Wednesday, February 3, 2016

Highly Linkable

Let's begin with a few on immigration (I've been saving these; hence, the late dates on some):
Alex Tabarrok made the case for completely open borders in The Atlantic.
Bryan Caplan continues to fight the good fight. Here are some points he didn't have an opportunity to make at a workshop but did get to share with us, fortunately. And don't miss his speech at the Open Borders Meetup. 
Found this advice on idling cars in the cold helpful and attractively counterintuitive.

Let me take a moment to sing the praises of Comedy Central's "Drunk History". If you haven't watched it yet, start now before finishing this sentence . . . too late. I can think of three ways it is awesome:

  1. It is a better way to learn history than traditional approaches because you remember and enjoy it; therefore, you stick with it longer. In that sense learning is a lot like exercise--the best method is the one you will stick with and the one that will stick with you. 
  2. It tells stories that our traditional, state-driven history instruction won't tell. 
  3. While it is uproariously hilarious to listen to the various drunk narrators describing history, it is also a pretty insightful take on history in a meta sense. Namely, history is vague and uncertain. We should be careful not to be too confident that we've got it figured out precisely.
Tyler Cowen's interview with Chris Asness is extremely rewarding. A few of the money quotes:
"There’s no investment process so good that there’s not a fee high enough that can’t make it bad."
"High frequency trading [which he doesn't engage in] has made the world more just and fair, particularly for small investors."
"This is not Lake Wobegon. We can’t all beat the index. It’s actually a precise mathematical identity."
On superheros: "Even the most insane billionaire cannot afford a hundredth of what frigging Tony Stark or Bruce Wayne have. It’s infuriating. ... I’ve done well. I’m not the most insane out there. But if I wanted to go build a Batcave at my house, it would take approximately 600 times my wealth, and everyone would know about it."
Speaking of rewarding, George Will always delivers as he does here on Michael Bloomberg's potential entry into the presidential election.

And lastly, Scott Sumner on economists who lack an imagination. (I agree in all four cases, and there is no contradiction between that and my other strongly held views.)

Thursday, January 28, 2016

Presidential Optimistic/Pessimistic Outlooks

We are on the cusp of phase two of the great American game: Who Wants To Spend A Million Million Dollars?

Phase one, you might remember, is when every third American denies he or she is running for office and then promptly announces they'll give it a go.

Phase two is the more sensible phase where a small collection of obscure states get to pick who will make it to the more substantially populated states who will then determine who makes it to the finals.

Phase three is the finals where two nearly identical twins argue about trivia while basically agreeing they like good things, are against bad things, and have a vision of how to either "keep us on course for greatness" or "turn it all around to restore greatness" depending on if people are happy or upset in general.

Let's run down the current leading contenders to see what the optimistic case and the pessimistic case is for each (from my point of view, of course). Keep in mind these are scenarios where optimistic and pessimistic are generally but not necessarily mutually exclusive (we could get some of both).

Optimistic - Shows why we should lose (and should have lost a long time ago) our reverent awe for the U.S. Presidency; prevents major government action/intervention/meddling on any number of issues by being a circus act writ large (his administration's priorities will be prestige and showmanship rather than policy accomplishment); forces a meaningful debate and action on limiting executive power (a little bit in tension with the previous prediction as this one mitigates a Trump administration that is actually trying to do something).
Pessimistic - Engages in major international war actions (beyond the high amount the each of his opponents would do anyway); sets back trade freedom and immigration substantially; creates strong racial, ethnic, nationalistic, and gender divides.
Overall - I estimate the optimistic possibilities are more likely than the pessimistic possibilities. 
Optimistic - Is a strong ally of free trade in goods and services with a relatively good view on immigration; offers a serious challenge to some aspects of cronyism like ethanol subsidies, the Ex-Im Bank, and Net Neutrality; promotes a less interventionist military policy on balance; gets meaningful progress on tax reform. 
Pessimistic - Fails to get past a vision of a secured border leaving immigration policy languishing; allows military spending and engagements to grow substantially; uses executive power to similar ends as Obama and Bush. 
Overall -  Pessimistic are slightly more likely than optimistic.
Optimistic - Advances immigration freedom substantially (this would be a major political advance for the GOP helping its demographic problem); promotes free trade well; gets meaningful progress on tax reform.
Pessimistic - Engages in major international war actions while strengthening government surveillance; extends the actions of executive power in defiance and weakening of the Constitution; proves that just as a he could be bought as a Florida politician (e.g., Big Sugar) he can be bought in the White House (i.e, cronyism). 
Overall - Optimistic are slightly more likely than pessimistic. 
Optimistic - Creates an era of gridlock not seen since the first Clinton administration keeping government at bay; allows for meaningful immigration progress; allows the drug war to recede while not actively doing much to bring about its demise.
Pessimistic - Engages in major international war actions while strengthening government surveillance; dreadfully extends the actions of executive power in defiance and weakening of the Constitution; makes good on her technocratic promise to bring government involvement to new realms while deepening it in familiar places.
Overall - Pessimistic are more likely than optimistic.
Optimistic - Allows meaningful retreat in the drug war; sets back the cause of socialism by giving it power and identity; greatly reduces military involvement and spending while curtailing government surveillance; produces government sclerosis by getting lost in the wilderness of the endless desire to "do something" about each and every apparent malady.
Pessimistic - Gives power and identity to socialism in policy; accelerates greatly the growth of government spending; sets back free trade and immigration; creates new social divides and fosters greater identity politics.
Overall - Optimistic are slightly more likely than pessimistic.
What does it all mean at this point? Not much. Remember phase three... But for what it's worth, I would like to see a Cruz vs. Sanders finals. However, if we extend the field some (but unfortunately not enough to include Rand Paul), my preference among the awful alternatives is Bush vs. Sanders (this is definitely a minimax analysis).

Make no mistake about it. Each of these people would be horrible presidents when judged against the standards of liberty and the Constitution. But what else is new?

P.S., Sorry for all the parentheses.

Monday, January 25, 2016

The Devil is in the Details

I have been thinking about taxes recently and actually had a couple of potential posts noodling around in my mind and my notes for the past few months. Good thing I waited. No, you didn't miss news of hell freezing over and a sensible tax code being adopted in the U.S. But you did miss me stumbling through what John Cochrane very simply Nadia Comaneci'd.

My notes on the potential posts began with: "I propose a major tax compromise: slightly higher taxes now in exchange for dramatic tax simplification. We take the existing tax code today and replace it wholesale with a consumption tax. We'll have the debate/fight at a later time about how big the tax burden should be, which is really a debate about how big the government should be. For now let's just remove the deadweight loss that comes from the complexity and the cronyism of the tax code."

Here is the full post from The Grumpy One's webpage. Allow me to extract a few key sentences:
Left and right agree that the U.S. tax code is a mess.
The first goal of taxation is to raise needed government revenue with minimum economic damage. That means lower marginal rates—the additional tax people pay for each extra dollar earned—and a broader base of income subject to tax. It also means a massively simpler tax code.  
... A simple code would allow people and businesses to spend more time and resources on productive activities and less on attorneys and accountants, or on lobbyists seeking special deals and subsidies. And a simple code is much more clearly fair. Americans now suspect that people with clever lawyers are avoiding much taxation, which is corrosive to compliance and driving populist outrage across the political spectrum.
... the government should tax consumption, not wages, income or wealth.
Wise politicians often bundle dissimilar goals to attract a majority. But when bundling leads to paralysis, progress comes by separating the issues. Thus, we should agree to first reform the structure of the tax code, leaving the rates blank. We will then separately debate rates, and the consequent overall revenue and progressivity.
Scott Sumner heaped rightful praise on the piece while noting a few considerations. I had similar thoughts. Again from my notes: "The many complications of any tax scheme: defining consumption goods versus investment assets, not penalizing transactions (you want to tax activity as it is more traceable and definable, but you don't want to do so in a way that stifles or distorts gains from trade), not inadvertently taxing capital (capital is ideas; when you tax textbooks, you are effectively taxing capital; when you tax computer sales you are taxing both Minecraft users and the 'next Minecraft' creator), etc."

Some additional thoughts: It is important to understand that ultimately ALL taxes are consumption taxes. The only difference is how efficient they are. When you tax savings, you are taxing future consumption (encouraging current consumption, which is shameful). And this taxation is usually on income that has already been taxed, but that isn't the central reason it is despicable. To savings taxes (including investment and corporate and capital gains, etc.) I say, "You're Despicable!" because that taxation compounds making the tax disincentive for savings worse the longer it is deferred (i.e., saved).

If structured properly, the disruptive effects of taxes on consumption can be minimized. If not, they can be quite dramatic and quite limiting. Of course, the current incumbent is not a high hurdle to surpass on this last point. Consider this very conservative estimate of the gains from simplification:

Let's assume the estimates of man-hours devoted to tax preparation and compliance of 3.2 billion (many estimate it is closer to 6 billion) are way off. Let's assume it is only 1 billion man-hours. Let's further assume away any other costs (capital investment distortions, rent seeking, labor tied up in compliance/avoidance work (lawyers, accountants, internal corporate departments, etc.), enforcement, etc.). Let's finally assume we can only reduce the man-hours by half (500 million). The average U.S. wage is about $25 per hour. Just this conservative estimate yields a wealth gain of about $12.5 billion dollars every year.

PS. Will tax cheating (intentionally under-reporting tax liability) or perhaps more likely tax fraud (filling fraudulent returns to garner other taxpayers' refunds) force us to simplify the tax code? Will they force us to remove Milton Friedman's unfortunate innovation (no refunds, no fraud)? Will they force a rethinking about identity verification at least in regards to the government (even less anonymity)?

Thursday, January 7, 2016

Perfectly Unperfect

A new year begins, another challenge arises to fulfill my perpetual annual resolution. Here is how I achieved it (changing my mind on a strongly-held belief). 

I have always had perfectionist tendencies. For a while when I was younger, they were quite strong. I beat them back. But the tendency remained. And I reconciled that with the belief that it was a positive quality. That striving for perfection, in good measure, was an enhancement to achieving my goals. 

The better I've come to understand failure, the more I have doubted perfectionism. I now no longer belief it is a positive quality. My aha moment came last year while reading Megan McArdle's book, The Up Side of Down: Why Failing Well Is the Key to Success. (Imperfection confession: I haven't finished the book yet. My reading discipline is far from perfect.)

The better you are at something the naturally higher-quality your work will be. Trying to make it perfect is a waste of time. Striving to be perfect is a fool's errand. Generally if editing requires more resources than the original creation, then the endeavor was a failure to begin with.

Effective is underrated. "Easy to Fix" is generally far better in all respects than "Hard to Break". 

Don't get me wrong; working hard is a virtue. Striving for improvement even after much has already been achieved is a desirable quality--when well balanced against the cost. Perfectionism is a different animal. In fact it is an alien to both this world and this universe. It is simply the drive to get more than can be expected. It is alchemy masquerading as practice. 

PS. As a corollary I have also always had completionist tendencies. However, in that case I've known for quite a while that it is a negative quality, but I've struggled to have the resolve to fight it. Tyler Cowen is a role model to follow in this regard (check out the transcript (or listen) at 19:01). It was listening to Penn Jillette's podcast Penn's Sunday School last year that got me thinking a lot about completionism. Penn is a classic example as he will readily admit. He says visiting a museum with him is torture because he insists on reading each and every display fully. 

Sunday, December 20, 2015

Highly Linkable

Let's start with a trip out of town. Got your playlist ready? Sherman, to the Way Back Machine!

Read Jeffrey Tucker's sensible, thoughtful perspective on terrorism and its two great horrors.

Speaking of terrorism, here comes Adam to ruin everything. (HT: KPC)

A top candidate for the most disruptive technological breakthrough of the the next two decades is driverless (or less human driven) cars. The Atlantic has a good discussion of the two approaches driving this disruption.

Scott Sumner summarizes much of what is misunderstood in thinking about monetary economics. This is a bit wonkish, but keep in mind this: getting monetary policy correct is very probably VASTLY more important for your well-being than who wins the next presidential election. The combination of [insert the major candidate you are most opposed to] and good monetary policy is >>> [insert your favorite major candidate] and bad monetary policy. It is not even close.

The Market is a beautiful wonder, and the benefits of free exchange are truly immense. Consider as Cato at Liberty's Chelsea German points out discussing Andy George's projects how expensive a suit or perhaps a simple sandwich would be if we didn't have market exchange. When we limit The Market, we should do so with careful concern and minimal impact.

Assuming we cannot find a strongly compelling reason to prohibit an exchange, a good rule is: If you may do it for free, you may do it for money as Jason Brennan and Peter Jaworski point out. This would include some outcomes that we might at first glance find troublesome but upon further inspection would analyze to be quite beneficial (albeit counterintuitive) as Liberty Street Economics points out when considering payday lending.

One of the key ways the market works its magic is through the price system. An effective market needs an effective price system. It is a remarkable method of capturing cost. Substitutes for that system are quite inferior as in the case Arnold Kling points out discussing locavorism.

Not Exactly The Monty Hall Problem

This New Year's Eve is the opening round for this season's College Football Playoff. Oklahoma will play Clemson followed by Alabama playing Michigan State. The two winners will then face off for the National Championship 10 days later.

Since my Sooners are in the playoff this year, I've been thinking a lot about it. One random thought that crossed my mind was a bit of a logic puzzle. Read it through and answer quickly, and then think about it a while to see if you would like to revise that answer.

Suppose the following:

You are a fan of one of the teams in this year's playoff. One night while dreaming a genie with light-brown hair appears before you offering a choice among a few options*. The one you choose will be the future.

The options are:
A. Your team's total points scored in the playoff will be 75 points.
B. Your team's total points scored in the first game will be at least 50 points.
C. Your team's total points scored in the playoff will be 75 points, and at least 50 points will be scored in the first game. 
D. Your team's total points scored in the playoff will be 50 points, and you can choose how many to allot to each game.
Which do you take, and can the options be objectively ordered from best to worst?

My answers are below the jump.

*It is helpful to know a little bit about college football to fully appreciate this puzzle. The average points scored by winning teams is about 37 while the average points scored by losing teams is about 19. The lowest final score a team can have is 0 and the next lowest is 2 (a score of 1 is not possible). There are no ties in college football--overtime is played until a victor is determined. Last year out of 776 games played in the highest division of college football (the one of relevance here) a team scored 50 points or more 150 times and only 7 times did that team lose. Also last year a team scored 25 points or fewer 698 times and 564 times that team lost. Note that my data does not include the bowl and playoff games from last year.