You are currently browsing the monthly archive for January 2010.

Osama bin Laden’s personal collection of hundreds of audio tapes, obtained by CNN from neighbors of the Bin Laden, reveals sometimes interesting, sometimes mundane details about his everyday life. As the Chronicle of Higher Education details, the FBI decided they contained no relevent security information, and the 1,500 tapes are now being translated by linguistic anthropologist Flagg Miller. He finds bin Laden’s poetic skills disturbingly good:

On the tapes, the world’s most-wanted terrorist can be heard speaking at a wedding and, in another case, reading his own poetry. In his poems, Mr. bin Laden paints himself as a cosmic warrior, transcending time and distance, slaughtering infidels in the ninth century. He’s a good poet, Mr. Miller says, though that fact troubles him, the idea that poetry could be a vehicle for such ugly, violent thoughts.

From Economic Logic comes an interesting paper on what may be the world’s oldest existing government debt: a French annuity dating from 1738 for which 1.2 euros are currently distributed to 58 individuals every year. Francois Velde, author of the paper, sums up his tale:

The Linotte rente, with its pitiful return of €1.20, is nothing but the value of an eighteenth century servant’s loyalty, adjusted for all the misfortunes that befell France in the intervening two and a half centuries.

Tyler Cowen talks about how the disaster in Haiti could transform it into a better place to live:

Arguably the new regime in Haiti will operate much like the federal states in Mexico.  Corrupt and a mess, but oriented toward a certain kind of progress, if only to increase the returns from corruption…

…The surviving Haitians, in time, might be much better off.

In support of the general idea of the positive transformative ability of disasters, Secretary of Education Arne Duncan praises the impact of Hurricane Katrina on New Orleans’ schools:

I think the best thing that happened to the education system in New Orleans was Hurricane Katrina. That education system was a disaster, and it took Hurricane Katrina to wake up the community to say that ‘we have to do better.’ And the progress that they’ve made in four years since the hurricane is unbelievable.

As notes of caution, Tyler makes sure to point out he is not saying that “the future gains will, in moral terms, outweigh the massive loss of life and destruction”, and I doubt anyone would claim that Hurricane Katrina has had a net positive impact on New Orleans overall. Still, in the midst of terrible tragedy, any glimmers of optimism are certainly welcome.

Unexpected news effects markets. An unanticipated rise in interest rates or an unforeseen decline in payroll numbers can be expected cause sharp movements in stock and bond markets. In theory the size of that movement should be determined by the total effect of the unexpected event on corporate profits times the unexpectedness of the event occurring.

The fact that there are two degrees of freedom here allows pundits to spin an entire career arguing over whether or not a move was truly devastating or just really unexpected.

Intrade, however, should change that. For example, the Bernanke confirmation contract is trading right now at 97%. The cloture vote is scheduled for 320pm. If Bernanke passes cloture then he is essentially assured to be reconfirmed.

Thus we ought to see a movement in the markets today at 320pm which tells us how much eliminating that 3% of uncertainty is worth.

Its not exactly the case that Bernanke’s confirmation should be worth 33 times the movement that we see. There is so value in certainty itself and the Intrade market is somewhat thin. However, it should be a good rough approximation.

I don’t know what Obama said in his State of the Union to piss Larry Summers off, but he was clearly trying to make Obama explode using his mind in this picture:

From Chris Edwards at the Cato Institute, via Carpe Diem:

January 22, 2010 is a day that should live in infamy, at least among believers in limited government. On that day, the federal government added its 2,000th subsidy program for individuals, businesses, or state and local governments.

This chart reminds of a recent quote from Ross Douthat about blaming bloated government for the failure of health care reform:

If the legislation fails, liberals will have a long list of scapegoats…But they might want to save some blame for the welfare state their predecessors built…

Under Franklin Roosevelt and Lyndon Johnson, liberals created a federal leviathan that taxes, regulates and redistributes across every walk of American life. In the process, though, they bound the hands of future generations of reformers. Programs became entrenched. Bureaucracies proliferated. Subsidies became “entitlements,” tax breaks became part of the informal social contract. And our government was transformed, slowly but irreversibly, into a “large, incoherent, often incomprehensible mass that is solicitous of its clients but impervious to any broad, coherent program of reform.”

1. Justin Fox responds to my post on the Supreme Court decision (see Karl’s take below). The best so far on this issue are Julian Sanchez and Eugene Volokh. Julian writes:

Why is it that so many people who clearly do think books and magazines and talk radio shows enjoy unambiguous constitutional protection, despite being corporate funded or operated, are simultaneously absolutely sure that paid broadcast spots are in an utterly different category?

2. In what culture is it not a sign of disrespect to throw a shoe?

3. Hitchens on the word “like”:

People who can’t get along without “um” or “er” or “basically” (or, in England, “actually”) or “et cetera et cetera” are of two types: the chronically modest and inarticulate… and the mildly authoritarian who want to make themselves un-interruptible.

4. Strange maps. H.T. James Fallows.

5. Oh those tolerant French:

Parliament will now have to debate whether to adopt the nonbinding resolution suggested in the report, stating that the full veil was “contrary to the values of the republic” and asserting that “all of France is saying no” to the veil. Then Parliament will decide what if any legislation should be passed.

6. David Henderson on the problem with small banks:

Because banks during the Great Depression were so small, they were undiversified. So when the agriculture sector went under, in part because of the Smoot-Hawley Act that attacked free trade, many rural banks failed. Call it “too small, so we failed.”

History shows us that you don’t need “too big to fail” banks to have a devastating financial crisis. It’s important to remember that.

Does anyone see any real logic in the “spending freeze” on all the things that are not going to bankrupt the Treasury?

I have heard some people say things like “Sets a tone.” John McCain made a big deal about setting the tone by cutting earmarks.  Is there any reality behind tone setting or is it just wishful thinking?

Adam argues that

You see, contra Fox, through lobbying and other means industries already have a good deal of sway in designing the “rules of the game” in which they operate. Unlike these surreptitious ways that industries gain political influence, allowing corporations free speech in political matters only influences the “rules of the game” if they can persuade individuals to vote differently.It seems to me that allowing corporations’ influence to be determined by the persuasiveness of their arguments seems infinitely more benign than doing so through the political clout they wield behind closed doors.

I am not sure about this.

How does lobbying work. It would seem that the lobbyist either has to persuade using reason or enticement. Allowing corporate free speech would seem to encourage “enticement.”

First, I wouldn’t underestimate the power of lobbyists as reasoners. I don’t have first hand experience at the Federal level but at the state level it is often only the lobbyists who have any idea what a particular piece of legislation does. Moreover, its often not possible for the situation to be any other way. There may only be a handful of people in the world who understand what a the need for a particular law and how it might be used. The odds that those people happen to either be politicians or to work for the legislative staff is vanishingly small. So one must turn to a lobbyist for the answer.

Second, enticements that lobbyist could offer to elected officials seem to be rather circumscribed. Outright bribery is out. Campaign donations are limited. However, with corporate free speech opened up, character assassination is now fair game.

Scandals are much more damaging to politicians than poor positions and infinitely more damaging than poor rationales. Giving a corporation free speech gives them the ability to use vast resources to dig up dirt on just about anyone and blast it across the airwaves.

Pharma’s negotiations over Medicare Part D not going well? That seems like $80 Billion reasons to hope that Max Baucus has succumb to the temptations that afflict all men of power and status. In fact, it might just be enough of a reason to throw a little temptation his way. Its not extortion.  Its just an experimental documentary. Temptation Size Me.

Even without those extremes, a documentary portraying all the worst parts of a politicians life is a scary thing. Something that could be personally as well as politically embarrassing. Giving corporations that leverage shifts the balance of influence in the direction of enticement.

Tyler Cowen highlights an important point

There is a growing awareness among researchers, including advocates of quality measures, that past efforts to standardize and broadly mandate "best practices" were scientifically misconceived. . .

Orszag’s mandates not only ignore such conceptual concerns but also raise ethical dilemmas. Should physicians and hospitals receive refunds after they have suffered financial penalties for deviating from mistaken quality measures? Should public apologies be made for incorrect reports from government sources informing the public that certain doctors or hospitals were not providing "quality care" when they actually were? Should a physician who is skeptical about a mandated "best practice" inform the patient of his opinion? To aggressively implement a presumed but still unproven "best practice" is essentially a clinical experiment. Should the patient sign an informed consent document before he receives the treatment? Should every patient who is treated by a questionable "best practice" be told that there are credible experts who disagree with the

I’ve probably been guilty of wishful thinking in regards to comparative effectiveness research. There are serious ways in which what works in the lab deviates from what works in the field. It is easy to get over confident when hundreds of billions of dollars in savings are dangled in front of your eyes.

At the same time, however, I still think its a mistake to “trust doctors” on these issues. Comparative effectiveness research may not be a magic bullet but there is little evidence that doctors in the field are any better.

Public medical spending should still be supported by strong science even though more humility is need in pushing scientific results.

Justin Fox makes his debut at the Harvard Business Review blog with a Milton Friedman laced argument against the recent Supreme Court decision on limiting the free speech of corporations. Fox argues that if Milton Friedman is correct about how a firm should behave, then they are unlike individuals who have diverse and conflicting beliefs and interests, but are beholden only to the profit motive. And such mad beasts should not be allowed to have sway in the laws the regulate them.

Given all of his citations of Milton Friedman I thought it would be useful to revisit what Friedman actually thought about campaign finance laws, and the free speech rights of corporations. Here he is discussing the matter in an interview with Russ Roberts from 2006:

Russ Roberts: Issue by issue, it’s easy to make the case for discretion. When you see the cumulative effect of going issue by issue, you really can make the case for principles. You give the example in the book of freedom of speech. Obviously, a lot of Americans are against freedom of speech.

Milton Friedman: Oh, sure.

Russ Roberts: And if you went issue by issue, you’d find a lot of speech that would be voted down as not appropriate and yet we sustain it through enough people believing that it’s a good thing.

Milton Friedman: But even here, with the campaign finance laws, we’re reducing freedom of speech drastically.

Russ Roberts: That gets back to your point about businesses wanting government to protect them. In this case, the business is the industry of government. Politicians like the protection that campaign finance laws gives them.

Milton Friedman: Yeah.

Russ Roberts: That’s a very tough one when they regulate themselves. They do tend to be a little self-interested there. It’s very sad.

Milton Friedman: But how do we get that repealed? What politician is going to come up and make a big fight on repealing the McCain-Feingold legislation.

Russ Roberts: Although the Supreme Court occasionally does speak up and suggest that this is not really consistent with the Constitution.

Friedman clearly sees campaign finance laws as restrictions of the free speech rights he presumes corporations to have. Interestingly, he also sees the primary purpose of these laws as protectionism for politicians, in kind with the sorts of protectionism other industries lobby for.

I couldn’t find any other writings by Friedman on campaign finance, but from his comments above I can imagine he would see removing these laws as allowing political influence be more competitive. You see, contra Fox, through lobbying and other means industries already have a good deal of sway in designing the “rules of the game” in which they operate. Unlike these surreptitious ways that industries gain political influence, allowing corporations free speech in political matters only influences the “rules of the game” if they can persuade individuals to vote differently.It seems to me that allowing corporations’ influence to be determined by the persuasiveness of their arguments seems infinitely more benign than doing so through the political clout they wield behind closed doors.

Even more, I think it is just as likely that allowing corporations free speech will serve as a check on the political influence of corporations by lowering the barriers to entry to influence, and dispersing rather than concentrating that power and influence. Corporations may have a singular motive in profit, but as a group their end legislative and regulatory desires are as diverse and contradictory as individuals’ beliefs and values.

H.T. Felix Salmon

Free Exchange notes a paper that suggest people are too few kids

This is related to a though experiment I am developing called “Citizen X”  Citizen X is our ideal positive externality. He gives and gives to society but takes the least possible amount in return.

What does Citizen X look like?

A few things we know. Citizen X lives in the Northeast Corridor where the marginal per person cost of infrastructure is low. I am guessing that he doesn’t own a car given that gas taxes are less than the cost of road maintenance. He might ride the bus but I doubt he ever takes the subway.

He definitely smokes and definitely drinks, a lot. The heavy taxes on those goods pays lots of taxes into the system and the negative health effects shorten Citizen X’s life span, which as we see is crucial. He gambles in high tax Atlantic City and of course plays the lottery everyday.

Citizen X almost certainly didn’t go to college. If he did, he worked his way through private school and somehow forgot to apply for financial aid. Indeed, its possible that Citizen X didn’t even graduate high school. I’d be interested to see the numbers on this.

However, he is extremely clever. He is likely an entrepreneur of some sort. We could hypothesis that he’s a genius programmer who created some web-related break through but I think that’s taking the thought experiment to far. Ideally, I want Citizen X to “replicable.”  That is, his extraordinary ratio of giving to taking didn’t occur by chance but because of predicable life patterns.

Citizen X never votes.

I don’t know if he is married or not but it would seem that he has quite a few kids – bringing into existence both new taxpayers and new little Citizen X’s, who are unlikely to take from the public pot.

He works a lot and stays away from public places when they are most likely to be in use.

He started working early in life and works right up until his 65th birthday, when he drops dead from a single large myocardial infarction. Probably all that smoking and drinking along with his generally poor genes.

He never collects a single Social Security check and never signs up for Medicare. He is actuarially perfect.

Does any of this description miss the mark and whatelse might we be able to say about Citizen X?

1. Wal-Mart employees know every product’s profit margins, and think their job is preferrable to working at Target and way better than working at a mom-and-pop grocery store. What it’s like working at Wal-Mart, and other rebuttals to Barbara Ehrenreich here:

One of the secrets to Wal-Mart’s success is that it delegates many judgment calls to the sales-floor level, where employees know first-hand what sells, what doesn’t, and (most important) what customers are asking for.

H.T. Carpe Diem

2. Krugman v.s. DeLong on Bernanke. Does Brad’s rule no longer hold in this decade?

  1. Paul Krugman’s analysis is correct.
  2. If you think that Paul Krugman’s analysis is incorrect, see rule number 1.

3. A hilarious painting.

4. Nick Rowe offers a novel explication of the ideas behind Stiglitz and Grossman’s “On the Impossibility of Efficient Markets”:

The downward-sloping (hence “demand”) curve shows the extent to which EMH is true as a function of the extent to which people believe EMH is true.

5. Richard Thaler on mortgage defaults, and the decision to walk away:

Some homeowners may keep paying because they think it’s immoral to default….But does this really come down to a question of morality?… A provocative paper by Brent White, a law professor at the University of Arizona, makes the case that borrowers are actually suffering from a “norm asymmetry.” …they think they are obligated to repay their loans even if it is not in their financial interest to do so, while their lenders are free to do whatever maximizes profits. It’s as if borrowers are playing in a poker game in which they are the only ones who think bluffing is unethical.

6. Curious George as narrated by Werner Herzog:

“nothing in the brutal primeval jungle could prepare George for the terrible, vast, uncaringness of the sea.”

In a recent speech against capitalism (South Americans must never get tired of them) Venezuelan President Hugo Chavez lambasted Playstation videogames because they encouraged violence, which is, uncoincidentally, just what capitalism wants. According to the babelfish translation of the spanish language article, Chavez warned that:

In those electronic warlike games “cities are bombed, pumps are thrown”, and are promoted by “Capitalism” to seed the culture of the “violence” that, is saying, guarantees that soon it can “sell arms”.

I’m going to assume that “pumps are thrown” is not a mistranslation, but rather some strange Venezuelan violence phenomenon. The best part of the article though is the picture juxtaposing it:

Those must be the kinds of subtle barbs a reporter can make when living under dictator who does his best to control the media.

It’s conventional wisdom that preferring the status quo just because it’s the status quo is a bad idea. In fact it’s such conventional wisdom that it’s been labeled a cognitive bias. But maybe in some venues, a status quo bias makes sense. Commenter MC, at Megan McArdle’s blog, defends the status quo thusly:

Note that this isn’t to say the status quo is perfect. It’s just that we have full information about it, because the experiment has been run and the outcome is there for all to see. We can see the good points and the bad. But with any hypothetical change, we really don’t know what is going to happen. The benefits that proponents of the change promise may occur, or they may not. There will almost certainly be unintended consequences. We don’t really know.

I think some defenders of health care reform have exacerbated rather than ameliorated people’s instinct to prefer the status quo. In fact, their rhetoric sort of justifies a preference for the “devil we know” as Megan McArdle puts it. I say this because time after time, defenders of the sorts of health care reforms Democrats are floating have guaranteed us that the policies we get will become more progressive than the bill that is passed, and that this is just a first step towards a health care system containing more of the reforms they want but can’t seem to pass. I discussed this on my very first post at this blog with respect to Ezra Klein. I quoted him as saying this:

…. success does breed success. Medicare and Medicaid began as fairly limited programs. Medicaid was pretty much limited to extremely poor children and their caregivers. Medicare didn’t cover prescription drugs, or individuals with disabilities, or home health services.

But once the programs were passed into law, they were slowly and continually improved. They became more expansive, with Medicaid growing to cover not only poor families but also poor adults, and the federal government giving states the option, and matching dollars, to include more people under the program’s umbrella….It is not hard to imagine health-care reform following a similar path…..The public plan could be strengthened, or the government could begin to set payment rates for insurers who participate in the exchange… Subsidies could expand, and new funds could be used to encourage the development of integrated care organizations rather than simple insurance companies.

Ezra seems to think that if we pass this bill, policymakers are more likely to expand, strengthen, and “improve” whatever programs they create, with improve being a subjective term in this context. So in deciding whether we should prefer the health care reforms Ezra defends we should keep in mind that what we see is not what we will get. For some people that added uncertainty will mean more status quo bias than if we were simply going to get whatever policy was passed, rather than a first step towards a more expansive policy.

Ryan Avent at The Economist responds to my post on the negative effects of cigarette bans (I argue they increase automotive deaths and secondhand smoke for children) by pointing out a hole in the behavioral theory:

It seems to me that the problem with the logic in this post is that it doesn’t take into account the fact that the increased burden on smokers will induce a respectable share to quit smoking all together.

Ryan’s theoretical objection is warranted as far as what I mentioned in my post. The paper I referenced (ungated working paper here), however, does develop an extensive theoretical model of smoking behavior that would allow some people to smoke less as a result of lower utility of smoking. In fact, the authors show that the model is ambiguous about the impact that bans will have on how much smokers smoke, and how much secondhand smoke most people will be exposed to.  Thus, as Ryan’s objection suggests, the issue of how much more or less people smoke cannot be answered by theory, and has to be settled empirically. In contrast, the theory is unambiguous about the amount of secondhand smoke that children are exposed to.

Fortunately, the authors estimate a variety of econometric models to test the theories, and they find some results that go in either direction. In the end though they conclude:

In summary, we do not find evidence that smoking bans, either in workplaces or in bars and restaurants, have an effect on smoking behavior, in terms of consumption and smoking cessation. These results are not surprising given that the model has no firm predictions regarding these outcomes.

So the evidence comes in against Ryan’s theory. The evidence also suggests that, as predicted by theory, children’s exposure to secondhand smoke increases.

The true north really is strong and free these days. According to the Heritage Foundation’s 2010 Index of Economic Freedom, Canada now enjoys a greater degree of economic freedom than the United States. They enjoy the most economic freedom in North America, as it were.  Those of us who watch Canada with a weary eye took note of this trend way back in April 2009, when the U.S. passed Canada in size of government relative to GDP. Remember this graph?

Where you getting all this economic freedom all the sudden Canada? Just happen to find it laying around in the snow somewhere? Well it turns out we’ve recently misplaced a good deal of it around here. A little suspicious if you ask me.

Back to the Heritage index…Adam Pasick, new blogger at the Atlantic, points us an unconvincing critique of the index from John Miller:

So it seems that the Index of Economic Freedom in practice tells us little about the cost of abandoning free market policies and offers little proof that government intervention into the economy would either retard economic growth or contract political freedom. In actuality, this rather objective-looking index is a slip-shod measure that would seem to have no other purpose than to sell the neoliberal policies that brought on the current crisis.

He argues as if his criticisms show that the index “cannot and should not be trusted” and that it has “fundamental flaws”, but then conflates that with the argument that studies show that economic freedom as measured by the index don’t lead to growth.

His two objections to the methodology are that it only uses nominal and not effective corporate taxes, and that the size of government can be a good thing. On the first point he might be right that effective corporate taxes would be a better measure of government interference in free markets. But nominal taxes that lead to a high degree of tax avoiding behavior is still government interference. So you can certainly argue that high nominal taxes negatively affect economic freedom even if corporations are good at avoiding them. Either way, this quibble hardly renders the index fundamentally flawed or unreliable.

His other criticism is that the “third measure of fiscal freedom, government tax revenues relative to GDP, bears little relationship to economic growth”. He’s already argued that their measure of economic freedom doesn’t relate to growth, which is a point to make, but really completely unrelated to the accuracy of the index. The problem is that this point supposed to be one of the two pieces of evidence that the methodology is flawed, not more evidence that the index doesn’t relate to growth. I’m not sure why he thinks this qualifies as former rather than the latter, since it clearly is not.

So really all he has is a quibble about effective corporate tax rates, which I find to be pretty weak ground from which to declare the index “fundamentally flawed” and “not to be trusted’.  He clearly believes that the index does not relate to economic growth, and that the Heritage people claim that it does. That’s fine, it’s a debate to have. But that doesn’t really have anything to do with whether or not the index is good at measuring what it purports to measure. Unless of course Pasick or Miller have such strong prior beliefs that economic freedom relates to growth that any index that contradicts that fact must be flawed. Somehow I doubt this is the case.

A very good paper from a few years ago landed a punch to the public health argument for smoking bans by showing that they increase drunk driving. A paper in the new AEA Applied Economics Journal provides the knockout blow with evidence of another, arguably worse, health externality caused by smoking bans. They argue that laws that ban smoking in bars and restaurants do not actually decrease the amount of secondhand smoking that people are exposed to, just the distribution of who gets exposed.

It turns out that bans don’t cause people to decrease the amount that they smoke, but rather where and when they smoke:

…we find that a total ban decreases the time spent by smokers in bars and restaurants by about 20 minutes per day. Moreover, as implied by the model presented in Section I, we observe an increase in the amount of time that smokers spend at home when a smoking ban in bars is introduced (on average smokers spend 57 more minutes at home).

The authors measure the effect these laws have on exposure of non-smokers to secondhand smoke using a dataset of individuals level of cotanine, which is a chemical that stays in the body over 20 hours after exposure to nicotine. They find that these bans increase the exposure for children who live with smokers by an equivalent of two to four cigarettes per day. As a result of these laws people are staying home more and smoking just as much as they normally do, thereby exposing their children to more secondhand smoke.

I personally enjoy smoking bans. It makes my life more pleasurable, and it seems to me that most people I know agree, even a lot of the smokers. I can imagine that some smokers, especially casual smokers, prefer to be constrained so they aren’t as likely to smoke when they go out. But what level of unintended consequences are we willing to tolerate here? First the previous research showed that smoking bans raise the risk for people to be killed by drunk drivers, and now this new research shows that it increases children’s exposure to secondhand smoke. Meanwhile, the people being made safer are those who can choose whether or not to expose themselves to the smoke: employees and patrons of those bars and restaurants. This seems extremely perverse to me.

I have been convinced on Cyronics, that much is clear. However, as Eliezer Yudkowsky points out, at least one-in-ten people fail the conscientiousness filter. That is, they die planning to have signed up for Cryonics but never signing up.

I have a trick, however. I can commit to the readers of this blog that I will sign up. I am thus binding my future self to the embarrassment of having to admit that I did not sign up and therefore showing myself not to be very conscientious. Since conscientiousness is a high status trait, I will try to avoid this.

And, yes I have been reading a lot of Robin Hanson.

No, I am not sure that I will return to normal.

Side Note: Tyler Cowen says that Cryonics Proponents are trying to signal a strong interest in futurism or science fiction. I am not particularly interested in science fiction. I am interested in the future to some extent but nothing like the level of Robin or Eliezer.

I was convinced more by the “shut-up and multiply” argument. That is, look at the costs. Look at the potential benefits. How is it not the deal of a lifetime even if you think there is only a very small chance that it could actually work?

So what does Tyler think I am signaling here?

Robin Hanson says

Bayesian probability is a great model of rationality that gets lots of important things right, but there are two ways in which its simple version, the one that comes most easily to mind, is extremely misleading.

One way is that it is too easy to assume that all our thoughts are conscious – in fact we are aware of only a tiny fraction of what goes on in our minds, perhaps only one part in a thousand. We have to deal with not only “running on error-prone hardware”, but worse, relying on purposely misleading inputs. Our subconscious often makes coordinated efforts to mislead us on particular topics.

I’m not so sure this makes sense. If we believe people are Bayesian actors then surely we mean that the unconscious part of the mind is Bayesian. First, its not entirely clear that the conscious mind is actually making any decisions whatsoever.

Split brain experiments suggest that it is likely that the conscious brain is simply narrating the decisions made by the unconscious. When the corpus callosum is cut the right cortex can no longer speak to the left cortex. Language is processed in the left hemisphere but sights from the left eye are processed in the right hemisphere (the body is cross wired.)

So what happens when we send an instruction to only the left eye? For example, an instruction to get up and leave the room. The body responds to the command and the person leaves the room.  But then what happens when we ask the left cortex what it is doing? It makes up a completely unrelated explanation. For example, it might say “I needed to go get a Coke.” Moreover, there is no evidence that the person is lying or that they even came up with the answer ex post.

It seems that as they were engaging in the action they had constructed a false narrative as to why they wanted to engage in the action. They were doing it because the experimenter told them to. But, they thought they were doing it because they wanted a Coke.

It could be that this odd behavior is unique to split brain patients. The rest of us might be completely aware of our motivations. Yet, it seems equally likely, perhaps more likely, that all of us are engaging in false narration all of the time. We are really controlled by calculations in our unconscious mind, which Robin points out, represents 99.9% of all of our thoughts. The conscious mind merely comes in behind weaves a story.

As a side note I will mention that this suggests that the conscious mind evolved for the purpose of co-coordinating actions between people and it is possible that other animals do not have a conscious self at all. Animal lovers may find this concept abhorrent but hear me out.

If the conscious mind is not the controller of the brain but merely the interpreter of the brain, then the question is, why does it exist at all. Clearly the mind can make decisions without it. Still, there are times when we might want other people to know what our rationale is. When we want them to understand where we are coming from. Humans engage in complex co-ordination that can only be possible if we understand what one another is thinking. To make that happen the brain has to weave together some easily communicable narrative to be transmitted to other brains.

I think this narrative is what we call our conscious minds. This is why our conscious minds present themselves running as internal conversation. That conversation is ready made material for giving others a snap shot of our unconscious thoughts.

But of course that’s just a thought.

Predictions are hard, especially when they are about the future.

However, they are one the few reliable means to tests our analytical framework. It is just too tempting to massage either the framework or the data after the fact. To make it look as if you believed something consistent with what actually happened.

My framework for political actions is relatively simple. On the issues that they believe matter politicians of all stripes overwhelming fight for what they believe is right. Of course they are subject to the usual human temptations of aligning our beliefs with what it would be convenient for us to believe, what our friends believe and what high status people believe. Nonetheless, the ideological bent remains dominant.

Health Care clearly matters to most democrats. Therefore, I predict that their votes will remain largely unchanged in the face of the Brown disaster and that indeed, they will find a way to pass some type of reform before the mid-terms.

I don’t think this is in their electoral interests and I believe that many of the realize this. I think, however, that they will pass it anyway. Just as many Republicans stuck to their guns even as it became clear that the war in Iraq was a loosing issue.

1.  Is the efficient market hypothesis so widely objected to because many people are just viscerally reacting against the word “efficient”?

…if people just called the thesis that financial markets are unpredictable the “unpredictable markets hypothesis” then I doubt that people outside the Department of Ketchup would be very interested in arguing with them, and the likes of your humble blogger would certainly lack the quantitative chops to pursue the argument.

Perhaps economists should do away with the phrase “efficient” altogether. Life might be a lot easier if they replaced it with “pareto-atized”.

(H.T. DeLong)

2. What was once just immoral, inefficient, regressive, and stupid is now extremely immoral, and still inefficient, regressive, and stupid.

3. A recent ABC poll says that 81% of Americans think medical marijuana should be legalized, and 46% think it should be legal in small amounts for recreational use. So whose holding the country back? Grandma and Grandpa:

Age is a factor. Just 23 percent of senior citizens favor legalizing marijuana for personal use; that jumps to 51 percent of adults under age 65.

4. Arnold Kling calls for a wage freeze for government workers:

As far as I can tell, any argument for more government spending to reduce unemployment in this recession can be turned into an argument for lower salaries for government workers.

5. I’m glad Conan is losing the tonight show, his talents are wasted there. I doubt if anything he’s done as a talkshow host has yet to match anything like this or this in quality. I’d like to see what he can do when he doesn’t have to put out 5 hours of programming a week and spend half his time interviewing celebrities. Maybe he could write a Simpsons movie.

A few days ago I criticized Dean Baker’s estimation that government is subsidizing large banks to the tune of $34.1 billion dollars by implicitly designating them “too big to fail”. Dean was kind enough to provide me with the FDIC data he used in his paper, and after looking at the data I’ve concluded that his estimates are even more speculative and unsound than I first though; it is unfortunate that they seem to be becoming conventional wisdom.

To recap, the gist of his paper was the when the government made it apparent that some banks were too big to fail, it allowed them borrow at a lower rate than small banks, which is in effect a subsidy for being too big to fail. He attempted to quantify the size of the subsidy by looking at average borrowing rates for large banks compared to the rates for  smaller banks, and how the gap between them has grown since TBTF policy became established. He used this gap in borrowing rates to back out a dollar value for the subsidy.

As far as I can tell, the specific number Dean used was the quarterly total interest expense as a percent of average total liabilities for two groups of banks; those with total assets above $100 billion, which are too big to fail, and those with assets below $100 million, which are not.

The graph below shows the data he used to get the $34.1 billion dollar estimate. Each bar represents the difference in quarterly cost of borrowing for large banks relative to small bank.  The period which he deems as being post-TBTF policy are the green bars depicted below, and the control period of pre-TBTF policy is in red. Dean attributes the difference in the average values in these two periods to the large banks becoming TBTF in the period in the green.

To Dean’s credit, he recognizes that the change in relative borrowing costs may result from general economic uncertainty, so as a more conservative estimate he compares the post-TBTF gap to another period of economic uncertainty: the end of the 2001 recession, which is depicted below. The difference in the average value in these two periods is his more conservative estimate of the TBTF subsidy, which he uses to come up with a dollar value of $6.3 billion. This estimate is ignored by most commenters, who tend instead to focus on the more shocking $34.1 billion estimate.

In addition to the problems with this that I pointed out before, what I learned from looking at the data is that the spread between large bank and small bank borrowing costs was actually higher during the fourth quarter of 2001 than it ever reached during the current financial crisis. Is it reasonable to assume that the gap in 2001 was attributable to large banks being too big to fail? I don’t think so, and I doubt if anyone can point to serious speculation that any of the countries largest banks might fail and that they would bailed out by the government during the fourth quarter of 2001.  This suggests that a rate spread resulting from people flocking to larger banks during times of economic uncertainty, like the period immediately preceding 9/11, can be as big as or bigger than the rate spread we are currently observing. So why should we believe that that is not what is currently occurring? There is no reason to assume this; to do so is pure speculation.

The graphs also illustrate that the spread actually begins rising gradually from end of 2006 to the first quarter of 2008, rising from slightly negative up to 0.40%.  This large increase predates the period when Dean claims TBTF policy was  established. The increase in spread that occurs from the end of 2008 on could easily be a continuation of a general trend that began in 2007 and largely followed the worsening financial market and economic conditions. He presents no evidence that this is not the case.

It’s unfortunate how widely cited this estimate has become. In addition to the ones I mentioned in my previous blog (James Kwak and Felix Salmon), I’ve found that Baker’s estimates have been cited approvingly by Zero Hedge, The Huffington Post, Matt Yglesias, USA Today, Gretchen Morgensen in the New York Times, and even Wikipedia. I dare say this estimate has become conventional wisdom.

The reason these number are getting mileage is not because they are reasonable estimates derived from a sound methodology, but because they put a shocking and concrete number on something that most people believe is true anyway: banks are benefitting financially from their too big to fail status. This number is much closer to pure conjecture than it is to a reasonable estimate, and it should be treated as such.

The recent disaster in Haiti prompted some questions about whether or not charity matters in the aftermath of a natural disasters. One place to look is to see what extent charity has been incorporated into models of the economic impact of natural disasters. A recent symposium on economic modeling of disasters in the journal Economic Systems Research provides a little guidance on this issue.

Charity falls under a category of behavioral responses that people have to disasters. Economic impact models have just begun to incorporate societies built-in reactions to disasters, including different adaptive responses of households and businesses in and outside of the disaster areas. A paper by Yasuhide Okuyama from the ERS symposium provides an example of a behavior response that may make the economic impact worse:

Okuyama et al. (1999) included the final demand decrease in the rest of Japan after the Kobe earthquake, since people outside of the damaged region felt sorry for the event and for people in the Kobe area, due to the catastrophic destructions of a major city and a large number of casualties, and tended to reduce their discretionary purchases.

Charity, on the other hand, is a behavioral response that could counteract the negative impacts of disasters:

Alternatively, people may purchase necessary goods for the damaged area, such as blankets and/or food, and may donate them, instead of buying other goods for themselves.

Overall though, the author concludes that the economic impact of charitable responses to disaster is not yet well studied or modeled. It’s unclear whether this is due to the complexity of incorporating such behaviors into CGE and other commonly used types of economic models, or because the empirical parameters are not well known, or because researchers believe that charity does not have much affect on the overall economic impact of natural disasters. My hesitant and tentative conclusion is that the fact that this issue is, by the authors account, “not well studied” suggests to me that researchers in this area may not consider charity an important determinant in the economic impact of natural disasters. I would be interested to see some actual studies on this issue though.

1. I found it notable than an economist was running for president of Chile, but the articles the New York Times has up about his victory make it is apparent that they think his being an economist much less interesting than the fact that he is conservative and that he is a billionaire. They’re probably right.

2. Seyward Darby at TNR is less enthusiastic than I was about the American Federation of Teachers new reform proposals. He’s probably right:

In many school districts, teachers are given top priority in hiring based on years of service, not whether they’re the most effective educators. They can even bump junior teachers out of jobs, and,when it comes to budget-related lay-offs, districts often follow a “first-hired, first-fired” mantra. Perhaps Weingarten was hinting at the need to fix these problems…But this is no time to be vague: Improving teacher evaluations and due process must happen in conjunction with changes to seniority policies

3. This article is over a year and a half old, and yet it is currently the 6th most emailed article on the New York Times website; a list which is usually consists of articles no more than a few days old. Why?

4. Who is this man, and what has he done with George W.Bush?:

…Mr. Bush has focused on building his presidential library and a policy institute to advance priorities like education, global health, freedom and economic growth. He gave 32 speeches in 2009 and is finishing the first draft of a book he is writing. His institute has scheduled four conferences for March and April on issues like women in Afghanistan and natural gas.

Oh wait, there he is:

Mr. Bush’s first visit back to the White House may have been a little awkward, but he made jokes and played with Mr. Obama’s dog.

5. A tremendous public good may be going away, as the New York Times prepares to move behind a paywall:

The Times has considered three types of pay strategies. One option was a more traditional pay wall along the lines of The Wall Street Journal, in which some parts of the site are free and some subscription-only. For example, editors and business-side executives discussed a premium version of Andrew Ross Sorkin’s DealBook section. Another option was the metered system. The third choice, an NPR-style membership model, was abandoned last fall, two sources explained

Ironically, the biggest benefactor of this move may be The Wall Street Journal, as people decide that if they’re going to pay for a newspaper, they’d rather pay for one that didn’t employ Maureen Dowd. (H.T. Felix Salmon)

A Harvard trained economist is in a close race for president of Chile. Here is a paper of his on why it is a missallocation of resources if you let anything other than a child’s level of ability at preschool determine the amount of schooling they gets. He claims that this type of education reform could double the value of an education system.

Here is another paper where he shows “that the impact effect on the balance of payment from monetary disequilibrium depends upon the elasticities of substitution in production and consumption between non-traded and traded goods and the sharing of non-traded goods in consumer’s expenditure”. I’ll take his word for it, especially since the only part in english is the abstract.

1. University of Chicago Nobel Laureate James Heckman talks with John Cassidy of the New Yorker about, among other things, how Milton Friedman’s true legacy is, ultimately, as an empiricist in search of explanations that fit the data, and not as a dogmatic theorist (H.T. Ryan Avent):

When Friedman died, a couple of years ago, we had a symposium for the alumni devoted to the Friedman legacy… One woman got up and said, “Look at the evidence on 401k plans and how people misuse them, or don’t use them. Are you really saying that people look ahead and plan ahead rationally?” And Lucas said, “Yes, that’s what the theory of rational expectations says, and that’s part of Friedman’s legacy.” I said, “No, it isn’t. He was much more empirically minded than that.” People took one part of his legacy and forgot the rest. They moved too far away from the data.

2. Leigh Caldwell offers a very evenhanded and reasonable assessment of how the general empirical beliefs of left-leaning and right-leaning economists differ. I would only add that you could agree with many points on one side of the debate, but also find them trumped by one important single point from the other side:

If you think the problem of government knowledge is less important than the problem of sticky prices, you’re more likely to tend leftwards. If you think transaction costs are less important than labour incentives, you may tend right. At our current level of understanding of economic theory, I’d argue that these are basically empirical questions.

3. Felix Salmon argues persuasively that you should not donate money to Haiti. I am convinced:

The last time there was a disaster on this scale was the Asian tsunami, five years ago. And for all its best efforts, the Red Cross has still only spent 83% of its $3.21 billion tsunami budget — which means that it has over half a billion dollars left to spend. Not to put too fine a point on it, but that’s money which could be spent in Haiti, if it weren’t for the fact that it was earmarked.

4. Libertarians for the bank tax.

5. Highly unpersuasive arguments in favor of temporarily exempting unions from the Cadillac health tax:

The argument for temporarily exempting union plans makes sense, at least in principle. Many unions really did accept generous health benefits, in lieu of wage increases, on the theory it was worth more to their members.

It makes sense “in principle”?… What principle might that be? The principal that no policy should ever harm union members?

Everyone knows -now at least- that the government considers some banks too big to fail. But did the banks themselves know it, and did it affect their behavior? If they were unaware they were too big to fail, could a moral hazard still be present?

It has long been a presumption that the existence of a central bank that will bail out other banks in the event of a crisis creates a moral hazard, wherein the banks’ knowledge that they will be bailed out induces riskier behavior. For instance, here is Vera Smith writing in 1936 summing up Walter Bagehot in 1873:

“It is bound to happen that a central banking system being created by State aid is more likely than a natural system to require state help, and what it knows it can depend on, it will not hesitate to utilise.”

Of course that argument presumes that the banks believe they can depend on being bailed out. But did the largest banks assume this? On Wednesday Jamie Dimon, the CEO of J.P. Morgan, made the claim that Morgan’s internal analysis didn’t assume they were too big to fail, which on the face of it might imply that their may not have been moral hazard at all.

However, Felix Salmon points out correctly that even if the banks didn’t know it, if investors lending to the banks were willing to lend at lower rates because they assumed the banks were TBTF, then being TBTF was subsidizing the banks via a lower borrowing cost. This ability to borrow at lower rate than was being paid out on subprime CDOs allowed banks to profitably borrow cheap funds to invest these in supposedly safe assets. Thus the banks behavior was altered because it did not have to face the full cost of it’s risks, ergo there can be a moral hazard even if the banks are unaware they are TBTF.

The key component of this story that moves it beyond theory is the supposed evidence that investors knew banks were TBTF and were thus willing to lend to them more cheaply. Felix buys this evidence, which is the fact that large banks have a cost of borrowing that was 78 basis points (0.78%) lower than small banks. He cites James Kwak for this statistic, who got the number from Dean Baker. My problem is that I don’t think this is a very sound number, and even if you believe Baker’s method is correct, I don’t think it’s the right number from his paper.

First, as Dean recognizes in his paper, 78 bps is the spread between small banks and large banks cost of funds for the period between Q4 2008 and Q2 2009. But even from Q1 2000 through Q4 2007 the spread was 29 bps, so unless you want to try and attribute that 29 bps spread to the banks being TBTF outside of the financial crisis, the TBTF is at most the increase in the spread of 49 bps.

Additionally, as Dean also points out, the banks being TBTF is not the only reason the spread might grow in that period. It might also be due to investors preferring, completely aside from considerations of TBTF, to lend to larger firms during periods of economic uncertainty. Supporting this hypothesis is the fact that from Q4 2001 through Q2 2002 the big-bank-small-bank-spread grew to 69 bps. Thus the more recent spread is only 9 bps above the baseline spread from the 2001 recession. How do you know that the 9 bps is a result of a TBTF premium rather than resulting from the same preference of lenders to lend to larger banks during a period of economic uncertainty? The  Great Recession was certainly a period of greater uncertainty than the recession of 2001, and so a slightly larger spread would be likely on that basis alone. Again, this is unless people want to argue that any spread is a result of TBTF, but I think it’s much harder to convince people that lenders were considering the probability of bank failure in the 2001 recession or from 2000 to 2007.

As a final point, I’ll note that it’s well established that larger firms in all sorts of industries have a lower risk premium than smaller but otherwise similar firms. According to Ibbotsons Valuation Yearbook from 2008, the risk premium for the largest 10% of firms is 34 bps below the CAPM rate, and for second largest 10%of firms is 68 bps above it*. So using a standard valuation handbook, firms in the largest decile should borrow at 102 bps below the rate charged for the second largest group of firms. You hardly need to appeal to a too big to fail premium to explain a 78 bps gap between the rates charged to large banks and small banks.

So what evidence is there that the spread is a result of TBTF and not a normal size risk premium? I would be curious to see how this spread changes over time compared to the spread in other industries, how they are related to the business cycle, and whether that relationship was different during this crisis. That could provide convincing evidence in favor of a TBTF premium, as Dean’s paper has not. I’m not saying banks weren’t TBTF, or that they didn’t know it, or that investors didn’t know it, so I don’t want to argue with anyone about that. I’m just saying that as far as I can tell, this spread doesn’t prove anything.

*These numbers are only meant to be illustrative of the fact that large firms are considered to have a lower risk premium than small firms in other industries, I don’t want to quibble with anyone about these numbers, or how realistic they are, or why CAPM is bogus, etc.

These are from respective website front pages. Notice any difference in rhetoric?

New York Times:  Accord Reached on Insurance Tax for Costly Plans

Washington Post: White House, labor reach deal

Wall Street Journal: Unions Cut Deal on Health Taxes

New York Post: Unions will dodge O’s health tax


That last one is just to take the take rhetorical trend to it’s natural conclusion, obviously they’re not in the same class of paper as the other three.

I’ve spent a significant portion of my winter break reading and listening to Robin Hanson and I have to say my views have been deeply affected on a variety of issues. Most disturbing to my wife, Robin has convinced me on the issue of Cryonics.  More on that some other time.

However, I am puzzled by Robin’s treatment of status. Robin argues and I am tentatively convinced that much of what people do is in pursuit of status. Robin generally treats this as if first, it was an undesirable personal trait and second as a cost on society in general.

Yet, why should this be. If much of what people do is seek status then shouldn’t our concern as economists be about which systems efficiently allow people to indulge their status pursuits.

Perhaps, Robin is assuming that status is a zero-sum game. That I can only increase my status by lowering yours, but this is not immediately clear to me. Would it not be possible for me to believe that I am high status based on some criteria but for my neighbor to believe that she is high status based on some opposing criteria. What we need is to eliminate devices that would serve to decisively settle these status disputes.

As long as there is no public or official determination of status we can both live in our parallel worlds.

This might suggest for example a route through which income equality in and of itself is beneficial. I have always been skeptical of income equality in and of itself as a goal. Ultimately we should care about consumption and in particular raising the lowest levels of consumption rather than equalizing income.

However, suppose that high income is a source of unequivocal status. This implies that a society with lots of income inequality will make it difficult for citizens to establish their own status domains.  Steve the factory working may not have the education of Bill the doctor but he may still feel high status because he is much better softball player for example.

However, if Bill earns a lot more money and everyone knows it, it will be difficult for Steve to sell his softball makes me cool story. A society with more income inequality then could be a society in which more citizens feel low status and thus have worse lives.

Tyler Cowen asks where he can get ahold of the Associated Press  study showing that unemployment rates were not affected by stimulus spending on transportation and infrastructure projects and is told there is no study to see, only statistical results. I’m no defender of infrastructure spending as stimulus, and watching a perfectly good sidewalk outside my office get a completely unnecessary and inexplicably slow repaving hasn’t helped my optimism either.  But I think the authors of this study have some questions to answer before anyone should take the results seriously.

  • Endogeneity -  Do you have any reason to assume that getting more stimulus money wouldn’t be correlated with needing more stimulus money? If areas that got the most stimulus money did so because they looked to policymakers like they were going to have higher unemployment, and your analysis shows that the unemployment these areas is the same it is in areas that got less stimulus, then that is evidence that it worked; they were expected to do worse, and they didn’t.
  • Spatial Relationships - Was it tested whether spending in neighboring counties impacted employment in other nearby counties? Were the effects tested at different levels of aggregation? As Brad DeLong points out, if spending in one county creates jobs in nearby counties that had no spending, then the results will be biased downwards.
  • Controlling for Other Stimulus - Did they test whether infrastructure stimulus negatively correlated with other stimulus spending? If counties that received more infrastructure stimulus spending received systematically less of other kinds of stimulus, then you might not pick up any positive impacts.

If I read an academic paper making the same claim as this paper, I would be very curious to know how they could have any certainty about their results unless they controlled for these things. The endogeneity problem by itself is significant enough to warrant skepticism.

When your job is the facts, you’d better bring the facts. Twitterer @OMGfacts has not done so; tweeting:

“Every U.S. president with a beard has been a Republican.”

In fact, according to historian of presidential illnesses, Kenneth Crispell, President Woodrow Wilson grew a beard to hide the paralysis in his face he was suffering as a result of a stroke…. So there you have it; a sitting U.S. president who was a Democrat and had a beard.

The president of the American Federation of Teachers has proposed a set of policies for changing the way that teachers are paid. Some of it sounds good, some of it laughable, and some of it suspicious, but overall this sentiment is very encouraging:

“Our system of evaluating teachers has never been adequate,” she said, adding that for too long it “has failed to achieve what must be our goal: continuously improving” teaching.

The proposals, from the AFT website, include setting standards for what teachers should “know and be able to do”. To me, this sounds like more certification and education requirements, which the evidence shows does not impact teacher ability.

In addition,  they propose that teacher assessments should be based on a variety of metrics including in-class observations, self-evaluations, portfolio reviews, and assessments of lesson plans,  students’ work, and “other projects”. My first reaction is that self evaluations are a laughable means by which to judge teachers, but that more measurements are probably a good thing.

They also want test scores to be used only to compare scores of students from the beginning of the year that they are with the teacher to the end of the year.   Allowing the teachers to administer their own baseline tests provides them with terrible incentives. I’m not sure why this measurement would be better than comparing to students’ previous year’s scores except that it allows teachers to influence their own baseline.

Another reform includes hiring Ken Feinberg, Obama’s Compensation Czar, to oversee develoment of a new process for removing bad teachers.

Overall I find it encouraging that the reform proposals of one of the nations largest teachers unions recognize that it needs to be easier to fire bad teachers, and that  some form of standardized testing is a good thing.

1. The Institute for Justice says occupational licenses are hampering entrepreneurship in Texas, and particularly, it seems, in eyebrow plucking:

In addition to the report, the institute and eight Texas entrepreneurs who pluck eyebrows using a process called threading filed a lawsuit Tuesday in Travis County District Court over licensing regulations.

2. Chile joins the OECD (H.T. Arnold Kling), while Argentina sees it’s president attempt to grab $6.6 billion foreign currency reserves from it’s Central Bank. To this I say two things: “R.I.P.” to him, and “eat it!” to her:

TO SUSTAIN its expansionary fiscal policies, Cristina Fernández’s government has developed an insatiable hunger for other people’s cash. First she ramped up taxes on farmers, then last year she nationalised private pension funds. Now she is trying to lay her hands on the Central Bank’s foreign-currency reserves.

3. This is exactly why we need The Daily Show With Brad DeLong.

4. Lawmakers want the health care bill to include a ban on deals where name-brand drug makers pay off generic drug companies to stop them from making one of their drugs. If a monopoly can buy off a limited pool of potential market entrants, is there any scenario where they wont? I see this as just a way to allow generic makers to extract rents from monopolists:

…the F.T.C. is suing the drug company Cephalon, claiming that it illegally induced generic challengers to delay marketing generic versions of the stay-awake drug Provigil to protect the product, which had sales in the United States of about $925 million in 2008.

…The generic companies agreed not to market a generic form of the drug until 2012, and Cephalon agreed to pay the challengers at least $238 million for 13 side deals…

FYI I’ll be posting morning links and quotes temporarilly to make up for light blogging due to a very busy work schedule the next few weeks. I’m aware that there is a surplus of links in the blogosphere.

1. Many of the jobs lost during the recession aren’t coming back (WSJ):

In November, there were 36% fewer people working in record shops than two years earlier, according to the Labor Department. There were 23% fewer people working at directory and mailing list publishers, and 46% fewer at photofinishing establishments. Those are jobs that, with the advent of mp3 recordings, Google and digital photography, were likely disappearing anyway.

2. The Chronicle of Higher Education on “green guilt” (H.T. The Browser):

Instead of religious sins plaguing our conscience, we now have the transgressions of leaving the water running, leaving the lights on, failing to recycle, and using plastic grocery bags instead of paper. In addition, the righteous pleasures of being more orthodox than your neighbor (in this case being more green) can still be had—the new heresies include failure to compost, or refusal to go organic. Vitriol that used to be reserved for Satan can now be discharged against evil corporate chief executives and drivers of gas-guzzling vehicles.

3. Obama weighs a tax on banks, but apparently not the auto industry, to recover bailout money (NYT). I think I could be convinced this is a good idea:

The administration previously rejected two ideas that have received much attention in recent months: a transaction tax on financial trades and a special tax on executives’ bonuses.

The most likely alternatives would be a tax based on the size and riskiness of an institution’s loans and other financial holdings, or a tax on profits.

4. When it actually happens, the results are not as hilarious as Charlie and the Chocolate Factory would have us believe:

Federal safety officials fined a Camden chocolate plant $39,000 yesterday for safety violations following the death of a factory worker who fell into a vat of chocolate last summer.

One argument against school vouchers is that, unlike charter schools, the lack of oversight will allow ideological and overly niche schools to thrive. This will mean more children will receive an education lacking in either general breadth or something else, depending on the niche of the voucher school. I find this to be probably the most compelling argument against vouchers; I have a hard time imagining ideological elementary schools not arising and becoming popular, and in some areas even crowding out unideological schools in general. Given the other benefits of vouchers, I don’t find this a sufficient reason to oppose them, but I do believe it to be a potential cost.

Of course the counterargument to this is that current public and charter schools are already ideological, that teachers tend to be liberal overall, and that leftist ideology is already pervasive in public school curriculum. An article today on the burgeoning trend of Green schools is evidence in favor of this counterargument. These are charter schools that focus curriculum around environmentalism, and other “social justice” issues. Not only are they operating under public charter funds, but according to the article, “some of them [are] benefiting from state grants and mandates to incorporate environmental education into the curriculum.”

Curriculum includes things like recycling, environmental justice, and other issues related to the environment. It’s fair to say a well-rounded education should involve understanding these issues, but indoctrinating a particular ideological perspective should not be the focus of a child’s education. Furthermore, even if they were being even-handed about it in presenting different perspectives on environmental issues, which is almost certainly not the case,  it’s as absurd to think that these issues should be the central component around which a child’s education is organized. Kid’s deserve a break from the constant reminder of the issue of environmentalism. But not even math class does not provide a respite from environmentalism; at the Green School in Brooklyn, students “walk the streets to map trees and trash cans, then incorporate their findings into mural sketches for geometry class.”

In addition to having and ideological slant when teaching traditional school subjects like math and general science, some schools also  “emphasize the environmental sciences or teach skills that will prepare students for careers in renewable energy or other pillars of a greener economy”. This means teaching students to design energy-efficient buildings, and install solar panels. I would hope that even the economics think tanks that put out the absurdly optimistic reports on our future “green economy” would advise against taking their forecasts this seriously. It’s one thing to bend a child’s understanding of the world to your ideological convictions, but to force their skills to fit that mold as well? This is parents and administrators gambling children’s future incomes and on an ideologically driven fad, and it’s so obvious that one administrator quoted in the article is on the defensive about it:

“We’ve got some schools investing in the skills kids need to compete,” Mr. Betheil said. “No way is this a fad.”

Down the street the “No Limit Texas Hold’Em Elementary School” and “Future House Flippers High School” shuttered their doors, tearing down plaques containing the same mottos: “No way is this a fad”.

I also find it hard to believe that a wider ideological indoctrination does not take place at these schools. I’m sure there are plenty of multicultural and post-modern critiques of science, and constant reminders that what is being taught in standard elementary schools contains a Western, Capitalist, white male bias.

Global warming is real, pollution is an issue, and children should learn about it in all schools. But to build an education around those issues in the same way that many liberals build their lives around them is an extreme ideological corruption of education. It would be nice to see progressive critics of vouchers stand up against these sorts of schools in the same way that they would if  “Heritage Foundation Charter Schools For Young Capitalists” were springing up across the country. Otherwise, it becomes apparent that the objection to vouchers is not that children will be indoctrinated to partisan ideologies in publicly funded schools, but that they will be indoctrinated to partisan ideologies other than their own.

Some interesting statistics about the adult film industry here. I’d be curious to know what the 90% confidence intervals are around these estimates, because many of them seem surprising. For instance, the claim that the San Fernando Valley produces 90% of all adult films and releases 20,000 adult movies a year seems unrealistically large. It is also claimed that the total worldwide revenues to the industry are $97 billion. So if 90% of that flows to California, where the San Fernando Valley is located, then it contributes $87.3 billion to California’s GDP. This would be 4.7% of California’s $1.8 trillion GDP, which would be twice the direction contribution to the economy of agriculture, and 65% as large as total exports. Does that sound believable? Are there better numbers on this?

H.T. Digg

“The only monster here is the gambling monster that has enslaved your mother! I call him Gamblor, and it’s time to snatch your mother from his neon claws!” ~Homer Simpson

As long as we’re discussing where gambling regulations lie on the spectrum of paternalism, I would be curious to know if there are any reasonable people who actually think online gambling should be banned? If such people exist, do they think it’s important enough of a reason to justify keeping the Treasury department understaffed during a recession? Senator Jon Kyl is apparently blocking the nomination of the following six Treasury officials because the Obama administration is delaying the enactment of new internet gambling regulations:

  • Under Secretary for International Affairs
  • Under Secretary for Domestic Finance
  • Assistant Secretary for International Markets and Development
  • Assistant Secretary for International Economics and Development
  • Assistant Secretary for Financial Markets
  • Assistant Secretary for Tax Policy

Those sound like important positions to me. Who are the constituents with horrible priorities that Senator Kyl is trying to please here?

(H.T. Yglesias)

Two unrellated stories of economic villainy to raise your blood pressure. First, is the robbery of self-employed entrepreneurs to feed the U.A.W. (H.T. Carpe Diem).

At the behest and lobbying of the U.A.W. and a public sector union, the State of Michigan created an agency to serve as de facto “employer” for self-employed daycare workers, for the sole purpose of having someone to unionize against. Now Michigan’s independent day-care providers pay $3.7 million in annual dues so that they can have… what exactly? Collective bargaining with the State, which became their employer so they could unionize, so that they could collectively bargain with the State, which became their employer so they could unionize, so they could…

This is pure economic villainy, and in a state with 26% unemployment. The Mackinac Center, a free market think-tank, deserves applause for bringing a lawsuit against Michigan for this egregious bullying.

In other egregeious bullying news is the second economic villain of the week, care of Felix Salmon. This is the U.K. for trying to force Iceland to pay the U.K. for the bailouts it gave it’s own citizens who lost money they had deposited in Icelandic banks. This seems to me like a terrible precedent, since it effectively gives U.K. citizens deposit insurance wherever in the world they decide to bank, as long as enough of them do it. Hey, I hear the interest rate on savings accounts is great in Haiti, maybe U.K. citizens should start opening accounts there. Worse than that though, it is pure economic villainy.

“…governments of mixed economies, coming into power on a wave of popular frustration, always run straight onto the rocks of the balance of payments and have to reverse themselves… Somebody should write a manual called something like “The First Two Years,” which would map the problems by which the mixed economy is assailed as a new social democratic government moves to implement its program.”

That is from “Lives of the Laureates”, a book of essays of Nobel winning economists reflecting on their lives and lifes work. So far I am really enjoying it, but not as much as I remember enjoying Heilbroner’s “Worldly Philosophers”. Apologies to Larry Klein and macro modellers everywhere, but I found his chapter extremely boring. More, I think, for his subject area than his writing style.

Anyway I don’t think trade deficits are a serious problem for Obama, considering the other problems he has, but thought Lewis’ general warning to parties riding a populist wave into power was worth remembering- perhaps even more so for President Kucinich in 2013.

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