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President Fisher is confused. From Reuters

Dallas Fed President Richard Fisher, an outspoken policy hawk, added that he was perplexed by Wall Street’s continued preoccupation with the possibility that the Fed could engage in a third round of large-scale buying of assets, known as quantitative easing, or QE3.

Drawing a line in a debate that has intensified this year, Fisher said he would support QE3 only if there were "a significant reversal of the current momentum of the economy (or) significant deflation," among other scenarios, adding: "I don’t see that happening right now."

This is quite the co-incidence.

As it happens, just this morning I was perplexed at how in the face of massive on-going policy failure by virtually any standard whatsoever anyone at the Fed could even consider retracting monetary accommodation or signaling a more contractionary stance.

Fortunately, the Regional President cleared that up for me

"(I)f the data continue to improve, however gradually, the markets should begin preparing themselves for the good Dr. Fed to wean them from their dependency rather than administer further dosage," Fisher said, using a familiar metaphor.

Now I understand. The President is saying that because markets are pricing in a zero real interest rate, he himself now has absolutely no concern for how long it takes to alleviate the suffering of millions of people under the Fed’s charge. Time, you see, is of no value.

His devotion to market signals is extraordinary.

Android app + machine that mixes drinks. As Paul Krugman notes in his “futurism article“, most things that symbolic analysts do can and will be automated. Add to that category (unsurprisingly) repetitive remedial tasks. This, of course, reduces the marginal product of bartenders to zero for people who eschew witty banter and simply want a drink. On the plus side, you would never have to ask a bartender if he knows how to make a particular drink (I’m not creative with drinks…).

However here is a developing point; In any society, people should be able to dream up jobs for other people to do (for example, at one point in history, ironing newspapers was someone’s job). In reality, that may require some changing mores about what is considered paid work. The second part of this point is that I think as specific human interactions become more rare, they become more premium, that is, the marginal product of simply being human and having a particular skill rises (and if economics is any guide, extremely rapidly). That doesn’t bode well for the quantity of jobs, but it does for the quality of reproduction.

Keep in mind, however, that up to this point society has seen it fit to heavily subsidize areas of the economy which have already suffered from this phenomenon (arts, music, farming).

P.S. I think that the future will see the rise of complementary currencies — money with different mechanics than legal tender — which will facilitate this type of human interaction. I think a lot of economists overlook this possibility in their futurist extrapolations. Many try and shoehorn the current rules into their interpretations…but I think that kind of brushes aside fundamental concept in economics: incentives.

From the Washington Post:

The European Central Bank offered new emergency loans to banks on Thursday to help them through the turmoil of the government debt crisis, but decided to keep interest rates on hold despite fears of an economic slowdown.

Remember what happened last time a central bank failed to let rates fall to zero (nay, failed to let rates fall at all!), failed to commit to an explicit level target, and instead made what were widely understood to be temporary injections into the banking sector? Here’s a hint, it happened in October 2008, in the United States.

Also, this is nearing sadistic:

“Have we delivered price stability? Yes, we have delivered price stability,” he (Trichet) said. “Are we credible in delivering price stability over the next 10 years? Yes. These are not words, these are deeds.”

[h/t Matt Yglesias]

Alabama law now makes it a crime for an illegal immigrant to solicit work and makes it legal to detain people indefinitely on suspicion of being an illegal immigrant.

The law allows police to detain people indefinitely if they are suspected of being in the country illegally and requires schools to check the status of new students when they enroll. Those elements make it perhaps the toughest law in nation.

The law targets employers by forbidding drivers from stopping along a road to hire temporary workers. It also bars businesses from taking tax deductions for wages paid to illegal workers and makes it a crime for an illegal immigrant to solicit work. A federal judge has temporarily blocked those sections of the law so she can study them more.

So any pretext of being concerned about folks coming here to be a burden on the system is completely abandoned. It is now extra illegal to even try to work and feed your family.

I’m headed off to a conference, but I just wanted to voice my disgust with Ben Bernanke quickly. Here is what I gathered from his speech in Jackson Hole:

1. The Fed has the tools to offset shocks to money demand, but only sees fit to use them in the event that the country is facing actual deflation.

2. The Fed is highly committed to memory-less inflation targeting, and is happy living with inflation below 2%.

3. The Fed will not offset contractionary fiscal policy, handing proponents of active demand management victory on a silver platter, though they don’t deserve it.

We will have to wait until the next Fed meeting to see Bernanke’s “real” intentions on monetary policy. Will he steer the committee into a more aggressive stance? The stock market is very slightly up on the speech, so maybe WAll Street knows something that I don’t…but I just can’t see how an aggressive policy move is in the cards.

David Henderson goes after Steven Levitt’s full throated endorsement of the nanny-state. Levitt’s remarks:

It wasn’t until the U.S. government’s crackdown on internet poker last week that I came to realize that the primary determinant of where I stand with respect to government interference in activities comes down to the answer to a simple question: How would I feel if my daughter were engaged in that activity?

If the answer is that I wouldn’t want my daughter to do it, then I don’t mind the government passing a law against it.

Now, I am guessing that Levitt is not willing to take this to its fully totalitarian conclusion. If he wouldn’t want his daughter to become a Seventh Day Adventist, would he not mind the government passing a law forbidding people to join them?

Which highlights why these preceding remarks are so striking

I’ve never really understood why I personally come down on one side or the other with respect to a particular gray-area activity.  Not that my opinion matters at all, but despite strong economic arguments in favor of drug legalization, the idea has always made me a little queasy.

Conversely, although logic tells me that abortion as practiced in the U.S. doesn’t seem like such a great idea (see the end of the abortion chapter in Freakonomics for our arguments on this one), something in my heart makes me sympathetic to legalized abortion.

Putting those two together Levitt is basically saying: I’ve never really thought about why I support the policy regime that I do.

With all due respect, if vulgar paternalism as a normative framework is something of a revelation to Levitt its just not believable that he has ever engaged this question.

Yet, Steven Levitt is a celebrated social scientist at a legendary institution.

I am not even quite sure what to make of that.

On the one hand, perhaps its a good thing that someone is so engaged in positive social science that he or she has not even bothered to think about the ethical framework in which policy is embedded. I could imagine that this leads to less bias in his research.

On the other hand, its so foreign to my understanding of why we become social scientists that I can hardly wrap my mind around it.

First, I’m sorry about my extended absence from blogging, both to my co-bloggers and audience. My schedule has been very full, and I’ve been battling mysterious fatigue and abdominal pain which makes it hard to concentrate on anything. I’ve been seeing multiple doctors and am heading to a specialist here at the end of the month. They have ruled out Chron’s, celiac sprue, acute intermittent porphyria, and irritable bowel syndrome…along with the more common stomach problems. I know that is not a real excuse, and I should battle through it for the good of you readers. For that, I’m sorry.

In any case, the story that caught my eye today is that Obama has issued an order to government to trim rules that are not “cost-effective and cost justified, transparent, coordinated/simplified, flexible, science-driven, or necessary and up-to-date.”

And then there were flying pigs. The NYT identifies a few rules that are simply dumb:

There is a federal regulation that dictates that place names on new highway signs must be spelled with just one capital letter — like This, not THIS.

Federal rules say that beef from a state-regulated slaughterhouse cannot be sold in other states, but bison from the same slaughterhouse can.

And as President Obama told the nation on Tuesday, one federal agency until recently listed saccharin, a common coffee sweetener, as a form of toxic waste.

Of the stupid rules listed above, only the second has any real material consequence. The NYT Economix blog also has a discussion of further stupid rules.

And then there was pie in the sky. I don’t have much faith that this is of much consequence. As noted above, we may be able to get rid of some quirky rules that are left over because no one notices that they are there…but most dumb rules exist because they benefit somebody, somewhere. Perfect competition is a very cruel mistress. If there is a rule that is of material (economic) consequence, it is likely that it exists because some interest agitated that it be so. Thus, trimming the government of rules that aren’t cost-effective, or aren’t coordinated or flexible is a political battle.

However, I can think of something that is of extreme consequence, that is not cost effective or cost justified, flexible, coordinated/simple, science-driven. It’s also of dubious necessity and certainly not up-to-date. I wonder if it’s on the chopping block?

Tom Tancredo is apparently within 4% percentage points of the lead in Colorado’s Gubernatorial race. Yes, he’s the guy who raised his hand really fast in the 2008 presidential debate when asked “who here doesn’t believe in evolution?”. But is that all the crazier Tom Tancredo is? Here is one piece of evidence from his Wikipedia page that suggests the answer is “no, he’s way way way crazier than that”:

During a 2005 radio interview on Orlando talk-radio station WFLA AM 540, Tancredo responded to a questioner asking about the hypothetical U.S. response to a nuclear attack on U.S. cities by al-Qaeda, by saying that one possible response would be to retaliate by “taking out” Muslim holy sites (specifically, Mecca) if it were clearly proven that Islamic terrorists were behind such an attack. Several days later, in an interview on CNN together with James Zogby, Tancredo said that the attack was mentioned merely as a hypothetical response and insisted that there was nothing for which he should apologize.

How crazy is Tom Tancredo? Crazy enough to bomb Mecca. He’s so crazy that he believes something that’s craziness is so self-explanatory I can never imagine having to explain to anyone other than Tom Tancredo why it’s so fucking crazy.

Holy shit Colorado, good luck.

This should make Arnold Kling feel excellent:

“Buy new with $1,000 down,” the advertisement says, the words resting atop a trim green clapboard house offset by a bright blue sky.


The advertisement references a program initiated by the National Council of State Housing Agencies and Fannie Mae, the taxpayer-backed, government-sponsored enterprise that buys up mortgages from lending banks.

I’m pretty sure this one program offsets the entire financial reform package.

[H/T Ezra Klein]

I’d never heard this story before; it is perfect:

On January 26, 2006, [Joaquin] Phoenix was in a car accident in Hollywood on a winding canyon road that flipped over his car. The crash reportedly was caused by brake failure. Shaken and confused, Phoenix heard a tapping on his window and a voice say, “Just relax.” Unable to see the man, Phoenix replied, “I’m fine. I am relaxed.” The man replied, “No, you’re not.” At this point, Phoenix saw that the man was famed, eccentric German film director Werner Herzog. After helping Phoenix out of the wreckage, Herzog phoned in an ambulance and vanished.

Whoever wrote this Wikipedia entry has done an excellent job because Werner Herzog does not just “walk away from the scene of the accident”, he “vanishes”.

From the LA Times:

Here we go again. Another legislative session, another well-funded campaign waged by Intuit Corp. to abolish California’s free, innovative and wildly popular electronic tax filing programs, ReadyReturn and CalFile.

These two programs provide California taxpayers with a reliable, voluntary, safe and free way to calculate and file their taxes. ReadyReturn offers an already completed state tax return using information in the state’s possession (from a W-2, for instance) as a starting point. It’s for single filers whose income, up to $240,000, comes only from wages. CalFile offers free, interview-style online filing for somewhat more complicated tax situations. It’s for married as well as single taxpayers with incomes up to $320,000. The state estimates that 6.4 million Californians are eligible for these services — more than 40% of the state’s taxpayers.

There seems to be an efficiency gain here, as the reactions from people include things like:


Of course, as we all know, there is no free lunch. However, it is in the public’s interest to invest in ways to minimize the deadweight loss of collecting taxes (not to mention it’s a very “liberaltarian” thing to do), and it seems that California has found a more optimal solution than using TurboTax. Sadly, it is the norm for corporations which are becoming obsolete to seek refuge from the government, rather than adapt to a changing marketplace.

I am a very enthusiastic reader and follower of conspiracy theories. The crazier the better. I particularly enjoy CT’s that have to do with large networks of secret societies that work toward World GovernmentTM. Even better if they incorporate alien technology, celestial predictions about the year 2012, or other nefarious government plots to keep boot on our collective faces.

One that I hadn’t noticed, or heard about, was recently reported by Kevin Drum…and according to a House Representative, seems to be instrumental in his failing to win a primary to a Tea Party candidate:

I sat down, and they said on the back of your Social Security card, there’s a number. That number indicates the bank that bought you when you were born based on a projection of your life’s earnings, and you are collateral. We are all collateral for the banks. I have this look like, “What the heck are you talking about?” I’m trying to hide that look and look clueless. I figured clueless was better than argumentative. So they said, “You don’t know this?! You are a member of Congress, and you don’t know this?!” And I said, “Please forgive me. I’m just ignorant of these things.” And then of course, it turned into something about the Federal Reserve and the Bilderbergers and all that stuff. And now you have the feeling of anti-Semitism here coming in, mixing in. Wow.

I immediately recoiled in horror. How could I not have heard about such an incredibly nefarious plot by bankers to OWN PEOPLE?! That even incorporates the notion of modern-day slavery, and the prospect of a giant casino where the Illuminati go to option babies, and trade revenue streams on everyone from bums to programmers.

After settling down a bit, I realized that I recognized this story. It’s relates fairly closely to the plot of The Unincorporated Man, by Dani and Eytan Kollin (reviewed by Robin Hanson here). The difference is that this is of course simply bankers that own…something (which is wildly unclear), whereas in The Unincorporated Man, various actors own portions of your income.

And so I am relieved that this idea is not-so-original.

I often make the claim that there is no dearth of imagination in the ways in which humans can find to utilize other human labor. Many times, I use this fact to argue against protectionists. I also use this statement to illustrate that deep recessions are caused by monetary disequilibrium in the demand to hold the medium of exchange.

Here, I want to provide you with proof that humans can, and will, always find ways in which to waste eachothers’ time:

Monkeys hate flying squirrels, report monkey-annoyance experts.

Presumably, these ‘experts’ were paid for their research.

[H/T Tyler Cowen]

…at least not in public.

For labor, the recalculation story says that employment is a by-product of patterns of specialization and trade.

Someone who openly admits that labor is an (unfortunate) by-product of economic activity, and not a desirable end in-and-of itself? Kudos!

Of course, I don’t suppose you get bribed into getting off your X-Box, driving across town, and doing a repetitive task for a set amount of time…do you?

Kevin Drum, who is not a no-growth economist, analyzes what a no-growth economy would look like.

This is….a wee bit rosy. If we all worked two days a week, I suspect the real result would be more time spent playing video games and drinking beer, not a renaissance in the arts and sciences. And more time to look after sick relatives? I’m not sure everyone would consider this a boon.

…and then he aptly notes:

…In other words, not only wouldn’t we get a renaissance in the arts and sciences, we probably couldn’t afford video games or beer either.

This is all very correct. No-growth economics is almost exclusively the intellectual realm of the left. I mean the type of lefties that have no problem with sawdust toilets, grass huts, and foraging. For those of you scratching your head as to how one goes about achieving “no-growth economics” in a world where people have a propensity to discover, adapt, and amplify different methods and tools for achieving ends more efficiently…well, I’m right there with you.

The biggest problem that faces the entire world is a scarcity of wealth, and economic growth is the natural result of cooperation and competition that people engage in to maximize their wealth. What is happening here is that proponents of “no-growth economics” have completely misidentified their intended target, and have thus made themselves a model which is extremely high on idealism, and extremely low on realism.

So if economic growth isn’t the proximate cause of the injustice that leads people to an incoherent economic model, what is?

Our money system.

It is assumed in economics that money is a value-neutral accounting device.* That the rules of the monetary system itself do not shape the kind of transactions that are made, it just makes them easier; and that the type of money we use has no effect on the relationships between the users. I make nearly the exact opposite claim, and that we take this fact for granted in a way that artificially prevents us from meeting needs with unused resources.

Humans have an incredible ability to find ways to waste eachothers’ time put eachother to work. I doubt that anywhere in the world there is a shortage of imagination. So what is the problem? A shortage of money. And why is that? Because of the rules governing how the prevailing monetary systems of the world work.

People who advocate for “no-growth economics” should realize the incoherence of their views, and instead advocate the use of complementary currencies — currencies which operate under different rules — that circulate alongside legal tender.

*I am using the term value-neutral in a different way than economists when they talk about the neutrality or super-neutrality of money.

Seems that Paul Krugman no longer “believes in” liquidity traps:

The passivity of the Bank of Japan offers an object lesson. The BOJ is now under political pressure? Why? Because it still sees no reason to act after fifteen years of deflation.

He is certainly in good company ;].

I, personally, learned next to nothing about the monetary policy stance of the nominees to the Federal Reserve Board of Governors at today’s Senate hearing. Janet Yellen, Peter Diamond, and Sarah Bloom-Raskin all seemingly showed up to the wrong hearing! The hearing that I saw was almost solely about financial regulation.

This is what I tweeted to Chris Dodd:

@chrisdodd PLEASE ask them: “Do you believe that the Fed can stimulate aggregate demand at the zero lower bound?” #frbhearing

Here is the closest I have to go on from Janet Yellen:

July 1 (Bloomberg) — Federal Reserve Bank of San Francisco President Janet Yellen said the prospect that policy makers will leave the benchmark U.S. interest rate near zero for the next several years is “not outside the realm of possibility.”

“We have a very serious recession, we have a 9.4 percent unemployment rate,” and inflation possibly falling further below the Fed’s preferred level, she told reporters yesterday after a speech in San Francisco. Given the recession’s severity, “we should want to do more. If we were not at zero, we would be lowering the funds rate.”

These are not very inspiring statements.

[H/T to an old Scott Sumner post]

In the spirit of the fourth of July, I’m going to take some time to draw attention to a local (Omaha, NE) matter stemming from the holiday.

“The fireworks being sold were over three times the legal size,” Heine said. “We are investigating whether the employee was acting on his own or with the knowledge of the stand’s owner.”

Heine said the fireworks stand was authorized to sell Class C fireworks, which are labeled with the number 1.4.

However, the fireworks in question were more like Class B fireworks, which are used for large shows and have a 1.3 label.

“Part of the problem is that it appears the fireworks were repackaged with a 1.4 label to look as if they were legal consumer fireworks,” Heine said. “These illegal fireworks could have done some terrible damage.”

The illegal fireworks were sold “under the table,” Heine said. The employee would ask people if they were looking for something more powerful.

Fireworks are, of course, illegal in a very, very confusing way in Nebraska. Each city has it’s own ordinances, which have to comply with a myriad of restrictive county laws and also state laws. I’m not exactly sure how it all works; but the gist of it is that most places you go in Nebraska only sell weak fireworks.

Now, as illustrated by the great Joe Dirt at the link above, there is obviously great consumer demand for more powerful fireworks. Unfortunately, this bust is being interpreted as a reason to “step up enforcement”. Why? Because the status quo has inertia, no matter how misguided the framework may be.

The current laws in Nebraska (and Iowa) incentivize people to do one of two things. Either people travel to a surrounding state with no ban on firework sales, or they sell them anyway, packaged as legal fireworks. The former requires a lot of man-hours and energy to enforce (not to mention is highly inefficient in the economic, and literal sense), and the latter makes a dangerous product even more dangerous.

What would be an relatively cheap, effective, efficient, and safety-enhancing way of remedying this situation? How about a legal market?

Tyler Cowen recently linked to a Wikipedia article for BitCoin; a decentralized, peer-to-peer (crypto-)currency. I originally found the idea quite confusing (but I’m not a master of p2p technology), but Leigh Caldwell recently brought it up and after doing a little research, and joining the network myself, I’ll offer some comments.

BitCoin is a money that uses a p2p protocol similar to HashCash to resolve transactions. Apparently there is planned to be a finite amount of this currency generated (at BC 21,000,000). Currency is “earned” by using your CPU clocks to resolve transactions, which ensures that each BitCoin unit only gets spent for a single transaction once…or, of course, buy selling goods and services.

In effect, what you are doing is hiring your computer to work for you in the former scenario. You also happen to be your own banker, and your own transaction clearing house. I’m not sure exactly how much you “earn” for each transaction you resolve, but I haven’t appreciated a sizable amount of currency as of yet. The downside to this is that at some given exchange rate, it might not be profitable to run your computer 24/7 to generate BC…but of course if you leave your computer on all the time anyway (as I do), then the opportunity cost is zero.

(Note: Second Life has this kind of structure too, where you can earn small amounts from the game itself, and in Entropia: Universe you can earn money by “sweating” things.)

In any case, this is literally a “wild-west” of money, and there are infinite sorts of possibilities.

Currently, BC is in an “inflationary” state, where currency is being issued. Apparently there are around BC 2-5 million units in circulation. However, you cannot earn interest — BUT, there is nothing stopping you from creating an amortization schedule by purchasing BitCoin on an exchange, thereby creating an interest-bearing account.

There is a marketplace at the site in which I’ve found ideas for a lottery, an operational casino, quite a few ads for electronics, and apparently some guy was able to get a Papa John’s pizza.

However, these types of transactions don’t intrigue me as much as the possibility for entirely new financal institutions to arise, due to the open-ended nature of the project. No “banks” have arisen, but it seems possible that they could. There is some sort of bond market that is denominated in BitCoin, but I can’t find the link right now. There are both nominal and real exchange rates, which means it is definitely possible that a more robust “forex” market could arise. Unfortunately without robust, forward-looking markets, it is nearly impossible to tell how the knowledge that the currency will be fixed at some point in the future affects current variables…and I don’t even think that is a good idea, although BitCoin does resolve to the eighth decimal place, so there is ample room for deflation…

BitCoin loans backed by diversified assets is another realm to explore — although the founders seem to be against fractional-reserve banking.

Okay, now for the sobering part. If you are a fan of alternative currency systems, the turn-of-the-century looked like a golden age for your aspirations. The internet seemed to offer unlimited promise…but of course, that was all shattered by reality. Peter Thiel started PayPal as an alternative exchange system, only to become a simple payment clearing house due to the harsh realities of regulation. RevolutionMoney had similar high ambitions. e-Gold became a favorite among money launderers, and was subsequently shut down, and BitCoin runs the same risk. Exchanges are currently a legal gray area, but you can probably assume they are illegal, and any meaningful sort of banking is out the door…and should you find yourself incredibly “BitWealthy”, you can bet that when you make your first large transaction, you’ll get a (not so) friendly knock at the door from the IRS.

Of course, this suspicion is inextricably linked to the fact that a popular “feature” of BitCoin is the perceived privacy…and also the talks of people in China using this currency to exchange for dollars using proxies, circumventing the state.

In his book, Alan Greenspan said he “foresees private currency markets in the 21st century”. This may be a step in the that direction, but the state is a terrible beast to overcome.

And finally, three questions:

It seems the only risk to hoarding is that the currency might not even exist by the time the “deflationary period” sets in. This actively discourages me from selling anything of marginal value (to me)…and discourages me from investing. This limits both my income, and the types of transactions that get made to odd junk and novelties (of course one man’s trash…) Are the benefits in terms of the reduction in transaction costs sufficient to be able to overcome these “features”?

Currently, there is no eBay-style reputation system. This obviously poses an incredible problem…but transactions in BC are non-recourse (as there is no clearing house)…so you have to rely on a mutual agreement on returns. Does this justify the lack of transaction costs in the long run?

There is no postal service that will deliver goods for BC. This necessarily pushes you into the “dollar economy” anyway. I wonder at what point BitCoins become useful enough that something like that could arise? Could it arise in a deflationary environment?

Addendum: Last thought, I swear! BitCoins seem insufficiently immobile. As it stands, I need to get a 34 character alphanumeric address unique to each user to be able to transfer credits. I also need to be at my one computer to be able to access my account. This is no doubt due to the emphasis on privacy…but it seems like a very large drawback to the use of the currency. I wonder how hard it would be to adapt mobile technology to this format.

Daniel Indiviglio has a strange post at The Atlantic that I have been trying to ignore, but the website editors there keep putting it on their front page in a box called “Things you might have missed”.  His argument is that credit should be criminalized because that would make the economy more stable. Daniel recognizes that the effects would be devastating in the short run, but claims that eventually it would only mean that the economy grows “a little slower”. This is not just my ungenerous interpretation:

It would involve an extraordinarily difficult transitional period, including massive job losses, deflation, and a deep recession as the government and population adjust. But if Congress managed to embrace a credit ban, we would end up with an overall economy that grows a little slower, but is incredibly stable. All that systemic credit risk? Gone. That reward would be well worth the cost. [Emphasis mine]

Would it really be worth the cost? Let’s consider what criminalizing credit would really mean. In reality it would mean lending would be pushed into the black market, because people would not be ridiculous enough to abide by a law that prevents borrowing to make investments with positive net present value, or making loans with a positive expected return.

To the extent that people don’t circumvent the law, a credit ban would mean a lot of terrible growth destroying stuff in the long run, not just during a “transitional period”. One growth destroying impact would be that people couldn’t borrow money to go to college, which would gradually erode the human capital stock of the country. People also couldn’t borrow money to buy cars to drive to their jobs, which would mean settling for worse jobs that are closer by, thereby inefficiently distorting the allocation of labor. They also couldn’t borrow money to make simple investments in durable goods that would save them money in the long run, like buying a washer and dryer instead of spend money at a laundromat.

It would also mean that when someone suffered a temporary and unexpected income shock that wiped out their savings they would have to begin selling off their possessions instead of using credit cards to make it through. Of course that’s only if they have valuable possessions to sell. The evidence in developing countries suggests that when poor families have no or limited access to credit, they are more likely to respond to income shocks by pulling their children out of school and putting them into child labor. So we’d probably see some child labor, which also represents a massive destruction of human capital.

Of course rich people wouldn’t see their access to education or mobility limited, nor would their resources to weather income shocks be noticeably diminished, because they have lot’s of wealth and savings to draw on. Thus banning credit would mostly hurt the poor, and thus would significantly increase income inequality. The ability to borrow money is much more important to low income people, and for so many it is an absolute necessity if they are to pull themselves out of poverty.

So no, even in theory, even on paper, we should not criminalize credit.

Do you like short quips of nerdy econo-talk? Want to keep up with the bleeding edge of posts on this blog? Wish to interact with Karl, Adam, or Niklas in a completely public fashion that feels marginally more personal*? Then follow the blog’s Twitter feed!

*Don’t fret, your job at the Washington Post is safe…for now ;].

I laughed at him; mocked him even. He warned us that our government was run by totalitarians who were preparing to come crashing down upon us, taking away our precious freedoms. Sure, I warned people that they came for the cigarettes, then the sugar, then the salt, and so what next? But the extreme paranoid theories he peddled; the malicious motives he impugned our leaders with; the constant claim that tyranny was on the march. Absurd I thought, never in a million years would they take away long cherished and fundamental freedoms like Beck was warning. What a damn fool I was… Let me tell you friends, the tipping point has come: via the oppressive arm of the activist judiciary the final crackdown of the totalitarian, freedom-hating government has begun. God help us all.

Anyone care to offer an economic rationale for this?

…the bill gives the Federal Reserve the ability to set a limit on the fees that stores must pay to accept debit cards. The catch here, though, is that only banks with more than $10 billion in assets would be subject to the cap. As a result, merchants may have to pay more to accept debit cards from smaller banks and credit unions than big banks like Bank of America and Chase.

I know everyone has seen this story and I have nothing to add, but I have to point out that this is the greatest opening paragraph for a newspaper article I have ever read in my entire life:

A middle-aged American construction worker, on a self-proclaimed mission to help American troops, armed himself with a dagger, a pistol, a sword, Christian texts, hashish and night vision goggles and headed to the lawless tribal areas between Afghanistan and Pakistan to hunt down, single-handedly, Osama bin Laden.

The rest of the article is also incredible. Yes, he’s crazy, we don’t want to encourage this, and he would most likely have ended up as a chess piece for the Taliban, but this guy is pure American, blind, stupid, Charles Bronson ballsy-ness, and someone needs to make a movie about him. I mean you could not write a better movie poster tagline than this quote from his sister:

“I’m guessing that he wanted to do one last thing for his country before he died,”

From Political Wire

"No white folks have an ‘e’ on the end of Green. The blacks after they left the plantation couldn’t spell, and they threw an ‘e’ on the end."

– South Carolina State Sen. Robert Ford (D), quoted by the Charleston Post and Courier, saying that race have played a role in Alvin Greene’s (D) surprise victory since he was the only black candidate in a primary with a majority of black voters.

Being born and raised in Greensboro, North Carolina this immediately raised a red flag. After all I didn’t know my town’s namesake was an illiterate former slave (having died 60 years before the Civil War and all) and I’d swear he looks white to me.

Nathanael Greene

File:Greene portrait.jpg

Matt Steinglass at the Economist laments that voters require politicians to be overtly religious, and is even more bothered by laws that do so. He is specifically creeped out by an (unconstitutional) law which bans anyone who “denies the existence of the Supreme Being” from holding state office in South Carolina. Eight other states, it turns out, have similar laws on their books. This prompted Matt to ask the following hypothetical:

So the federal constitution’s rule against “tests” of religion for public office has been upheld. But this seems to me to set up a don’t ask-don’t tell situation. What if a sitting governor, apart from any such test, were to just get up and announce: “There is no God”?

My guess is that it depends on where they are when they do it. If it was done inexplicably in the middle of one of the many ceremonies or ribbon cutting events that governors attend, it would probably be met with the some concern. Or if they were at a state funeral for some dignitary or war hero it would probably be even worse.

Delivery is also important. In any situation it would always be worse to stand up and announce “there is no God” while in the audience and interrupting someone else’s speech rather than in the middle of one of their own. Interrupting Obama during the State of the Union in the same style that Kayne West did to Taylor Swift would likely be the worst possible way to do it.

Saying it once at a normal speaking volume and then sitting down immediately is probably best, while screaming it over and over again would be worst, with a repetitive, tearful whisper somewhere in between.

Governor: “There is no God!”

There are probably very few times and places where a politician could get away with it. Maybe the only good time to and place would be during a particularly religiously hateful Pat Robertson speech. I could see voters responding well to that.

Daniel Indiviglio finds 74 studies nestled within the House and Senate financial reform bills. One of these is titled “the effect of drywall presence on foreclosures”. I dug into the house bill and found out that it is even more absurd that you might first assume:

Subtitle J: Study of Effect of Drywall Presence on Foreclosures – ( Sec. 9901) Directs the HUD Secretary to study and report to Congress regarding the effect upon residential mortgage loan foreclosures of: (1) the presence of drywall imported from China between 2004 and the end of 2007; and (2) the availability of property insurance for residential structures in which such drywall is present.

The amendment that created this study was offered by Mario Diaz-Balart of Florida, and according to his website he is a member of the “Congressional Contaminated Drywall Caucus”… yes, such a thing does exist.

Financial reform seems to be getting distracted.

Pretty interesting peice on avatars in New Scientist:

For now, Lifenaut relies on a series of personality tests, teaching sessions and uploaded personal material such as photos, videos and correspondence. The result, Mayer says, will be an avatar that looks like you, talks like you and will be able to describe key events in your life, such as your wedding day. But how far can such technology go? How much of your personality and knowledge can be reproduced by a computer? Can we ever hope to use avatars to resurrect the dead?

This seems like the perfect application for information stored in the online social networking databases like Google, Twitter, Facebook, etc. Imagine chronicling your whole life with a user interface that is basically transparent (at least for those purposes), which is then decoded using an incredibly large algorithm to determine your personality type, speech patterns, likes, dislikes, etc.

How realistic do you think an avatar could become?

According to Yahoo News, a group of four people protested a spelling bee in Washington DC. The cause for the dissatisfaction? The complication of the English language:

Roberta Mahoney, 81, a former Fairfax County, Va. elementary school principal, said the current language obstructs 40 percent of the population from learning how to read, write and spell.

“Our alphabet has 425-plus ways of putting words together in illogical ways,” Mahoney said.

The protesting cohort distributed pins to willing passers-by with their logo, “Enuf is enuf. Enough is too much.”

According to literature distributed by the group, it makes more sense for “fruit” to be spelled as “froot,” “slow” should be “slo,” and “heifer” — a word spelled correctly during the first oral round of the bee Thursday by Texas competitor Ramesh Ghanta — should be “hefer.”

Logically speaking, these protesters have a point. The English language is indeed needlessly complex. The extent to which it hampers people from learning the language is something that I can only guess at…however, through the benefit of hindsight (or hindsite?), they can plan out how to optimally structure language. The problem is, language (verbal and written) is something that evolves in real time…and it’s almost impossible to control.

The problem that I have with the protester’s intent is that the English language is very robust because of it’s lack of planning, and inefficiency. The English language includes a lot of words, and a lot of ways to structure words that allow new concepts to have interesting (to say the least) naming conventions. This is a feature of evolution, and a feature that you would be hard-pressed to find in real-time planning.

The complexity of the English language is what makes the network resilient. Which is why I was happy to continue reading the article to find this paragraph:

Meanwhile, inside the hotel’s Independence Ballroom, 273 spellers celebrated the complexity of the language in all its glory, correctly spelling words like zaibatsu, vibrissae and biauriculate.

Cheers to you, novel spellers!

P.S. Matt Yglesias offers a different (decidedly pro) perspective.

…”cocktail cops” from the New York City health department busted New York cocktail hotspot the Pegu Club for using raw eggs in a fizz earlier this year. This was “[despite] warnings printed on the menu, and raw egg white listed in the ingredients,” according toReason. Apparently the bartender neglected to issue a verbal warning.

What no waiver to sign? Being in New York I’m a little surprised they can use raw eggs at all.

The article, by Derek Brown, goes on to recommend how to minimize the risk of salmonella when consuming raw eggs, how to use raw eggs in a cocktail, and includes a recipe for a pisco sour.

That’s a man doing his job.

H/T Yglesias

People are mourning the death of Newsweek with twitter meme roasting: the best Newsweek cover line that never was. Josh Green and Matt Cooper got it started with

“What Would Jesus Eat? The New Science of Biblical Diets Could Be The Secret to Weight Loss.”


“Jesus: Was He Gay? The New Science”

John Dickerson of Slate contributes

“The Jesus Twitter: How Social Networking Can Save Your Family (and your soul)”

These are great, but they are missing several features of a good Newsweek headline. I offer the following:

“Who Would Jesus Cyber-Bully? How Online Christianity Is Putting Our Nation’s High Schools At Risk, and How You Can Profit From It Big Time.”

…that in this day and age, our President’s stated policy can be “that American farmers should have protection from market disruptions and weather disasters.” That is from the administrations “guiding principles” on the Rural Issues page of  I’m not surprised that the administration supports this, and every modern president has in one form or another, but that it can still be a stated goal rather than just a regrettable yet politically intractable handout is really unfortunate. We are not a village on the banks of the Amazon river susceptible to supply side famines. What is the justification for this?

If that doesn’t rankle you, here’s another little gem from a Council of Economic Advisors report:

Payments to farmers of specific crops or animal products constituted about 70 percent of all direct farm support in 2008. Of this amount, corn producers received about 29 percent, followed by upland cotton with 25 percent, 15 percent for tobacco, 14 percent for wheat, 7 percent for soybeans, and 5 percent for rice.

Tobacco farmers. Money is taken from you, and given to tobacco farmers. No news here, but these are the kinds of policies we shouldn’t allow ourselves to forget about or be comfortable with.

A new NBER paper argues yes:

…we investigate whether an individual’s height is associated with criminality. Recent economic studies have uncovered positive associations between height and labor market outcomes, which suggest that taller individuals experience labor market advantages and, therefore, have fewer incentives to turn to crime (Persico et al 2005; Case and Paxson 2008)… This paper finds, consistent with several labor market studies, an inverse relationship between crime and adult stature, even after controlling for several features likely to influence an individual’s decision to select into criminal activity.

Specifically, we find that the hazard of prison entry for individuals in the fifth quintile of stature was 20 to 30 percent lower than for individuals in the first quintile…. Nineteenth-century criminals were short.

Policy implications anyone? Perhaps Mankiw’s taxation of height will gain steam now. I think a subsidy for shortness would get more traction.

Conor Friedersdorf is my minor internet hero. I found his recent twitter campaign to persuade fans of talk radio blowhard Mark Levin that Levin should not be trusted to be somehow badass. Is this not the ballsiest tweet ever?

@LizzieViolet @MarcieDreyer@debster7301 @prismsinc I am Conor Friedersdorf. And I can prove that Mr. Levin is deliberately misleading you.

Well ballsy in a Jimmy Stewart kind of way, anyway.

He explains his sisyphean campaign here, and has an open letter to Mark Levin fans here. Good luck to him, he’ll need it going up against wit like this.

Everyone from households, to  corporations, to foreign nations are declaring bankruptcy, and now some U.S. cities are looking to get into the fun. According to the Financial Times,  there were ten chapter 9 bankruptcies last year, but none were large cities. But now, with $68 million in debt service payments due this year and a total debt of $288 million, Pennsylvania’s capitol of Harrisburg is considering a chapter 9 bankruptcy. The $68 million due before December 1st this year amounts to about $1,400 per person for this city of 47,000. Other plans that have been floated include a tax hike or selling the city’s minor league baseball stadium, parks, the sewer and water systems, and parking garages. The latter of which they received and rejected a $215 million offer for a 75 year lease in 2008, but the bidder has said that the offer still stands. It’s tough to understand how this could be a difficult choice.

Rep. Duncan Hunter wants to deport American citizens who are the children of illegal immigrants:

“Would you support deportation of natural-born American citizens that are the children of illegal aliens,” Hunter was asked. “I would have to, yes,” Hunter said. “… We simply cannot afford what we’re doing right now,” he said. “… It takes more than just walking across the border to become an American citizen. It’s what’s in our souls. …”

So does he think that illegal immigrants and their children don’t have American souls, or don’t have souls altogether? If he’s going to start deporting the children of illegal immigrants, I wonder if he will at least let this one keep his gold medal.

H/T Yglesias

A New York tax appeals board has rejected the claim that poll dancing should be exempt from sales tax on the basis that it is “dramatic or musical arts performances”. I suppose one must draw a line somewhere, it might as well be at the door of the strip club.

In accordance with their ban on “murderabilia”, eBay has removed an auction of the van used by Dr. Kevorkian to perform assisted suicides. The top bid at the time was $3,400. I am surprised that an auction site dedicated to repugnant goods and services has not arisen for situations such as this. I will spare you a list of things I suspect would likely be on sale there, but it would be hosted in Latvia and anything would go. Pareto improving, no?

David Henderson hypothesizes about why the phrase “it’s a free country” has changed in useage:

First, when I grew up in the 1950s and 1960s, not many people around me considered that a sassy reply. When I used the line, it was shorthand for, “I have rights; maybe this isn’t the best decision, but I have the right to make my own mistakes.” Second, almost no one uses that line any more. Why? I think it’s because, if only subconsciously, most people recognize that in some important ways, freedom in the United States has declined.

I think David is misunderstanding what happened to “it’s a free country”. What really happened was that obnoxious people used it as a phrase to justify obnoxious behavior for which there was literally no excuse other than “I am legally able to do this”. For instance, you might expect the man screaming at his kids while waiting outside a restaurant to yell “it’s a free country!” to the gawking crowd. Or the woman blowing smoke on a baby carriage. Or  the teenager littering an empty 32 ounce bottle of Mountain Dew in a graveyard. Or the older Canadian economist who won’t turn down the Sean Hannity book-on-tape that he’s blasting on a public bus. Or countless obnoxious movie theater behaviors (seen below).

I think the problem here is not a subconscious realization of the decline of freedom, but the fact that the brand of the phrase has been ruined by a few generations of obnoxious American’s for whom it was a thoughtless defense of behaving atrociously.

[UPDATE: See David Henderson in the comments]

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