Showing posts with label growth and progress. Show all posts
Showing posts with label growth and progress. Show all posts

Sunday, May 1, 2022

The Accountants Can't Make You Rich

In business cost per unit may be the ultimate metric. Accountants focus on in decreasing the numerator. Marketers focus on increasing the denominator. 

It is important to remember, though, that cost containment is not a growth strategy. Accountants almost never remember this. However, it is a necessary but not sufficient condition for long-term success. This is true of economies, firms, and individuals. In a future post I will explore this giving the importance of the metric its due.

You can't grow your wealth by harvesting investment losses--you can't just "write it off" after all. Reducing unnecessary costs is an important part of sustaining a firm, but it is not a complete recipe of a succeeding firm. This is why so many mergers and acquisitions fail to add value. Cost reductions through economies of scale are generally very difficult to realize, and even when they are realized, they are often temporary. Ultimately, successful mergers come down to realizing synergies for new growth without cost exploding. Compounding the problem of pulling off a successful merger (one that justifies the purchase price of the target being acquired) is that the hoped-for synergies prove in many cases to be imaginary and as often unforeseen at the outset--more luck than skill.

Looked at from a broader view, a society with high savings and poor investment will be an impoverished people who are soon forgotten. To be clear the alternative isn't simply live for today, but at least those of the Bacchanalia had a good time while it lasted. The miser who squirrels away his every penny under the mattress has nothing to show but a desire for yesterday's purchasing power.

The cost reduction impetus gets maximized in a recessionary environment. Firms and individuals tend to look inward in times of economic stress thinking more and more about how to voluntarily shrink to avoid forced shrinking. This can be both helpful and healthy. Yet taken to extreme, which can come quite easily, this becomes a self-fulfilling feedback loop. 

The cutbacks one should make are reductions in consumption. This is a lot easier at the individual and family level than at the firm level. Firms shouldn't have "consumption" per se. To the degree they do this is simply excess that should be trimmed away in any environment--easier said than done of course. Investment choices may and likely should change given changes to near-term outlooks. At the same time the risk of overcorrection is very great. 

An asset allocation should be largely immune to changes in the investment near term. The investors "going to cash", "moving to the sidelines", and selling out otherwise in times of stress in the financial markets are almost always making critical mistakes. Sometimes those mistakes are permanently devastating

Back to the general concept of keeping the accounting department happy, accountants usually aren't thinking in terms of calculus--only calculations. What I mean by that is they aren't looking at rates of change and the signs on the derivatives. Lest we degrade them unnecessary, the marketing department's version of calculations can amount to astrology mixed with magical wishes. At least the accountants are doing real math.

Those exaggerations aside keeping an eye on cost is essential. Focusing entirely on cost is deadly.



Thursday, May 27, 2021

Disagreeing to Agree

We mostly all agree on the premises:
  1. Progress comes through experimentation.
  2. Most experiments fail.
We mostly all disagree on the conclusion:
  • For progressives the answer is "Therefore, we should pursue large experimentation conducted by the state on the basis of arbitrarily determined noble objectives."
  • For conservatives the answer is "Therefore, we should pursue limited experimentation constrained by the state on the basis of arbitrarily determined morality."
  • For libertarians the answer is "Therefore, we should pursue a great many small experiments conducted by entities on the basis of their own arbitrarily determined desirability, feasibility, and expected profitability."
One desirable feature of any of these processes would be for those involved to have strong stakes in the outcomes (good and bad) constrained by the rights of third-parties not to be harmed in the process. I leave it to the reader to decide which of these most easily aligns with that desired incentive structure.

Saturday, May 22, 2021

Most Charity is a Failure


I know you want to do good, and I know you want to think that wanting to do good combined with doing something results in doing good. Unfortunately, you are very likely and in most cases completely wrong. 

I suspect that most people will either reflexively disagree with and disregard my position on this or accept it at face value as a necessary consequence of human social failure. I also suspect that most people who have extensively studied this area as well as most people deeply involved in this realm will either strongly agree or disagree with me. 

For this post I imagine each of these four constituencies as potential audiences. 

First of all understand that charity isn’t always about doing good as Robin Hanson would tell us. Often it is a bundled good which combines a desire to dream altruistically and be recognized as altruistic with little connection to outcomes.

Second of all note that government action (i.e., forced collective action) is usually worse in all regards. At the very least with a failed charity we can more easily delude ourselves that what we are doing is on net beneficial and not resource or happiness destructive. And then there is the side benefit that we did it basically through voluntary agreement and persuasion rather than the threat of ultimately deadly force. 

Third of all let us distinguish between charity and other not-for-profits.* A charity is looking to benefit an underserved beneficiary. There are other not-for-profits that are actually just tax-favored gifts to one's own hobbies and personal enjoyments. The focus of this post is charities as commonly understood.

The problem with not-for-profits in general is that they are responsive to donors rather than customers as Arnold Kling elaborates

Donors and customers both have desires they want met. To understand if they are satisfied the donor is presented the answer while the customer largely gets to judge for himself. The marketing to donors strongly tends to be aspirational and promise-based whereas customers have to consider the actual outcome and experience. Additionally, donors have two biases at play further constraining their willingness and ability to be critical: selection bias (they already are supportive of the cause ex ante) and confirmation/endowment bias (they want to believe they made good choices).

Sam Harris makes great points in this podcast like how charities don’t stop existing often enough—they can be failing or have completely succeeded but they still are in operation, which implies they are wasting resources.

Just like in the fine art market where no participant has a strong reason to discover much less publicize a forgery and does have powerful incentives to suppress such information, participants in the not-for-profit sector are incentivized to self-promote and cross-promote the whole edifice as being successful. 

The challenge for charities are the classic problems of the seen versus the unseen, moral hazard, conflicts of interest, and the law of unintended consequences. 

This TED talk on African orphanages has elements of all four problems. 

ProPublica has been reporting for years on the failings of the American Red Cross.

TOMS Shoes has faced forceful criticism about its charitable program of donating a pair of shoes to a poor child for each pair of shoes purchased. In a rare case of reversal TOMS now donates 1/3 of its profits directly to "grassroots" efforts. This may be much better than their prior famous-cum-infamous program that had the unintended consequence of displacing development in poor countries. 

New York not-for-profit hospitals asking their patients for donations makes one wonder just how not-for-profit they really are. 

There are unintended consequences for heartwarming charities like Make-A-Wish, et al. When resources are directed to one thing, they cannot also be used in any other area. There are always tradeoffs.

Add to the classic problems listed above the simple element that good intentions are not sufficient for successful solutions. Case in point would be food drives where the obvious need is not the obvious solution.

It is possible to bring strong doubt to the ultimate value of any charitable organization. The fact is most do not stand up to scrutiny.

Yet we want to do good; so what is a good doer to do?

I am a weak proponent of effective altruism. It is a way to distinguish between what works and what does not. To quote admirable, strong effective altruism advocate Peter Singer, "Effective altruism is based on a very simple idea: we should do the most good we can." He goes on to explain:
Effective altruism is notable from several perspectives. First, and most important, it is making a difference to the world. Philanthropy is a very large industry. In the United States alone there are almost one million charities, receiving a total of approximately $200 billion a year, with an additional $100 billion going to religious congregations. A small number of these charities are outright frauds, but a much bigger problem is that very few of them are sufficiently transparent to allow donors to judge whether they are really doing good. Most of that $200 billion is given on the basis of emotional responses to images of the people, animals, or forests that the charity is helping. Effective altruism seeks to change that by providing incentives for charities to demonstrate their effectiveness. Already the movement is directing tens of millions of dollars to charities that are effectively reducing the suffering and death caused by extreme poverty.
Second, effective altruism is a way of giving meaning to our own lives and finding fulfillment in what we do. Many effective altruists say that in doing good, they feel good. Effective altruists directly benefit others, but indirectly they often benefit themselves.
Third, effective altruism sheds new light on an old philosophical and psychological question: Are we fundamentally driven by our innate needs and emotional responses, with our rational capacities doing little more than laying a justificatory veneer over actions that were already determined before we even started reasoning about what to do? Or can reason play a crucial role in determining how we live? What is it that drives some of us to look beyond our own interests and the interests of those we love to the interests of strangers, future generations, and animals?
Finally, the emergence of effective altruism and the evident enthusiasm and intelligence with which many millennials at the outset of their careers are embracing it offer grounds for optimism about our future.
It would be nice to have a roadmap and a good introductory guide. Given all of this, effective altruism seems like the way to go. So, why am I only a weak proponent?

Well, it turns out the world and its problems aren't quite so simple. Consider Peter Singer's famous thought experiment on the drowning child from his book The Life You Can Save (taken here from a Vox interview):
Imagine you’re walking across a park. Somewhere in that park there’s a pond. You know the pond is quite shallow, but you see something splashing in the pond. When you look closer, you’re shocked to find that it’s a small child who seems to have fallen into the pond and is flailing around because it’s too deep for this small child to stand. So, you look around for the parents or the babysitter, but there’s nobody. There seems to be only you and the child. Your next thought is, I better run down to the pond, jump into the pond, and grab the child. Not hard to do. No risk to me because the pond is shallow.
But then it does occur to you that [saving the child] is going to ruin your most expensive shoes. You’ll be up for some hundreds of dollars to replace them and other clothes you might ruin. So, you think, why shouldn’t I just walk away and not have to go to the expense of replacing my shoes? Now the question for everybody is: If somebody did that, would you think that was really the wrong thing to do? Would you think that you had done something seriously wrong in leaving the child very probably to drown? Most of the people who I ask this of say that would be an awful thing to do — it would be terrible to allow a child to drown because you didn’t want to go to the expense of buying new shoes, even if they were expensive ones.
The point of the thought experiment is to then switch to the situation that we really are in. We live in an affluent society where we often have considerably more than we need to meet all our basic needs, enjoy life, and make reasonable provision for the future. We also are living in a world in which there are millions of children who die each year from preventable causes and there are effective organizations that would gladly accept a donation from you that would increase their ability to save some of these children. So, if you’re not helping to save some of these children, then are you really all that different from the person who walks past the child in the pond?
This is a compelling story and a powerful argument in an of itself. However, there is something bigger going on here. Why is this child drowning? As an analogy for children suffering, dying in fact, on a daily basis, where are the parents? Why are these children dying when they could so easily be saved? Why are they repeatedly falling into the pond to drown? The deeper question becomes what is the institutional, societal, cultural failure that has brought this about. 

Effective altruism has a blind spot. It does not do much more to seek to correct the underlying causes of problems than do all the other naïve approaches to charity. It may have a better rate of attaching bandages to wounds, but they are still just bandages. 

Perhaps that is too uncharitable. I don't mean it to be so harsh. Yet the fact remains too often organizations that pass the effective altruism test are not addressing underlying causes of problems. 

It is an illusion that lives can be bought like cars. For a start, the evidence is nearly always in dispute. The alleged effectiveness of the Deworm the World Initiative—which, at the time of this writing, ranked fourth in GiveWell’s list of top charities—runs contrary to the latest extensive review of the evidence by the Cochrane Collaboration, an organization that compiles medical research data. Maybe Cochrane is wrong, but it is more likely that the effectiveness of deworming varies from place to place depending, among many other things, on climate and on local arrangements for disposing of human waste.
More broadly, the evidence for development effectiveness, for “what works,” mostly comes from the recent wave of randomized experiments, usually done by rich people from the rich world on poor people in the poor world, from which the price lists for children’s lives are constructed. How can those experiments be wrong? Because they consider only the immediate effects of the interventions, not the contexts in which they are set. Nor, most importantly, can they say anything about the wide-ranging unintended consequences.
However counterintuitive it may seem, children are not dying for the lack of a few thousand dollars to keep them alive. If it were so simple, the world would already be a much better place. Development is neither a financial nor a technical problem but a political problem, and the aid industry often makes the politics worse. The dedicated people who risked their lives to help in the recent Ebola epidemic discovered what had been long known: lack of money is not killing people. The true villains are the chronically disorganized and underfunded health care systems about which governments care little, along with well-founded distrust of those governments and foreigners, even when their advice is correct.
I consider effective altruism as a second-best solution. What would the first best be? Something as unpalatable to most as it is highly effective: economic growth through a pro-business environment that embraces free trade of all kinds and open borders in all places. 

Production vastly outworks charity. That is the way to escape poverty of all dimensions. 

It is a big world with complex and complicated problems. There is a role and a need for charity. Part of that is the moral and spiritual benefit bestowed upon the giver. Part of that is the actual good delivered to the beneficiary. 

We should strive for charity that is effective and efficient--that accomplishes the goal and does so without an unnecessary use of resources. A very big part of that is properly defining the goals long before and continually as we evaluate the options, analyze the progress, and retire the accomplished. 

The natural state of man is abject poverty. Charity does not and cannot solve that. Charity is funded from production to smooth out that which production illuminates as a temporary and undesirable shortcoming. Put another way: Charity fills the gaps we can at least hope to fill by virtue of production until production can eliminate them altogether. 


P.S. Alternatively, perhaps you're interested in ineffective altruism?


*In the debate between the terms 'not-for-profit' and 'nonprofit' I think I believe nonprofit (or non-profit) is the worse term as all entities earn profits, or at least they should. The critical distinction is what the entity can do with the profits earned and if profit is the ultimate goal.  A for-profit firm is and should be ultimately concerned with maximizing profit (we can litigate another day how Milton Friedman was completely right on this). A not-for-profit is not primarily driven to generate or maximize profit. It is driven to achieve outcomes but do so in an efficient manner (not destroy more resources than it creates). Being nonprofitable is prima facie bad since that organization is more explicitly in the pursuit of achieving particular outcomes without doing so profitably. 

Friday, May 21, 2021

The Virtues of the Market Process

It is not because it brings about better outcomes for the best. It is because it is the most reliable method for bringing about better outcomes for the least. 

The market knows (and continually discovers and improves upon) what otherwise cannot be known: where, when, and how much to do what. 

This is in part because the market aggregates knowledge in a way that creates better knowledge and in part because the market communicates that knowledge effectively. Both parts work in tandem as the process is a continual positive feedback loop. 

Key to all of this is the market process's combination of two powerful forces: incentivizing the pursuit of knowledge and rewarding the discovery of knowledge. 

As a market participant I am invigorated and rewarded for bringing about better outcomes for others. The eventual effect of this across all participants is to satisfy the infinitely complex and conflicting desires of ALL others, and this happens in each instance of market activity because prices, the market's tool for communication, encapsulate all desires in a single, universal signal. 

The hallmark of the market's achievements is how from nothing comes more and more (resources) to give us more and more (happiness) for more and more (people). 

Monday, May 17, 2021

Two Methods of Improvement

Let's compare two general methods of improvement: 
  1. Truncating the left tail so as to eliminate the undesired portion of the distribution
  2. Increasing the distribution so as to grow (fatten) the right tail and therefore increase the desired portion of the distribution. 


Both methods have the effect of shifting the mean rightward. But the first is artificial.

Let's explore the first method. People paid primarily for their looks are an example of truncating the left tail. (One might be tempted to say “supermodels”, but that is a particular, specialized subclass of this universe. It is like saying basketball players when we are actually talking about athletes.) They exist within a distribution of attractiveness (subjectively considered as that is the only way) that simply has lopped off most or all of the left side. Some are gorgeous to you; others are gorgeous to me. Some are not so attractive to you while others, perhaps ones you really like, are not so attractive to me. Anyone in particular within this group might be just okay to any random observer. Taking everyone's opinions together as a whole, though, on average gives us an ordered distribution [similar to the theoretical and problematic Keynesian Beauty Contest]. 

When considered from the average observer’s viewpoint, the only thing missing in the distribution are all those who would be below some threshold. In other words the “lowest” (most left) person paid for looks is just an average looking person compared to all of humanity. Because we can’t manufacture attractive people yet, we are forced to use the truncate strategy. 



So the only way to bring about beauty improvement is by leaving out those who are less than some level of beauty (I used eliminated everyone below the average beauty score in the example). So we can get there, but it is artificial--we just left out the less than "beautiful", whatever that actually means in this hypothetical.

Now think about wealth. How do you increase average societal wealth? This is problem from a different realm because unlike beauty where we are currently limited to some degree of diet control, physical fitness training, and plastic surgery we can move wealth around. 

In the case of wealth what is the better path: Minimizing the impact of bad ideas (truncating the left tail via redistribution) or increasing the rewards for good ideas (fattening the right tail)? 

Bailing out bad ideas has moral hazard risks--we are subsidizing bad ideas. When you subsidize something, you get more of it. Taken to the extreme income redistribution is not sustainable. The system collapses in on itself through actual complete resignation (a dead-end Nash equilibrium) or deliberate exit (John Galt). Because of this, we are forced to use the grow the distribution strategy. 


Notice how this distribution is truncated and non normal (there is a minimum at 70 and the distribution has a right skew). No one is below some level of actual wealth (even debtors and prisoners get a meal and a place to sleep). So in some sense I am assuming some of the first strategy--a social safety net of some kind. I wanted to make it more realistically skewed, but time didn't permit. However, we should be careful how easily we succumb to the notion that there are people with true wealth at the far, far reaches of the distribution. Just how rich is Jeff Bezos compared to you or me really, seriously

Growing the distribution has a side benefit of minimizing the impact of bad ideas--a kind of resistance to bad ideas having meaningful, lasting impact. Subsequently the opportunities for good ideas are increased since this method is positive sum (it grows the pie) while the former strategy is zero sum and eventually negative sum if taken too far.

Am I assuming too much? I really don't think so. 

Unfortunately, advocacy for method two is unpopular because of social desirability bias. People don't want to admit that they want the rich to get richer. Or worse yet, they think letting the rich get richer somehow makes us all worse off. 

Monday, May 3, 2021

Finding Common Ground

Lasting intellectual, legal, and cultural progress comes by working with ideological opponents rather than despite them. As good as it might make one feel to 'Yeah!' our team and 'Boo!' their team, those tribal behaviors set us back. 

That is why I am excited for the recent collaboration between strange bedfellows Ben Cohen & Jerry Greenfield and the Cato Institute scholars is Clark Neily & Jay Schweikert who are all working to end qualified immunity. 

See also Ben Cohen's book, Above the Law.

Saturday, May 1, 2021

An Addition to My The Big Five

I hate having to do this, but I feel it is necessary to add to my list of the low-hanging fruit of public policy where 90% solutions (improvements) on these issues are several orders of magnitude more important than 99% solutions on a thousand others. In my defense this was always filed under "partial list", and it continues to be. I just hate making a tag and then needing to update it. 

Keep in mind that I did issue addendums to the list shortly after first publication. This will take one of those and elevate it to the new big list.

The Big Six:
  • Drug Prohibition (end it--allow adults to make their own choices)
  • Education (privatize it--give the government an ever-smaller role)
  • Immigration (open it up--allow people to freely move and freely interact with other people)
  • Taxation (simplify and redirect it--efficiently tax the use of resources not the creation of resources)
  • War (move away from it--make postures less bellicose and violence less of an option).
  • ***AND*** Housing Development (greatly reduce the obstacles and restrictions so that the owners of capital can buy, build, and reconfigure real estate as they see fit)
First because of Kevin Erdmann's work and recently because of Bryan Caplan's current discussion and forthcoming work, I have become radicalized to make this addition to my reform agenda canon. 

Living in a historic district with all its well-intended nonsense, I see this issue close at hand. The HD seems to be a classic case of people being nostalgic for a past that didn’t actually exist. The effect is expense for homeowners, self-righteous satisfaction for busybodies, a jobs program for the rent-seeking suppliers and regulators, and general exclusion for those who don’t fit in or can’t afford to. 

Every day I see stark examples of the perfect being the enemy of the good. 



Saturday, December 26, 2020

Partial List of Current Practices Future Humans Will Detest as Immoral and Indefensible

I've speculated on this before, as have others. As we sit anxiously awaiting a new year so as to put the current one behind us, this thinking is on my mind. None of these are specific to this year, but I could write and probably will write soon on my hope that many things about this year will someday (hopefully soon but unfortunately not soon enough) be thought of as abhorrent or at least a very, very poor use of cost/benefit analysis.

Here is the short but important list:
  • Abortion
  • Immigration restrictions (especially for those seeking to escape poverty or tyranny)
  • Trade restrictions (to a lesser degree)
  • Tolerance for people living (anywhere) involuntarily in a condition of (meaning without a reasonable ability to escape) extreme poverty (coupled with no acceptance for ignorance as to the solution for extreme poverty--we know how to fix this--free markets and free minds)
  • Living conditions of the institutionalized elderly
  • The death penalty
Short note on abortion (perhaps the most controversial item on the list): Nearly all of the arguments in favor of abortion today sound to me very similar to those arguments made contemporarily to and in apologetic memory of slavery.

Sunday, September 6, 2020

It’s More Than Qualified Immunity


To truly help those suffering from poverty (poverty of justice, poverty of spirit, poverty of options, poverty of opportunity, poverty of consumption, etc.), we have to address all of the constraints and forces that are keeping people from being all that they can be. 
The police state abuses in general are an important aspect of this, but they are just a single portion of this plague. We must look deeper than these very important issues as they are themselves just symptoms of bigger problems. 

Qualified immunity is one particular, nuanced element in a much larger set of problems. The list of police and policing and prosecution reforms is deep:

  1. End qualified immunity
  2. End mandatory police unions
  3. Require police to obtain individual liability insurance
  4. Require body cams
  5. End no-knock raids
  6. Stop militarizing police
  7. Implement substantial bail reform
  8. End civil asset forfeiture
  9. Reform plea bargaining to limit prosecutorial power
  10. Strengthen the public defender process
But these alone are neither exhaustive nor completely sufficient. Broadly there are three additional major areas of reform that would start to help heal and to eventually enable tremendous growth in the communities that are suffering the most: 

1) Occupational licensure - Make no mistake about it. These are very simply anti-competitive policies to protect incumbents. They hide under the pretext of consumer protection yet operationally they are clearly a producer protection. The result is two groups of victims: the consumer generally and the weakest producers (competitors to the powerful vested interests). There is slow progress on this area, but much more is needed. 

2) Zoning and other forms of development restriction especially in housing - Zoning has racism at its origin. No, that does not imply it is still a racist policy in fact or in law, but it should give us pause in accepting it as innocuous. Zoning is still largely about keeping "them" out. Who "they" are varies. While a charitable reading leaves zoning as a plan to make the best decisions, it rests on a dubious logic that we can plan the future and government knows best. Housing unaffordability is a major obstacle to upward mobility for those in poverty (of all kinds). Barriers to opportunity are not a solution.

3) Most importantly the senseless, unjustifiable, and evil drug war - The drug war's biggest victims are those in the weakest position to fight back. Leave aside whether we have the right to punish people for doing things we wish they wouldn't but that otherwise only harm themselves. Leave aside the intentions of those who have promoted it. Prohibition does not work . . . no, it is worse than that. It very greatly harms. It must end if we are to build a world of justice and opportunity.

Sunday, June 28, 2020

Well, We're Movin' On Up

What’s great about this country is that America started the tradition where the richest consumers buy essentially the same things as the poorest. You can be watching TV and see Coca Cola, and you know that the President drinks Coca Cola, Liz Taylor drinks Coca Cola, and just think, you can drink Coca Cola, too. A coke is a coke and no amount of money can get you a better coke than the one the bum on the corner is drinking. All the cokes are the same and all the cokes are good. Liz Taylor knows it, the President knows it, the bum knows it, and you know it.  Andy Warhol
Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort. [...] [T]he capitalist process, not by coincidence but by virtue of its mechanism, progressively raises the standard of life of the masses.  –Joseph Schumpeter*
Partial list of goods and services that the Forbes 400 cannot have a better version of today than can the middle class in the U.S.—measured by quality, effectiveness, or status:
  • Mobile phones
  • Umbrellas
  • Personal computers
  • Toilet paper (notice how it required a pandemic and government intervention to make this temporarily drop off the list)
  • Cloud storage
  • Fast food and fast casual
  • Casual clothing
  • Payment processing
  • Individual consumer-level tools (but not tool collections)
  • Basic plumbing
  • Video and music entertainment content
  • Online shopping (especially important in quarantines)
  • Corrective eye surgery such as LASIK
  • Small package shipping speed
  • Email
  • All but the most exotic of beverages from bottled water to soft drinks to tea to coffee to beer to wine to liquor
  • ... I could go on and on, but Qwern already has done so for me...
This shouldn't be surprising given that I am, as most of us so fortunately are, richer than Rockefeller

Related question: As a proportion of all goods and services available, are there more or fewer things like this today than there were 50, 100, 500, 1000, etc. years ago? I would submit that there are considerably more even with all the abundance and variety that we enjoy today. In the past the inequality separation between the super rich and the middle class (or closest approximation) was vastly larger. Add to that the fact that movement between classes was virtually impossible. It is telling that only in a modern fairy tale are lyrics like this conceivable. Today we enjoy the hockey stick of human progress.

Understanding what is going on here takes more nuance than the typical person allows. Russ Roberts has a good, short video series that explores this nuance. 


*The paper at this link, Manifesto for a Humane True Libertarianism by Deirdre McCloskey, is well worth reading. It is where I most recently read the Schumpeter quote.

Friday, October 25, 2019

An Idea Ahead of Its Time Is a Bad Idea


Is Alexandria Ocasio-Cortez (AOC) simply way ahead of her time

If someone came back from the future to tell us that in her time (our future) fossil fuels had been successfully banned (first nationally and then worldwide), this would have to be taken as exceptionally good news. 

At the same time if we were to implement a first national and then worldwide ban on fossil fuels today, it would be colossally bad news.  

It is overwhelmingly likely that a ban on fossil fuels sometime in the future can only happen in a remarkably wealthy world. Ironically it will be built on the back of the use of fossil fuels that we will be wealthy enough to eventually ban them.

Religious leaders like AOC don't understand the subtle yet critical difference between our legitimate aspirations and our binding realities.

Politicians follow rather than lead. Perhaps we should be grateful for this when it holds true.

Tuesday, September 3, 2019

Partial List of (additional) Low-Hanging Public Policy Fruit

These are addenda to The Big Five

While The Big Five were largely federal issues, these (2/3) are largely state and local issues.

They are based on simple principles allowing for straightforward application if we would be so bold. Alas, the incumbent, vested interests would resist with every fiber of their selfish being. 

But I for one will keep fighting the good fight with hope that reason and justice will prevail. 

Monday, May 27, 2019

Don't Let the Ideal Be the Enemy of Improvement


This recent Scott Sumner post got me thinking about a truism I like to follow: 

Don't let the ideal be the enemy of improvement--my take on don't let the perfect be the enemy of the good. 

Perfect is overrated. While I might be a libertarian idealist at heart, I have always striven to be a directionalist rather than a destinationist. And I certainly don't want to fall victim to the Unicorn Fallacy.

Consider The Big Five and reasonable milestones of progress to be aiming for.
  • Drug prohibition - Marijuana tolerance is gaining. This is largely good (movement in the right direction). However, it probably will have unintended byproducts like legalization = authority endorsement leading to overuse as well as even stronger resistance to decriminalization, legalization, and tolerance for other illicit products (cocaine, heroin, LSD, etc.) and services (sex work, price "gouging", etc.). Reasonable near-term aspiration: Federal action decriminalizing if not descheduling marijuana despite the before-mentioned byproducts.
  • Education - School choice is on a gradual but tepid rise. Reasonable near-term aspiration: A popular civil-rights figure strongly advocating for a voucher or charter school experiment in a major inner city. 
  • Immigration - These seem to be dark times. Yet I see two aspects of optimism. First, Democrat rhetoric is improving as they attempt to draw a distinction from Trump--this isn't faith in Democrat dogma but rather faith they will paint themselves into a good corner. Second, Republicans will likely need to soften the stance Trump has defined lest they risk losing demographically--this isn't faith in Republican virtue but rather faith in their ability to see a self-serving means to an ends. Reasonable near-term aspiration: A compromise solution to allow much-greater levels of H1B visas and higher levels of "desirable" immigrants (where desirability comes from greater restrictions on immigrant access to benefits or sponsorship by entities such as employers or charities or sanctuary cities).
  • Taxation - The biggest recent improvement has been in this category with the Tax Cut and Jobs Act of 2017. By far the two benefits of this mixed bag of tax changes were the reduction in the corporate tax rate and the increase in the standard deduction. The latter should enable future tax simplifications such as removing deductions and allowances much easier to accomplish. Reasonable near-term aspiration: Increases in tax-deferred savings limits.
  • War - This is the most stagnant category. Across the globe we are still explicitly overtly at war (Afghanistan, Iraq, et al.), implicitly covertly at war (Yemen, Syria, et al.), and potentially at war (Iran, North Korea, et al.). Reasonable near-term aspiration: A critical mass within the electorate of direct opposition to each of these three types of bellicosity. Even if it is a selfishly-derived opposition (stop wasting our resources on lost causes, don't fight other people's battles, regroup in case we need to fight a big enemy), it would be helpful. 

Saturday, May 18, 2019

Partial List of Serious Problems We Won't Solve


Partial list of serious problems where too many of us are unreasonably unwilling to accept the clearly best solutions*: 
  • Climate change/energy efficiency - nuclear power
  • The need for kidney transplants - a free market in organ transfers
  • Higher levels of economic growth -  free movement of people across borders
  • Too little affordable housing - allowing more housing to be built
  • Inner-city education failure - getting government out of the provision and design of schooling via vouchers (case in point of why this is on the list)
  • Health care cost - removing regulation against competition in insurance provision and required components of insurance along with removing tax advantage for employer-provided insurance (updated to add: eliminating at least FDA's efficacy requirements if not the FDA altogether and allowing unencumbered competition in health care supply (i.e., eliminating certificate of need laws, et al.))
  • High unemployment and underemployment within the underclass - remove occupational licensing (also helps in health care and legal work markets among others)
  • Social Security insolvency - sun setting of future obligations by means (for near claimants) and age (ending the scheme for all those below a certain age)
  • Drug-related crime, violence, and social disruption - full legalization of all currently illicit narcotics
  • Geopolitical conflict (aka, war) - embrace and default to pacifism
  • Taxation distortions and inequalities - Replacing income-based and all other resource-creation-based taxation with consumption-based taxation such as a VAT
*These are not necessarily completely sufficient solutions, but they are at least the most complete way these problems could be greatly alleviated.

Sunday, March 10, 2019

I Know Why Dracula Is So Rich


Before we can understand why Dracula is so rich, we need to understand why investments make money at all. Why isn't the current price simply the sum of all future returns? Well, because future returns are uncertain. A business venture might be profitable. Money lent might be returned. And the investor might be around (alive and well as today) to collect when the future return is available. Hence, an investor needs to be compensated for the risk that the investment will not generate a return and for the risk the investor cannot use the invested funds as well in the future as today.

I am positing that uncertainty is the single (the one and only) source of financial investment return above the time-value of money (TVM). Assuming we all have an identical time preference, which we do not, the time-value of money can be summarized as a single discount rate, an annual compound interest rate. Let's set the discount rate to 3% whereby $100 today is equal to $103 in one year, $106.09 in two years, and 1.03^n into perpetuity. To any degree that there is uncertainty about collecting the future investment, one would require a premium to the discount rate--an increase in it to compensate for risk (e.g., 3% becomes, say, 5%, which would be 3% for TVM plus 2% for risk). I realize "discount" is counterintuitive, but understand that it simply means discounting a future amount to be equal to a value in present terms. 

One way to get rich is to have a discount rate (a time-value of money) less than 3%—like say 2%. Then getting someone to pay you 3% in one year’s time is like getting paid almost 1.5 year’s interest in a single year since you only require 2%. It wouldn’t take much leverage (or much time) to make this a very real and very big get-rich-quick (or eventually) plan. 

Another way to get rich is to have less uncertainty about the future--the mythical crystal ball. Even if it is cloudy, it plus what everyone else (the market) knows is better than only what everyone else knows. 

This dawned on me when I was listening to Jason Wiser's retelling of Bram Stoker's Dracula (Dracula: The Night King (part 3 of 3), specifically about the 35:21 mark). Because he is an immortal monster, Dracula can simply wait out any temporary problems--go to sleep for forty years as those who hunt him age and die. Now, think about Dracula's time preference for money or anything else. He plays the loooong game. He doesn't need to consume now and can let his wealth work for him quite easily--decade-long naps allow for very deferred consumption. Relative to mortals, he has a very, very low discount rate because his time horizon is astronomically longer and uncertainty from his perspective is much, much lower. 

What are the implications for us in the non-fictional, mortal universe? Tyler Cowen's Stubborn Attachments wrestles with this concept (confession: I have not read it yet, but I have purchased it, intend to read it, and have listened to approximately 3.79 trillion podcasts of him discussing it). As I understand it, he argues for a discount rate of 0% thereby valuing the future as equal to the present. In such a framework at the individual level you would not be paid a premium for deferring consumption. However, I believe he is proposing this at the societal level and more as a framework for policy making. A conclusion this leads to is generally favoring growth as the primary goal/aspiration for social policy.

What about implications for investors? Individuals are not immortal; so unless you are planning a trip to Transylvanian, you better continue to demand compensation for deferred consumption (TVM) and some premium for risk being taken.

What about endowments and foundations? I would propose they are not nearly as much like Dracula as they would like to be--in the time horizon and uncertainty dimensions. I won't at this time accuse them of having other Dracula-like qualities (fodder for a future "shots fired" post perhaps). These entities have current and continual demands for withdrawals. An X% annual spending policy and a collection of interested parties with very different perspectives strongly challenges any argument for a lower discount rate. The foundation as a concept may theoretically have an infinite time horizon, but its donors, beneficiaries (both current and near-future ones), and employees do not. At the very least it will be difficult for them to think and act as if there is an infinite time horizon when they should (deferring consumption in tough times) and rather easy for them to do so when they shouldn't (assuming future growth will solve all current shortcomings). 

Lastly, what about governments? Well, should they really expect to be around into perpetuity? How many can reasonably expect this? So far at least technically the success stories number zero. (Perhaps another future post expanding on this question and applying to foundations as well.) I will grant that governments in a practical sense to a degree (magnitude matters) can assume very long time horizons borrowing against the future. It will work just fine until it doesn't. Given enough splinters (growth-hampering regulations, inflation, entitlement promises, etc.) you'll eventually have a wooden stake. Governments may aspire to be Dracula (see below), but they face many, many obstacles in getting there. 

This brings us to a Partial List of why governments are like vampires:
  1. The light of day is toxic to their way of behaving.
  2. Taxes = blood.
  3. They can seduce with their promises.
  4. They create captured minions whose self interest becomes subservient and aligned to the master's.
  5. We trust them blindly at our peril.
  6. They are incapable of looking themselves in the mirror.

Sunday, February 18, 2018

Highly Linkable - How Are *We* Doing?

This links post is comprised of several items I believe are linked together in theme or subject matter. See what you think...

First Don Boudreaux points to a great website and corresponding TED talk by Anna Rosling Rönnlund. The project is a photographic-based exploration of how people compare. The within-country and among-country comparisons highlight what wealth and poverty look like. Notice the similarities, notice the differences, and notice on what factors these things do and do not seem to correlate.

Steven Pinker makes a strong case that The Enlightenment Is Working--"Don’t listen to the gloom-sayers. The world has improved by every measure of human flourishing over the past two centuries, and the progress continues." Let's suppose you conducted a survey every year for the past two centuries asking people simply, "Are you better off today than last year?" My guess would be the average and very typical response would be hard to distinguish from 'basically no improvement'. YET, the improvement over that time span for all of humanity (not just the average but for EVERY cohort) is dramatic and undeniable (once you look at the evidence). Why might this paradoxical result occur?...

Part II of Russ Robert's The Numbers Game is an examination of economic progress which suggests answers to the prior question above. The subtle yet very dramatic, counter-intuitive lesson, Simpson's Paradox, is awesome. To be sure, Simpson's Paradox would not answer my hypothetical, but it relates to how we misperceive small but compounding change and growth. Also, don't miss the first installment of Russ's video series.

But wait, aren't there too many people (or soon will be) for all this good news to continue? Steven Landsburg explores this issue in this video. He starts where everyone should start but often does not by asking "How would we know?" I believe he makes a very strong case that the answer is 'NO' we don't have and will not have "too many" people.

Tyler Cowen pointed to a couple of posts by Katja Grace who ponders 'Why did everything take so long?' The first and second both cover how and why progress is so difficult.

Sunday, January 14, 2018

The 2017 Tax Reform

There may not be another area of public policy where the distinction is greater between how non-economists (the general public, politicians, journalists, and practitioners in the area (in this case tax lawyers and accountants)) and economists evaluate policy than exists in tax policy. Who should you pay attention to? I will let the rest of this post hint at my answer.

Here is a sampling for how economists look at taxes centering on the most recently enacted changes to the U.S. Federal Tax Code. I've indicated the major takeaways for each and tried to keep this as low wonk as possible. Trust me; it could have been a lot deeper in the weeds.

Scott Sumner notes that there is more good reform in the recent changes than what probably was expected, by no means is it all progress, and that three natural experiments come out of the package. He also has a post discussing misconceptions in tax policy where most people don't understand that to tax someone you must reduce that person's consumption. If you don't reduce it, you haven't taxed that person--period. He also points out that distortions are always an important part of evaluating tax policy.

Steve Landsburg echos Scott's take and adds his own points including how the recent reform is genuine improvement and still far, far from the ideal.

John Cochrane is always worth quoting on tax policy. I'll limit myself to a few. First, here is how he sees the public role for economists discussing tax policy. Here is a long, but very rewarding, analysis of how to craft a good tax regime and what makes it "good". He calls out a fellow economist, former colleague and friend Austan Goolsbee, for not thinking like an economist. And he reminds us that the distributional effects of tax changes are never what the public and media expect.

Rawls' Veil of Ignorance is a useful philosophical approach in many cases and a good tool for guiding tax policy. How tax changes happen to affect you should not guide what changes you support. Humility is another quality tax reform should respect. The risks of unintended consequences are orders of magnitude higher in tax policy than in other aspects of political economy.

Wednesday, January 25, 2017

Highly Linkable - Pure Economics Edition

We continue catching up on links with three on economics. Every one of these contains a large degree of counter-conventional wisdom. Something for which I am a sucker.

First is John Cochrane being interviewed by Russ Roberts on Economic Growth and Changing the Policy Debate. I very much like the way Cochrane's perspective and approach to this topic is hopeful, straightforward, and wise.

And I could say the same about George Selgin's strong rebuttal to the conventional wisdom that the fed has been holding down interest rates.

Mike Munger challenges the assumptions many might make about how a free-market thinker would approach an issue of business interest versus a group that technically doesn't own an interest--I say "technically" and probably should say "by being robbed".

Sunday, July 19, 2015

Highly Linkable

Been travelling, so been behind. Some links to begin the catch up:

A podcast about when a teenage founder of a fictional company gets bought out for real money by the adults he "fired" for being too adult.

Expensive wine is for SUCKERS!

A wonderful example of how exploitable scientific study can be especially in the realm of health--study shows eating chocolate helps weight loss!

Speaking of food, a conversation with food historian (and contrarian) Rachel Laudan. One slice,
It´s to restore some sense of the benefits of modern food so that we do not waste time and energy trying to turn back the clock but can continue to improve our food system and disseminate those improvements as widely as possible.
Russ Roberts on recently being on Paul Krugman's bad side--I'm fully with Russ, of course.

Small but important steps on the road to education freedom.

Funny thing happened while we were wringing our hands over colony collapse disorder--the market (already) adapted to it minimizing the problem. (HT: Arnold Kling)

John Cochrane addresses one of the most fundamentally important questions in U.S. political economy--how to attain sustainable 4% annual economic growth. I fully (wistfully) endorse his short list of policy solutions.

Sunday, July 6, 2014

Highly Linkable

Terry Anderson is thinking sensibly about climate change. (HT: Don Boudreaux)

Speaking of Don Boudreaux, he has a fantastic new series of videos out as part of MRUniversity's "Everyday Economics" series. I highly recommend these short, extremely well-made videos.

Steve Landsburg points out an amazing physical-world derivation of pi. Here is the full paper. I don't suggest you pull this little nugget out the next time you're gambling, Eddie, gambling money on pool games, but it is pretty cool. Aside from being impressed by this myself, I think it demonstrates something about political economy. It is understandable that because brilliant people can discover truths like this other people believe brilliant people can discover the truths about how to govern other (not-so-brilliant) people's lives.

Two from Megan McArdle: In the first she offers an explanation as to why so many people are saving too little (AKA, building too much personal debt). In the second she talks about the social media frenzy surrounding the Supreme Courts' Hobby Lobby decision and how the calls of BOYCOTT! are very unlikely to actually succeed. This supports a thesis I have had about how the world has changed. To wit: Cults and cult leaders are less likely today while riots are more likely. Negative, tipping-point events can be blown out of portion and escalated more easily today, but they're not as long-lasting and sustainable as they were in the past. In the past information restriction, a critical tool of the cult, was much more easily accomplished. Hence, it is easier to incite a mob, but harder to inspire a movement.

I plan on reading the new book The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters and this recent EconTalk encouraged my excitement for it. But John Tamny at Forbes raises a few negatively critical points that are worth considering.

Vintage Photos:
Moscow in 1968
Street scenes of NYC in the 60s and 70s
More street scenes of NYC in the 70s
Other color photos of NYC in the 70s
Besides being very cool to look back at these places and people in the past, there is something I notice--more evidence against the Great Stagnation theory. For one we can see some stark differences between life back then and modern life in these cities. The second is a bit more subtle. In the previous era the USSR could appear to compete with the USA economically (e.g., having a large number of cars, the world's biggest X, etc.). In the current era the shortcomings are too obvious. Life today in the USA is filled with so many creature comforts available to so many of us, that in the comparison we rightfully consider Moscow as the capital of a undeveloped economy.