarian the distribution of wealth. Under a true egalitarian system, the Gini coefficient would be zero. (For a more detailed explanation of how Gini works, check out Wikipedia's entry on the subject) What this graph should basically explain is that wealth has become increasingly distributed upwards; that is, mostly to the wealthy. What does all this talk of genies actually mean, though?

Well, first let's get it straight: it's Gini, not genie.

Second, why do people need to be philanthropic in a high-tax regime? Presumably, a great deal of that tax revenue is given to the poor in the form of education, health care, welfare, etc. But there are important sociological differences at stake: welfare from a mandatory, government-enforced tax is extremely difficult than from a voluntary, prestige- or humanitarian-based donation.

No, I'm not going to go off and say the same token should be applied to polluters. That should be a cap-and-trade system of carbon emissions credits. But that's a discussion for another day.

This is a question of economic redistribution; using someone else's tax dollars to give to someone else. This is not something to be taken lightly. What happens when perceptions about those who are being helped by the tax dollars of the wealthy are seen as lazy, unkempt, unmotivated, directionless, and hopeless? Are the wealthy, armed with top-dollar accountants and tax lawyers, going to willfully hand over their tax dollars to the government, who they see as giving handouts to the sloths and parasites of humanity? Unlikely, particularly when being busted by an IRS audit is more likely if you're poor than if you have wealth.

This, then, grants us a choice:

Promote government welfare as the primary source of payouts to the poor, financed via taxes;
Promote private charity as the primary source of payouts to the poor, supported via tax credits and/or incentives.

For reasons of simplicity, I'm going to set aside medicaid spending and focus on the more conventional measure of welfare, Aid to Families with Dependent Children (AFDC), spending of which occupies some 1% of the federal budget and-

Oh wait. It's called Temporary Assistance for Needy Families (TANF) now. It's basically the same program, just with a different name and in block grants instead of whatever it was before. Trust the government to expend plenty of energy to change a name. Anyway, moving on. Still occupies about 1% of the federal budget.

Contrast that to private charity, which provided about $250 billion in proceeds last year. That's about five times the federal input for TANF. So federal spending is dinky compared to overall private contributions, yet it also constitutes one-eighth of the current budget deficit. That money could be used to...say...reduce the deficit. Or go towards improving crumbling schools. Or increasing the NASA budget by nearly threefold. Chances are that it would go to old people in the form of new bionic arms to play their shuffleboard for them or something. But in any case, it would go somewhere else.

Why, then, is TANF so damaging? Again, think about social perceptions. If there is the widespread belief, particularly among those who would otherwise provide significant charitable donations, then they are unlikely to support what they already see as subsidized welfare via their tax dollars. Would it total the sum lost by the elimination of TANF? Perhaps, perhaps not. But think of the intangible advantages:

Peer Pressure. Thanks to the example begun by people like Bill Gates and Paul Allen, who showed that you didn't have to be a loony Hollywood lefties, there's a significant number of the creme de la creme of the super-wealthy who donate copious amounts of their funds to charities. The Walton family of Wal-Mart fame, for example, have given over a billion dollars in charitable donations. Michael Dell, chairman of Dell Computers and a devout Republican, has donated nearly a billion. There is now a culture of having your name on a chairtable foundation, and the competition can only result in more giving to worthy causes.
Recession-proof. Purely by definition, the super-wealthy aren't as likely to be short on cash during a recession, when the number of those who need charity is at its highest. In a strange, twisted way, times like this are when government has the fewest resources to help the swelling ranks of those in need, as recessions lower tax receipts and the ability of governments to make payouts.

I wanted to make a mention of Stephen Nickell's paper, Unemployment and Market Rigidities: Europe versus North America, because unemployment and welfare are so intertwined. However, that paper deserves its own separate mention due to its depth, so I'll save that for next time.

Minimum Wage Laws

2006-02-23T18:20:00.000-08:00

A poster asked over at my xanga regarding my thoughts on the minimum wage. Having a list of mostly-expired topics doesn't exactly give me a viable alternative, so here we go.

The discussion around the minimum wage is amusing to watch. Supporters and opponents continue tossing the same facts and figures at each other, as if repeating their arguments one more time will convince the other side just how supremely wrong they were in their foolish assumptions.

Seriously, though, it's an interesting issue. A related subject is mandatory overtime pay rules, which I want to discuss before going on into the minimum wage. Mandatory Overtime Pay, which I'll dub as MOP for the rest of the post, are relatively self-explanatory: after a certain amount of hours worked, a firm must pay a worker such-and-such a higher wage (generally time and a half). The obvious critique of MOP is that it unduly tells the firm how they can go about paying their employees while punishing them even more for obeying the law (in the form of a much higher wage). For a firm to avoid paying the extra MOP wage, a firm has three options:

1) Hire another worker, which has the obvious drawback of now costing the firm twice as much as before MOP;

2) Make the current worker more productive in order to allow the worker to complete their job in enough time for MOP not to activate (in the U.S., that's under forty hours a week). The drawback to this is that it generally requires some form of extra capital to make the worker more productive, e.g. extra training and/or machinery to help them become more productive;

3) Reduce the amount of work the employee has to work so they don't exceed the MOP-activation threshold, which means that there is a job that needs to get done that isn't.

All of these options have problems, each of which has more problems than the simple ones I've outlined above. To hire another worker, for instance, a firm has the additional costs of finding another worker willing to take the job. On the other hand, look at the pluses to each:

1) The firm now has double the production as before in that niche.

2) You have a more productive worker, which could be particularly worthwhile if the cost was training (a once-and-you're-done cost).

3) The worker gets more leisure time.

Now that I'm through bringing up the pros and cons of MOP (for reasons that are beyond my understanding), I can finish up my digression and move back on track to the original subject at hand: minimum wage laws.

Minimum wages aren't actually the demons (or angels) that people make them out to be. There's an entirely other dimension to them which is unaddressed...probably because the actual effect is difficult to measure. The effect I refer to is the typical firm's desire to do more with what they have when faced with a necessary rise in costs. If you're faced with higher costs for something you can't substitute, you try your best to get some higher output out of it; for a good example of this, look at Toyota, which is frequently lauded for getting all of its employees included in cost-saving measures by innovation on their own levels of employ; instead of going out and finding the cheapest-cost workers, Toyota encourages their workers to become more productive.

In introductory economics, typical models will explain something akin to the following line of reasoning: minimum wage laws establish wage floors above that of the equilibrium wage, which creates a surplus of workers willing to work at the higher wage and a reduced employer demand to pay for jobs at such a high pay rate. The discrepency between supply and demand is a labor surplus, also known as unemployment.

Sounds simple enough, right? It has its own kind of simple logic, too. From the business majors I've met, introductory macroeconomics and microeconomics are the only courses of that sort required, so doubtless many see the situation as simple as the preceding paragraph.

Of course, it isn't. One issue is that most people don't work for minimum wage, so it's not as though a spike in the current minimum wage ($5.15 an hour) will cause another Great Depression. Besides, 18 states have minimum wages higher than the federal standard and those states total some one-half the population of the United States.

My old stomping grounds of Washington State, just in case anyone was curious, has the highest minimum wage, currently standing at $7.63 an hour and tied to inflation.

The main point is that a hike in the minimum wage wouldn't crush our economy. In fact, it might raise the productivity of our workforce (a hypothesis I examined above), which could be healthier for the economy in the long run. Now, I'm not going out on a limb and insisting that the U.S. Congress go out and make the minimum wage $10.50 an hour or somesuch nonsense. Minimum wage laws do impose costs on firms that may not be prepared for it and whose labor markets may be distorted by such tampering. Furthermore, many minimum-wage jobs are in industries where it's certainly difficult to raise a worker's productivity - janitors, cashiers, food service jobs, bus drivers, college interns in Washington, D.C...these aren't exactly jobs where you can train someone for a day or two and expect their output to rise dramatically.

Such is life where services take up 80% of your economy. Training is a two-tiered payoff; for some service jobs (like the ones I mentioned above), it can have next to no payoff. For upper-echelon jobs (lawyers, doctors, accountants, political operatives, etc.), payoffs can be enormous, but those occupations aren't exactly minimum wage, so that's beside the point. There's only one type of training that can significantly help minimum-wage workers, and it has absolutely nothing to do with their improving the productivity jobs: significant education in more highly-skilled, often technologically-intensive jobs.

And here we are back at education, my big issue...pure coincidence, of course.

Why Racial Test Score Convergence is Imperative

2006-02-09T22:21:00.000-08:00

Now that is a sexy title. Anyway, moving on...

Much of the hullabaloo regarding the No Child Left Behind Act, passed back in ’01, was the extra attention that public schools would have to pay towards “higher standards,” as if this was some sort of panacea towards fixing schools, which are plagued with some of the following problems, among others, in no particular order:

Local monopolies
Enormous barriers to entry and exit in both number of schools and the necessary labor (e.g. teachers)
Rising costs and few mechanisms or incentives for reducing costs
No mechanism between pay and performance
Extremely limited ability for customers (e.g. parents and their children) to “shop around” for better facilities
Parent-Teacher Associations that prevent schools from pressing kids harder on the grounds that it will “hurt their feelings”
Old and decaying facilities
An unequal, regressive, poorly-designed revenue base system (property taxes)
Very little actual consensus about what the priorities of school should be

There are more reasons. Higher standards will solve few, if not any, of these. In fact, it will solve none of the reasons listed above. That isn’t to say that higher standards won’t help…before continuing, it’s necessary to issue a slight disclaimer: I do not support raising standards, particularly in math and science, to the degree of, say, Japan. As much as I’d prefer the rest of the United States to emulate my old stomping grounds of Seattle a little more, higher suicide rates isn’t the best place to start. Kids there…well, they take school and achievement a little too seriously.

Not that such an eventuality would ever happen here. That’s a cultural difference twixt the Land of the Rising Sun and the Land of the Swelling Waistline.

Again, I digress. The main point is that higher standards, coupled with a little more of a carrot-and-stick system from schools (throwing out the arcane age-based grade system or the one-track-fits-all school achievement ladder, for instance) could do wonders to give kids real incentives to get interested in learning. They’re not the end-all and be-all to save public schools in this country, but they could help significantly on the achievement end of the situation.

So where does race come into this debate? Try about five million different places, but I’ll just choose one and try not to stray from it too significantly. One of the biggest problems in raising standards is that there are students that are far enough behind the current standards as to make it next to impossible to catch up with the rest of the student body: young minority students. The gap is – thankfully – closing, but there are still significant shortfalls between majority and minority students. Now, there’s something to be said about the “cultures of learning” argument – the idea that a child’s ethnic/racial/socioeconomic background could have a profound impact on a child’s attitude towards learning – and that’s not something that can be addressed on a governmental level. The most important objective is still to seek some sort of convergence among test scores for children.

Obviously, this isn’t a proposition that has many detractors. Provided that scores harmonize up and not down (i.e. scores rising to a convergent plateau as opposed to falling to a parallel floor), most everyone would support student averages to be relatively similar across racial boundaries.

However, there’s a more important factor here. The argument of the state of Mississippi in U.S. v. Fordice, back in 1992, was on-target, but for the wrong reasons.

Backing up a minute. The case itself dealt with the Justice Department suing the State of Mississippi for keeping abnormally high academic admissions standards based on ACT scores (rather than GPA), which were known to be racially disparate (the Mississippi white schools had an admission requirement ACT score of 15; the average white student’s score, 18; the average black’s, 7).

The case for the state of Mississippi was that the white colleges couldn’t afford to lower their standards, because their higher standards in classes would be too much for kids that scored too low on the ACT tests to demonstrate aptitude but were high enough to get into the predominantly white schools under newer (and lower) standards, whereas no one would be able to get into the predominately black schools if they raised their standards.

Why was this argument sensical? Because of the vast disparity between the scores of white and black students. Which gets me to the main point of this entire post:

Academic standards can’t be raised sufficiently to promote achievement until racial disparities are statistically insignificant.

If they’re raised too soon, there’ll doubtless be another case like Fordice in which someone will say that the new standards discriminate somehow – and given the current state of affairs, that’s all too possible.

As to how to solve this problem…I don’t know. I really don’t. One of my first posts relayed several solutions to help improve education and I certainly have a good number more. However, those are all majoritarian; I have scarce knowledge about how kids of different races think, act, and approach education at such a young age. I have little or no study in psychology and even less in child psychology. Not having any racial studies background either, I can’t attest to any superior insight from racial group to racial group.

When it comes to the solution of this muddle, I can only frame the problem. Your guess is as good – if not better – than mine.

Why Jim Cramer hates [Corporate] America

2006-02-02T22:04:00.000-08:00

For those of you who have seen the CNBC show, "Mad Money with Jim Cramer," this post will hit more strongly than those of you who haven't. For those that have been fortunate enough to evade that monstrosity, I'll just give you a hint of what you're missing: a bald, stocky man running around a studio stage, making all sorts of strange noises like an obnoxious disc jockey while waving his arms about as if he's escaping a collapsing building. Between the torrent of spit and the foam that's running down his chin like some rabid dog, he shouts out stock tips for trigger-happy investors. One of his central tenets is to buy stock when it's on a temporary loss and buy it when it's at a temporary high - and to do so quickly and without hesitation, living and dying on quarterly numbers.

If my words have failed to give you a disturbing enough image, take a look at this.

If my words have also failed to illustrate how irritating this man's voice is on the psyche, one of my roommates will often flip to him and leave him on for just long enough to get me ranting.

Why does this man draw my ire so? Why, what a perfect segue.

Long story short - Jim Cramer hates Corporate America.

Short story long - Jim Cramer's tactics promote bad business and investment decisions. Cramer's not the only guy out there, but he's endemic of the problem with short-term investors nowadays.

There are two ways to approach investing, perfectly illustrated by the Seattle Post-Intelligencer's David Horsey, who made a political cartoon two years ago or so depicting the dichotomy between what businessmen nowadays preach (sound investment, cautious decision-making, and so on) and how businessmen act (more or less like a frantic, crazed man rolling dice). The latter is, unfortunately, increasingly common, thanks to the popularity of people like Cramer, who preach that investors should get in while the going's good and yank out all their money when stocks are high.

On the surface, nothing sounds inherently wrong about this. After all, why shouldn't investors do what they please with their money? If you buy low and sell high, you've got a steal and made a tidy profit. Self-interest! That's what capitalism is all about, right?

Sort of, but not exactly. Since I don't want to bore anyone reading this with a discussion of Nash equilibria (yes, it's slightly more complicated than how Russell Crowe depicted it in A Beautiful Mind), I'll just move on, since that's not even my point. This type of buy-fast-sell-faster mentality can harm both the investor, by making them buy or sell at improper times and lose a large share of their capital, and firms, for reasons I'm about to expound upon.

In a firm full of small investors, the inflow and outflow of capital via stock buying and selling won't significantly influence a firm's bottom line; investors are "price takers" insofar as their purchase doesn't influence the total stock of stock, and consequentely the price thereof. But firms aren't always made up of small investors - just ask Carl Ichan, who's buying up AOL-Time Warner. Big-time investors thinking in what my AP English teacher called "short-term time" can wreak havoc with established companies, as even the hint of one of those investors cashing out can completely decimate a company's quarterly report...which, in turn, can cause more "short-term time" investors to cash out, egged on by their ranter-in-chief Jim Cramer...and the feedback cycle continues.

And now we get to the real meat of the argument. Companies, eager to keep investors of this rather repugnant (yet well-financed) ilk content to keep their cash in company stock (something which a healthy chunk of executive pay is tied to, another incentive to keep the big investors happy), favor policies to build short-term profit policies, which more often than not sacrifice long-term growth. Again, there's nothing inherently wrong with executives responding to investor demand - that's the "implicit bargain" made between investors (who invest their money) and executives (who get paid to run the company).

But when investor demand conflicts with the long-term health of the company and its employees...well, that's when I have qualms. Companies aren't just moving money around for investors; they hire people, too, who depend upon them for their livelihood. According to one a book that I'm fond of, Affluenza, the average American family can only sustain their standard of living without a job for the better part of a month or so. I'm not advocating that investors should keep their money sunk in a dying company for the sake of its employees; that's not sensicial in the least.

However, when the attitudes of investors who want to make a quick buck conflict with the long-term health of the company, economic growth, and the jobs of its employees (not necessarily in that order), then it's obvious which should be valued more highly.

With that in mind, I say a pox upon you, Jim Cramer.

Physician-assisted Suicide

2006-01-29T13:55:00.000-08:00

A week or two ago, the Supreme Court and stepped in to release an opinion that wasn't a split decision. By a vote of 6-3 (with Chief Justice Roberts and Justices Scalia and Thomas dissenting), the Supreme Court ruled with the State of Oregon and uphold the assisted-suicide law. Now, before the self-righteous condemn this decision as the Left Coast hippies finding ways to kill everyone who's either not born yet or about to die in some vague, poorly-defined quest for...something.

Which is the question that I've always wondered about for all the "pro-life" movement, be the issue abortion or physician-assisted suicide. I'm genuinely curious about what the motives assigned to doctors by those who oppose abortion or physician-assisted suicide are: power? A genuine desire to do harm? Homicidal rage?

But I digress. The main point is that the Supreme Court made the right decision in upholding the Oregon law, a few reasons of which I'll mention here: erring on the side of the 10th amendment, rewarding a carefully-written legislature's efforts to protect the system from abuse, and protecting the inherent rights of people who don't have full control over their bodies.

The Tenth Amendment to the United States Constitution states the following:

"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."

(From my pocket Constitution, provided free via the Cato Institute)

There is no provision in the Constitution giving Congress or the executive the sole power to regulate life and death, nor how they are applied. Obviously, Congress is empowered to create criminal codes, but so are the states. If a state makes a law that does not conflict with federal law, there is no conflict of so-called "federal question," the primary means by which lawsuits between the federal and state governments percolate up through the courts.

There is no such federal law that states cannot allow doctors to fulfill patients' requests for lethal doses. The question, then, is whether or not the doctors are guilty of murder, as it is they who provide the lethal doses. After all, what do you call it if someone asks you to kill them; murder or assisted suicide?

The Oregon law certainly seeks to resolve this question by placing the answer firmly in the latter camp. The Supreme Court clearly thought that the legislation had been crafted carefully enough to warrant deferring to the judgment of the representatives of the people of Oregon and deferred to their 10th amendment rights.

In the nine years since the "Death with Dignity" Law was passed, not one case has been found (to the detriment of the law's opponents and a boon to the methodical work of the doctors that implement it) where someone was terminated wrongly or without the possibility of a cure. The law requires that two doctors agree that the patient has no possibility of a cure and that the patient has less than six months to live. For this process to begin, of course, the chronically ill party must agree to begin the review.

What's amazing isn't even the simplicity of this process, but its difficulty in promoting abuse of the system and the fact that a legislative body made it. Since the process must begin with the patient and not the doctor, it's not as though a bunch of greedy HMOs can start killing off their most costly patients.

But there's a larger issue at work here and one that I've saved for last because it's the best:

People have the inalienable right to die if they please.

There are many who would argue that suicide is a sin; I'm not going to debate the merits of that claim here, mostly because I'm not exactly an authority on sin. To those of you who do view the "Death with Dignity" law as sinful, I have three counterpoints:

1) It's not in the government's business to make laws based on what is and is not a sin;
2) If you're utterly convinced suicide is a sin, it's probably not for you. That doesn't mean it might not be the right choice (albeit a tragic one) for someone else.
3) Where do you get the chutzpah to decide for other people what means they can use to die if they are going to anyway?

The merits of this law are that there are very stringent barriers set up in order to prevent abuse by HMOs and insurance companies while allowing those that want to die peacefully and without pain to do so if they please. This law does not give a legal umbrella to someone who wants to be a second for someone committing seppuku, for instance. They'd have to buy a plane ticket to Japan for that.

To the people of Oregon - congratulations. You have vindication from the land's highest court that your law obeys all Constitutional principles. Thank you for your leadership in branching out and letting all people reassert their right to die if they please, even if their bodies are crippled or ill beyond belief.

Public Monopolies

2006-01-21T15:00:00.000-08:00

The public school system is more firmly and deeply established than it ever has in human history. For the better part of a century, state-funded schools have been the dominant institution in educating children. Nine out of every ten schools in the United States are funded by local, state, and/or federal taxes. In those nine out of ten schools, a similar proportion is mostly from local property taxes, which are based on a certain rate for each $1,000 their homes are worth. Some local districts are in dire fiscal straits, which leads to borrowing in the form of bonds and such to make up the deficits. However, local property taxes are the primary engine by which schools are maintained, teachers are paid, and textbooks are bought.

Local property taxes are raised locally and paid locally to local schools. If you live in a district with expensive homes, the district raises more money in property taxes and spends more on schools, teachers, and textbooks. If you're from a district with less expensive homes...well, you get the idea. Usually, there are only one or two schools close enough for a viable busing system to take students from their homes to school without costing the school too much money or take too much time to be realistic.

What do these transportation barriers mean? More or less, there are state-funded monopolies (or duopolies, as the case may be) in the market for education. Since only about 10% of schools are private, there isn't exactly a readily established infrastructure that can move in and build new schools quickly or easily to provide an alternative to the state-funded establishment. Now, I'm not knocking state-funded schools: I was perfectly satisfied with my Washington State K-12 Public School experience. However, I know that's neither the mood nor the experience of the aggregate; furthermore, simple satisfaction doesn't excuse the fact that we are talking about monopolies or duopolies here, and state-sanctioned ones at that.

There is only one other situation where the government can get away with something like a state-enforced monopoly: patents. In reward for developing something manmade, unique, and useful, the government allows an inventor a 20-year state-protected monopoly on a product. This reward is a temporary, direct recognition for one inventor's efforts. Public schools are permanent, indirect recognition for the efforts of progressive reformers a century prior. Put in that context, do public school officials really deserve the monopoly/duopoly that they've been granted by the state?

To be fair, public school officials don't directly gain "monopoly profits"; public schools, after all, don't obey the typical monopoly firm's returns. That being said, think of the non-monetary rewards: no competition from other schools (except in very rare circumstances), no incentive to develop a better product, or to cater to their "customers," or to cut costs...the list goes on. Industrial organization economists have entire models to describe efficiencies within public agencies - from the few I've seen, they aren't particularly flattering.

Getting back to the previous question - do public school administrators really deserve the security of a monopoly/duopoly situation they find themselves in? The straightforward answer is, of course, no. No one deserves complacency that they didn't earn.

After all this, what is the solution to low standardized test scores, expensive schools, large class sizes, a dearth of math and science excellence, and a lack of choice for parents and children?

The simple fact is that I can supply no certainties, only inferences. I've always mused upon just what would happen if every public school were sold at auction tomorrow. Think about what might happen: suddenly, there would be a rush (relatively speaking: it takes at least a year to build a new school, if not two or three) of new schools in upper-class neighborhoods, to maximize the profits from the high prices that wealthy parents would doubtless pay for their children to be educated. With new schools, suddenly there's a demand for new teachers. There aren't nearly enough teachers to satisfy the huge number of schoolkids; has anyone not read a news story about a school district that needs more teachers? They should honestly be making a whole lot more than they are now. In the short run, teachers should be making a whole lot more money. In the long run, more kids will see the high salaries teachers would/should be making and go into teaching, raising the supply and depressing the wages. As the cost of labor (teachers) falls, the costs of new schools falls accordingly, and suddenly it's profitable to open schools in poorer districts, opening the doors of oppurtunity for more and more kids at a sustainable rate without being a drain on state budgets. Of course, a plan like this would also deprive the state of an enormous revenue-raiser: with privatized schools means that the rationale behind property taxes is eliminated.

The story mentioned above is not foolproof, nor is it something that can happen overnight. Transitions like this are difficult and I have no simple plan for the students that are lost in the transition, nor can I make any guarantees for the finished product. Will privatized schools teach students better, or will they simple cut costs by hiring unqualified teachers? I hope against hope for the former, but I worry about the possibility of the latter.

This kind of experiment is not something that could be experimented upon easily; a large region would have to be entirely privatized and given enough time for competition to change school administration culture significantly in order to show some progress and I doubt that politicians are willing to wait that long. Statesmanship, not politics, is situated for the long term, and precious few statesman are in office nowadays.

Until we elect a few statesmen - or at the very least a few muster the courage to run for office and win - we'll have to settle for hypotheticals. The intellectual exercise is stimulating, but it simply won't satisfy the way decisive action will.

An Introduction

2006-01-21T14:51:00.000-08:00

I want to introduce myself before I begin to examine the world in which we live and some of the issues that will be discussed on this blog. To be more specific, this blog will address whatever pressing issue that passes my fancy. These issues could range from school vouchers to the role of neighbors and local environments to physician-assisted suicide. So be prepared for posts which may or may not be related to each other.

At the time of this post, I am a student at American University. I'm majoring in political science and economics, minoring in math and philosophy. My primary focus is economics and I tend to interpret issues in that context, even if the issues themselves may not lend themselves to such a simple analysis. This is not true for every post that I plan to make, but many of them follow this trend, so don't be surprised.

Welcome to the Den.

Let There Be Posts

2006-01-16T18:34:00.000-08:00

And the Penguin Roller said, "Let there be posts". And there were posts. And they were Good.