Wednesday, August 31, 2011


The American system of economics - what is commonly called "capitalism" - would be best termed "competitivism". The system isn't particularly favorable to owners of capital, nor in the era of the knowledge economy is capital the main feature of production.

Here's a great example. The true capitalists (owners of capital) want to merge two large concerns, AT&T Wireless and T-Mobile. This would allow them to provide more service with less capital, and would reduce competition in mobile phone service and monopolize the market for those with unlocked SIM-card phones. The U.S. government, true to its competitivist values, is suing to block the merger, on the grounds that it would too drastically reduce competition. In a market with only a handful of large firms, the unification of too much capital under one management is detrimental to consumers and workers - even though it is favorable to capitalists.

Thursday, August 25, 2011

Corporations are People

As reported in The Fix, Mitt Romney has 'doubled down' on his "corporations are people" blurtation*. The Fix quotes:
In a campaign stop Wednesday in New Hampshire, Romney brought up the remark — which some have portrayed as a gaffe — unprompted.

"Corporations — they're made up of people," Romney said. "They’re just groups of people that come together for work. When you say 'tax corporations' — the steel and the vinyl and the concrete, they don't pay taxes. Only people do."
Romney, of course, is dead right. This is a basic economic principle, which I'll be covering in my Intro to Econ class in a couple weeks. If a corporations profits are taxed, the corporation can respond in some combination of four ways: charge higher prices to consumers, pay lower wages to workers, compensate owners less, or go out of business altogether. Leaving aside the ultimate exigency, who pays the tax depends on "elasticity".

Can consumers readily switch to a substitute? Then prices won't change much. Can workers easily get new jobs? Then wages can't be lowered. Can capitalists easily invest in higher-return options? Then profits won't fall much.

In the current economy, which option seems most likely? In the case of a nationwide tax increase, it's very difficult for workers to find jobs not subject to the new taxes and difficult for consumers to switch to untaxed substitutes. They have to way of avoiding the tax. Capitalists, meanwhile, can pull their money out of the U.S. and invest anywhere else in the world, particularly the many stockholders who aren't American anyway. Thus, it's likely that raising corporate taxes would harm consumers and private-sector workers, while scaring capital investment away from America. Why don't we drown some puppies while we're at it?

Here's hoping that Mitt Romney doesn't suffer for his willingness to be honest about Economics 101. That's up to the media, who can choose to report fairly (e.g. with a quote from an econ professor) or unfairly.

* If "blurtation" is not yet a word, it obviously should be. Is there an existing synonym I'm missing?

Wednesday, August 24, 2011

Stick to Philosophy

Philosopher (or alchemist?) Gary Gutting likes to write about important issues, applying philosophical principles to current events in a NYTimes blog called "The Stone". Perhaps he should stick to philosophy. In his most recent piece, weighing in on Perry's economic record, he tries to remain above the fray but only succeeds in sounding pompous. First, he makes a logical error in attributing to Investors Business Daily a "logical fallacy" of confusing correlation with causation. But the IBD article never explicitly claims "causation"; perhaps Gutting disliked IBD's lack of nuance, but that's a far cry from logical fallacy. He is both unkind and wrong there.

Worse, he blunders into economics with this gem.
Of course, it is often easy to see that a particular policy produced a short-term economic effect: Obama’s cash-for-clunkers program caused an increase in car sales.
That may be "easy", but it may or may not be correct. Most economists suspected (both before and after C4C) that the largest impact of the program would be intertemporal substitution - buying a car now instead of earlier or later. Wikipedia summarizes scholarly (and otherwise) evidence and opinion on both sides.

Social science, unlike philosophy, deals only rarely in clean cases. Most economic events have large second-order effects to consider. And philosophy, unlike alchemy, has nothing to do with the Philosopher's Stone.

Friday, August 19, 2011

"We run government like a ranch"

The NYTimes today surprised everyone by giving OpEd page space to Texas Governor and GOP primary candidate Rick Perry, who bragged about how he's been able to slice, dice, cut taxes, raise revenues, and make everyone happy during the recession. It might be a bit too good to be true, but the conservative principles are unmistakable:
For six years [Texas] has been one of the only states in America with a budget surplus: this year it is a record $433 million, proportionally equivalent to a federal surplus of $858 billion. Thus we've been able to cut taxes, invest in education and infrastructure and keep essential services intact. We recently got our first bond rating upgrade in 26 years. And we're not simply riding the Western energy boom, [which accounts] for only 9 percent of our budget surplus.

How do we accomplish what most states and the federal government cannot? I like to say we run government like a ranch. In ranching — my old job — you either pinch pennies or go belly-up. We do the same in government. Perhaps Washington can try it.

For one thing, we challenge every expense. If it isn't absolutely necessary, we eliminate it. When the recession came we found $80 million in savings, which helped us avert a budget crisis. Little things added up: we renegotiated state contracts, cut our energy consumption by 20 percent, auctioned off state vehicles and canceled building projects and computer upgrades.

This type of penny-pinching rarely occurs in Washington. As a small example, I was recently at a military base where a private firm ran security. Why, with the toughest soldiers on earth, would the federal government spend extra cash to rent security guards rather than let troops take turns guarding the fort?

Finally, we don't spend money until we've found the lowest price. Around here, government contracts aren’t a way to take care of friends. Quite the opposite: we use our purchasing power to get the lowest possible rate. When the real estate market softened, we told commercial landlords who rented space to the state that if we didn’t see rent reductions, we'd move to cheaper premises when our leases were up. Most complied, saving the state almost $4 million.

How does the federal government negotiate? Consider Medicare drug purchases, one of the largest federal budget items. We are often told the cost of entitlements can be brought down only by cutting services. Nonsense. In 2003, in one of the greatest sweetheart giveaways ever dreamed up by the White House and Congress, they agreed to pay retail rates for Medicare drugs, even when everyone knew they could negotiate lower, bulk prices. The cost to taxpayers? An estimated $600 billion a decade.
Except, that wasn't written by Rick Perry. It was actually written by Governor Brian Schweitzer (D-Montana) about his own state. But could you really tell the difference?

Monday, August 15, 2011

Krugman on Texas

As if doing the White House's bidding, Paul Krugman's article today is devoted to deconstructing the "Texas Miracle", which Gov. Rick Perry is sure to run on in the presidential election if he wins the Republican primary. Texas, after all has grown 2.4 times as fast as the rest of the economy since the "end" of the recession.

Krugman makes some good points:
It's true that Texas entered recession a bit later than the rest of America, mainly because the state's still energy-heavy economy was buoyed by high oil prices through the first half of 2008. Also, Texas was spared the worst of the housing crisis, partly because it turns out to have surprisingly strict regulation of mortgage lending...

[Texas] has, for many decades, had much faster population growth than the rest of America... [people] are attracted to Texas by its warm weather and low cost of living, low housing costs in particular. And just to be clear, there’s nothing wrong with a low cost of living. In particular, there’s a good case to be made that zoning policies in many states unnecessarily restrict the supply of housing, and that this is one area where Texas does in fact do something right.
After these, he wanders off into a mire of toggling back and forth between real and nominal numbers, and alternately allowing or ignoring dynamic effects, depending on how they help his case. But let's return to the cogent parts above. So Texas' oil industry had positive overflow to the rest of the state? So what does Krugman think we should do with oil? That's what I thought.

And Texas has surprisingly strict regulation of mortgage lending, despite two decades of Republican dominance. Because it was Republicans who were always pushing for easier and easier mortgages, right? No? That's what I thought.

And people are moving to Texas for cheap houses, so the state must have a higher-than-average unemployment rate, right? After all, if housing is really cheap, and you don't need to heat your home much, it's a good place to live if you're unemployed. The Texas rate, which Krugman calls "high" was 8.2% in June. Is that higher or lower than the national unemployment rate? That's what I thought..

Krugman tries to argue that immigration causes lower unemployment; but that doesn't make a lot of sense to me, particularly since Americans willing to move states are rarely doing so while remaining in their jobs. If people were only moving for cheap houses and warm weather, we would see unemployment increase. Thus, if Texas had hypothetically closed its borders to the rest of America, it would have had an even lower unemployment rate!

Krugman brings his line of reasoning to a tormented conclusion:
[A]rguing from this experience... involves a fallacy of composition: every state can't lure jobs away from every other state...

So when Mr. Perry presents himself as the candidate who knows how to create jobs, don't believe him.
The fallacy of composition only exists because Krugman assumed that inflowing population led (somehow) to lower unemployment. Once we switch the causality to the more likely direction (low unemployment attracts immigrants), we should conclude that other states should indeed imitate Texas, since it is not only doing better than the rest of the country, but it is helping the other states out by employing many of their unemployed!

It still could be the case that Texas' success is not duplicable: if all its growth came from the oil sector, for instance; however, with oil prices in normal territory for most of the last 2 years, that's unlikely. So when Mr. Krugman presents himself as the economist who knows how to create jobs, don't believe him.

Wednesday, August 10, 2011


Two tales of one city:

Taking shelter from the driving rain on Lodge Lane in Toxteth, he tells her why he has taken to the streets. "These are my boys. I'm not just going to stay at home and miss out on all the fun."

The 25-year-old, who did not want to give his name, described an "adrenalin rush" as gangs of youths, thought to number 200 at the height of the troubles in the city which centred on low-income areas in the South of the city, but sparked also on the other side of the Mersey in Birkenhead.

"Police patrol these streets every night of the week and we only get to riot every few years. They can't come here laying down the law like they do all year round. People are rioting because the riot is finally here."
Idriss Majad used to be a legal investigator in Iraq, before fleeing violence in the country and seeking asylum in the UK. After receiving permission to remain, he opened a shop, just last month.

"I came to this country for safety and when I got permission to stay I tried to invest. I borrowed money and I invested everything I had in this shop," he said.

He estimated that with the stock, mainly cigarettes, stolen and the damage done to windows, the counter and shutter, it would cost him around £5,000. "It is huge for me. Already I can't make nothing, but I was building for the future. It is miserable, I am very nervous but I have to carry on with my business because I don't want them to win."

Great reporting on both sides of the riots in Liverpool by Alexandra Topping for the Guardian.

Riots: What's a social network to do?

As riots spread across England, thrill-seeking, morally bankrupt "youths" are spreading the mayhem, eluding cops, and coordinating robberies with messages like:
the riots have begun, windows smashed, bike wheels taken, mandem pullin out bats n pitbulls everywere, BC this to show respect for the rioters! Join in !
Apparently, Blackberries are as universal in England as cell phones are here, and these "poor" teenagers are rich enough to have them. Some have called on Twitter, Blackberry, and other social media corporations to shut down their services at certain hours, or suspend accounts. They've resisted: they want to stand for free speech and avoid being government tools.

Rightly so: social media is media, and a free media is vital to a free people. These same tools were applauded when they carried the spark of revolution forward in Tunisia, Egypt, Syria, and elsewhere earlier this year.

However, the corporations are not bound to keep their service constant, and they can respond wisely to the situation before them. Instead of seeing this as a fight between pro- and anti-free media camps, Blackberry, Twitter, and co. should look for some technical or market solutions to the abuse of their services. I'm sure readers can come up with other ideas, but some ways to slow the spread of violent messages include:
  • Restrict the number of recipients on texts
  • Raise the price of a text. How many teens can afford to send out a blast to fifty friends at 50 pence a pop? And hey - you'll make bank.
  • Put in a time lag of 30 seconds on texts/tweets; that will give police and voice callers a brief time advantage.
And my personal favorite:
  • Spell-check tweets originating on mobile devices in England. Bounce back anything that isn't dictionary-perfect.


I just think I might be forwarding this XKCD cartoon for the rest of my life to every system admin who requires that I choose a mixed-type password. Maybe I can print it out and post it on their office doors after hours, too?

Tuesday, August 2, 2011

The Green Terror

The NYTimes has a gut-wrenching review of the situation in Somalia.
Much of the Horn of Africa has been struck this summer by one of the worst droughts in 60 years. But two Shabab-controlled parts of southern Somalia are the only areas where the United Nations has declared a famine, using scientific criteria of death and malnutrition rates.
The Shabab - dudes or young men in Arabic - are a nasty hybrid of street gangs, old-school warlords, and self-righteous Salafi sheikhs. They terrorize outsiders a little, and terrorize Muslim Somalis daily.
The Shabab Islamist insurgent group, which controls much of southern Somalia, is blocking starving people from fleeing the country and setting up a cantonment camp where it is imprisoning displaced people who were trying to escape Shabab territory. The group is widely blamed for causing a famine in Somalia by forcing out many Western aid organizations, depriving drought victims of desperately needed food. The situation is growing bleaker by the day, with tens of thousands of Somalis already dead and more than 500,000 children on the brink of starvation.

People from those areas who were interviewed in Mogadishu say Shabab fighters are blocking rivers to steal water from impoverished villagers and divert it to commercial farmers who pay them taxes. The Shabab are intercepting displaced people who are trying to reach Mogadishu and forcing them to stay in a Shabab-run camp about 25 miles outside the city. The camp now holds several thousand people and receives only a trickle of food.
Sharia law, in any manifestation of which I am aware, is 'morality for thee but not for me.' When the stringent laws of 7th-century Arabia are married to the Al-Qaeda credo of absolution through jihad, they metastasize into a diabolical terror of hedonistic puritanism, where the most guilty flog the most innocent in a bloody quest for the forgiveness of their own sins.