Archive for December 2012

Some Predictions I Made in 2007

Blogging has been light during the holidays, but here are some predictions I made back in 2007 I feel pretty good about (note these were made a year before Obama was elected)

What I will say is that folks who have enthusiastically supported the war should understand that the war is going to have the following consequences:

  1. In 2009 we will have a Democratic Congress and President for the first time since 1994.
  2. The next President will use the deficits from the $1.3 trillion in Iraq war spending to justify a lot of new taxes
  3. These new taxes, once the war spending is over, will not be used for deficit reduction but for new programs that, once established, will be nearly impossible to eliminate
  4. No matter what the next president promises to the electorate, they are not going to reverse precedents for presidential power and secrecy that GWB has established.  Politicians never give up power voluntarily.  [if the next president is Hillary, she is likely to push the envelope even further].  Republicans are not going to like these things as much when someone of the other party is using them.

1.  The prediction was 100% correct, and in fact even went further as the donkeys gained a filibuster-proof majority in the Senate, at least for a year.  Though the war likely had little to do with the outcome, which was driven more by the economy

2.  Dead-on.  Five years later Obama still blames the deficit on Bush.  This is no longer true -- Obama has contributed far, far more than Bush to the deficit -- but the Republicans' fiscal irresponsibility during their tenure have robbed them of any credibility in criticizing Obama

3.  Mostly true (and usually a safe bet with government).   Tax increases were deferred for four years due to an economy I had not foreseen would be so bad, but they are coming.  At the time, it seemed logical to blame a lot of the deficit issues on war spending.  Today, though, 1.3 trillion is barely 8% of the debt and is almost trivial to more recent money wasting activities.

4.  Absolutely true.  In spades.  The only thing I missed was I thought Obama might be less likely to go overboard with the whole executive authority and secrecy thing than Hillary, but boy was I wrong.  Obama has absolutely embraced the imperial presidency in a way that might have made Dick Cheney blush.  Accelerated drone war, constant ducking of FOIA and transparency, increased use of treason laws to prosecute whistle blowers, claiming of power to assassinate Americans on the President's say-so, accelerated warrant-less wiretapping, using executive orders to end-run Congress, etc. etc.  And I never guessed how much the media which so frequently criticized  Bush for any expansions in these areas would roll over and accept such activity from a President of their party.

Libertarian / OWS Nexus

I continue to be fascinated by the frequent intersection of classical liberals / libertarians and Occupy Wall Street, at least in the diagnosis of what ails us.  This post by Russ Roberts I linked previously is a great example.   Both groups get energized by criticisms of the corporate state and crony government.

Where they diverge, of course, is in solution-making.  The OWS folks see the root cause in the behavior and incentives of private corporations which corrupt government actors with their money, and thus advocate solutions which increase state power over these private entities.  In contrast, libertarians like myself see the problem as too much state power to create winners and losers in the market and shift wealth from one group to another.  Given this power, the financial incentives to harness it in ones favor are overwhelming and will never go away, so the only way to tackle it is to reduce the power to play favorites.

Trusting Experts and Their Models

Russ Roberts over at Cafe Hayek quotes from a Cathy O’Neill review of Nate Silvers recent book:

Silver chooses to focus on individuals working in a tight competition and their motives and individual biases, which he understands and explains well. For him, modeling is a man versus wild type thing, working with your wits in a finite universe to win the chess game.

He spends very little time on the question of how people act inside larger systems, where a given modeler might be more interested in keeping their job or getting a big bonus than in making their model as accurate as possible.

In other words, Silver crafts an argument which ignores politics. This is Silver’s blind spot: in the real world politics often trump accuracy, and accurate mathematical models don’t matter as much as he hopes they would....

My conclusion: Nate Silver is a man who deeply believes in experts, even when the evidence is not good that they have aligned incentives with the public.

Distrust the experts

Call me “asinine,” but I have less faith in the experts than Nate Silver: I don’t want to trust the very people who got us into this mess, while benefitting from it, to also be in charge of cleaning it up. And, being part of the Occupy movement, I obviously think that this is the time for mass movements.

Like Ms. O'Neill, I distrust "authorities" as well, and have a real problem with debates that quickly fall into dueling appeals to authority.  She is focusing here on overt politics, but subtler pressure and signalling are important as well.  For example, since "believing" in climate alarmism in many circles is equated with a sort of positive morality (and being skeptical of such findings equated with being a bad person) there is an underlying peer pressure that is different from overt politics but just as damaging to scientific rigor.  Here is an example from the comments at Judith Curry's blog discussing research on climate sensitivity (which is the temperature response predicted if atmospheric levels of CO2 double).

While many estimates have been made, the consensus value often used is ~3°C. Like the porridge in “The Three Bears”, this value is just right – not so great as to lack credibility, and not so small as to seem benign.

Huybers (2010) showed that the treatment of clouds was the “principal source of uncertainty in models”. Indeed, his Table I shows that whereas the response of the climate system to clouds by various models varied from 0.04 to 0.37 (a wide spread), the variation of net feedback from clouds varied only from 0.49 to 0.73 (a much narrower relative range). He then examined several possible sources of compensation between climate sensitivity and radiative forcing. He concluded:

“Model conditioning need not be restricted to calibration of parameters against observations, but could also include more nebulous adjustment of parameters, for example, to fit expectations, maintain accepted conventions, or increase accord with other model results. These more nebulous adjustments are referred to as ‘tuning’.”  He suggested that one example of possible tuning is that “reported values of climate sensitivity are anchored near the 3±1.5°C range initially suggested by the ad hoc study group on carbon dioxide and climate (1979) and that these were not changed because of a lack of compelling reason to do so”.

Huybers (2010) went on to say:

“More recently reported values of climate sensitivity have not deviated substantially. The implication is that the reported values of climate sensitivity are, in a sense, tuned to maintain accepted convention.”

Translated into simple terms, the implication is that climate modelers have been heavily influenced by the early (1979) estimate that doubling of CO2 from pre-industrial levels would raise global temperatures 3±1.5°C. Modelers have chosen to compensate their widely varying estimates of climate sensitivity by adopting cloud feedback values countering the effect of climate sensitivity, thus keeping the final estimate of temperature rise due to doubling within limits preset in their minds.

There is a LOT of bad behavior out there by models.  I know that to be true because I used to be a modeler myself.  What laymen do not understand is that it is way too easy to tune and tweak and plug models to get a preconceived answer -- and the more complex the model, the easier this is to do in a non-transparent way.  Here is one example, related again to climate sensitivity

When I looked at historic temperature and CO2 levels, it was impossible for me to see how they could be in any way consistent with the high climate sensitivities that were coming out of the IPCC models.  Even if all past warming were attributed to CO2  (a heroic assertion in and of itself) the temperature increases we have seen in the past imply a climate sensitivity closer to 1 rather than 3 or 5 or even 10  (I show this analysis in more depth in this video).

My skepticism was increased when several skeptics pointed out a problem that should have been obvious.  The ten or twelve IPCC climate models all had very different climate sensitivities — how, if they have different climate sensitivities, do they all nearly exactly model past temperatures?  If each embodies a correct model of the climate, and each has a different climate sensitivity, only one (at most) should replicate observed data.  But they all do.  It is like someone saying she has ten clocks all showing a different time but asserting that all are correct (or worse, as the IPCC does, claiming that the average must be the right time).

The answer to this paradox came in a 2007 study by climate modeler Jeffrey Kiehl.  To understand his findings, we need to understand a bit of background on aerosols.  Aerosols are man-made pollutants, mainly combustion products, that are thought to have the effect of cooling the Earth’s climate.

What Kiehl demonstrated was that these aerosols are likely the answer to my old question about how models with high sensitivities are able to accurately model historic temperatures.  When simulating history, scientists add aerosols to their high-sensitivity models in sufficient quantities to cool them to match historic temperatures.  Then, since such aerosols are much easier to eliminate as combustion products than is CO2, they assume these aerosols go away in the future, allowing their models to produce enormous amounts of future warming.

Specifically, when he looked at the climate models used by the IPCC, Kiehl found they all used very different assumptions for aerosol cooling and, most significantly, he found that each of these varying assumptions were exactly what was required to combine with that model’s unique sensitivity assumptions to reproduce historical temperatures.  In my terminology, aerosol cooling was the plug variable.

By the way, this aerosol issue is central to recent work that is pointing to a much lower climate sensitivity to CO2 than has been reported in past IPCC reports.

Teach for America

One of the charities my family supports is Teach for America.  Among other things, we sponsor a local teacher in the program.  A bunch of our friends were kind enough to chip in with gifts for the kids in her class and my wife and I delivered them last week at the Phoenix Collegiate Academy, a charter school in South Phoenix for 5-8 graders.

The fun of delivering the presents was reduced later on finding out that at almost that same moment, another group of kids was being killed in Connecticut.  But through a strange series of articles that seemed to have used the Sandy Hook massacre as an argument for teacher unionization and against charter schools (yeah, I don't get the connection either), I found out that teachers unions hate Teach for America.  Which means that I will likely double my contribution next year.

Postscript:  Teach for America began as a senior thesis at Princeton.  Its key idea is to make teaching a viable job option, as least for a few years, for top college grads.  The program is quite selective, and combines talented highly motivated young people with a proven teaching approach.  They then drop these teachers into the public school system, often in classrooms with a high percentage of kids who qualify for school lunch programs (ie low income).

It's clear from the article that teachers union and education establishment types hate these teachers.  Since they make a contrast by calling themselves "professionals", the presumed implication is that these young people are unprofessional.  Its amazing to me that anyone who has spent even ten minutes in a room with a group of TFA teachers could be so hostile to them.  I have met many of them, and they are a consistently amazing bunch who are both smart and genuinely love their kids.

I was skeptical, and still am a bit, of the notion of throwing great teachers into a failing public school system.  They clearly help individual kids, which is why I am still behind it, but they do nothing to help the overall system.  It's like sending great engineers into Solyndra  -- at some level, it seems like a waste (though I am impressed with this particular charter school, which seems to be doing a good job with the limited resources it has -- it gets far less money per pupil than the average public school in Phoenix but does a better job given the demographic of its students).

I Guess This Needs to be Said

I had thought that post-9/11 and with the very visible object lesson of TSA security theater that this would have already been understood, but I will repeat it:  There are no security steps that we are willing to tolerate as a free society that would make it impossible, or even substantially more difficult, for a motivated deranged person to shoot up an elementary school.

Promises by politicians up to and including the President to take "steps" to improve safety are illusory.  What we will get, if anything, will be incremental steps that will hassle law-abiding citizens (think: taking your shoes off at the airport and not using your iPad during takeoffs) without doing anything to deter actual criminals.  In particular, any honest and knowledgeable security person will tell you that there is no realistic way, short perhaps of turning ourselves into North Korea, of stopping a killer who is determined to die as part of his crime.

Today's Quiz

What state has the highest income inequality?

Hint:  Think Hunger Games




Answer here.  It turns out that this was a trick question.  It was not any of Districts 1 through 50.  It is the Capitol, the District of Columbia.  By far.  Second place New York (district one) is not even close.

The Power of Consumer Shopping

The act of shopping is often denigrated by the literati as shallow and self-indulgent.  But shopping is at the very heart of why a free market works.  It enforces discipline on suppliers because they buyers will be comparing their price and quality and feature set to their competitors.

In health care, we have all but ended the act of consumer shopping.  Most of our medical expenses are paid by third parties, and we are just not very careful when spending other people's money.  These third parties sometimes try to be diligent about what we pay, but it is a losing task and in doing so they end up irritating everyone.

And thus, we get this:

You can find it on the Internet for $250 or less. But if Medicare is paying, a standard-issue brace for back patients costs more than $900.

In a report expected Wednesday, federal investigators say Medicare paid an average of $919 for back braces that cost suppliers $191 apiece, providing a window on how wasteful spending drives up health care costs.

“The program and its beneficiaries could have paid millions of dollars less if the Medicare reimbursement amount … more closely resembled the cost to suppliers,” says the report from the inspector general of the Health and Human Services Department. The Associated Press obtained a copy.

I discuss the phenomenon in health care more in this part 1 on a three part series I wrote at Forbes

Hotels Among the Favored Few in the Corporate State (Along with Sports Teams, Taxi Owners, and Farmers)

The various cities in the Phoenix metropolitan area have spent a fortune renovating ten spring training fields for 15 major league teams.  I have seen a number like $500 million for the total, but this seems low as Scottsdale spent $100 million for just one complex and Glendale may have spent as much as $200 million for theirs.  Never-the-less, its a lot of taxpayer money.

The primary subsidy, of course, is for major league teams that get lovely facilities that they use for about one month in twelve.

But these subsidies always get sold on their community impact.  But that economic impact turns out to be really narrow.  For in-town visitors, the economic impact is typically a wash, as money spent on going to sports games just substitutes for other local spending.  But these stadiums are held up as great economic engines because they attract out of town visitors:

Cactus League baseball and year-round use of its ballparks and training facilities add an estimated $632 million to Arizona economy, according to a study released Monday by the Cactus League Baseball Association.

The study found that 56 percent of the 1.7 million fans attending games this past spring were out-of-state visitors and the median stay in metro Phoenix was 5.3 nights.

Spring training accounted for $422 million in economic impact in 2012, up 36 percent from the previous study in 2007. Both were done by FMR Associates of Tucson.

One of the flaws of such studies is they never, ever look at what the business displaces.  For example, for local visitors, they never look at local spending sports customers might have made if they had not gone to the game.  All spending on the sports-related businesses are treated as incremental.   For out-of-town visitors, no one ever considers other visitors coming for non-sports reasons who are displaced (March was already, without all the baseball, the busiest hotel month in Phoenix) or considers that some of the visitors might have come to the area anyway.

However, let's for one moment of excessive credulity accept these numbers, and look at the out of town visitors.  56 percent of 1.7 million people times 5.3 nights divided by 2 people per room is 2.52 million room nights, or at $150 each a total of $378 million.   So most of their spring training economic impact is hotel room nights.  This by the way is the same logic that supports various public subsidies of local college bowl games.

Which begs the question, why are we spending upwards of a billion dollars in taxpayer money to subsidize sports teams and hotel chains?  If the vast majority of the economic impact of these stadium investments is for hotels, why don't they pay for them, or split the cost with the teams?

PS- as an aside, it seems that to be successful in the corporate state, one needs ready access to consultants who will put absurdly high numbers on the positive impact of one's government subsidies.  It's like money laundering, but with talking points.  Take your self-serving spin, hand it with a bunch of money to a consultant, and out comes a laundered "study".  In this case, the "study" architects are FMR Associates, which bills itself as specializing "in strategic research for the communications industry."  The communications industry means "PR flacks".   So they specialize in making your talking points sound like they have real research behind them.  Probably a growing business in our corporate state.

Randall Meyer, my Dad. 1923 - 2012

Last week I mentioned that my dad had passed away.  I had not really meant to make a big deal about it on my blog, but I wanted to give my support for the oral history idea.  However, a lot of you expressed support and condolences, for which I am thankful, and were curious about my dad from some of the small references I dropped.  I didn't answer any of the friendly requests I got for information, mainly because dad was so private about his life and accomplishments that it seemed odd for me to do anything but the same.  But his obituary appeared this weekend in the Houston paper so I thought I would share that for those who are interested.

IQ Tests

I have never been convinced that IQ tests have really distinguished core intelligence from education.  I scored much better on IQ tests after I practiced and read about how to tackle certain types of problem.

It is for this reason that I have always assumed the Flynn effect to be due to education, not changes in native intelligence.

Climate De-Bait and Switch

Dealing with facile arguments that are supposedly perfect refutations of the climate skeptics' position is a full-time job akin to cleaning the Augean Stables.  A few weeks ago Kevin Drum argued that global warming added 3 inches to Sandy's 14-foot storm surge, which he said was an argument that totally refuted skeptics and justified massive government restrictions on energy consumption (or whatever).

This week Slate (and Desmog blog) think they have the ultimate killer chart, on they call a "slam dunk" on skeptics.  Click through to my column this week at Forbes to see if they really do.

An Analogy I have Made Many Times

I will quote from Don Boudreaux (who was in turn commenting on his own quote of the day, which happened to be from Brink Lindsey, my old college roommate).

In other words, very many people – nearly everyone on the political left, yet plenty also on the political right – remain creationists.  They continue to fail to grasp the nuances, deep meaning, and full implications of the science of spontaneous order that first flowered among scholars in 18th-century Scotland.


Yesterday I mentioned the Doublespeak definition of insurance as used in the health care field, when a public policy person can say with a straight face that a particular health care policy is "bad" because it only covers catastrophes.  Finem Respice had a good article several years ago on the history of insurance and current efforts to affect redistribution through mispricing risk.  The article is written about housing but could easily have been about health care as well.

No one has put a number on this, but my gut feel is that the largest new source of funding for health care in the plan is not new taxes (though they are large) nor price controls on doctors (though these are onerous) nor deficit spending (though this is likely to be substantial) but an implicit premium subsidy from young to old.  Since insurers are extremely limited in how much they can raise the price to risky groups, healthier and younger people will have to pay absurdly high premiums for what they get to subsidize the policies of the old and sick.   In a normal market young people would just refuse to buy such policies -- thus the individual mandate.  They must be forced to buy them, because their purchase of these overpriced, and to them, likely useless policies will fund most of the system.

The Full Effects of Obamacare Just Starting to Make the News

This is a highly instructive story about Wal-Mart dropping health coverage for part-time workers (hat tip to a reader -- I always forget to ask if they are OK having their name used).  The writer is amazed at unintended consequences that were so hard to envision that complete non-experts like me predicted them days after the law's passage.

  • The writer is amazed that Wal-Mart would support Obamacare and then try to evade its provisions.  This is how the corporate state works.  Wal-Mart was an enthusiastic supporter of Obamacare NOT because it believed the law made any sense, and not because it had any intention of complying with its spirit, but because it knew that its size, political clout, and infrastructure would allow it to duck the new costs of Obamacare more easily than its competition.
  • We see unintended consequences run wild.  Wal-Mart was guilted into providing some health care coverage of part time workers because of tear-jerker news stories about these folks having no other alternative.  But under Obamacare, they do have an alternative (Uncle Sam) so the pressure on Wal-Mart to provide the care to avoid bad PR is removed.
  • I am amazed that we seem to naturally assume that providing health care is an employer's obligation.  This is just bizarre, and applies to none of our other needs.  Employers pay us money, we spend it according to our preferences to fulfill our needs and caprices  (a great phrase I stole from Agatha Christie via Hercule Poirot).   “Walmart is effectively shifting the costs of paying for its employees onto the federal government with this new plan".  I would have said that Wal-Mart is shifting the choice of how to spend their total compensation back on the employee.
  • The cat is almost out of the bag on the story I have promised to be the biggest economic story of 2013:  "Several employers in recent months, including Darden Restaurants, owner of Olive Garden and Red Lobster, and a New York-area Applebee’s franchise owner, said they are considering cutting employee hours to push more workers below the 30-hour threshold."  These guys are just being coy in public if they are saying "considering."  I know insiders in the restaurant industry and they have been working on definite plans to part-time their entire work force for well over a year.   By mid-2013, the service worker who works more than 30 hours a week will be a dinosaur
  • Some time in the past, we really screwed up the whole concept of health care "insurance."  One person complains in the article:  “The packages Walmart is providing for low-income people aren’t offering very much coverage except for catastrophes."  Gee, I could have sworn this is exactly what insurance is supposed to be.  Her statement is like saying "my home insurance isn't offering much coverage except in the case of major damage to my house."
  • Every extra dollar Wal-Mart pays for its employee's health care costs is another dollar added to the shopping bill of the lower income people who shop there.

A Really Bad Deal

In Obamacare, it was mandated that health insurance companies spend 85% of premiums on care (vs. marketing, profits, and overhead) or else they owe their customers a refund.  So if the same standard was applied to unions, how much of their dues would they have to refund?

For example, according to the most recent federal filings, the Michigan Education Association — the state’s largest labor union — received $122 million and spent $134 million in 2012. They averaged about $800 from each of their 152,000 members.

According to union documents, "representational activities" (money spent on bargaining contracts for members) made up only 11 percent of total spending for the union. Meanwhile, spending on “general overhead” (union administration and employee benefits) comprised of 61 percent of the total spending.

The union appears to have spent nearly the entirety, or $119 million of their $122 million in dues, just supporting their leadership  (and various politicians) in grand style.  They actually had to borrow $12 million to do their job of representing their members.

By Obama's standard of good management (core activity costs = 85% of total customer dues paid) then the union should have taken only $17.4 million from their members, and owe them a $104.6 million refund.

+1 For Oral Histories

Glenn Reynolds links to an article on oral histories.  In 8th grade, my son had to do an oral history of someone in my family.  I bought him an mp3 recorder, one of those little dictation things they sell at Staples or Office Depot, and he recorded about 4 hours of interviews.

My dad passed away last week, but due to dementia lost the ability to discuss his life long before that.  My dad had an amazing life, growing up in a tiny house in Depression-era Iowa and eventually running one of the largest corporations in the world.  He never talked about himself.  Knowing him, one couldn't imagine him writing a memoir.  In a day where executives hire PR agents to puff them up in the press, my dad scoffed and derided the practice.  He bought all his casual clothes at Sears until his teenage daughters made him stop.

So the only history we have of him in his own words wouldn't exist if a wonderful teacher hadn't assigned him the project.

Got My Raspberry Pi Up and Running

I say that as if it was hard.  Actually, it was pretty dang easy to get the OS (a Linux variant) loaded on the memory card.  Seems to work fine -- you can see I have Coyote Blog up in the browser.  I am playing with it because I am looking for something to control signaling and other systems on a model railroad.  I am more likely to use some kind of Arduino setup, but I wanted to play around with Python on Raspberry Pi as well.

Here is the card.  The top wire is a micro-USB 5v power connector.  Clockwise from that is a 32GB SD card (for memory), a bunch of empty programmable pins for I/O on the upper right of the board, the composite video connector and audio headphone out, two USB ports with my wireless keyboard connector, the network cable, and on the left the HDMI cable for video out  (don't know yet if it has audio out over HDMI).  As in the Arduino community, there are already daughter boards for the pin-outs with breadboards, motor controllers, and other gizmos.

My New Favorite Store, and I Haven't Even Been There. Plus, Christmas Game Recommendations

In my high school days, I used to play a lot of wargames from Avalon Hill and SPI.  I once spent an entire summer playing one game of War in Europe, which had a 42-square-foot map of Europe and 3500 or so pieces.     Each turn was one week, so it was literally a full time job getting through it in a couple of months.

All that is to say I spent a lot of time hanging out at game stores, particularly Nan's in Houston (a great game and comic store that still exists and I still visit every time I am in Houston).  I play fewer wargames now, but I still like strategy games that are a bit more complicated than Monopoly or Risk.  But it is hard to find a game store with a good selection (if there is one here in Phoenix, I have not found it).

But I definitely want to try this place -- the Complete Strategist in New York City.  Click through for some good game pr0n.

His list of games is good, though I have never played Gloom and I have never been a huge fan of Carcassonne.  Ticket to Ride is an awesome game and is perhaps the most accessible for kids and noobs of either his or my list.  If you recognize none of these games, it is a great place to start (there is also a great iPad app).   To his list of games I would add:

All of these games tend to present simple choices with extraordinarily complex scoring implications.  In most cases, one must build infrastructure early to score later, but the trade-off of when to switch from infrastructure building to scoring is the trick.  Five years ago Settlers of Catan would have been on any such list, but it is interesting it is on neither his nor mine.

Once you catch the bug, there are hundreds of other games out there.  My son and I last summer got caught up in a very complex Game of Thrones expandable card game.  Recommended only for those who love incredible complexity and are familiar with the books.  There are also a couple of games I have liked but only played once so far.  My son and I last summer played a fabulous though stupidly complex game of Twilight Struggle (about the Cold War, not hot vampire teens).  This is considered by many to be one of the greatest war / strategy games ever.  We also tried Eclipse (space game, again not the teen vampires) which we liked.  I have played Le Havre and Puerto Rico as iPad apps.  They were OK,  but I think the fun in them is social and the of course does not come through in the iPad app.  In the same vein, tried to play Agricola with my kids and they were bored stiff.

Update:  When in doubt, research it on Board Game Geek.  Their game ranking by user voting is here.

House Democrats Undermine Entire Justification for Government Oversight of Commerce

As I understand it, the justifications for strong and detailed government oversight of commerce rests on two ideas:

  • That government officials somehow have better incentives than private actors and are more likely to act in the interests of the general public
  • That a few carefully selected smart people standing on top of the system managing top down can impose better structural solutions for markets than will emerge organically.

Readers will know in advance that I think both of these statements are total crap, but I don't need to explain the reasons yet again because Democrats in the House of Representatives just created the most clear refutation possible by making Maxine Waters the ranking Democrat on the House Financial Services committee (which has oversight for the most regulated industry in this country).

Ms. Waters fails both these tests.  She has a history of putting her own financial interests ahead of her oversight mission, and as far as the smart person standing at the top model, she has time and again demonstrated her complete lack of understanding of the very industry she regulates (well, either that or her entire career in Congress has actually been an elaborate bit of Dada-ist performance art).

People Constantly Amaze Me

My company has an email list folks can join to get emails if we have jobs available.  We have about 15,000 people on the list and get hundreds of applications whenever there is a new job, even though we probably have fewer than 20 openings a year.   I got this email today from someone I suppose must have added his name to the list:

Do you know that since I signed up with youI have not recieved ONE e-mail from you about jobs ???  Are you holding out jobs for friends ? Do you just get people to sign up then forget them for fun ??  Or is it that you have no job leads ???
Why did I waste my time signing up with you ????????????

Certainly this man's willingness to turn the smallest frustration into an enormous imagined slight with hints of conspiracy is EXACTLY what we are looking for in our customer service staff.

Freedom <> Democracy

In this country, at least in high school civics classes, we often equate freedom and democracy.  But this is not the case.  I have written before that protection of individual rights is far more critical to our well-being than voting.  If there was a system with a better track record for protecting individual rights than democracy, I would support it, even if it did not involve voting.

Here is an interesting example from Kuwait of a king protecting individual rights from a democratically-elected body

Although a monarchy, Kuwait has an elected parliament and a generally free media. It regularly invites foreign analysts and journalists to observe its elections. I am making my second trip this year.

Tremors from the Arab Spring are being felt here. The parliament elected in 2009 faced charges of corruption and lost popularity, and was dissolved at the beginning of the year. Elections were held in February.

All very democratic.

The new legislature was dominated by anti-government activists and, more important, Islamists. Top of the latter’s agenda was making Sharia the basis of all laws, imposing the death penalty for blasphemy, and closing Christian churches. Not very good for liberty.

The Kuwaiti emir, Sheikh Sabah al-Ahmad al-Sabah, said no to all three. Liberty was protected only because Kuwait was not a genuine parliamentary system where elections determine the government.

Please, do not over-interpret my point here.  I am well aware that the Emir in Kuwait holds a number of illiberal views with which I would disagree.  But its an interesting example none-the-less.

Capital Controls

I am not sure I understand Kevin Drum's argument for capital controls.  He seems to be arguing that these controls are a sort of financial speed limit and making an awkward analogy to highway speed limits to justify them.

In a world where I as a taxpayer have to bail out banks, I don't have a huge problem with capital requirements for banks, though this seemingly simply topic is rife with unintended consequences -- I have seen it argued persuasively that the pre-2008 Basil capital requirements helped fuel the housing bubble by giving special preference to MBS in computing capital.  In fact, one might argue the same for the sovereign debt crisis, that by creating a huge demand for sovereign debt for bank balance sheets it fueled an unsustainable expansion in such debt.

Anyway, the point of this post was capital controls.  Drum quotes this from an IMF report:

19. Indeed, as the recent global financial crisis has shown, large and volatile capital flows can pose risks even for countries that have long been open and drawn benefits from capital flows and that have highly developed financial markets. For example, in several advanced economies, financial supervision and regulation failed to prevent unsustainable asset bubbles and booms in domestic demand from developing that were partly fueled by cheap external financing. Rather than favoring closed capital accounts, these experiences highlight the need for policymakers to remain vigilant to the risks. In particular, there is a constant need for sound prudential frameworks to manage the risks that capital inflows can give rise to, which may be exacerbated by financial innovation.

The logic, then, is that bubbles are exacerbated by inflows of foreign capital so capital controls can keep bubbles from getting worse.  I have very little knowledge of international finance, but let me test three thoughts I have on this:

  1. Doesn't this cut both ways?  If bubbles can be inflated by capital inflows, can't they also be deflated by capital outflows?  Presumably, if people domestically see the bubble, they would logically look for other places to invest their money.  International investments outside of the overheated domestic market are a logical alternative, and such capital flows would act a s a safety valve to reduce pressure on the bubble.  So wouldn't capital controls just as likely make bubbles worse, by confining capital within the bubble, as make them better by preventing new capital from outside the country flowing in?
  2. The implication here is that the controls would be dynamic.  In other words, some smart person in government would close the gates when a bubble starts to build and open them at other times.  But does that not presupposed the ability to see the bubble when one is in it?  Certainly there were a few who pointed out the housing bubble before 2008, but few in power did so.  And even if they had seen it, what is the likelihood that they would have pointed it out or taken action?  Who wants to be the politician who pops the bubble?  Remember the grief Greenspan got for pointing to an earlier bubble?
  3. Controls on capital inflows tend to be anti-consumer.  Yeah, I know, no one in government ever seems to care when they pass protectionist laws that protect 100 tire workers at the cost of higher tires for 100 million drivers.  But limiting capital inflows would reduce the value of the dollar, and make anything imported (or made from imported parts or materials) more expensive.

Words That Have Been Stripped of Any Meaning: "Spending Cuts" and "Austerity"

I have already written that the supposed European austerity (e.g. in the UK) is no such thing, and "austerity" in these cases is being used to describe what is merely a slowing in spending growth.

Apparently the same Newspeak is being applied to spending cuts in the US.  How else  can one match this data:

With these words from President Obama (my emphasis added)

"If we're going to raise revenues that are sufficient to balance with the very tough cuts that we've already made and the further reforms in entitlements that I’m prepared to make, then we’re going to have to see the rates on the top two percent go up"

Seriously?  The only small reductions in the budget were because some supposedly one-time expenses (like TARP bailouts, war costs, and stimulus spending) were not repeated.  Allowing one-time costs to be, uh, one-time does not constitute "tough cuts."

Tough cuts are when we knock government spending back down to 19-20 percent of GDP.  Clinton level spending in exchange for Clinton tax rates.   That's my proposed deal.

Regulation and Innovation

Google has a pilot to offer TV and high-speed Internet service in Kansas City.  Adding phone service would have cost them practically nothing, and presumably would have provided great value to its customers.  But it gave up because even for a company as large as Google, the regulatory start-up burdens were too large.  Many innovative new industries or new approaches to old industries have been started literally in someone's garage.  But no one with a better idea for local telephone service is ever going to make progress against these kinds of regulatory barriers.  Which is exactly what the large incumbents want, and why they secretly support these massive regulatory infrastructures (while publicly whining about them).