Learn a Little Applied Math & Science

Have a listen here. An interesting look at where the jobs are.

Milton Friedman and Richard Nixon: World Renowned Socialists

Why hasn't anyone mentioned the fact that Friedman and Nixon advocated a Family Assistance Prgram Negative Income Tax system to supplement and reform welfare and create incentives for poor families to work.

Norway, Dutch Disease, and Saving

Saw this article about Norway today. It seems obviousl that countries with resource wealth can use savings to keep their economy stable during a global recession like the one we're in. But this very saving can also have impacts on that country's exchange rate, as well as on wages and returns to capital that stymie investment in manufacturing sectors during normal times. It's known as dutch disease.

Trucks and Trade

Anyone know that there is a 25% tariff on "motor vehicles for the transport of goods" and the tariff on regular autos is just 2.5%? Check this out. Maybe that's also keeping us from showing much real innovation in the auto industry generally. Can't make a better hybrid? Make more gas-guzzling trucks with the complements of tariff protection.

It also makes me more frustrated about trucks. I've always wanted some sort of fuel-inefficiency tax (instead of binding restrictions) on gas-guzzlers, especially trucks. The response I get is that well, we can't tax commercial trucks more than passenger cars because farmers and other workin folks use them - it's not "fair!" Well, now it turns out we ALREADY have a higher tax on pickemup trucks than cars, so all we'd really have to do to apply the appropriate "incentives" (in this case sticks) to nudge production is: (1) make the tax nondiscriminating (apply equally to foreign and domestic producers instead of a tariff); (2) progressively tax inefficient cars at higher rates up in reverse proportion to their mpg rating and emissions.

Most Economists

Some people get the idea that economists are somehow "liberal" or "conservative." Most are really neither. Instead of being ideologues on any particular issue, economists are nerds who think about technical models and behavioural assumptions. And we usually see the world in shades of gray. That's why there's really less political polarization than most people think, as this by the Free Exchange and this by David Colander point out. For the most part economists see the world as one big trade-off. One policy prescripting is appropriate if the conditions support assumptions A, B, and C, but the exact opposite is appropriate if A', B', and C' are true. Hence, Harry Truman's quip about wanting a one-handed economist.

If you do happen to be an ideologue, on either side, you probably won't like what an economist has to tell you about it, because the support you get will be equivocal, at best.

Some Banks Do Fail

Here's a list since Feb. 2007:

	Bank Name	Closing Date
1	First Bank of Idaho, Ketchum, ID	24-Apr-09
2	First Bank of Beverly Hills, Calabasas, CA	24-Apr-09
3	Heritage Bank, Farmington Hills, MI	24-Apr-09
4	American Southern Bank, Kennesaw, GA	24-Apr-09
5	Great Basin Bank of Nevada, Elko, NV	17-Apr-09
6	American Sterling Bank, Sugar Creek, MO	17-Apr-09
7	New Frontier Bank, Greeley, CO	10-Apr-09
8	Cape Fear Bank, Wilmington, NC	10-Apr-09
9	Omni National Bank, Atlanta, GA	27-Mar-09
10	TeamBank, National Association, Paola, KS	20-Mar-09
11	Colorado National Bank, Colorado Springs, CO	20-Mar-09
12	FirstCity Bank, Stockbridge, GA	20-Mar-09
13	Freedom Bank of Georgia, Commerce, GA	6-Mar-09
14	Security Savings Bank, Henderson, NV	27-Feb-09
15	Heritage Community Bank, Glenwood, IL	27-Feb-09
16	Silver Falls Bank, Silverton, OR	20-Feb-09
17	Pinnacle Bank of Oregon, Beaverton, OR	13-Feb-09
18	Corn Belt Bank and Trust Company, Pittsfield, IL	13-Feb-09
19	Riverside Bank of the Gulf Coast, Cape Coral, FL	13-Feb-09
20	Sherman County Bank, Loup City, NE	13-Feb-09
21	County Bank, Merced, CA	6-Feb-09
22	Alliance Bank, Culver City, CA	6-Feb-09
23	FirstBank Financial Services, McDonough, GA	6-Feb-09
24	Ocala National Bank, Ocala, FL	30-Jan-09
25	Suburban Federal Savings Bank, Crofton, MD	30-Jan-09
26	MagnetBank, Salt Lake City, UT	30-Jan-09
27	1st Centennial Bank, Redlands, CA	23-Jan-09
28	Bank of Clark County, Vancouver, WA	16-Jan-09
29	National Bank of Commerce, Berkeley, IL	16-Jan-09
30	Sanderson State Bank, Sanderson, TX	12-Dec-08
31	Haven Trust Bank, Duluth, GA	12-Dec-08
32	First Georgia Community Bank, Jackson, GA	5-Dec-08
33	PFF Bank and Trust, Pomona, CA	21-Nov-08
34	Downey Savings and Loan, Newport Beach, CA	21-Nov-08
35	The Community Bank, Loganville, GA	21-Nov-08
36	Security Pacific Bank, Los Angeles, CA	7-Nov-08
37	Franklin Bank, SSB, Houston, TX	7-Nov-08
38	Freedom Bank, Bradenton, FL	31-Oct-08
39	Alpha Bank & Trust, Alpharetta, GA	24-Oct-08
40	Meridian Bank, Eldred, IL	10-Oct-08
41	Main Street Bank, Northville, MI	10-Oct-08
42	Washington Mutual Bank, Henderson, NV and Washington Mutual Bank FSB, Park City, UT	25-Sep-08
43	Ameribank, Northfork, WV	19-Sep-08
44	Silver State Bank, Henderson, NV	5-Sep-08
45	Integrity Bank, Alpharetta, GA	29-Aug-08
46	The Columbian Bank and Trust, Topeka, KS	22-Aug-08
47	First Priority Bank, Bradenton, FL	1-Aug-08
48	First Heritage Bank, NA, Newport Beach, CA	25-Jul-08
49	First National Bank of Nevada, Reno, NV	25-Jul-08
50	IndyMac Bank, Pasadena, CA	11-Jul-08
51	First Integrity Bank, NA, Staples, MN	30-May-08
52	ANB Financial, NA, Bentonville, AR	9-May-08
53	Hume Bank, Hume, MO	7-Mar-08
54	Douglass National Bank, Kansas City, MO	25-Jan-08
55	Miami Valley Bank, Lakeview, OH	4-Oct-07
56	NetBank, Alpharetta, GA	28-Sep-07
57	Metropolitan Savings Bank, Pittsburgh, PA	2-Feb-07

Tea and Tyrrany

Maybe we should have less indignation over taxes and tea and save some of it to torture (over the actual doing of it not the audacity of those who inform the on it), warrentless wiretaps, and strip searching schoolchildren. Just a thought.

Well, duh

Social networkers in college do worse. The only question I have is whether Facebook is adding to the crowding out effect from outside distracting activities in general, or if it is just a substitution effect (trading facebook for phone, or TV, or other internet time). Endogeneity?

More Moonshine Parties (and Fewer Tea Parties)!

As a symbolic gesture I'd like to suggest we have Moonshine Parties to balance out the  tea parties. The purpose: to protest deadbeats who don't pay their taxes (much like bootleggers in the Virginia backwoods do).

Better Living through Torture, Tax Evasion and Antidepressants

I don't know what Peggy Noonan was on last Sunday to take a cavalier attitude towards torture, but it must be good stuff. SHARE! I respect the fact that she's trying to be civil about opposing the release of the memos, but you can at least make a logical argument, still be civil, and not play fear politics.

And George will knows darn good and well this tea party crap was about taxes, but he can't say with any credibility that taxes are less fair now than they were last year, because they really aren't. In fact, he's probably rich enough that even though his taxes would be a tad higher, he'd never know it if he didn't ask his tax accountant.

Linked here, FWD to about 3/4 through.

Food for thought, Teabaggers

Ever wonder what life would be like if deadbeats shut their mouths, joined the rest of us in civilized society, and paid their taxes? We'd probably have a lot lower taxes or a lot less federal debt, if this article is any indication.

Cui Bono

The Collective Action problem (Mancur Olson) tells us that large diffuse groups might have large incentives to influence policy in the aggregate, but have small individual incentives to act because the gains are so spread out. Smaller interests have a larger incentive to organize and wield influence because they are able to exact gains from policymakers that earn them high returns relative to their costs of organizing and lobbying. Here is a summary of a case study in this phenomenonl.

Darfur as a harbinger

Jeffrey Sachs has already illustrated the fact that the conflict and genocide in Darfur is largely a conflict over control of a single strategic natural resource. Not diamonds, not oil - water. Well, expect more crises of like kind. Just take this story in this week's Economist. Over 50 years our population has increased by a factor of 2.25. Water use has increased by a factor of 3. Diets have become more protein-intensive; therfore more water-intensive. Climate change has made weather patterns more extreme and less predictable while melting the icecaps. When you think about how much fighting is done over luxuries like diamonds and oil, just imagine what happens when folks need run short on water, which we have treated as free. The diamond-water paradox may play itself out not to be a paradox one day after all.

Socialism for the Wealthy?

The lazy misuse of the term "socialism" is something I have railed against, and I will do it here when it has been done in the other direction. This week The Economist characterized the implicit subsidies of loose monetary policy, deregulation, tax loopholes, and explicit subsidization of credit markets "socialism for the wealthy." This is a false, and irresponsible, characterization of what amounts to simple redistributive politics.

It does, however, point out a key point about the biases about Republicans and Democrats as "conservatives" and "liberals" or "pro-market" and "pro-government," respectively. The reality is that the "pro-market" label for Republicans has not been earned, just asserted. A market has two parts: Households and firms. Republicans tend to favor the firm side of the market by subsidizing investment through the tax structure and other policies. Democrats tend to favor households through transfer programs and consumption subsidies. 

Income redistribution is income redistribution and both parties' approach to it distorts markets. Republican initiatives for "incentives" are nothing more than subsidies to firms. Hence the term "Corporate Welfare," which is an apt analogy. Calling it "socialism for the wealthy" is inaccurate, incendiary, counter-productive.

Krugman Sticking To His Comparative Advantage

When Krugman stays on international linkages in the economy, his columns are very impressive, and highly educational to the layman. It also illustrates why folks should consider carefully the comparative advantage of someone like Michelle Bachmann (or Maxine Waters, if we have to give equal time) before taking her to seriously. Consider this article by Krugman. We start with an old joke about trade with China:

trade with China had turned out to be fair and balanced after all: They sold us poison toys and tainted seafood; we sold them fraudulent securities.

So, how does that relate to the inane gum-flapping on the matter China's pipe dreams of an international currency? Basically, that would be an international bailout of China's myopic (and bad) decision to finance its trade surplusses with purchases of dollar-denominated bonds. That won't happen.

I've explained it to my principles students in the past, and here's Krugman's version of the same story:

China chose instead to keep the value of the yuan in terms of the dollar more or less fixed. To do this, it had to buy up dollars as they came flooding in. As the years went by, those trade surpluses just kept growing — and so did China’s hoard of foreign assets.
...
They are, apparently, worried about the fact that around 70 percent of those assets are dollar-denominated, so any future fall in the dollar would mean a big capital loss for China. Hence Mr. Zhou’s proposal to move to a new reserve currency along the lines of the S.D.R.’s, or special drawing rights, in which the International Monetary Fund keeps its accounts.But there’s both less and more here than meets the eye. S.D.R.’s aren’t real money. They’re accounting units whose value is set by a basket of dollars, euros, Japanese yen and British pounds.And there’s nothing to keep China from diversifying its reserves away from the dollar, indeed from holding a reserve basket matching the composition of the S.D.R.’s — nothing, that is, except for the fact that China now owns so many dollars that it can’t sell them off without driving the dollar down and triggering the very capital loss its leaders fear.
So what Mr. Zhou’s proposal actually amounts to is a plea that someone rescue China from the consequences of its own investment mistakes. That’s not going to happen.

So, love him or hate him when he goes of on wonkish liberal rants, he knows his stuff when it comes down to the subject for which he won his Nobel - international economics. And he's a darn good writer (for an economist - an acedimic at that): This is the best elucidation of the double-bluff of China's surplusses and bond holdings I've seen in the mainstream. Basically, China cannot "call in" its holdings of US public debt, and if it tries to sell those bondholdings on the open market, they drive their prices (cumulatively with the value of the dollar) down. The result would be a depreciation of the dollar that allows the US to buy back debt with internationally-cheaper dollars without the consequences of inflation domestically, and potentially boost our trade balance and boom the macroeconomy in the process.

Tax Season Special

If you still don't quite get the progressive marginal tax system or if you think I've been pulling a fast one, here is a good website to play with, to see how your income tax is affected by a small change in income that "bumps" you into a new bracket (hint: not much).

Market Failures and the Banks

Economists agree that markets work, except when they don't. The philosophical debate starts when markets don't work and people wonder what should be done about it. One side says the government can intervene constructively, and the other says that the government will probably only make things worse. But the debate at this point is not over whether markets have worked well in the financial sector, it's about what to do about it now that they have not. Larry Summers was on the News Hour (audio: HERE, and video: HERE), and explains it much better (his interview starts at 4min, 55sec):
 

GWEN IFILL: At the heart of this plan that Secretary Geithner introduced today is the idea that somehow these assets, which some people call "toxic assets," but which I notice you all call "legacy assets," that they're somehow worth saving. How do you value that? How do you know that it's worth a government investment?

LARRY SUMMERS: Well, our approach is premised on the recognition of a market failure that we have right now. Traditionally and usually these assets trade all the time between people who borrow money in order to finance their purchase.

That market, where they're able to borrow money, what people call "get leverage," has broken down. And as a consequence, the assets have lost a significant part of their value, just as if, all of a sudden there was no mortgage value, houses would lose a substantial part of their value.

And so, by providing the financing that enables that market to work, we enable more realistic valuations of these assets. We enable these assets to trade again. That means that people are in a position to originate loans and sell them into the market, and that gets the flow of credit going.

The point, though, is to create enough liquidity (and, by putting well-trained econ geeks like Summers and Romer out there, confidence) so that scared banks can both retain the higher levels of excess reserves they feel they need, and still keep credit flowing to private businesses. The alternative would be nationalization of the banking sector, which, in a more fundamental way than simple income redistribution or even public health care, would truly be a step in the direction of "socialization" of the private sector. Nobody, (even this administration, contrary to what some folks believe) wants that.

The Economic Definition of "Government Expenditures"

The debate over the various government "bailouts" and "stimulus packages" really glosses over the difference between a "subsidy" (negative tax) versus true "direct expenditures" by the government. The definition is important because the impact of these components of the current legislation have different "multiplier effects." Some of them behave similar to "tax cuts" (even if they are negative taxes) and some of them behave like "government expenditures" in the Keynesian framework. Here is a brief taxonomy:
Tax cuts/Negative taxes:
1. reductions in the tax rates;
2. subsidies to struggling private firms ("bailouts");
3. transfer payments (welfare).
Government expenditures:
1. direct government production (e.g. building/repairing roads);
2. government purchases of final goods and services;
So, in terms of the economic impact (multiplier effects) TARP, the auto bailout, unemployment insurance, subsidies to private clean-energy firms, and explicit reductions in tax rates are in the "TAX CUT" category, and tend to have less impact in the short run, because firms (perhaps rationally, and to the long-run benefit of the economy) might hold back some of that form of "stimulus." The other category only includes things that directly inject expenditures into the economy, such as building a tank, repairing a road, or a direct public investment into the building of new infrastructure, such as a new energy grid. These direct expenditures MIGHT have a larger short-run impact IF AND ONLY IF they occur when the economy has substantial unemployment, and if they are enacted before the recovery. If they are enacted after the recovery begins, they will tend to be inflationary.

The Editors of the Economist should be Flogged

Printing anything that uses the terms "Calculus" or "Second derivative" should be punishable with public beatings, as exemplified by this article in the Economist.

A civil debate over policy

I do not personally advocate Socialism one bit. In fact, I would say that it is a system that is both morally defunct and internally flawed because of the extreme lack of individual incentives it implies. I also believe in markets, and in the idea of capitalism. However, there are a lot of folks out there making wild assertions about what constitutes "socialism" that are just flat wrong. When a politician or other "pundit" says "income redistribution (or public health care) is socialism" they may be trying to somehow voice an opinion that these things are bad and ill-advised, and that is a sufficiently valid point on its merits. Socialism need not be brought into it for two reasons: First, it is poor logic to conclude that because something contains some of the elements of a particular idea, that it creates sufficient evidence to conclude that the broad generalization of that idea is contained wherever those elements are present. Secondly, it brings no progress to the debate over the proper role of government because it is disrespectful to those who might agree, and is, therefore, ultimately unpersuasive.
The key feature of a socialist system of economic organization is shared, collective, or public ownership of the means of production on a national (and international according to Marx) scale. Then, workers are compensated according to the Labor Theory of Value, or their average productivity (not their marginal productivity as market theories suggest). An egalitarian distribution of income is an indirect consequence of that compensation mechanism.
Public provision of certain "public" or "merit" goods does not constitute the breadth or depth of public or shared ownership to constitute "socialism." In the field of comparative economics these systems are characterized as "mixed" economies, which generally includes every democratic industrialized country in the world these days. Public provision of one narrow sector of the economy is no more "socialism" than another. Take defense, or education. It would be false to claim that government-provided defense or a publicly-funded educational system is (by itself) socialism.
With regard to income redistribution, socialism is not the only economic system in which advocates egalitarianism, and economic thinkers (including the fiercely laissez-faire french thinker Frederic Bastiat) showed concern over income distribution well before Marx. As an example, fascism also advocates for equitable redistribution of income as a means toward building a society in which interest groups of all stripes are united by a sense of duty and obligation and a triumph over the individual. Economic organization in Fascism involved a cooperation between the State and corporate interest groups, which, in theory, could avoid the wasteful competition of market capitalism. As in Socialism, an indirect consequence of this cooperation is an egalitarian distribution of income. The key point here is that welfare programs and negative taxes do negatively impact efficiency by weakening incentives, but are not sufficient conditions for socialism.
In an interesting tangent to the role of democracy Joseph Shumpeter predicted that the ultimate demise of individual capitalism was that it led to democracies that were doomed to implementing huge welfare states and collapsing. Market economists also express concern over the tendencey for democracies to foster radical swings to the left whenever people become dissatisfied with harsh economic conditions (e.g. Venezuela).
Whether income redistribution or universal health care evolves from a socialist, fascist, democratic, or other form of political or economic system its ideological origin is not really important. What is important is that we, as a society, are able to have a civil debate over the merits of various policies. Labels and name-calling are ultimately counter-productive. Yet markets, directed by the interaction of many independently-acting agents on both sides seem to be the best starting point in terms of efficient allocation. To quote Adam Smith: "By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good."