Wednesday, January 16, 2013

Partial list of my favorite things . . .

Partial List of My Most “Controversial” Views
(in no particular order and subject to change)
  1.  Government should ideally exit fully from the activity of funding, administering, sanctioning or otherwise engaging in education. As a second-best solution, the government should only facilitate the funding of education by fixed-amount vouchers issued directly to parents and redeemable by any entity that can demonstrate to a non-government third party that they are an education provider. A qualified third party would be one that a significant number and variety of education providers themselves would recognize as being a legitimate if not desirable third-party evaluator.
  2. Free movement of people into and out of the United States of America should be allowed unencumbered and unlimited except for those who are known felons or who are carriers of highly dangerous communicable diseases.
  3. As a corollary to the previous, the free movement of goods, services, and investment should also be free of encumbrance except for the most extreme cases of vital national interest with great burden of proof put upon the justification for any such limitation. 
  4. The federal government of the United States should eliminate fully the income tax (both personal and corporate), all taxes on capital including dividends and capital gains (short and long term), all excise taxes, and all taxes on estates. There are two desirable replacements for the current tax structure: One is a payroll tax of a certain and consistent (i.e., flat) rate applicable to all employment arrangements whereby the tax is assessed on the fair market value of the total compensation (salaries, wages and benefits) earned by an employee. Another perhaps preferable solution would be a certain and consistent (i.e., flat) rate of sales tax applied to the purchase of all final goods and services. As a method to reduce regressivity, a federal tax rebate could be created whereby all adult citizens are issued a refund equal to the sales tax rate multiplied by the dollar value of the poverty level of consumption and all citizens claiming a dependent would be issued a refund equal to 25% of the sales tax rate multiplied by the dollar value of the poverty level. To aim further in adding progressivity to the system, a marginal 10% payroll tax could be applied to all total compensation above $100,000 with this threshold indexed to grow with inflation. 
  5. All narcotics and other drugs should be completely legalized.
  6. Nearly all if not all zoning laws should be discontinued and dissolved.
  7. Prostitution should be legalized.
  8. The state should cease and desist from all activities involving sex offense registries and notification requirements.
  9. Copyright laws and rules should be very significantly reduced in scope and scale.
  10. Patent protection should be considerably rethought with the aim to greatly reduce their anticompetitive and antidevelopment characteristics.
  11. There should be no occupational licensure enforced by law.
  12. Most not-for-profit, charitable activities are slightly counter-productive at best, highly destructive at worst.
  13. Price controls are an extremely poor solution that fails on efficiency as well as liberty grounds. They should be avoided to every extent especially in times of emergency and crisis. 
  14. Central banking should be replaced by free banking (first-best solution), replaced by a gold standard as described by George Selgin, et al. (second-best solution), conducted with fixed rules in a regime of NGPD level targeting as described by Scott Sumner, et al. (third-best solution).

Tuesday, January 15, 2013

What is the price of worthless information?

Consider the following hypothetical:
You meet a benevolent stranger on the street. Just assume that you have every reason to believe and trust him that the following offer is on the level. He has both $100,000 cash and $100,000 worth of an S&P 500 stock at current market value. His offer is to give you either the cash or the stock, but you have to pay him to learn what company the stock is for. It is the middle of regular business day; so the market price of the stock is changing as you decide, but once you decide, you get $100,000 worth at that moment (assume fractional shares are available).
How much do you pay?

The answer below the fold.

Hint: This might just be a story about Billy Joe and Bobbie Sue.

Sunday, January 13, 2013

Highly linkable

Here is the first of what I hope is a regular feature here at MM.

Market Watch has some very sensible advice on retirement don'ts.

Arnold Kling looks at drug prohibition through the lens of his Three Axes. And he also takes on the tasks of persuasion through said lens.

Steve Horwitz explains some confusion about applying the conventional wisdom to the recommendations of Market Monetarist.

Stewart Baker discusses the recent denial of service attacks on banks allegedly propagated by Iran. It is true that regardless of the perpetrators this is not the equivalent of the Germans bombing Pearl Harbor.

Don Boudreaux takes a great, final for now, shot at explaining the problem with writing off debt we "owe to ourselves".

Mungowitz reminds us that incentives not intentions matter.

And Steve Landsburg's head hurts.

James Buchanan, RIP and ATRA

This past week we lost an intellectual giant, James Buchanan, whose contributions were and are still under appreciated. Among other contributions, Buchanan helped discover and bring to a fuller light facts that should have been obvious: political actors are subject self interest and incentives just like everyone else and government failure is as much if not more a fact of life as is market failure.

See these excellent appreciations of the Mr. Buchanan's life work:
     From Alex Tabarrok
     From Steve Horwitz
     From Arnold Kling
     From Don Boudreaux
     and From the WSJ editorial page

It is a bit fitting unfortunately that Buchanan's death would come so closely to the passage of the American Tax Relief Act of 2012 (ATRA)--the resolution to the so called tax portion of the Fiscal Cliff. This disgusting example of political corruption would have been well understood by Buchanan. The act contains nothing resembling fiscal responsibility or improvement. It is a giveaway to the special interest of the tax lobby (tax preparers, tax advisors, estate lawyers, et al.) and other corporate special interest. It leaves us with a tax code more punishing on work and savings, more complicated, more encouraging of the rich to spend and use rather than save and share, more taxing on all taxpayers as everyone's income tax burden has increased (not just but especially those making more than a couple hundred thousand in a particular year--the $450,000 is a fiction), and more likely to bring us fiscal problems down the road. But it should have all been of no surprise to any of us; I was not surprised. The whole thing reminds me of this exchange:
Muriel Blandings: You remember Bunny Funkhouser, dear, that clever young interior decorator that we met at the Collins' cocktail party.
Jim Blandings: You mean that young man with the open-toed sandals? What about him? 
Muriel Blandings: Well, you know how long we've said we've got to do something about fixing up this apartment. Well, a couple of weeks ago, he called, and I asked him to come over, and he had some simply wonderful ideas, and I didn't want to bother you with sketches and estimates until I knew whether we could afford it. So I sent them over to Bill. 
Jim Blandings: How much? 
Muriel Blandings: What's the point in asking how much until you know what you're going to get?
Jim Blandings: I've seen Bunny Funkhouser. I *know* what I'm going to get. 
RIP, James Buchanan. We still have a lot to learn from you.

Friday, January 11, 2013

Helium: a lesson on "shortages", preferences, and rationing

The Independent reports on the latest scare in precious commodities. It seems we are running low on helium. "Low" is a relative and subjective term, of course. We are also running low on gold, beach-front property, private airplanes, and a bunch of other stuff. It's been that way for some time. I guess it is only news when a scientist complains.
"...Now supplies are running so low scientists want to ration it."
Maybe these scientists at Cambridge should head over to the Econ department to see if anybody has ever come up with a good way to ration scarce goods.

I like this quote as well:
"Cheap helium also drives misuse. A staggering 8 per cent of the world's helium supply is currently used for filling party balloons," he said.
I like how only scientists get to define "misuse". What would the buyers and sellers of party balloons say?

But he does seem to understand something about market interference:
"It is difficult to imagine an adequate market incentive to collect helium during natural gas extraction while the US government is selling off its entire stockpile at bargain prices," Dr Stokes said.
Professor Ned Brainard was unavailable for comment.

Tuesday, January 8, 2013

I've made a huge mistake

Here is another idea on a New Year's Resolution: Find a better balance between the "I should haves" and the "I should not haves". They are generally tradeoffs against each other where any minimization of one implies an increase in the other, but innovations can allow for new possibility sets where the minimums of both are lower. Think of this as greater efficiency. An example would be finding a new destination for a vacation to replace an old standard.

Think of it in terms of cruise ships. If you find a better cruise ship line, you might find that all choices aboard have better outcomes. For example, staying in your cabin for the day is more pleasant because the room is nicer than on the previous ship, but venturing out to take in activities is also an improvement over the previous ship's alternatives. Even if your relative costs are higher because everything aboard is so fabulous that the alternatives on the ship have high absolute differences (restaurant A might be a big let down compared to restaurant B), the effect still holds because the overall possibilities are better than what they were before (restaurant A is better, the same, or just slightly worse than the best restaurant on the prior ship while nearly everything else on the new ship is much better). Of course, it might take an initial risk of an "I should not have" to deviate from the original, known cruise ship, but that is the point of the resolution--taking desirable chances.

So my recommendation is two-fold:

  • Evaluate your life to see if you need less "I should haves" or less "I should not haves";
  • Appreciate and expose yourself to the opportunity to reduce both.

This is what Tim Harford is getting at in his resolution.

PS. Some of you probably recognize the more scientific form of what I describe above. Namely, the tradeoff between Type I and Type II errors and how a technological change can allow both to decline simultaneously.  Good for you, you get extra credit to apply toward the final exam.

Sunday, January 6, 2013

Vegas observations

I'm just back from Vegas, baby! and have a few observations to share:

  • They didn't give daddy the Rainman suite, but they treated me well. Stayed at the Venetian, which is a hard act to beat and maybe the best option in town for a family such as us.
  • Vegas has got to be the people watching capital of the world. Perhaps someday (hopefully) a cross section of the world will in fact be as wealthy and glamorous as the Vegas Strip population appears, but it will perhaps (unfortunately) also be just as shallow.
  • Speaking of watching the shallow-minded people, it is fun to hear how confident foolish people can be. Craps and Blackjack are the penultimate examples of this. This observation deserves its own breakdown:
    • It is amazing how many people have a long history of "always paying for their trips with their (Craps, Blackjack, et al.) winnings". I don't see how those casinos can afford to keep the lights on. Perhaps we should take up a collection.
    • The ability to add quickly does not make you "good at math". Knowledge of mathematical principals, ability to see things in algorithmic terms, and appreciation for underlying systems like probability are qualities of good mathematical minds. They don't give out many Fields Medals for counting. To conflate that you can add up an Ace, Seven, Queen, and Four quickly or pay out at 6:5 odds on $15 bet with $75 backing it up in a swift motion with being "good at math" is like saying spelling bee performance is highly correlated with great writing in literature.
    • The human mind is ridiculously susceptible to the lure of superstition. 
  • How much can you really make in tips standing on the Strip in a creepy, B-level children's entertainment character costume? Apparently enough as compared to about 20 people's next best option.
  • The variety of hotel casinos reminds me that it takes all kinds. I hear you say, "Is that what it takes? I always wondered what it took." But it is as true here as ever. A Las Vegas central planner would probably be a lot like Steve Wynn. His design would be remarkable, beautiful, distinctive, and exclusive while also being unappealing and unavailable to most. His monopoly status would promise unprofitability if without subsidy. Or the planner would be like the group that runs Caesars Entertainment Corporation (the owners of Caesar's, Harrah's, and a host of additional properties that appeal to a group much less sophisticated than the Encore set). The place would be tacky without perspective and a "big-box" version of a gaming destination. The monopoly status would again promise unprofitability if without subsidy. Fortunately, we have a mostly free-market approach, which allows for some, really a lot, of both styles with many degrees in between, above, and below. It is just important to realize that the right side of the distribution (almost no matter what distribution we consider: quality, variety, quantity, price, etc.) necessitates a left side. 
  • I'm glad I saw this excellent piece in the New Yorker after my trip. I would have been even more paranoid about street crime. Watch the video as well. (hat tip: Kottke)
PS. Don't be misled by my hypothetical on a Las Vegas central planner. I very much admire the entertainment products of both Steve Wynn and the Caesars group.