Posts tagged ‘Marginal Revolution’

Permanently Bonded Leisure Suit

A Marginal Revolution reader asks:

How would you pick a tattoo, if you decided you were going to get one? How would you pick something that your future self is most likely to be glad to have? A favorite piece of art? Follow Leeson's lead and get an economics-related tattoo? Names of family members are off-limits, as are answers like "get a small dot in my armpit that nobody would see."

I could argue that it is impossible to make a political, religious, or personal statement one is 100% sure will still be relevant 30 years hence.  Here is the solution I teach to my kids -- never, ever make a fashion you can't remove (e.g. piercing OK, tattoos not OK).   I have lived through leisure suits and grunge, wide ties and narrow, short skirts and long, tie dye and soft pastels.  Think of tattooing as having a leisure suit permanently bonded to your body.

Some will say this is evading the question, so I will actually provide an answer.  The only thing I might have conceivably chosen to ink my body with at 20 that I could probably still live with today at 48 would be something having to do with my undergrad college (Princeton).   Call it the George Shultz rule.

Markets in Everything, March Madness Edition

Sorry to steal the phrase from Marginal Revolution, but it seems appropriate for this story -- Surgery as an excuse to be laid up in bed watching TV

Come to find out that untold numbers of American males at this very moment are propped up in front of their television sets at home, bags of ice strategically placed in their respective crotches.

Cleveland urologist Dr. Stephen Jones has noted a 50 percent increase in recent years in vasectomies performed a day or two [before] the start of the NCAA men's tournament.

That's a lot of slicing and dicing.

You can imagine the dialogue, first between the dude and his woman:

"Honey, doc says I gotta take it easy for a couple of days. I'll be back to normal after the weekend."

Or this one with the boss:

"Sorry, I'll be out Thursday and Friday. Surgical procedure. Nothing big. No, I'll be laid up and it probably will be better if I start up fresh on Monday, OK?

Not sure I have the cojones to try that.

Don't Get Uppity

I have always wondered how people could describe European countries as more egalitarian than the US.  Yeah, I know the income distribution tends to be flatter, but that is almost entirely because the rich are richer in the US rather than the poor being poorer.  But pure income distribution has always seemed like a terrible way to make comparisons.  My perception has always been that class lines in Europe are much harder than they are in the US.  The elites in Europe have made a sort of arrangement in which they pay off the masses with an income floor and low work expectations in turn for making sure that none of the masses can in turn challenge their elite status or join their ranks.  The government protects large corporations form competition, foreign or domestic.  The government protects existing laborers against new entrants into the labor market.  The government makes it virtually impossible for the average guy to start a business.  The result is a lower and middle class who won't or can't aspire to breaking out of their class.  Elites are protected, and no one seems to care very much when political elites enrich themselves through public office and then entrench themselves and their families in the power system.  This, presumably, is why the American political class thinks so much of the European model.

Bryan Caplan writes via Marginal Revolution:

In the U.S., we have low gas taxes, low car taxes, few tolls, strict zoning that leads developers to provide lots of free parking, low speed limits, lots of traffic enforcement, and lots of congestion.

In Europe (France and Germany specifically), they have high gas
taxes, high car taxes, lots of tolls, almost no free parking, high
speed limits (often none at all), little traffic enforcement, and very
little congestion. (The only real traffic jam I endured in Europe was
trying to get into Paris during rush hour. I was delayed about 30
minutes total).

If you had to pick one of these two systems, which would you prefer?
Or to make the question a little cleaner, if there were two otherwise
identical countries, but one had the U.S. system and the other had the
Euro system, where would you decide to live?

Much as it pains me to admit, I would choose to live in the country
with the Euro system. If you're at least upper-middle class, the
convenience is worth the price. Yes, this is another secret way that
Europe is better for the rich, and the U.S. for everyone else.

When Calling in Sick Is Not Enough

I was tempted to title this post "markets in everything", but I just couldn't steal that moniker from the Marginal Revolution folks.  USA Weekend has a story about the Alibi Network, which will, for a price of course, create an alibi for you:

Whether you
are looking to skip a day of work or to secretly leave town for the
weekend, Alibi Network can provide fake airline receipts or phone calls
to your boss explaining your absence and even mock up an entire
itinerary for a bogus conference you were "attending." Rarely has lying
been so creepily airtight.

The
Chicago-based company charges from $75 for a simple phone call to
thousands of dollars for extensive lying, on top of a $75 annual fee.
The most popular service is the "virtual hotel," in which the fibber
can provide a boss or family member with the phone number of a hotel
where he's supposed to be. The number rings to one of Alibi's phones,
which are staffed by actors who will answer as if a particular hotel
has been reached. The incoming call then can be forwarded to the
fibber's cellphone, making it seem as if he's in a certain city even
though he's not. (We use "he" here, but half of Alibi's members are
female.)

Some
requests involve a creative solution. One working stiff asked the
service to get him out of a boring, week-long training class that was
mandated by his office. The solution: Alibi hired an actor to dress up
as a courier and barge into the class, informing the man that his house
had been robbed and he needed to go home right away. Another request
involved a married woman with small children who longed for a relaxing
weekend away from the kids. Alibi concocted a story that the woman had
won a free spa weekend in a prize drawing and hired an actor to call
her home and leave a voicemail message informing her of her "win."

For those of you of need of such services, perhaps on January 2 nursing your hangover, their web site is here.

Update:  Tyler Cowen informs me that I am waaaayyy behind the times, and that this company actually was the first entry in "Markets in Everything" several years ago.  That's what I get for trying to take a break from blogging.

Should Juries Be Able to Ban Products?

I have written on this before on the context of Vioxx, but is it really rational public policy to have juries be allowed to effectively ban products, products that both legislatures and regulatory bodies have explicitly or implicitly deemed as legal?  Ted Frank takes this on at Overlawyered in a nice follow-up post on a $31 million jury verdict against Ford:

SUVs are designed to have high clearance to traverse rugged terrain.
This raises the center of gravity and affects the handling: it's a
known tradeoff of the laws of physics. There are a wide variety of
tests of varying degrees of scientific merit one can use to suggest a
vehicle is "too prone" to roll over, and plaintiffs have the benefit of
cherry-picking which tests to apply to which vehicles. You'll find lots
of lawyers complaining that the Bronco II allegedly responded poorly in
"J-turn tests", where the steering wheel is turned 330 degrees in one
third of a second and held there for another 4.67 seconds. Ford
designed the Explorer to pass the J-turn test to take away this claim,
and the trial lawyers started using different methodologies to claim
that the Explorer was too prone to roll over.

Empirically, however, the Bronco doesn't roll over more than several
other SUVs on the market, which is why NHTSA, in both the Bush I and
Clinton administrations, refused to recall the Bronco when the
plaintiffs' bar asked it to. When I say Ford was held liable for
producing an SUV, I'm not spinning: it was because it was held liable
for producing an SUV.

Moreover, a vehicle should be viewed in totality: an auto that is
more likely to roll over may be safer in other particulars that more
than compensate for that increased propensity. So I question the
premise. One can't change the rollover propensity without creating a
different vehicle entirely. The vehicle should be viewed holistically,
and holistically, the Bronco is a safe car when used as designed.

Perhaps we as a society would be better off taking the nanny-state
step of banning SUVs, forbidding people from wildnerness driving
because too many drivers don't know how to drive SUVs in highway
conditions, but that's a decision that not only would end the American
auto industry, but should be made other than by a 12-person jury of
laypeople. This vehicle rolled over because the driver drove off the
road.

I had similar thoughts about the Vioxx cases:

Anyway, the point of this post is that this verdict represents a very dangerous assault on individual choice.  Recognize that there are many, many activities in life where individuals are presented with the following choice:

If I choose to do X, my life will be improved in some way but I may statiscally increase my chance of an early death.

You
may react at first to say that "I would never risk death to improve my
life", but likely you make this choice every day.  For example, if you
drive a car, you are certainly increasing your chance of early death
via a auto accident, but you accept this risk because driving allows
you to get so much more done in your life (vs. walking).  If you ride a
bike, swim, snow ski, roller blade, etc. you are making this choice.
Heck, everyone on the California coast is playing Russian Roulette with
an earthquake in exchange for a great climate, beautiful scenery, and
plentiful jobs.

The vast majority of drugs and medical therapies carry this same
value proposition:  A drug will likely improve or extend your life in
some way but carries a statistical chance of inducing a side effect
that is worse than the original problem, up to and including death.
The problem is that we have structured a liability system in this
country such that the few people who evince the side effects can claim
more money in damages than the drug was worth to all the people it
helped.  For example, if a drug helps 999 people, but kills the
thousandth, and that thousandth person's family is awarded $253 million
in damages (as in this case), the drug is never going to be put on the
market again.  Even if the next 1000 people sign a paper saying we are
willing to take the one-in-a-thousand risk to relieve the pain that is
ruining our lives, they still are not going to get the drug because the
drug companies know that some Oprah-loving jury will buy the argument
that they did not understand the risk they were taking and award the
next death another quarter of a billion dollars....

By the way, have you noticed the odd irony here?  Robert Ernst (the
gentleman who died in the Vioxx case) is assumed, both by the FDA and
the litigation system, to be unable to make informed decisions about
risk and his own health.  But a jury of 12 random people who never
experienced his pain can make such decisions for him?  And us?

Alex Tabarrok at Marginal Revolution said it even more succinctly:

How did we arrive at a system in which 12 random Texans are assigned
responsibility for evaluating the scientific merits of statistical evidence of
this type, weighing the costs and benefits, and potentially
sending
a productive blue-chip American company into bankruptcy protection?

The Feds May Have to Come Clean

From Marginal Revolution:

The FASAB has asked
that the United States government start including future Medicare and
Social Security liabilities in current budget deficit figures:

Monday,
the Federal Accounting Standards Advisory Board released a proposal in
which the government would have to account for the cost of future
Social Security payments year by year as people build up entitlements.

Seen in advance of its release by the Financial Times, the switch in
accounting practices would be an international accounting anomaly, as
most other governments treat social insurance as a political commitment
to pay future benefits rather than a financial liability, the newspaper
said.

The FASAB is made up of six independent members who support the
proposal and three opposing members from the U.S. Treasury, the White
House Office of Management and Budget and the Government Accountability
Office.

I support this change despite the fact it may result in what I consider bad outcomes (e.g. big tax increases) as the magnitude of future liabilities become clear.  Tyler Cowen also argues it may make these programs harder to scale back, since it shifts the future payments from a political promise to a financial commitment.  But just like free speech, one has to be consistent in one's support for transparency.

If this all seems arcane to you, let me give you some perspective.  Today, Jeff Skilling was given over 30 years in jail for various accounting-related frauds, supposedly hiding losses and liabilities from shareholders's view.  But what Skilling was convicted of doing were minor, subtle accounting tricks involving penny-ante sums of money compared to the egregious games Congress plays with accounting for the federal government's future liabilities.  Skilling was accused, for example, of booking future liabilities in certain joint ventures where they were hard to find; the feds, in contrast, do not book future liabilities at all.

I Have Never Even Been To Rochester

There is nothing bloggers enjoy more than ranking themselves. Brian Gongol issues the latest rankings, this time of Business and Economics blogs.  Coyote Blog actually makes the rankings, with between 8-9% of the traffic of the leader Marginal Revolution (which is a great site).  Gongol uses a newspaper analog to say that if Marginal Revolution is USA Today, I am the Rochester Democrat and Chronicle.  Uh, OK. 

Maybe someone can set up trade futures on business blog rankings.  If that were to happen, you know what Marginal Revolution would title the post....

By the way, he leaves off two of my favorites, probably because they are not in the NZ Bear data base:  Cafe Hayek and Mises Blog.

I Have Government Derangement Syndrome

Alex Tabarrok of Marginal Revolution makes a point I have been trying to communicate for some time now:

It's naive to only blame particular people (Bush, Cheney et al.) and
depressing when people at CT claim that if only "our guys" had been in
power everything would have been ok.  When you see the same behaviour
again and again you ought to look to systematic factors.  And even if
you do believe that it is all due to Bush, Cheney et al. it's not as if
these guys came to power randomly, they won twice.  The worst
get on top for a reason.  As a result, government ought to be designed
(on which see further below) so it works when the knaves are in power and not just when the angels govern.

I made a similar point in this post:

Over the past fifty years, a powerful driving force for statism in this
country has come from technocrats, mainly on the left, who felt that
the country would be better off if a few smart people (ie them) made
the important decisions and imposed them on the public at large, who
were too dumb to make quality decision for themselves.  People aren't
smart enough,they felt, to make medication risk trade-off decision for
themselves, so the FDA was created to tell them what procedures and
compounds they could and could not have access to.  People couldn't be
trusted to teach their kids the right things, so technocrats in the
left defended government-run schools and fought school choice at every
juncture.  People can't be trusted to save for their own retirement,
so  the government takes control with Social Security and the left
fights giving any control back to individuals.  The technocrats told us
what safety equipment our car had to have, what gas mileage it should
get, when we needed to where a helmet, what foods to eat, when we could
smoke, what wages we could and could not accept, what was and was not
acceptable speech on public college campuses, etc. etc....

the technocrats that built our regulatory state are starting to see the
danger of what they created.  A public school system was great as long
as it was teaching the right things and its indoctrinational excesses were in a leftish direction.
Now, however, we can see the panic.  The left is freaked that some red
state school districts may start teaching creationism or intelligent
design.  And you can hear the lament - how did we let Bush and these
conservative idiots take control of the beautiful machine we built?  My
answer is that you shouldn't have built the machine in the first place
- it always falls into the wrong hands.

I am particularly amazed of late at the popular leftish criticism of Bush that he was too slow after 9/11 (spending 10 extra minutes with the school kids), too slow during Katrina, and too slow entering the diplomatic fray in Lebanon.  I can't remember who, but someone lately was quoted publicly saying that they were frustrated with Bush taking vacations and that they would never vote for someone with a ranch.  Is that really the dual criticisms that people have of Bush?  That 1) he is evil and an idiot and 2) they want him to get involved faster and more aggressively in more types of problems?

Here's something everyone should know, which I have embodied in Coyote's Second Law (here's the first) which states:

Any person elected to government office has their effective IQ cut in half

I don't know if politicians wake up from this fog when they leave office or not.  I can easily imagine Bill Clinton, a man who is supposed to have a high out-of-public-office IQ, slapping his head and saying "did I really go running into Somalia and running right back out after the first casualties?' or maybe even better "jeez, I can't believe I turned down the chance to take Bin Laden into custody -- what was I thinking".  Whichever the case, governments are always stupid, even those made up of people provably of high IQ in their private lives.  Tabarrok has this humorous but depressing observation:

The Pentagon is the Post Office with nuclear weapons

Like Tabarrok, I think the bar has to be pretty high to send our military into battle, and I never thought the situation in Iraq justified the excursion.  However, perhaps differing from Tabarrok, I am sensitive to historic precedent and thus doubt that defense can always just end at our borders.  While I think the Bush administration is overly optimistic to think that Iraq will become a shining beacon of democracy that will help rally the democratic forces in neighboring countries, I also think Bush opponents are overly optimistic when they say that terrorists and Middle Eastern fascists will leave us alone as long as we just keep our distance.  There are too many historical reminders that the latter is not true.  Sometimes you do have to go over there to kick their ass before they come over here.  Afghanistan probably met this criteria, but I don't think Iraq did - Iraq feels more like the Gulf of Tonkin, a war certain people in power wanted to fight and for which they needed a public excuse.

All this means that I think that the number of times we need to go out and fight wars overseas is greater than zero and less than what we actually do.  I'm not smart enough, I guess, to make a clearer policy statement, but I would be really interested to ask all those who think they would have prevented Israel and its neighbors from going to war for the 47th time if only they had been in office what their coherent policy statement would be.

This is Sick - Dukakis Advocates Jobs Go To White People First

Many of you will know that a big impetus for the original minimum wage laws in this country were a racist effort by unions (almost exclusively made up of white workers at the time) to protect white jobs from competition by low-skilled blacks.  [note:  This is not the only impetus, however.  Many of the original minimum wage supporters were not racist at all.  However, a large number of the original supporters of the legislation liked it in part because it was seen as sheltering higher skilled white workers from black competition, particularly in northern states experiencing substantial migration of black workers from the deep south]

This week, in the New York Times of all places, Michael Dukakis and Daniel Mitchell return to these same racist roots to justify a substantial hike in the minimum wage.  Their logic is that it will protect white workers from competition from immigrant (read: Mexican) labor:

But if we want to reduce illegal immigration, it makes sense to reduce the
abundance of extremely low-paying jobs that fuels it. If we raise the minimum
wage, it's possible some low-end jobs may be lost; but more Americans would also
be willing to work in such jobs, thereby denying them to people who aren't
supposed to be here in the first place

By the way, note that we finally have prominent liberal voices who will acknowledge that raising the minimum wage reduces the number of jobs.  Also note that while the authors try to narrow their focus to illegal immigrants, no such narrowing of effect would occur in real life:  All low skilled people, legal or illegal in their immigration status, would lose jobs.  But for the authors this is OK as long as more brown people than white people lose their jobs.  I mean really, that's what they are saying:  We like this law because it will preferentially put low-skill people, particularly brown people, out of work.  If Rush Limbaugh had said the same thing, there would be a freaking firestorm, but there's the good old NYT lending their editorial page to this sick stuff.  Marginal Revolution has more comments along the same lines.

I am sick of the condescension and arrogance that comes with statements like theirs that Americans won't work for the minimum wage.  That's ridiculous, because many do, and have good reason to.

Take my company.  A number of my workers are paid minimum wage. Am I the great Satan? Why do my employees accept it?  Because 99% of my workers are over the age of 70 -- they work slower and are less productive, but I like them because they are reliable.  There's no way anyone is going to pay them $15 an hour to run a campground -- for that price, someone younger and faster will be hired, but at or near minimum wage they are great.  And they are generally happy to start at minimum wage (plus a place to park their RV for the summer).  In fact, I have more discussions with employees trying to get paid less (conflicts with social security and retirement benefits and disability payments) than I have people asking for more. 

Granted, my situation is fairly unique.  But Michael Dukakis in his infinite wisdom thinks no one under any circumstances should be allowed to accept less than $8 an hour for his labor.  What does he know about campgrounds or my employees?  Nothing, but he is going to try to override my and my employees' decision-making if he can.  Because he knows better. 

Maybe Mr. Dukakis can write a note to all my older, slower employees after the new minimum wage passes and explain to them why they should be happier without a job camp-hosting (which most of them love to do, probably more than you like your job) than having to accept a wage that Mr. Dukakis thinks to be too low. 

Continue reading ‘This is Sick - Dukakis Advocates Jobs Go To White People First’ »

No Surprise Here

Marginal Revolution links to a list of the most corrupt states, measured by the number of government corruption convictions per capita.  I bet you can come pretty close to the top three without even looking.  Here they are:

  1. Alaska.  For all those who want to believe that pork is unrelated to corruption, look no further than the king of pork itself, Alaska, which also turns out to be the king of government corruption.  Kudos to Arizona Congressman Jeff Flake, who is about the only one brave enough in that lost and floundering body to connect the dots between Abramoff, cash-filled tuperware, corruption and pork.
  2. Mississippi.  Who would have ever thought the state best known for being the #1 home of jackpot torts and the home state of the Senator who claims to be above the law would be a hotbed of corruption? 
  3. Louisiana.  Probably the only surprise on the list, since one would expect the home state of Huey Long to be in first rather than third.  Heck, in 1991 the state got to choose between a wanna-be Nazi Klansman and a serially corrupt felon for Governor.  And God only knows where the money that should have been spent on building levees actually went.

Airlines and Credit Cards

Via Marginal Revolution, I thought this was fascinating:  The profits from those airline frequent flyer Visa and Mastercards (like my Citibank Advantage Visa) dwarf those of the airline business itself.  OK, so the profits of my tiny little company probably dwarfed the anemic profits of most airlines last year, just because they were positive.  But the magnitude is staggering:

Juniper bank is contributing $455 million to the merger of America West and
USAirways in exchange for the right to issue its frequent flyer credit card. This was a
huge blow to Bank of America, which had been issuing cards for both airlines,
and BofA is taking the deal to court.

They have several more examples, with credit card companies providing much of the new financing in recent airline bankruptcies.

By the way, why is it that frequent-flyer miles holders, who are a creditor of the airlines after all, are the only major creditor consistently NOT asked to take a haircut in these bankruptcies.  For god's sakes, there are retired workers losing a large portion of their pensions, but I still get to retain all my miles so I can go to Hawaii next year?

Update:  The fact that mileage holders have not taken a hit in bankrupcy does not mean they have not ever taken a hit.  Airlines from time to time devalue miles, by raising redemption rates, as Northwest did last year.

Are Homeowners the Largest Government Rent-Seekers?

I read an interesting article in the NY Times, via Marginal Revolution, interviewing the CEO of homebuilder Toll Brothers about housing prices.  His assertion was:

"In Britain you pay seven times your annual income for a home; in the U.S. you
pay three and a half." The British get 330 square feet, per person, in their
homes; in the U.S., we get 750 square feet. Not only does Toll say he believes
the next generation of buyers will be paying twice as much of their annual
incomes; in terms of space, he also seems to think they're going to get only
half as much. "And that average, million-dollar insane home in the burbs? It's
going to be $4 million."

I don't necessarily buy this whole story.  For one, Mr. Toll has business reasons for taking a public position that prices will keep rising - after all, his customers buy his product in part as an investment, and would be leery about paying current prices if they thought prices might fall in the future.  Second, as I have talked about a number of times with petroleum, when prices of any product start to rise, observers always tend to underestimate market and technology responses that might bring supply more into balance.

However, the one exception I did make in my oil price posts was that government supply restrictions, both on lands that can be explored for oil as well as things like refinery permitting, may indeed put structural upward pressure on prices.  And in fact, this is where Mr. Toll puts the blame for high housing prices as well:

Toll agrees with Glaeser et
al.
that the key force driving up prices is zoning and growth regulations. 
In New Jersey it now takes Toll Brothers up to two million dollars in legal fees
and ten years in time to get the permits necessary to build.

Which got me thinking that home owners (of which I am one) may be the worst rent-seekers of all.  Most people are already familiar with the very large tax breaks for home buyers, in the form of the mortgage interest tax deduction, that is not available to people who rent or to people who borrow for purposes other than home purchase.  However, it may be that a much larger implicit subsidy to home-owners is the government restrictions on new home supply.  By restricting supply, the government is keeping prices up for current home-owners and restricting new entrants who might compete with our homes in the resale market.

Roundup of FEMA-Related Articles

Marginal Revolution has an incredible roundup of FEMA and disaster-preparedness articles, many from a libertarian point of view.

Pre-Columbian Genetic Engineering

This is pretty cool, from Charles C. Mann's new book, and quoted by Marginal Revolution:

...the modern species [of maize] had to have been consciously developed by a
small group of breeders who hunted through teosinte strands for plants with
desired traits.  Geneticists from Rutgers University...estimated in 1998 that
determined, aggressive, plan breeders -- which Indians certainly were -- might
have been able to breed maize in as little as a decade...modern maize was the
outcome of a bold act of conscious biological manipulation -- "arguably man's
first, and perhaps his greatest, feat of genetic engineering," [Nina
Federoff]..."To get corn out of teosinte is so -- you couldn't get a grant to do
that now, because it would sound so crazy...Somebody who did that today would
get a Nobel Prize!  If their lab didn't get shut down by Greenpeace, I mean."

Followup on Vioxx

I wrote about the Vioxx decision here as another defeat for personal choice. Marginal Revolution has a good post on gaps in the anti-Vioxx science.  Here is a taste:

...[E]ven if there actually is an elevated risk of the magnitude the studies
suggest but can't prove, the question is whether I might want to accept a 1 in 4,000 risk of dying
from a heart attack in order to get the only medication timt
makes my pain bearable and a mobile life livable
.  And if I say no to the
Vioxx, I may end up taking something that is less effective for my pain but has
risks of its own.

.... How did we arrive at a system in which 12 random Texans are assigned
responsibility for evaluating the scientific merits of statistical evidence of
this type, weighing the costs and benefits, and potentially
sending
a productive blue-chip American company into bankruptcy protection?

Why Libertarians are Paranoid, Example #12,403

Those on the left and the right often try to laugh off libertarians, ascribing to "paranoia" our fear of the power of government. 

Well, I could argue that if this is paranoia, I share a similar phobia with men like Thomas Jefferson and James Madison, whose fear of government power permeate all their writings, as well as the Constitution they helped to produce.  They believed that even good men could be corrupted by the government, and they were proven correct in an incredibly short time by John Adams.  Adams is by all accounts a good man, dedicated to freedom and democracy, and one of the chief intellectual architects both of the Revolution and the Constitution.  But it was Adams that signed into law the Alien and Sedition Act, perhaps the worst piece of illiberal and unconstitutional legislation in the history of this country.

Or, if I didn't want to make the founding father's / original intent argument, I could just point to this (hat tip Marginal Revolution):

A federal judge in Texas, calling the Federal Deposit Insurance Corp. a "corrupt
agency with corrupt influences on it," awarded a Houston financier $72 million
to cover his legal fees in a decade-long suit involving a failed savings and
loan and the government's efforts to take control of a stand of endangered
California redwood trees in the 1990s.

The FDIC, a regulatory agency that insures deposits at banks and
savings and loans, filed suit against Charles E. Hurwitz in 1995, seeking to
collect more than $800 million because Hurwitz indirectly controlled a Texas
S&L that failed in 1988. The FDIC, after a series of legal setbacks, dropped
its suit against Hurwitz in 2002....

On Tuesday evening, Hughes issued a scathing, 131-page ruling. In it, he cited
evidence that the FDIC brought the case largely because of pressure from
environmental groups, members of Congress and the Clinton administration. The
reason: Hurwitz's Pacific Lumber Co. owned 3,500 acres of endangered redwoods in
Northern California. Hughes found that the FDIC, in close concert with
environmental groups, sued Hurwitz to pressure him into a "debt-for-nature"
swap, in effect giving the government his trees in exchange for his supposed
liability in the failure of the United Savings Association of Texas....

Hughes said FDIC officials and lawyers, in depositions, "ranged from
manipulative evasiveness to plain perjury." He cited records of two years of
communications, including extensive discussions of legal strategy and political
matters, between the FDIC and environmentalists over the proposal to use a
banking-practices lawsuit as pressure on Hurwitz to give up the
redwoods.

Hughes said FDIC officials "discarded the mantle of the American
Republic for the cloak of a secret society of extortionists. If the vice
president called, they responded. If a congressman called, they responded. If a
lobbyist called, they responded. They heeded every call but that of duty and
honor."

Wow.  I know many people are paranoid about the lack of accountability of major corporations, and felt vindicated by the Enron case, over which the press spilled acres of ink.  However, Enron is nothing compared to this.  While fraud is bad, Enron at least was never able to use the coercive regulatory and police power that the government has to seek its ends.

More on the Housing Bubble

I can't check the guy's methodology, but Robert Shiller claims in the NY Times to have built a better, more accurate measure of housing prices.  You might ask, don't we already have that - I always see things like "median home sales price" in the paper?  The problem with existing metrics is that they don't correct for mix.  If a lot of large houses in the pricey part of town sell, median home prices will rise just given the mix shift of the sample.  What you really want is a price index for equivalent home sales, something that corrects for things like square feet, inflation, and perhaps zip code.  This is what Shiller claims to have done, and the results are dramatic.  He shows that real housing prices have been flat for most of the century, right up until the last decade, where they have increased dramatically.

Housingprices

I can't think of any structural change that would explain this (except maybe a change in relationship between mortgage rates and inflation) so it certainly creates a flashing red light saying "bubble". 

By the way, isn't it interesting that people can see the graph above and immediately think "prices are due to crash" but when they see this very similar chart:

Oilprice1947

...and think that prices will keep going up and up and up.

Hat tip to Marginal Revolution.  Other posts on housing prices here, here and here.  More on oil prices here.

Two of My Favorite Topics

Tim Harford at Marginal Revolution touches on two of my favorite topics in one short post.  I have written a number of times about how frequant flyer mile holders seem to come out whole from airline bankrupcies when every other creditor has to take a major hair cut.  Even pensions are cut before frequant flyer mile obligations. Tim shares some ideas and a link to an Economist story with more on this topic.

What really caught my attention was when he discussed whether difficulties in getting any airline help in actually cashin in the miles was a stealthy way of repudiating the miles.  In his analysis, he has this nice restatement of Coyote's Law:

Never attribute to conspiracy that which is adequately explained by
incompetence.

Ad Hominem Science

I thought this quote, via Reason, from anti-smoking advocate Michael Siegel is representative of how many pseudo-scientific advocacy groups work today:

In the 20 years that I was a member of the tobacco control movement,
I was led to believe that there were only two sides to any anti-smoking issue:
our side and the tobacco industry side. Therefore, anyone who disagreed with our
position had to be, in some way, affiliated with the tobacco industry. I was
also taught to respond to their arguments not on any scientific grounds or on
the merit of their arguments, but by simply discrediting the person by attacking
their affiliation with the tobacco companies.

As I have found out over the past two decades, there are a lot of
individuals who disagree with a number of positions that the anti-smoking
movement has taken (interestingly, now I find myself to be one of them). And not
all of these individuals are affiliated with, or working for the tobacco
industry. As individuals who are not part of a tobacco industry campaign, these
people are entitled to express their opinions and their arguments really deserve
to be addressed on their merits. At very least, anti-smoking organizations and
advocates should not attack these individuals. Attacking their arguments is
legitimate, but attacking the individuals, in these cases, is not.

Take this statement, substitute global warming for anti-smoking and oil industry for tobacco industry and the statement still works just as well.

Update:  For another example, see the debate over child seat efficacy at the Freakonomics Blog.  A couple of researchers studied data on injury rates of kids in car seats vs. kids in seat belts, and found little incremental benefits of seat belts.  Note their desire to find the truth under the numbers:

What is more puzzling to me is why my results and Heaton's both suggest very
little injury benefit of car seats, but the medical literature often finds 70%
(!!) reductions of injuries with car seats relative to seat belts. We find
reductions that are an order of magnitude smaller. They use very different
methods -- surveying people in the weeks after crashes for instance -- but still
it is really a puzzle. Which is why, when you read my paper, I am extremely
cautious in interpreting the injury findings.

I hope that the medical researchers, Heaton, and I can all work together to
try to make some sense of the conflicting results being generated by these
different methodologies to resolve this important question.

Seems like a reasonable scientific attitude.  Now (via Marginal Revolution) here is the response of a child seat "activist" to their findings:

Their [Levitt and Dubner] conclusions stand in stark contrast to the existing
body of scientific data that support current child restraint recommendations,
and are, in our opinion, irresponsible and dangerous....We hope that this
misleading article does not cost a child his life.

In other words:  Open scientific debat = killing children.  Levitt and Dubner must work for Haliburton.  Levitt has an update to the whole debate here.

Followup on Income Inequality

Several people say that I have missed the point in my post here - that the issue is
with mobility, particularly in multiple generations.   They argue that
the rich of the next generation are likely to be the kids of the rich
of this generation, that success now depends on education and
connections that only the wealthiest can buy for their kids.   

A couple of thoughts on this.  First, the Times's own data (plus
many other studies) doesn't bear this out, particularly with new
immigrants.  Thomas Sowell addresses this in more depth here and here,
and suggests that the explanation may lie more in values and
aspirations than in purchased stuff.  Marginal Revolution, for example,
had this thoroughly depressing story featuring a study by Harvard economist Roland Fryer on the social pressures in many African-American and Hispanic neighborhoods to under-perform in school.

My other thought on this is that to the extent social mobility is
slowing in this country, our public education system is a major
culprit.  Forget for a moment about quality issues.  Schools have
increasingly emphasized self-esteem over achievement and competition.
Standards are lowered, and the value of exceeding standards or
improving performance is downplayed.  Without other influences,
students will walk out of public schools with a value system vis a vis
achievement and competition and performance that leaves them totally
unprepared for the real world.  I am reminded of one of Bill Gates' pieces of advice to graduates

Rule 8: Your school may have done away with winners and losers, but life HAS
NOT. In some schools they have abolished failing grades and they'll give you as
MANY TIMES as you want to get the right answer. This doesn't bear the slightest
resemblance to ANYTHING in real life.

Kids with parents who have achieved in some way in the world are likely
to overcome this by the example and exhortations of their parents.  But
what happens to kids without this example?  Or kids (lacking voucher
programs) who can't afford to escape the public school system cult of
mediocrity for high-achievement private schools or home schooling?

Ironically, the very people who bemoan income inequality and lack of
mobility are the very same people who have gutted the public education
system.  These are the people who deal with inequality by flattening
down the peaks, which is exactly what they have done in schools,
eliminating valedictorians and substituting social promotions.

Blogs for Everything

In the spirit of Marginal Revolution's "markets in everything" series, I think I will start a "blogs for everything" series.  One of my favorite early on in this series was the Remote Blog, blogging on home theater remote control issues.

In this episode, we feature the Baby Names Blog, from the Baby Name Wizard.  It has pretty interesting features on names and why they go in and out of style.  And make sure to check out their name voyager, a cool java app on name popularity over the last century.

When we named our first child Nicholas, we soon found that we were on the front edge of a huge Nicholas revival.  For our second child, we wanted something less common, so we chose Amelia, which was way out of favor at the time but now appears to be in a revival as well.  The one thing that stands out from the chart is that 50 years ago, there were a few dominant names: John, Mary, etc.  Now, there are no dominant names.  I think this is signaling a change in parents attitude, from wanting their name to be safe and fit in, to wanting their kids' names to be unique and distinctive.  Certainly this was the case for us.

OK, There May Be A Housing Bubble

I don't have access to the right kind of data to decide whether there is a housing bubble in the US, though a lot of people are writing about it

In the Phoenix / Scottsdale area, housing values have really starting going up, up, up in the last 18 months, though whether this is just a catch-up to other desirable metropolitan areas (Phoenix real estate has been pretty sluggish for years, and way cheaper than other resort-type destinations) or a true bubble, I can't tell.  Certainly speculation activity is way up, with a lot of homes being bought and renovated by investors, but again, I could argue that Scottsdale was behind other suburban markets in the whole tear-down thing. 

So, to date, I have been unconvinced about the housing bubble, at least as it applied to our community.  After all, demographics over the next 20-30 years are only going to support Scottsdale area real estate. 

However, over the weekend I had a disturbing experience:   At a social function, I heard a dentist enthusiastically telling a doctor that he needs to be buying condos and raw land.  The dentist claimed to be flipping raw land parcels for 100% in less than 6 months. 

For those who don't know, this is a big flashing red light.  When doctors and dentists start trying to sell you on a particular type of investment, run away like they have the plague.  At Harvard Business School, I had a great investment management class with a professor who has schooled many of the best in the business.  If an investment we were analyzing turned out to be a real dog, he would ask us "who do you sell this to?" and the class would shout "doctors!"  And, if the investment was really, really bad, to the point of being insane, the class would instead shout "dentists!"  Marginal Revolution has another potential bubble indicator.  Angry Bear has a lengthy analysis.

Postscript: By the way, just so you doctors and dentists won't feel like I am picking on you, we small business owners are considered to be almost as bad, which is I why I get so many boiler room calls.

Update:  OK, in one of those great moments in timing, my wife just called me to say that one of the moms at school was trying to get other moms to invest with her in some condos, and should we join in?  Eeeek!

Perhaps the Best Reason for Private Accounts

Frequent readers will know that I have little patience with the argument against private Social Security accounts that goes something like "Americans are too dumb to be trusted with their own retirement funds".  Today, however, I am going to put that aside for perhaps a better question:

Can the government be trusted with our retirement funds?

This is the argument made by Brad DeLong and quoted in Marginal Revolution:

We need to raise our national savings rate. But if we just raise Social Security
taxes, Congress will treat these taxes as general revenue and spend them. Only
by funneling Social Security contributions into some vehicle that Congressional
representatives cannot interpret as a resource available to fund current
spending can we raise the national savings rate. And private accounts are the
best vehicle we can find to (a) accumulate contributions without (b) allowing
Congressional representatives to seize them as resources available to fund
current federal spending.

Congress has taken all the savings surpluses built up by Social Security over the past decades and it has spent them.  Republicans have spent the money.  Democrats have spent the money.  It is gone, spent on cruise missiles and welfare moms and ethanol subsidies and PBS broadcasts and snail darter studies.  No matter what verbal acrobatics people try to engage in to argue that there is a real "trust fund", the fact of the matter is that all that is in the Social Security till are IOU's that can only be redeemed by raising taxes. 

The situation with Social Security is entirely equivalent to having invested your money in a mutual fund and only later finding the directors of the fund spent your money on themeselves rather than investing it in redeemable securities.  The only differences are that:

  • The proprietors of that bogus mutual fund may go to jail, but Congress won't
  • Congress can raise taxes to get the money to bail themselves out of their malfeasance

Think of it this way: 

  • There were more real assets of value remaining in Enron in its bankruptcy to divide up among investors and creditors than remain in the Social Security "trust fund" to divide up among program contributors.
  • There were more real assets of value remaining in the Teamsters retirement fund after years of being raped by organized crime than remain in the Social Security "trust fund"

Stop handing over our savings to such unsavory racketeers (ie. Congress).  We certainly can't do a worse job for ourselves.

Economics of NFL Draft

Forget the UN and judge nominations and other trivial matters.  This weekend is the NFL draft.  Via Marginal Revolution comes this cool article about the economics of the NFL Draft.

The article is pretty long, so let me summarize the couple of things I thought were pretty interesting.  The first was the relative value of draft picks.  They did a lot of work quantifying the performance of players selected at different positions in the draft (i.e first pick, second pick, etc).  You'll have to see the detailed study as to their methodology, but it struck me as pretty reasonable.  They also looked at the cost or salary by draft pick.  Combining the two got this curve:

Curve1
The "surplus" line is the difference of the curves, ie performance value minus compensation cost.  Since compensation costs fall faster in the late first round (the first round is 30 picks) and into the second round than does performance, the surplus value peaks in the second round.  This does not mean the best players can be found in picks 25-75, but it does mean that the best values can be found there.  Since the NFL works under a salary cap that equalizes total compensation, the best team should be the one that consistently picks these value players (this is different than the baseball / NY Yankees model, where there is no cap, and maximum performance presumably comes from getting the top players, irregardless of salary).

If this is correct, teams should be willing to straight-up trade a pick in the top 15 for a pick around 35.  However, in reality, they can usually trade a pick in the top 15 for two or more picks in the 25-75 ranges, which should make the trade a no-brainer.  Interestingly, the market for picks is actually going the other way:

Curve2
The researches studied hundreds of past draft day trades of picks to generate these curves.  It basically says that early picks are valued exponentially higher than even late first round picks, and this preference for very early picks has actually increased in the past few years.  This curve says that a #5 pick might be worth at least 3 and possibly many more picks in the 25-75 band.

Given these two curves, if they are correct, why don't more teams trade their top picks into the 25-75 band.  There are at least 3 answers to this:

  1. Read Moneyball.  Once you read it, you will understand that sports GM's do not understand these concepts of value.
  2. There may be other values, other than player performance, that teams get from top picks.  For example, most fans will have heard of the top ten people drafted, but will know few from the 25-75 band.  The top, well-known picks generate a disproportionate amount of fan excitement and "hope" which can translate into more paying butts in seats, which this study does not take into account
  3. Some teams are getting it.  In listening to several mock drafts lately, it is clear many teams want to trade down from the top picks this year - no one wants to pay the signing bonuses commanded at these levels.  By the way team that has traded for the most picks in this band is ... Philadelphia.  Who has been in the NFC championship game 4 years in a row, so maybe someone out there does get it.

 

What a Concept

Marginal Revolution notes a recent piece by Jeffrey Rosen about potential libertarian supreme court nominees.  In particular, they noted this quote:

...Epstein was promoting a legal philosophy far more radical in its
implications than anything entertained by Antonin Scalia, then, as now, the
court's most irascible conservative. As Epstein sees it, all individuals have
certain inherent rights and liberties, including ''economic'' liberties, like
the right to property and, more crucially, the right to part with it only
voluntarily. These rights are violated any time an individual is deprived of his
property without compensation -- when it is stolen, for example, but also when
it is subjected to governmental regulation that reduces its value or when a
government fails to provide greater security in exchange for the property it
seizes.

Whoa, how crazy is that?  I find it depressing that believing in the right to part with property "only voluntarily" is today considered so wildly out of the mainstream that it is necessarily a disqualification to be a Supreme Court judge.  The courts today are terribly important battle ground in protecting individual rights against both creeping socialism and paternalism.  Unfortunately, neither Republicans nor Democrats can be trusted with leading this battle.  Each wants the judiciary to protect individual rights in one area and restrict them in another.  The left supports limitations on political speech via campaign finance restrictions and an unfettered right of government to invade personal property.  The right wants limitations on non-political speech via "community standards" on entertainment and hopes to regulate America's sexual practices.

Most people interested in politics are constantly hoping their party is the winner in the race to power.  I just wish I had a horse in the race.