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January 28, 2009
Is fairness a cross cultural value?
In Fair's fair, Bart Wilson analyses the word "fair" in the context of the ultimatum experiment. In this game, the proposer divides a sum of money, and the responder can take amount assigned to him (giving the proposer the remainder) by the proposer or give him and the proposer nothing. Fair is an unusual word because it doesn't have a lot of direct translations, even in nearby languages like French and German. In making hay of this idea, he is essentially claiming a form of the Sapir-Whorf Hypothesis (SWH). One of the consequences of the strong form of the SWH is that if a person lacks a word to distinguish between two ideas, then they cannot see the difference. That theory is false, humans can clearly distinguish between colors without having a word for both colors. Even the weakened ability to distinguish between types lacking names is controversial. However, like the Eskimos' many words for snow, we assign words to distinguish among types that frequently need to be distinguished. Maybe the industrial revolution in the Anglo-sphere was the first time in human history that fair required frequent distinction from just and equitable.
I enjoyed a few choice quotes from the article:
Did you know that fair is one-to-one untranslatable into any other language--that it is distinctly Anglo in origin? And a relatively new word at that? (Late 18th century, actually--the industrial revolution apparently also vastly enhanced our capacity to complain.) But the twisted history of "fair" is even more interesting than that. For the original antonym of fair is not, as most modern Americans would probably expect, unfair. If you want to understand the roots of fairness, look not to ethicists, but to baseball, which still uses the original dichotomy. If a ball is hit outside the bounds of fair play, it's not unfair--it's foul. That's an important clue. As Columbia law professor George Fletcher had noted in his 1996 book Basic Concepts of Legal Thought, the Anglo-American notion of fairness is firmly rooted in the rules of a game. ... Wierzbicka's research indicated that there are two key contextual elements that make fair precisely the right word for the situation. First, the circumstances entail a tradeoff in welfare between individuals: some action benefits one person at the expense of another. The second element is that other people in the community think that there are limits to how much people are allowed to cost others in order to benefit themselves. ... How does this free us from that circular reasoning we saw in the ultimatum game? Instead of looking inwards for some inherent sense of the word, we look outward, towards the community standards that externally ground the interaction. When two subjects are randomly assigned to the roles of proposer and responder, it is not some pure platonic ideal of fairness that causes a proposer to offer $5. Rather, the proposer knows that other people would think offering less than $5 is below the socially acceptable limit in this situation, and so the proposer obeys those tacit rules.This explains another widely observed phenomenon: proposers who have earned the right be the proposer, say by doing well on a quiz, offer much less to responders than those who are randomly chosen. What is truly amazing is how accurately proposers ascertain the limits of what they can offer. The rate at which their responders reject their offers doesn't change when proposers who have earned their position offer them a smaller portion of the pie[1]. We (most of us) implicitly agree that earning an advantaged position calls for the application of different rules than does randomly endowing someone with a windfall. Moreover, we all have a pretty good sense of what those rules are; most offers are accepted.
In a followup article, Is fairness cross-cultural, or not? he adds another point:
The esteemed James Surowiecki, whose book I use in the classes that I teach, wonders whether it really matters that only English has the specific word "fair", given that people around the world make similar decisions in the ultimatum game.It's less interesting to me that people nearly universally offer (and accept) more than $1; the benchmark of a game-theoretic automaton is a low standard. The only people I've seen do that for real stakes are graduate students in economics, and they're an odd bunch whose training has somehow disturbingly supplanted the rules of fairness that ordinary people apply. (Something that's worth remembering as you read the Op-Ed back and forth on the banking bailout.)
This is a cheap shot and wrong on the moral philosophy. Our unexamined instincts offer no moral value, they just are. To consider something moral merely because it exists in nature is just a version of the naturalist fallacy that evolutionary biologists have been trying to stamp out for decades. It is entirely possible for people to walk around with a brain module that tells them to instinctively evaluate situations with a sense of fairness that is not ethical. Given that economists are at least in part philosophers, why shouldn't it be possible that extended study has lead them to a moral and behavioral outcome that is superior to unconsidered alternatives. Maybe this is inevitably elitist. But that doesn't mean is it wrong.
A similar distinction is currently being examine in moral philosophy the Moral Sense Test. [I]t is intended to investigate whether respondents with academic philosophical training respond differently to a suite of moral dilemmas (you know, the usual sort of potted philosophy cases) than do others (you know, the man on the street, mere mortals, Joe the Plumber). . But consider the alternative. If smart people think hard about a subject and study each others thinking on that subject, were no better at making difficult decisions than the average man, then that would imply that the entire field of study was of little value. Which is possible. But your life is filled with ways in which you act sub-optimally because of your educational and cognitive limitations. What is so special about morality that you feel that your gut is right? How certain are you in the quality of the morality of your unexamined behavior?
Posted by OneEyedMan at 7:26 AM | Comments (0)
January 26, 2009
Categorized as misleading at best
Here, too, there is reason for optimism. Wall Street has been asking itself: Were its financial models fundamentally flawed, or did flawed financial professionals misuse the models? Take the example of the metric that banks use to manage their risk, or so they thought. Value at Risk calculations were developed in the early 1990s at J.P. Morgan to measure the different kinds of financial risk using a single measure. Banks analyzed historical data to understand the relative riskiness of a $50 million investment in three-year Treasurys versus 30-year Treasurys, or even a $50 million investment in Japanese yen versus 1,000 barrels of oil.Bad News Is Better Than No News
By my reading, this implies that JP Morgan was the first on Wall Street to use the Value at Risk mythology. They were not. Bankers Trust definitely did it earlier. In fact, much of the experienced people in risk management working on wall street either worked in risk management at Bankers Trust or trained under someone who did. In fact, as far as I could tell from a quick check of jstor, it seems that first the financial professionals developed VaR and then about 10 years later academics started writing about it in the late 1990's.
Posted by OneEyedMan at 7:30 AM | Comments (0)
January 23, 2009
More inane evolution comments
In search of snacks, it began slowly shimmying forward. I swam with it for nearly half an hour, up and down, reaching out gently to pat its elephant-like hide (the elephant is the land mammal most closely related to the manatee). At some point, it registered with me that I was swimming with a creature whose lineage went back 50 million years.A Swim With Manatees: No Splashing, Please
I don't understand the appeal of taking special pleasure in a creature for being old. Yes, some creatures exist mostly unchanged for millions of years, but they are interesting because they are different from other creatures that are alive today, not because there is anything special about being an old species. The manatee, like every other creature alive today, is descended from animals alive 50 million years ago. But that's true for 100 million years ago and probably a billion years ago as well. Isn't the majesty of creation astounding enough that we can enjoy it for its real features and oddities rather than imagined ones?
Posted by OneEyedMan at 12:05 PM | Comments (0)
January 22, 2009
Missing the point
Slow Pitch is a new product that is the downer version of the Red Bull style energy drink. It contains melatonin, rose hips, and valerian root, all designed to relax the consumer. Its name, color (product and container), and flavor are apparently designed to evoke purple drank, a cocktail made of codeine based cough syrup and grape soda. They apparently are getting some flack for this. I see this as exactly backwards. Rather than glorifying the recreational use of cough medicine and encouraging its unhealthy use, by providing a healthier alternative to the same demographic that consumes purple drank, they are actually making the public safer. Think of the consumer that drinks Coca-Cola instead of taking cocaine.
Posted by OneEyedMan at 1:46 PM | Comments (0)
Deeper into the mystery of the matching covers
As you know, I noticed the other day that Camp Concentration and R.U.R. have almost identical covers.
I looked up the designer of Camp Concentration's cover, and it is by Evan Gaffney, who's firm Evan Gaffney Design is at 601 West 26th Street, Floor 2M, Room M230, New York, NY 10001. Jana Sturbek may also have been involved.
The cover art is by Bob Elsdale and it is licensed from Getty Images> I dug up the specific link, and the work is titled COMPUTER GRAPHICS, BACK OF HEAD . If you believe the note that prints when you choose to "Print preview image", it is copyright sometime between 1999 and 2007. Presumably because this edition of Rossum's Universal Robots came out on March 30, 2004, the photograph for the cover was designed between 1999 and 2003.
Assuming that Elsdale's image is at the early end of this range, it would just barely have existed when the relevant edition of Camp Concentration was published on April 27, 1999. However, if I had to guess, I would hold that Evan Gaffney's cover was available in book stores when Bob Elsdale's took the photograph that was used as the cover of Rossum's Universal Robots.
Posted by OneEyedMan at 1:21 PM | Comments (0)
Deeper into the mystery of the matching covers
As you know, I noticed the other day that Camp Concentration and R.U.R. have almost identical covers.
I looked up the designer of Camp Concentration's cover, and it is by Evan Gaffney, who's firm Evan Gaffney Design is at 601 West 26th Street, Floor 2M, Room M230, New York, NY 10001. Jana Sturbek may also have been involved.
The cover art is by Bob Elsdale and it is licensed from Getty Images> I dug up the specific link, and the work is titled COMPUTER GRAPHICS, BACK OF HEAD . If you believe the note that prints when you choose to "Print preview image", it is copyright sometime between 1999 and 2007. Presumably because this edition of Rossum's Universal Robots came out on March 30, 2004, the photograph for the cover was designed between 1999 and 2003.
Assuming that Elsdale's image is at the early end of this range, it would just barely have existed when the relevant edition of Camp Concentration was published on April 27, 1999. However, if I had to guess, I would hold that Evan Gaffney's cover was available in book stores when Bob Elsdale's took the photograph that was used as the cover of Rossum's Universal Robots.
Posted by OneEyedMan at 1:21 PM | Comments (0)
How to handle bank nationalization
There are a lot of problems with bank nationalizations. As I've said before, nationalizations eliminate the price mechanism's role in evaluating bank health. On the basis of efficiency, they also make bank lending more politically driven, put bureaucrats and not risk takers and innovators in charge of the allocation of capital, and run the risk of keeping bankrupt banks alive indefinitely. From a justice perspective, they reward the banks creditors and punish the equity holders, when both should suffer. Also, like all bailouts, they take the money of people that had nothing to do with the poor behavior that led to bank insolvency and force them to invest in the operations of a firms that seem to have taken horrible and unprofitable risks. They also distort government incentives as a fair arbiter. Before they nationalized the banks (although maybe you'd have to go back to before the first round of bailouts), they were more impartial arbiters of the financial system. Creditors and equity holders would get exactly what their contracts said they deserved. But now that the government is the equity holder, can rewrite the rules, and has access to effectively unlimited lending facilities, how can we expect them to treat debtors right.
So we are in an interesting position. Equity holders get wiped out, though they probably would be anyway. Bond holders get the full faith and guarantee of the government, but once they hold the debt in the nationalized companies, they are all set to get treated like dirt. I don't really have a solution to all this. It probably would be best to provide bridge financing for an orderly liquidation of the banks that are not properly solvent. Public identification of solvent banks with loans to purchase at fair prices the best assets (brands, buildings, branches) of the insolvent banks could go a long way to insuring that most or all Americans have access to financial services provided by solvent institutions.
But nationalization may happen anyway. So are there ways that we can improve nationalization so that it isn't a huge disaster? I don't mean that salary cap nonsense or having a group of bureaucrats review every bank's investment decisions. I want ideas that could actually work. The only idea that comes to mind is converting the debts to the banks to debts with the treasury. An example would help.
The treasury announces that it is nationalizing Bank of America and all new debt (but no existing debt) from Bank of America after February 1st will be guaranteed by the treasury. Existing debt holders are in a pickle. They know they won't be treated well by the government and they may still lose their investments to default. The government exploits this, saying that anyone who wants to trade in their Bank of America (secured or unsecured) debt will receive a treasury bond of the same duration and a yield associated with that duration. Say you have a ten year Bank of America bond with a 7% coupon but trading at 90 cents on the dollar because BoA may default. The ten year treasury is yielding 2.6% and trades at par. Yes, this increases the value of bond holder holdings by 11% or so, but think about what would happen if they both nationalized the bank and guaranteed the debt. Then BoA bond holders would hold 10 year government bonds paying 7% when others were only getting 2.6% for holding the same risk. According to this bond calculator, that bond would trade at 138% of face value. So this deal would be simple to administer and in this example saves the government almost 40%. Interestingly, this is a decent example. I found a 9 year Citibank bond with a 6.125% coupon, and in that case that they got a government guarantee, that'd be worth $130.69 for every $100 invested while currently trading at $90.351 per hundred invested.
Posted by OneEyedMan at 11:14 AM | Comments (0)
January 21, 2009
Interesting interview
Bruce Schneier is the person who coined the expression security theater. Reason magazine has an interesting interview with him where he discusses what he likes and doesn't about modern homeland security.
Reason: Security and privacy (or, more controversially, security and freedom) are often described as being in opposition. When is that true? When it is untrue?Schneier: The security vs. privacy dichotomy is a false one. Only identity-based security is in opposition to privacy, and there are limitations to that approach. I believe that approximately two security improvements since 9/11 have made airplane travel safer: reinforcing the cockpit door, teaching passengers they have to fight back, and—maybe—sky marshals. None of those measures has any impact on privacy. It's things like ID cards, and wholesale eavesdropping on telephone calls and Internet conversations, and large government databases that affect privacy, and their security value is minimal. The real dichotomy is liberty vs. control. There might be less crime in a society with strong government controls and police-state-like surveillance, but I don't think anyone would feel safer in that society.
Safe, But Also Sorry
There is also an interesting article about him in last year's November Atlantic Monthly issue, The Things He Carried.
Sadly, cleaning up accidents, crime, and terror is often cheaper than preventing them in the first place. Schneier is right that this is often a politically untenable conclusion. This is what's good about policies that focus on the cheapest ways to save lives (cost per life saved or cost per additional quality adjusted life year). When we focus on the cost of saving lives, the method of doing so becomes less important. That's how you get the discussion away from theater and onto what it really takes to make us safe.
Posted by OneEyedMan at 5:06 PM | Comments (0)
January 19, 2009
Is that a useful comparison?
The plain truth is that the United States is an inefficient user of energy. For each dollar of economic product, the United States spews more carbon dioxide into the atmosphere than 75 of 107 countries tracked in the indicators of the International Energy Agency. Those doing better include not only cutting-edge nations like Japan but low-tech countries like Thailand and Mexico.Energy Inefficient
Energy is expensive. Your marginal product of labor (your productivity) has to be high to justify using a lot of electricity in that work. In poor countries employers make heavy use of labor intensive processes that do not use nearly as much machinery and therefore electricity as workers in the west would use doing the same job. Our climate is less moderate than many other nations, requiring air conditioning over much of the warmer months and heating in the cool ones. Also, because we are richer, we have bigger houses, more ipods, and in general use more electricity for personal consumption.
Therefore, it isn't a surprise we use more energy than less productive nations, poorer nations, or ones in nicer climates. That probably still doesn't explain why Japan uses less energy per capita than we do. They probably care more about energy efficiency than we do (although their houses are small). However, comparisons with Mexico and Thailand which are both far poorer, less productive, and in many ways in more moderate climates are unhelpful in understanding what America's energy policy should be.
Posted by OneEyedMan at 7:52 AM | Comments (0)
You do not see that much
Take a look at the last line in the following paragraph. It contains thee uncommon pluralizations. I may have never seen a sentence like that before.
Baltimore, Philadelphia and Pittsburgh were prototypes of the economic development fad of the 1990s: government-financed "investments" in economic development. They all practiced what was called "tin cup urbanism" -- the belief that the rest of society owed large taxpayer transfers to the urban cores from which most of us have fled. They all supped from the same cup: center city stadia, aquaria and subsidized retailia.
Sports Mania Is a Poor Substitute for Economic Success
What a pleasure to see English used well. Other beautiful sentences from the piece:
Football triumphalism is a kind of civic cocaine, creating a sense of accomplishment where the reality is otherwise. (Maybe that's what's behind Western Europe's soccer fanaticism.) ... Steelers bars are the visible cultural artifact of a kind of economic diaspora.
Posted by OneEyedMan at 7:37 AM | Comments (0)
January 18, 2009
A very funny but profane review of Thomas Friedman’s work
I laughed out loud many times. Very funny and even nasty at times, but makes an interesting point.
Flat N All That
Posted by OneEyedMan at 3:55 PM | Comments (0)
Will a Tobin tax help prevent financial crises?
In Where the Money Is, New York Times Op-Ed writer Bob Herbert advocates a tax on every financial transaction.
The economist Dean Baker is a strong advocate of a financial transactions tax. This would impose a small fee -- ranging up to, say, 0.25 percent -- on the sale or transfer of stocks, bonds and other financial assets, including the seemingly endless variety of exotic financial instruments that have been in the news so much lately.According to Mr. Baker, the co-director of the Center for Economic and Policy Research in Washington, the fees would raise a ton of money, perhaps $100 billion or more annually -- money that the government sorely needs.
But there’s another intriguing element to the proposal. While the fees would be a trivial expense for what the general public tends to think of as ordinary traders -- people investing in stocks, bonds or other assets for some reasonable period of time -- they would amount to a much heavier lift for speculators, the folks who bring a manic quality to the markets, who treat it like a casino.
In general, this kind of tax is called a Tobin tax. Originally coined for a transaction tax in currency markets, this tax is an attempt to raise money and throw sand in the smooth operations of financial markets.
It is possible that this sort of tax could raise a lot of money. It is also possible that it could throw a lot of sand into capital market operations. But not both. Like cigarette taxes that can raise a lot of money or discourage a lot of smoking, it can only raise a lot of money by existing in an environment where a lot of people trade, and create a frictions by discouraging people from trading and therefore not paying the tax.
If this law comes about, I'd expect to see a massive effort to avoid this tax by holding and trading assets outside of the United States. I would expect that effort to succeed on many products, especially ones that do not trade on exchanges. The ones that do trade on exchanges in the USA would probably continue to do so, and therefore pay the tax. How much would their trading volumes decline? Many products trade with a bid-offer spread of more than .25% already. To people are already willing to pay a large tax on the value of their assets in order to trade. Would they be willing to pay one .25% more? In the 80's when computer technology was more primitive, trading volumes were lower and spreads larger on most products. But for stock spreads to be on average .25% higher, you don't have to go back that far. Early to mid 90's would be enough (depending on which study you believe and how you calculate it). Going back to the mid-90's volume would make NYSE volume fall by about 75%. I don't know what the elasticity of demand for trade is with respect to the price of trading, but if this method is indicative it suggests that most of the effect will be on volume. Seeing a quartering of trading volumes would do massive damage to the US as a financial center, and that's an expensive way to raise $100 billion a year. In contrast, we could raise that much money by increasing the national income tax by about .7%.
When designing taxes, you should care about their excess burden. That is, how much economic distortion do they encourage compared with the revenue they generate? Tobin taxes have massive excess burden. Don't have them.
I think what this policy confuses is a flurry of activity with a flurry of speculation. High trading volumes are good. Having a diverse group of market participants with different savings horizons, goals, and risk appetites is good. Even the knowledgeable people who think that speculation is bad think that. So why punish those activities we know to be good to discourage a policy (speculation) which is at best of unknown value. If we want to target speculation, we should do that directly. We currently do that by having a different capital gains rate for short term and long term holding. We can also do that by regulating or taxing leverage.
Posted by OneEyedMan at 8:34 AM | Comments (0)
January 17, 2009
Camp Concentration and R.U.R. have almost identical covers
Look at the similarity between the cover of Camp Concentration, the story of a strain of syphilis that makes you a genius for a while before it kills you:
Camp Concentration: A Novel by Thomas M. Disch
And the cover of R.U.R. (Rossum's Universal Robots), the play that coined the word robots:
R.U.R. (Rossum's Universal Robots) (Penguin Classics) by Karel Capek
The second cover seems to be only on the 2004 edition cover, while the first is at least as old as the 1999 edition of that book. A quick Google search for the two titles and the word cover gave no indication of any relevant comments. I wonder if I was the first person to notice. Is it weird that two famous science fiction books could have almost identical covers and no one else noticed in four years?
Posted by OneEyedMan at 1:58 AM | Comments (0)
January 16, 2009
Bad statistics at wired
There is a bad article in this month's issue of Wired that isn't yet online. Titled "Belle Curves: Playmates are becoming less like women and more like anime cartoon girls".
There crux of the argument is that the BMI (body mass index), a widely accepted but flawed measure of body fat, has diverged between women in general and Playboy Playmates. Yes, Playmates have lower BMI. The average age of a playmate is 22, so they were always going to have a lower BMI than women in the 20-29 group that the article compares them with (because about 70% will be older than the average playmate), but that wouldn't explain how the difference in the two group's BMI changed over time.
In the early years, the average playmate had a BMI of 19.4. In 1999 to 2002, the most recent data indicated, the average playmate BMI is 18.2. So the average playmate is 1.2 BMI smaller. On the other hand, the average american young woman (20 to 29) had a BMI of 22.2 in those same early years of 1960-1962. They've thickened up to an average BMI of 26.8 in 1999-2002, an increase of 6.6. So it isn't so much that playmates have become freakishly thin as American women have become substantially heavier. In fact, according to their statistics, the average playboy weight has increased about a pound since the sixties, and the average height increased about two inches. At 115 pounds and a height of 5'6" today, gives the BMI of the current average of 18.6 and puts the BMI of 1960's average at 19.6, which is close to the average of the BMI that Wired found. Finally, I found that woman in the Philippines in the 1980s had an average BMI of 18.7, and no one would describe them as a nation of anime cartoon bodied women.
The best piece of inference in the article concerns the relationships between playmate bust and cup size. Playmate cup size has had fairly constant between a C and D cup. The average bust size has declined from a 35 to a 33. That is pretty good evidence that more playmates are packing silicone. Using my back of the envelope calculations, the average playmate of 5'6" would have had to put 7 pounds on the average 1960's playmate (5'4") to have the exact same BMI. So current playmates are 6 pounds skinnier for their height. As such, they probably have smaller natural breasts. To augment their breasts to a perceived optimum of desirability, they then get implants.
Posted by OneEyedMan at 12:11 PM | Comments (0)
Sometimes I actually agree with the NY Times
In The Costs of Negligence, The New York Times Editorial Board applauds New Hampshire for billing those who venture outdoors and get lost through their own negligence. It replaced an earlier higher standard of reckless to be billed for your rescue. This is very reasonable. Though I can't seem to dig it up now, it is widely believed that the sorts of people who venture into these wilderness areas (and therefore are more likely to get lost) are affluent folks with time for long vacations requiring expensive equipment. So if people can afford to pay for their own rescue, they surely should. That can be a separate issue from the poor or hapless who manage to get lost and can't afford a rescue. As I've said before in the health care arena, your life is precious, and there isn't anything wrong with making protecting it expensive. We can make it expensive but affordable by having a sliding cost scale.
Alternatively, but perhaps not as cleanly, we could have higher park fees for wilderness permits and build into it the cost of rescue insurance. That would probably encourage more people to take wilderness risks, but at least we could raise the money required for rescues from the people taking the risks, regardless of income.
Posted by OneEyedMan at 9:49 AM | Comments (0)
January 14, 2009
Stunning statistics
Numbers without context are not everything, but these suggest an imbalance of outrage:
In 2005, when Israel was still an occupying force, Gaza lost more young men to gang fights and crime than in its war against the "Zionist enemy." Despite the media's obsession with the Mideast conflict, it has cost many fewer lives than the youth bulges in West Africa, Lebanon or Algeria. In the six decades since Israel's founding, "only" some 62,000 people (40,000 Arabs, 22,000 Jews) have been killed in all the Israeli-Arab wars and Palestinian terror attacks. During that same time, some 11 million Muslims have been killed in wars and terror attacks -- mostly at the hands of other Muslims.Ending the West's Proxy War Against Israel
Posted by OneEyedMan at 8:38 PM | Comments (0)
Misleading sub-headline
On the front page of the NY Times website, there is an article, Geithner Hearing Scheduled for Jan. 21. The sub-headline is "Some senators objected to holding the hearing on Friday after disclosures of Timothy F. Geithner’s late payment of some taxes in past years." Which pretty clearly suggests that the late tax payments caused the delay of the hearing scheduled for Friday.
However, if you open the article up, you see the following:
The Senate Finance Committee’s hearing on Mr. Geithner’s nomination was postponed to next week after Senator Jon Kyl, a Republican from Arizona, objected to holding it on Friday, according to committee aides. A spokesman for Mr. Kyl, Ryan Patmintra, said on Wednesday that Mr. Kyl did not object because of the news of the controversy over Mr. Geithner’s late payment of taxes for 2001 to 2004 when he worked at the International Monetary Fund, but because of unrelated scheduling issues.
So I guess it is still narrowly true that a Republican senator objected to holding the hearing on Friday after disclosures the late tax payments. After the late tax payment a Republican delayed the hearing, but the late tax payment didn't cause the delay. Beware of post hoc ergo propter hoc.
Posted by OneEyedMan at 10:31 AM | Comments (0)
Is America in Decline?
Paul Kennedy has a piece in today's WSJ, American Power Is on the Wane that claims that America has begun its decline as a nation and empire. My response is long, but I hope you find it heartening.
David Post, in his Volokh post Why I’ll Be Voting for Obama points out that "[c]ountries can descend into the ranks of the second-rate in the blink of an eye (historically speaking): it happened to Spain, and to Portugal, and to Argentina, it is now happening to Italy, and it can happen to us." You could probably add Lebanon(Remember when Beirut was Paris of the middle east?) and before WWII Eastern Europe and the Balkans were home to some of the worlds largest economies and highest per capita incomes. I agree with that, although the details are everything.
"So while today's Russia, China, Latin America, Japan and the Middle East may be suffering setbacks, the biggest loser is understood to be Uncle Sam."
It is difficult to find an major stock market that did better than the US did this year (Stock Market 2008 - Unprecedented):
Dow Industrials - Down 33.8%
S&P 500 - Down 38.5%
Nasdaq - Down 40.5%
France CAC 40 - Down 43%
German DAX - Down 40.4%
UK FTSE 100 - Down 31.3%
Japan Nikkei - Down 42%
Hong Kong Hang Seng - Down 48%
Singapore Strait Times - Down 49%
Australia S&P/ASX - Down 41%
China Shanghai Composite - Down 65.4%
Similarly the dollar has strengthened against most major currencies. Which is astonishing when you consider that the national debt increased (The Debt to the Penny and Who Holds It) by $1,323,842,005,473.29 last year and short term interest rates went to 0.
Daily rates
Country per $ (Today) (Year ago) per £ per euro
Australia 1.49 1.12 2.18 1.97
Britain 0.68 0.51 -0.9
Canada 1.22 1.02 1.79 1.62
China 6.83 7.25 10.01 9.06
Euro zone 0.75 0.68 1.1 -
Hong Kong 7.76 7.81 11.38 10.27
India 49.43 39.28 72.52 65.62
Japan 89.31 108.81 30.99 118.55
Mexico 13.78 10.92 20.21 18.29
New Zealand 1.79 1.28 2.62 2.37
Norway 7.08 5.29 10.39 9.41
Singapore 1.49 1.43 2.18 1.98
South Africa 10.07 6.71 14.78 13.32
Sweden 8.21 6.35 12.05 10.83
United States - - 1.47 1.33
"The first reason, surely, is the U.S.'s truly exceptional budgetary and trade deficits."
The charts above show that the current budgetary deficit increases have been met with a collective yawn by global markets. The public perception of the trade deficit has long been an area of great frustration to economists. People are willing to take our government debt (paying something like 5% a year or less) and they will give us stuff they made. That's paper money for real stuff. If one day they all panic and decide that they don't want our debt anymore, then our currency will crash. That's bad for us, but even worse for the people who already gave us stuff and now hold only our assets denominated in dollars. Yes, it would be a costly adjustment. But fueled by a currency collapse we would see a surge of exports, providing us with the means to payoff that external debt with cheap dollars.
"To my mind, the projected U.S. fiscal deficits for 2009 and beyond are scary, and I am amazed that so few congressmen recognize the fact as they collectively stampede towards the door entitled "fiscal stimulus.""
I actually agree with him here. The arguments for the fiscal stimulus are at best the fruits of sloppy econometrics and at worst a pipe dream of pork to fulfill everyone involved or advocating its fantasies of what government should be and what areas should receive more investment than the market currently provides.
I'd discussed my stimulus skepticism in What sort of stimulus?, but better still would be to skip it entirely.
"The third thing I'm really scared about is that we'll likely have very little money ourselves to pay for the Treasury bonds that are going to be issued, in tens of billions each month, in the years ahead. Sure, some investment firms, bruised by their irrational exuberance for equities and commodities, will take up a certain amount of Treasury issues even at a ridiculously low (or no) rate of return. But that will not cover an estimated budget deficit of $1.2 trillion in 2009."
This is possible. On the other hand, rates fell when the government issued the last 1.3 trillion, so it is hard to say whether the markets could absorb another amount of this magnitude without an increase in rates. However, if the government can borrow cheaply, and we know that that won't last forever, we may want to take advantage of that.
"Do people really think that China can buy and buy when its investments here have already been hurt, and its government can see the enormous need to invest in its own economy? If a miracle happened, and China bought most of the $1.2 trillion from us, what would our state of dependency be then?"
The alternative to China continuing to buy our bonds (given our trade deficit with them) is to let their currency appreciate. Notice in the chart above it was one of the few currencies that appreciated against the dollar last year. China is a country with terrible problems: huge governance problems, corruption, gender imbalances, rural poverty, and the first country to grow old before it grows rich. If they don't keep growing driven buy a cheap currency rendered cheap by non-convertibility, high domestic savings, and buying a lot of dollar denominated assets, they face unrest and potential social collapse. I expect them to continue to eat our debt over the next year. Herbert Haft once said, "If you owe someone several thousand dollars, you can't always sleep at night. If you owe someone several million dollars, the banker or supplier can't sleep. It's no use both of you worrying.". In time, that's evolved to saying that "if someone owes the bank a million dollars, the bank owns him, but if someone owes the bank a billion dollars, then he owns the bank." There is truth there.
"On the other hand, the data so far suggest the economies of China and India are growing (not as fast as in the past but still growing), while America's economy shrinks in absolute terms. When the dust settles on this alarming and perhaps protracted global economic crisis, we should not expect national shares of world production to be the same as in, say, 2005. Uncle Sam may have to come down a peg or two."
Even using the PPP measures of national production which enhances the productivity of poor countries like India and China, they are still pretty far behind. Use the exchange rate measures of national production and India and china are less than half as large. PPP has its purposes, but PJ O'rourke criticized the PPP measure as saying you are richer because you live in a a bad neighborhood.
| Rank | Country | GDP (purchasing power parity) | Date of Information |
| 1 | World | $65,610,000,000,000 | 2007 est. |
| 2 | European Union | $14,430,000,000,000 | 2007 est. |
| 3 | United States | $13,780,000,000,000 | 2007 est. |
| 4 | China | $7,099,000,000,000 | 2007 est. |
| 5 | Japan | $4,272,000,000,000 | 2007 est. |
| 6 | India | $2,966,000,000,000 | 2007 est. |
| 7 | Germany | $2,807,000,000,000 | 2007 est. |
| 8 | United Kingdom | $2,130,000,000,000 | 2007 est. |
| 9 | Russia | $2,097,000,000,000 | 2007 est. |
| 10 | France | $2,075,000,000,000 | 2007 est. |
| 11 | Brazil | $1,849,000,000,000 | 2007 est. |
"Moreover, no three or four of those countries -- and perhaps not a dozen of them combined -- have anywhere like the staggering array of overseas military commitments and deployments that weigh upon Uncle Sam's shoulders. That brings us back, I'm sorry to say, to the "imperial overstretch" remarks I made some 20 years ago".
Well maybe. According to the SIPRI Year book (Tables of military expenditure as of 2003), China spends 2.3% of GDP on the military, Iran 3.8, Egypt 2.6, Russia 4.3 and Saudi Arabia 8.7%. The USA, far richer per capita and getting a vastly more effective military spends 3.8%. Maybe that's over reach, but it wouldn't take much reduction in health care expenditures to bring our spending in like with the UK (2.8) and France (2.6). A good defense is expensive, but we can afford it.
Therefore, while decline is always possible, I don't see evidence of national decline in Mr. Kennedy's arguments.
Posted by OneEyedMan at 10:08 AM | Comments (0)
If you have to have regulation it should make sense
For reasons that defy logic, the nation’s food safety functions are split. The Agriculture Department inspects about 20 percent of the food supply (meat and poultry), and the Food and Drug Administration is responsible for almost everything else. And yet the Agriculture Department receives a majority of federal food safety dollars. ... In 1999, the Government Accountability Office (then called the General Accounting Office) issued a report called “U.S. Needs a Single Agency to Administer a Unified, Risk-Based Inspection System.” ... "The fragmented system was not developed under any rational plan but was patched together over many years to address specific health threats from particular food products," the report said. Efforts to address food safety, it says, are "hampered by inconsistent and inflexible oversight and enforcement authorities, inefficient resource use and ineffective coordination." ... Ms. DeLauro’s proposal to split the F.D.A. has won wide support among food-safety wonks. Under the new system, there would be a Food Safety Administration and a Federal Drug and Device Administration, with separate budgets and administrators reporting to the secretary of health and human services, who now oversees the F.D.A.Looking to Obama to Bring Logic to Food Safety
I've been concerned that we will start treating genetically modified food as a drug, requiring an extensive and expensive approval process before commercial use. It could be that separating these agencies could prevent that from happening. I doubt it. Because the drug regulators have better things to do then hassle the GM food producers, they get left alone. A dedicated agency would probably expand to promote its own influence, power, and budget and GM food would be one front to hit the public's levers to do so. Perhaps a piece of law in the creation of the new agency could forbid it from treating GM food as different from the fruits of traditional husbandry and selective breeding programs.
Posted by OneEyedMan at 7:59 AM | Comments (0)
Monopolists restrict the supply
The WSJ is reporting (Rites of Passage: In Cuba, a Revival in Judaism Leads Some to Israel) that because Israel welcomes Cuban Jews and will pay their fees, and the Cubans will let them leave, there has begun an influx of people with Jewish backgrounds seeking to convert.
The prospect of emigration is helping fuel a revival of sorts in Judaism in Cuba after a half-century of Communism. With as many as 30,000 Jews in the period just before World War II, Cuba's "Hebreo" enclave withered to around 1,000 individuals by the late 1980s. It's up to almost 1,500 today -- with hundreds of other recently departed Cuban Jews now living in Israel or Florida. For this community, that's a population explosion.
Now because Cuba is a tropical prison, conversion is a relatively inexpensive process for the hosting synagogue, and in the United States it only takes about 1 year, I'd think the Cubans Jews would be making it simple for people to convert and leave. But they are not.
The journey from Havana to Jerusalem, however, isn't easy. The process of converting to Judaism takes years and includes being approved by a council of elders at the synagogue and then an ordained rabbi. Since Cuba has none, usually converts have to wait for a visiting rabbi from Israel, Argentina or Chile. Last but not least, male converts have to submit to a ritual circumcision. In 2007, dozens of adult Cuban men underwent circumcision as part of their conversion process.Not anyone can just walk into a synagogue and get a ticket out of Cuba. Usually, one needs a Jewish mother to be allowed into the fold. But the rules seem somewhat flexible: Mr. Castro, for instance, is becoming Jewish because his mother, 41, married a Jew -- the former head of the Sefaradí synagogue, José Levy, who is in his 70s.
Some of this may be a response to the Cuban Government. They may have to be strict to get the government to recognize the conversions or to avoid public outcry. On the other hand, if a religious group has a monopoly on a valuable resource, they could artificially restrict the supply to drive the price up. Not necessarly like the expensive Scientology classes, but in the form of larger study requirements, greater donations of time, and more conspicuous displays of faith. I'm not saying that that's happening here, but it would be consistent with the facts.
Posted by OneEyedMan at 7:31 AM | Comments (0)
January 13, 2009
That didn't take long
I notice today that Reuters has images (Israeli troops invade Gaza) of an Iranian protest where Obama's image was burned in effigy. Which reminded me of a quotation from one of Thomas Friedman's Op-Eds:
"If you’re a hard-liner in Tehran, a U.S. president who wants to talk to you presents more of a quandary than a U.S. president who wants to confront you,” remarked Karim Sadjadpour, an Iran expert at the Carnegie Endowment. “How are you going to implore crowds to chant ‘Death to Barack Hussein Obama’? That sounds more like the chant of the oppressor, not the victim. Obama just doesn’t fit the radical Islamist narrative of a racist, blood-thirsty America, which is bent on oppressing Muslims worldwide. There’s a cognitive dissonance. It’s like Hollywood casting Sidney Poitier to play Charles Manson. It just doesn’t fit.”
Show Me the Money
Though I hoped this wonderful claim that Obama's heritage would somehow improve the tone of middle eastern diplomacy was true, I was deeply skeptical that it was possible. Now in light of this, I wondered if Sadjadpour's claim had been invalidated even before Obama took office. So I did a little digging, and I must report that it is thus invalidated.
The demonstrators, waving Palestinian flags, some chanting "Death to Obama," had gathered outside the Swiss embassy which handles U.S. interests because Tehran and Washington have not had diplomatic ties for nearly three decades.
Iranian protesters back Gaza and burn Obama picture
May our other hopes for the Obama presidency be not so readily dashed.
Posted by OneEyedMan at 3:59 PM | Comments (0)
A paper for my NetFlix subscribing readers
Anecdotal evidence from my family and friends has long suggested that people rent aspirational movies from Netflix that sit unwatched while movies of lower artistic value but greater entertainment value are quickly watched and returned. A new working paper, Highbrow Films Gather Dust: Time-inconsistent Preferences and Online DVD Rentals provides statistical evidence that this is a real phenomena. Now that it is possible to download movies from Netflix, we should see an even greater fraction of the movies watched through the service shifted to entertaining from artistic. That's because before you might rather watch an artistic film from your mailbox than the particular entertaining movie in your mailbox. But now your every artistic movie has to compete with every entertaining movie. That's a larger opportunity set, so it is possible that people could consume more artistic films if just the right one presented itself. And yet, since people seem to prefer the entertaining ones in most two way comparisons, expanding the choice set just gives you more superior options to choose from.
Posted by OneEyedMan at 3:15 PM | Comments (0)
January 12, 2009
Quote of the day
I haven't liked a lot of what I've read in the mainstream news about the war between Israel and Gaza. It says a lot that the Op-Eds have in general been better than the news section in presenting a factual representation of the circumstances there. I'm not as angry as some, at the coverage. I've spoken to so many furious Jews about Palestinian terrorist behavior that I'm forced to believe that the Israelis must be even angrier and in in that rage it is possible that they have been less careful with non-combatants than they should have been. I see a lot of evidence to the contrary, that they've taken extra-ordinary measures to avoid doing so while successfully waging a war, but knowing that mistakes and revenge could easily happen in that environment, I've tried to greet the press coverage with a skeptical eye.
The New Republic has an interesting article on the press coverage that I enjoyed, and from which I drew this great quotation:
Last night, while packing my kitbag, I listened as foreign correspondents spoke of Israel's plan to "divide and conquer" the West Bank and Gaza Arabs, that Israel had "starved" and "strangled" Gazans and forced them to lash out with missiles, and that Gaza is "the world's most densely populated area." My job will be to remind journalists that Hamas, not Israel, conquered Gaza and cut it off from the West Bank; that Israel's closures of Gaza's borders were a response to, not the catalyst of, rocket strikes and that Gazans never remotely resembled the real victims of hunger in Darfur and Somalia; and that Tel Aviv is almost twice as densely-populated as Gaza.
Back to the Front
Posted by OneEyedMan at 6:43 PM | Comments (0)
What sort of stimulus?
You have probably heard that Obama wants to borrow money to create a government stimulus of about a trillion dollars.I'm of the mind that it will contain too much meddlesome and expensive waste to be worth it. However, a lot of policy makers and economists have been discussing the relative merits of a tax cut and government spending as a Lafferian/Keynesian stimulus to get us out of the recession. The idea here is in the multiplier effect. The hope is that when the government refunds you a dollar of taxes or pays you to build a road, you invest and consume your new income, creating jobs in the industries you consume and invested in. Of course, when the government spends money it doesn't have it does so by printing money or borrowing, both of which raise interest rates throughout the economy, making it a bit more difficult for every borrower in the economy. When you add up the total economic consequences, they could be greater than the original dollar (we call the ratio of the benefits to the costs the multiplier) indicating that the government can powerfully stimulate the economy or less than one, indicating that such a stimulus is unlikely to succeed. Krugman believes that government spending has the higher of the two multipliers (tax cuts with a multiplier of 1, government spending of 1.5) , while Mankiw believes that tax cuts have the higher multiplier (tax cuts of 3, government spends of 1.4).
The way I see it, if we have to have one, we should have tax cuts. The worst that can happen with the tax cuts is that people spend and save money that the federal government borrowed cheaply, and the best would be that people used that money to make intelligent savings decisions for retirement and emergencies. As Bryan Caplan says, this would provide the psychology of the stimulus with far less opportunity for the negative consequences of all the new government intervention to rear its ugly head. I guess said another way, the worst the multiplier of of tax cuts could be is 1, while the worst the government spending multiplier could be is negative. When it comes to the perils of government action, I am risk averse.
Posted by OneEyedMan at 7:41 AM | Comments (0)
January 10, 2009
Sometimes covers are better than the original
I I watched the trailer to The Last House on the Right, and was haunted by it's music, Taken By Tree's cover of Gun's and Roses Sweet Child of Mine. It reminded me of another great cover in a trailer, Rouge Wave's Everyday. In looking to listen to it in its entirety, is stumbled upon it at a list of Top 10 Cover Songs That Outshine The Original. I can't agree with every choice on that list, but Johnny Cash's cover of hurt is astonishingly good.
Any other especially good covers? I like Alien Ant Farm's cover of Michael Jackson's Annie.
Posted by OneEyedMan at 8:36 PM | Comments (1)
A runaway narrative
I just finished reading Dirty Harry or p.c. wimp?, a fascinating analysis of Clint Eastwood's film career. If you've seen a lot of his major works or don't mind spoilers it is a fascinating analysis. He examines the question "Have Clint Eastwood's movie changed to reflect his shifting value or have we amplified small changes in his art to crate a narrative that has little to do with changes in the man?". Take a look.
Posted by OneEyedMan at 8:42 AM | Comments (0)
January 9, 2009
Funny Amazon review
The Secret is a popular self help book. A friend of mine pointed me to a hilarious review that someone wrote of the book. Worth a laugh. I know that homosexual prison rape is an appalling human rights violation that we should do more to stop, but I am unable to stop myself laughing from its creative use in popular humor. Some people think that Amazon is going to pull the review, so I've included a copy under the fold.
1,385 of 1,406 people found the following review helpful:
5.0 out of 5 stars The Secret saved my life!, December 4, 2007
By Ari Brouillette
Please allow me to share with you how "The Secret" changed my life and in a very real and substantive way allowed me to overcome a severe crisis in my personal life. It is well known that the premise of "The Secret" is the science of attracting the things in life that you desire and need and in removing from your life those things that you don't want. Before finding this book, I knew nothing of these principles, the process of positive visualization, and had actually engaged in reckless behaviors to the point of endangering my own life and wellbeing.
At age 36, I found myself in a medium security prison serving 3-5 years for destruction of government property and public intoxication. This was stiff punishment for drunkenly defecating in a mailbox but as the judge pointed out, this was my third conviction for the exact same crime. I obviously had an alcohol problem and a deep and intense disrespect for the postal system, but even more importantly I was ignoring the very fabric of our metaphysical reality and inviting destructive influences into my life.
My fourth day in prison was the first day that I was allowed in general population and while in the recreation yard I was approached by a prisoner named Marcus who calmly informed me that as a new prisoner I had been purchased by him for three packs of Winston cigarettes and 8 ounces of Pruno (prison wine). Marcus elaborated further that I could expect to be [...] raped by him on a daily basis and that I had pretty eyes.
Needless to say, I was deeply shocked that my life had sunk to this level. Although I've never been homophobic I was discovering that I was very rape phobic and dismayed by my overall personal street value of roughly $15. I returned to my cell and sat very quietly, searching myself for answers on how I could improve my life and distance myself from harmful outside influences. At that point, in what I consider to be a miraculous moment, my cell mate Jim Norton informed me that he knew about the Marcus situation and that he had something that could solve my problems. He handed me a copy of "The Secret". Normally I wouldn't have turned to a self help book to resolve such a severe and immediate threat but I literally didn't have any other available alternatives. I immediately opened the book and began to read.
The first few chapters deal with the essence of something called the "Law of Attraction" in which a primal universal force is available to us and can be harnessed for the betterment of our lives. The theoretical nature of the first few chapters wasn't exactly putting me at peace. In fact, I had never meditated and had great difficulty with closing out the chaotic noises of the prison and visualizing the positive changes that I so dearly needed. It was when I reached Chapter 6 "The Secret to Relationships" that I realized how this book could help me distance myself from Marcus and his negative intentions. Starting with chapter six there was a cavity carved into the book and in that cavity was a prison shiv. This particular shiv was a toothbrush with a handle that had been repeatedly melted and ground into a razor sharp point.
The next day in the exercise yard I carried "The Secret" with me and when Marcus approached me I opened the book and stabbed him in the neck. The next eight weeks in solitary confinement provided ample time to practice positive visualization and the 16 hours per day of absolute darkness actually made visualization about the only thing that I actually could do. I'm not sure that everybody's life will be changed in such a dramatic way by this book but I'm very thankful to have found it and will continue to recommend it heartily.
Posted by OneEyedMan at 7:02 AM | Comments (0)
January 7, 2009
Scarry stuff
If it is an accurate description of the success of Iran in Middle Eastern politics, then Reuel Marc Gerecht's Op-Ed in today's WSJ, Iran's Hamas Strategy is terrifying for Americans, Israelis, and moderate Muslims in the Middle East. I highly recommend it.
Posted by OneEyedMan at 10:42 AM | Comments (0)
January 6, 2009
Makes me laugh and be glad I live in a family that gives much better gifts
A man's story of his family's terrible gifts. Quite funny.
The Good, the Bad and the Ugly (Sweatshirt)
Posted by OneEyedMan at 2:39 PM | Comments (0)
Does Israel have the incentives to develop more accurate weapons?
I read with sadness that an Israeli Strike Reportedly Hits Refugees at School in Gaza. There isn't evidence that the school was targeted, but according to the article, "Israel has been criticized in the past for the inaccuracy of its shelling". On the other hand, some say that Hamas mortars prompted attack near U.N. school.
Putting aside briefly that there are enormous moral consideration, it could be of strategic interest to harming non-combatants. If optimal warfare is somehow defined by a strategy that in some discounted, risk adjusted sense maximizes the welfare of your own people then it seems unlikely that optimality would also be the moral option. The entire strategy of Paletinian terror is built on the premise that killing innocent people (or at least non-combatants) is the best way that they can pursue their political goals. Harming the civilian population may make them pursue a position of political compromise, sour their relationship with their own military, goad them into committing atrocities that sour the enemy's international relations, or simply cause them to relocate.
Israel is a member of the west, and prides itself on valuing human rights life, liberty, and property. There are flaws in their implementation. Nevertheless, valuing and acting as though these values are important and attempting to live by them prohibits Israel from employing strategies that nakedly violate the rules of war like blindly shelling a civilian population. But there are more subtle ways, that even the most scrupulous of nominally rights abiding countries could harm non-combatants in the course of war.
For example, in choosing to design new weapons you could choose between more powerful over more accurate ones. You could choose tactics that place more civilians in jeopardy instead of your own men like aerial bombardment instead of a ground force. You could warn civilians about impending attacks or follow a more literal conception of the rules of war that holds the death of human shields as strictly the responsibility of the hostage takers. Military planning being as complicated as it is, especially with ambulances used as weapons of war, states have significant flexibility to allow aid into the territories under their attack. Minimizing such aid could well be legal and yet inflict as a known benefit harm upon the civilian population.
I don't really see a way around this. On the margin, militaries are making decisions that harm civilians and increase the likelihood of success. Many of these are legal. War is hell, and in spite of the rules of war it is still thus. Much of what is legal is still terrible.
But looking at the nature of these marginal decisions does provide us with insight into the moral philosophy underlying military decision making. Techniques like the rules of engagement, military strategy, and the way propaganda is used all articulate the trade-off between protecting innocents and maximizing success. How does Israel stand up to this evaluation?
Israel could have deliberately stocked its military with inaccurate weapons sure to kill the non-combatants. The Israelis have weapons that are much more accurate than the Palestinians. However, I don't know if they were offered still more accurate ones and and didn't take them because they were cheaper, less powerful, or less reliable. According to Wikipedia, in the Second Intifada about 68% of Israel's casualties were Israeli civilians. Of the identified Palestinian casualties, 55% were full combatants, probable combatants, or violent protesters, making 45% probable innocents who died. Even if we do not believe in the principle of double effect, even a die-hard consequentialist can see that the Palestinians are employing a strategy that is more probable to cause the deaths of innocents.
Israel certainly choose tactics that used a lot of air-strikes before they began the land force. They could skipped the propaganda phase where they dropped pamphlets on areas they were planning to bomb later, knowing that hiding military forces among civilians is a war-crime. They could have skipped their humanitarian pause for aid. I'm sure I've missed acts that would alter my judgment some, but from what I know now, Israel stands up well. Not flawless, they certainly could do at some cost in blood and treasure, but in total well.
Posted by OneEyedMan at 8:39 AM | Comments (0)
January 5, 2009
Courage in action
What is courage? I'm not sure I can define it, but I know it when I see it. Michael Weisser, rabbi of the Flushing Synagogue, was once a rabbi in Nebraska. Confronted with the hatred of the head of the KKK in Nebraska, he decided to engage him, challenging his hatred. Eventually, an opening presented itself and he offed love. In the end, Weisser engaged the Klan leader with love and converted him to Judaism (Lessons on Love, From a Rabbi Who Knows Hate and Forgiveness). That is astounding and contagious.
One of my favorite stories of courage, and one of the few from people of my acquaintance is from Tom Palmer of the Cato Institute. I met Tom at a Cato Summer Seminar many years go, and he nonchalantly mentioned that he snuck suitcases full of banned books into the USSR when the consequences of doing so were enormous. Today that may not seem like much, just giving away a few books. However, imagining trying to give away a suitcase full of freedom loving texts to one of the world's current tyrannies gives me a bit of a shudder and I wonder if I'd have such strength of character. I hope so.
Posted by OneEyedMan at 4:46 PM | Comments (0)
January 4, 2009
The durable good monopolist vs. video game collectors
Economic models have their problems. They obviously abstract away from important details. Ultimately, they are judged by how much they elucidate compared with how much they obfuscate. Every once in a while you get to see a real world economic phenomena that appears to be a textbook example of a model in action.
Consider the model of the durable goods monopolist. The durable goods monopolist has a monopoly on the sale of a new good. However, the good is durable, it lasts for a while (perhaps forever) so their customers can resell it when they no longer need it or in response to price changes.
Normally the monopolist has a lot of power. Often they limit the quantity they sell so that they can make large profits by selling to only those willing to pay a high price. The presence of a resale market holds down the price that the monopolist can charge. Unable to profit by restricting quantity, they instead provide a larger quantity, treating the resellers as though they were competitors.
Software is a great example of this sort of durable good. Software is stored digitally, and kept under reasonable conditions lasts indefinitely. Restrictions from licensing agreements not withstanding, the right of first sale still exists in the USA and permits customers to resell their software. So every software manufacturer competes not only with rival providers of software, but also with their customers.
Video games are a special case of this. Several particulars make it interesting. First, every video game really is a monopoly. Yes, there are many sports games, many first-person shooters, and the like, but there is only one NCAA Football 2008 and one Halo III. If you want to play them you have to buy that particular game. Second, unlike most software, their is an active resale market in video game software. Most video game stores will buy your old video game software. Websites are devoted to helping you do so. Third, there is a collectors market for rare video games. And finally, the marginal cost of software production is low, almost zero for electronic delivery. Therefore, we have all the settings in place for a durable goods monopolist.
It was through the lens of the durable goods monopolist that I read the Arstechnica posting that Game collectors distraught over cheap digital re-releases.
How much do rare games drop in value when they're re-released via a service like Xbox Live? A good example is Rez HD, the Xbox 360 version of a rare Dreamcast and PS2 shooter. In my own collecting days, I had a sealed copy of the game on the PS2 and, after a friend told me he had never played it, we opened the game and beat it that night. It felt like we were drinking an expensive bottle of wine. Nick tracked the value of the game now that it's a $10 download, and collectors who care about value have a reason to be unhappy."Rez used to sell for about $50 for the Dreamcast version and $45 for the PS2 version through the end of 2007 and beginning of 2008," Nick explained to Ars. "Ikaruga sold for about $75 for the Dreamcast version and $45 for the Gamecube port. Once it was announced that both games would be coming to XBLA in the middle of the year, the games dropped $5 to $15 in value, moreso for the Dreamcast version of Ikaruga... It seems that the Dreamcast games hold their value a bit more as it is more of a cult classic system, and they are also Japanese imports."
Nick also told us that the domestic copies of the relatively common PS2 and GameCube ports of the game have halved in value.
This is exactly what the monopolist's incentives suggest will happen. They produce a video game. It proves unpopular, an intellectual property issue arises, or it begins to look dated and the game is discontinued. Over time, it appears to be a cult classic, and the price on the secondary market increases. Yet the distribution technology has changed, and now it is possible to use the electronic video game networks to distribute the games at almost no cost. Simply take the old game, perhaps wrapping it in an emulator and slap it onto X-box live for $10. So they compete with their installed copies and sell it cheap and numerous.
If they somehow could shut down this temptation, they might be able to make even more money. Make the video games have no resale ability would put them back into the regular monopolist's position. Somehow committing themselves to never reselling the game would also allow them to have monopoly power, although only on the initial sale. Managing this temptation is key. If customers now that this is not a credible promise, that you'll be back in a couple of years selling the supposedly rare game on the metaphorical discount rack then they won't pay as much today. Perhaps giving the rights to a special trust would work.
Posted by OneEyedMan at 8:59 AM | Comments (1)
January 3, 2009
Nurture vs Nature, which better explains why we drive each other crazy on the holidays
Bryan Kaplan asks Who Are These People?, that is why don we seem to not get along with members of our extended families at holiday time.
So what's the problem with the holidays? The most important - but largely overlooked - explanation is lack of self-selection. If you went out to dinner with a random group of people, you'd probably find them boring and rude. But the problem is neither them nor you. The root of the dissatisfaction, instead, is simply social mixing between people with different interests and standards of decorum.With friends and co-workers, this rarely happens, because we here we largely follow the logic of search theory. We weigh the benefits of further search - the discovery of more compatible people - against its costs - loss of time and loneliness. With family, in contrast, our search efforts are highly circumscribed. Yes, we can search for a spouse to add to the family - and brighten our holidays for the rest of our days. But most of the people who attend family functions are there for good - even if they are less compatible with you than random strangers.
What difference does it make? Either way, Crazy Uncle Gerald is making you miserable, right? Well, not quite. As I've argued before, conflicts that arise from mismatched expectations are easier to bear and easier to resolve than conflicts that arise from willful wrong-doing. It feels a lot better to say, "He's an OK person, but we 't have little in common," than to say, "He's a bastard." And it's a lot easier to negotiate with an OK-but-little-in-common person than a bastard.
But if extended families are economic bads, why should you want to consume leisure with them?
You wouldn't want some time with them, you'd want no time with them. This theory doesn't explain why you'd want to consume a positive amount of time with people with whom you have little in common.
Lack of self selection seems like a weak explanation because people share so much in common with their families for environmental and genetic reasons. I think if you met a long lost member of your immediate family that had a similar upbringing you would be far more likely to like them than a random person.
No, I think that genetics explains more of what is happening here. You share much higher genetic similarity with your family than random people. That encourages you to positively regard their welfare. But of course they know that, and so they take advantage of you (at least on the margin). Compelled to both love your family as well as drive them crazy, we have a far different optimal strategy then with our friends, who like us only for our past and future deeds.
Posted by OneEyedMan at 5:00 PM | Comments (0)
January 1, 2009
Negative prices and negative rates
The most extensive list I've seen of the situations where interest rates have gone negative is in the blog post Zero Is Not A Lower Bound For Interest Rates. A short piece, but saying a few things I haven't heard before about the capacity of interest rates to go negative.
However, since banks are changing the way they hold deposits so that they qualify for the new unlimited FDIC insurance (When Banks Retain Depositors by Cutting Rates), I'm skeptical. The limited ability of nominal interest rates to go negative should generally be held in check by zero interest rate FDIC insured accounts of unlimited size. To want to hold negative yielding bonds, you'd have to think that the FDIC is more likely to go bust that the treasury. While that's probably true, my impression is that policy makers would do everything within their power to prop up the FDIC, even if it mean injecting billions or even trillions into the FDIC.
Posted by OneEyedMan at 11:00 PM | Comments (0)
Good for you need not be good for your genes
As we regrow or engineer more body parts we will likely significantly increase average life span and run into a third track of speciation. Those with access to Google already have an extraordinary evolutionary advantage over the digitally illiterate. Next decade we will be able to store everything we see, read, and hear in our lifetime. The question is can we re-upload and upgrade this data as the basic storage organ deteriorates? And can we enhance this organ's cognitive capacity internally and externally? MIT has already brought together many of those interested in cognition — neuroscientists, surgeons, radiologists, psychologists, psychiatrists, computer scientists — to begin to understand this black box. But rebooting other body parts will likely be easier than rebooting the brain, so this will likely be the slowest track but, over the long term, the one with the greatest speciation impact.Scroll down on the Edge's ideas pager to HOMO EVOLUTIS.
Google probably is not an extraordinary evolutionary advantage. Yes, it may increase the likelihood of your survival by increasing the know-how of doctors and perhaps your knowledge of a healthy lifestyle. But survival is the less important part of evolutionary advantage. The more important part is that evolutionary success follows directly from increased reproductive success, and only indirectly from lengthening the creature's survival. That's it came to be that some male spiders get eaten as part of the mating process and why women go through menopause. As part of a broader trend of making us a part of cosmopolitan liberalism society with weakened religious, national, tribal, and ethic ties, Google and other parts of internet integration probably makes us less fertile.
Now by creating a collaborative social and scientific environment, the internet may help us prevent nuclear war and solve global survival threats like an asteroid or climate change. But in many of those situations those survival benefits accrue to everyone, not just the internet connections.
I can never seem to find this story when I need it, but the following story is helpful. Someone once said, if millions of years ago the apes got together to design the future of their evolution, what would they have designed? They would have given their descendants sharper claws, thicker hides, stronger muscles, rougher palms to climb in jungles, and perhaps made them bigger. What are the odds they'd have made a weak, hairless, claw-less ape designed for running on the savannas and with a big brain for social coordination? Sexual reproduction is a successful genetic survival strategy because it creates diversification, not specialization. Kurt Vonnegut's great book Galapagos is a meditation on how evolution can take us in a direction that has nothing to do with what we want or imagine our future to hold.
Google is great, but it likely won't matter to human survival. If you want to maximize the likelihood that your genetic legacy is carried into the future, marry a wife who will bear you a lot of children, and bring them up in a religious environment that will encourage them to do likewise. You should probably also give to sperm banks. And settle your decedents in a variety of different cultural and geographic settings. That will carry your genes far and wide, giving you what you want.
Posted by OneEyedMan at 10:33 AM | Comments (0)