Turkey bites the hand that pardons it

I guess Obama won the poultry vote, as well:


HT(Environmental Economics)

A thought for Thanksgiving

According to Mona Charen, our families aren't the only source of guilt on Thanksgiving:

"Thanksgiving is coming — a time to participate in the great American tradition of maligning and abusing our ancestors...

In his new book, 'The 10 Big Lies About America' film critic and radio talk show host Michael Medved recalls the Seattle episode, as well as many other examples of self-flagellation that now characterize many of our national observances. Columbus Day? The start of a vicious subjugation. A Denver Columbus Day parade was marred last year by protesters who threw fake blood and dismembered dolls along the parade route...

Medved, a passionate but not blind patriot, argues that our kids and the rest of us are being fed a tendentious history that wildly exaggerates the offenses of European settlers. The notion that 'America Was Founded on Genocide Against Native Americans' cannot withstand scrutiny.

Like racism, genocide is a word that has lost its meaning through promiscuous overuse. Medved reminds us that the international 'Genocide Convention' defines genocide as an act or acts 'committed with intent to destroy, in whole or in part, a national, ethnic, racial, or religious group as such.' In the clash of civilizations between European settlers and Native Americans, millions died. But the overwhelming majority of those deaths were attributable to diseases carried involuntarily by Europeans and spread to natives who had no natural immunities to these pathogens. That is a tragedy, but not a crime.

There were terrible injustices and massacres committed by Europeans against Native Americans and some running the other way as well. The more technologically advanced civilization prevailed — which is the usual course in human affairs. But the current fashion to distort that history into something like a war crime is, to say the least, overstated."

I don't know if genocide has "lost its meaning through promiscuous overuse", but it is certainly misunderstood by the public at large. The legal definition (as defined by the UN Genocide Convention) focuses on the intent of the perpetrators. Intent, of course is hard to prove.

Using the term "genocide" to describe the destruction of Native Americans is complicated by two main factors. First, as Charen says, most Native Americans were killed by European diseases--Jared Diamond's "Guns, Germs and Steel" details the history and biology behind this phenomenon--like small pox and influenza. Since Europe first came to the New World 400 years before the "germ theory of disease" it's hard to call that intentional.

The second complication is the fact that we tend to lump "European settlers" and "Native Peoples" into monolithic groups, which make it easier to infer the intent of the former. However, many European groups colonized the Americas, encoutering many different indigenous groups. The Aztecs and Maya were destroyed by Europeans, but you can't blame that on our US forefathers.

That being said, I think Charen is remarkably flippant about Native American suffering at the hands of European settlers. According to David Stannard, author of "American Holocaust" (an academic who does use the word "genocide" in this context), 95% of the Native American population disappeared between 1400 and 1900. Whether or not this was a "genocide", many "acts of genocide" were commited, including forced deportations ("Trail of Tears") and massacres ("Wounded Knee"). These are not events you gloss over.

In the 1800s, specialized bording schools were established for Native Peoples with the explicit goal of Americanizing and Christianizing native children--to, "kill the Indian, save the man". Children were forcibly removed from their homes and sent to schools to learn English and be purged of their culture. I would refer Mona Charen to Article 2(e) of the Genocide Convention, which clearly defines, "forcibly transferring children of the group to another group" as an act of genocide.

And it's not as if this is ancient history. These schools persisted in their mission to assimilate native children up to the early 1970s. As a recent NPR report shows, there are many native people still grappling with their childhood experience of forced assimilation.

None of this means that we should spend Thanksgiving day practicing self-flagellation. But civilized societies should accept and display even the worst parts of their history. So here's an idea from Judaism: on Passover Seders we spill 10 drops of wine from our glass, one for each plague. We do this to remind ourselves that even during a time of celebration, we need to remember the suffering of others.

This Thanksgiving, I'm going to take a moment to remember the destruction of the Native Peoples of America.

This just in... supply adjusts to changes in demand!

Last month, I wrote (along with many others) that one of the silver linings of the financial crisis would be that our nation's sharp mathematical minds will go into engineering and science rather than investment banking. According to Business Week, we're already seeing the effect:

"Engineering: Suddenly Sexy for College Grads"

The article ends on a high note:

"...we need our best and brightest engineers developing new types of medical devices, renewable energy sources, solutions for global warming, and ways for sustaining the environment and purifying water. And we need them to start companies that help America keep its innovative edge. So maybe the dark cloud over finance has a silver lining, and investment banking's loss will be engineering's gain."

Are you smarter than a politician?

Courtesy of Marginal Revolution.

Yes, this is real. As bad as it is that the average score on the civic knowledge test was 49%, it's worse that elected officials scored 44% on average. Here's one of the questions they got wrong:

"Asked about the electoral college, 20 percent of elected officials incorrectly said it was established to 'supervise the first televised presidential debates.'"

Didn't we just have an election?

Here's a copy of the test. Some of the questions at the end are a little specific to economic policy, including questions on free trade and the difference between market and centrally planned economies. In the interest of full disclosure, I got a 97%.

Perhaps we shouldn't be all that surprised that elected officials scored worse than ordinary citizens. While people often compare the political process to high school student council (where it's all a popularity contest), I liken it more to college student council, where the people who get elected are the only ones interested in having the job. Far from getting the best and brightest, many of our politicians are simply the ambitious and power-hungry; and in some cases, they're simply people who couldn't get hired to do anything else.

All this points to one conclusion:

"Those who can't do, legislate"

Tyler Cowen on lessons from the New Deal

We've been hearing a lot these days about the need for a new New Deal to save the economy. Tyler Cowen goes through some of the lessons of the old New Deal to show what did and didn't work:

"The good New Deal policies, like constructing a basic social safety net, made sense on their own terms and would have been desirable in the boom years of the 1920s as well. The bad policies made things worse. Today, that means we should restrict extraordinary measures to the financial sector as much as possible and resist the temptation to “do something” for its own sake."

There can be a real danger in just trying to do something. As Cowen points out, the old New Deal was a mixed bag of ad hoc policies, some very good and some very bad. We'd certainly be better off today without the legacy of agricultural subsidies.

It's also important to remember what really drove the recovery in the 1930s:

"A study of the 1930s by Christina D. Romer, a professor at the University of California, Berkeley (“What Ended the Great Depression?,” Journal of Economic History, 1992), confirmed that expansionary monetary policy was the key to the partial recovery of the 1930s. The worst years of the New Deal were 1937 and 1938, right after the Fed increased reserve requirements for banks, thereby curbing lending and moving the economy back to dangerous deflationary pressures."

Interestingly, Christina Romer was just picked to head Obama's Council of Economic Advisors. That's really good news.

The stupidest comment ever made about the financial crisis

Stupidity knows no ideology. In fact, we could start a whole other blog dedicated to asinine comments made by people on both the left and the right about the financial crisis. That said, I believe I have found the stupidest commentary on the subject (thus far) and it comes from Daniel Henninger of the Wall Street Journal:

"This year we celebrate the desacralized 'holidays' amid what is for many unprecedented economic ruin -- fortunes halved, jobs lost, homes foreclosed. People wonder, What happened? One man's theory: A nation whose people can't say "Merry Christmas" is a nation capable of ruining its own economy...

Responsibility and restraint are moral sentiments. Remorse is a product of conscience. None of these grow on trees. Each must be learned, taught, passed down. And so we come back to the disappearance of 'Merry Christmas.'

It has been my view that the steady secularizing and insistent effort at dereligioning America has been dangerous. That danger flashed red in the fall into subprime personal behavior by borrowers and bankers, who after all are just people. Northerners and atheists who vilify Southern evangelicals are throwing out nurturers of useful virtue with the bathwater of obnoxious political opinions.

The point for a healthy society of commerce and politics is not that religion saves, but that it keeps most of the players inside the chalk lines. We are erasing the chalk lines."

In the words of my 10th grade English teacher: "No, no, no, no no!" There is no war on Christmas and there never was. And since when is lack of religion in the public square been a problem in America? And why doesn't Western Europe, which is vastly more secular than the US, experience more financial crises than we do?

Capitalism has taken a real beating in recent months, probably more than it deserves. This crisis is not the end of the free market; it took massive failures on both the private and public sides to make this a reality.

That being said, markets do fail sometimes and we need to admit that. We can't just pass something like this off by saying, "well the system works, but the problem is people aren't responsible enough". That's not analysis.

If it's so easy to get an editorial job at the Wall Street Journal, can I have one?

World Philosophy Day

It's that time of year again. The time to ponder life's greatest questions, paradoxes, and puzzles. World Philosophy Day.

This years it's in honor of the 60th anniversary of the Universal Declaration of Human Rights, an international pact that guarantees the rights of individuals around the world.

Which leads to this little noodle cooker posted by the BBC today:

1. SHOULD WE KILL HEALTHY PEOPLE FOR THEIR ORGANS?

Suppose Bill is a healthy man without family or loved ones. Would it be ok painlessly to kill him if his organs would save five people, one of whom needs a heart, another a kidney, and so on? If not, why not?

Consider another case: you and six others are kidnapped, and the kidnapper somehow persuades you that if you shoot dead one of the other hostages, he will set the remaining five free, whereas if you do not, he will shoot all six. (Either way, he'll release you.)

If in this case you should kill one to save five, why not in the previous, organs case? If in this case too you have qualms, consider yet another: you're in the cab of a runaway tram and see five people tied to the track ahead. You have the option of sending the tram on to the track forking off to the left, on which only one person is tied. Surely you should send the tram left, killing one to save five.

But then why not kill Bill?

This is not merely a little mind melter to while away a few minutes, this is about the rights of the individual versus the rights of the collective. This has a dramatic effect on policy as governments wrestle with questions of when to punish groups or individuals for human rights violations. Where one stands on this question leads to different policies on a group's religious right to polygamy versus a woman's right to choose her mate, for example.

Voice your right to an opinion and let us know other instances of group vs. individual rights issues.

Money for nothing, bailouts for free...

Edward Glaeser has some good advice for dealing with GM, Chrysler and Ford:

"The hard-line enemies of a big Detroit bailout have standard economics on their side. The friends of Detroit, however, can rightly emphasize that a complete collapse of the car industry could make a bad economic downturn worse. The middle way is for car companies to go through Chapter 11 first, which will generate information and force the companies to rethink their future. Only then will it be possible to decide whether there is some role for limited government financial aid to avoid the costs of mass layoffs and defaults on pensions."

Detriot's woes have multiple causes--ranging from high labor and pension costs, poor corporate leadership, and misguided government protection--which means they can't be solved easily. The Big Three will burn through a $25 billion bailout in no time, and some have argued that if we bail them out this year, we better be ready to keep them on the public dole for years to come.

But, as Catherine Rampell notes, "a contraction of the Big Three would result in direct and indirect job losses of 2.5 million to 3 million in 2009", which perhaps argues for some government role in dampening the effect.

Hopefully Glaeser's third way gains some traction. Doing nothing may not be a good idea, but this bailout idea is fundamentally untenable.

A response from Patri Friedman

In a recent post about Congressman Paul Broun's comments comparing Barack Obama to Hitler, I made reference to "Seasteading" and linked to an interview with Patri Friedman, one of its main proponents. The reference was really just a way of intriducing the topic of politicians saying and doing rediculous things. However, Mr. Friedman posted a comment that takes issue with how I characterize Seasteading:

"Compared to other industries, government is huge, inefficient, and slow to change. There is very little competition and innovation. If it was a minor area of life, this might not matter, but its huge! Why are you skeptical of the idea of improving this area of life? Isn't it the *most* important are for progression?

If I thought things could be fixed on land, I would be proposing an easier solution. Sure, its a weird solution - but if the answer to such an old and huge problem was easy, we would have found it."

I did not intend to be quite so flippant about Mr. Friedman's ideas. In fact, I think everyone should listen to his discussion of Seasteading with Russ Roberts on EconTalk. Friedman outlines a very extreme approach to the problem of poor governance. I do not feel qualified to comment on the technical and engineering challenges involved with Seasteading, but I would like to open a discussion on the issue.

Friedman's basic point is that poor governance stems not from the particular people in power, but from the incentives they face. So it's not a matter of throwing the bums out of office, but rather having a system where the bums' self-interest alligns with that of the public. One possible answer to this problem is competitive government. Government is the ultimate monopoly: barriers to entry are extremely high (imagine trying to start your own government) and consumer choice is very limited. If you don't like a particular store you can shop at their competitor; if you don't like your government, it's a lot harder to "shop" elsewhere.

By lowering these barriers to entry and increasing consumer choice and mobilty, better incentives for those in power will develop. Governments will have to compete for citizens by providing better services at lower cost.

Seasteading is an interesting and provocative idea. But whether or not you think it could possibly work, the critique of government as a monopoly is a profound one. If Seasteading accomplishes nothing more than a real discussion of these issues, it should be regarded as a success.

Big Think

Still thinking about the end of anti-intellectualism in US politics I came across this great site. A sort of You Tube for politiphiles and citizens called Big Think.

Here's an introductory video that sums up the site's mission:

Is Barack Obama a Fascist Communist?

A few weeks ago, I listened with quiet bemusement to an interview with Patri Friedman. Friedman is the main proponent of "Seasteading":

"Seasteading means to create permanent dwellings on the ocean - homesteading the high seas. A seastead, like in the picture above, is a structure meant for permanent occupation on the ocean...

...the world needs a new frontier, a place where those who are dissatisfied with our current civilization can go to build a different (and hopefully better) one.

Currently, it is very difficult to experiment with alternative social systems on a small scale. Countries are so enormous that it is hard for an individual to make much difference. Seasteaders believe that government shouldn't be like the cellphone or operating system industries, with few choices and high customer-lock-in. Instead, they envision something more like web 2.0, where many small governments serve many niche markets, a dynamic system where small groups experiment, and everyone copies what works, discards what doesn't, and remixes the remainder to try again."

It's crazy. I mean, I'm a frequent skeptic of government, but have things really gotten so bad that we need to create new, floating societies? If we keep electing people like Congressman Paul Broun, I might just grab a life-preserver:

A Republican congressman from Georgia said Monday he fears that President-elect Obama will establish a Gestapo-like security force to impose a Marxist dictatorship.

"It may sound a bit crazy and off base, but the thing is, he's the one who proposed this national security force," Rep. Paul Broun said of Obama in an interview Monday with The Associated Press. "I'm just trying to bring attention to the fact that we may — may not, I hope not — but we may have a problem with that type of philosophy of radical socialism or Marxism."

Read the whole article to see what Broun was talking about. I like his mixing of metaphors. Somehow Obama can be both a Marxist and a Fascist at the same time. He truly is a post-partisan president.

The Daily Show's John Oliver explains the many interesting parallels between Obama and Hitler:

Is this the End of Anti-Intellectualism in American Politics?

Since Hofstadter's 1963 book Anti-Intellectualism in America came out, there has been at least an awareness of a trend in the United States that could be thought of a Counter-Enlightenment.

The election of Obama may finally be the end of this counter-Enlightenment. Nick Kristof describes Obama as "an open, out-of-the-closet,practicing intellectual" in contrast to the folksy rhetoric of President Clinton and the current regime which has rejected science when dealing with issues such as abortion and global warming.

This is the first time in recent history that a candidate has tried to campaign fervently on ideas rather than personality.

Kristof continues:

At least since Adlai Stevenson’s campaigns for the presidency in the 1950s, it’s been a disadvantage in American politics to seem too learned. Thoughtfulness is portrayed as wimpishness, and careful deliberation is for sissies. The social critic William Burroughs once bluntly declared that “intellectuals are deviants in the U.S.”

We can finally be proud to have a president who has, as Christopher Lydon notes in this conversation, "a favorite poet and philosopher" and is not afraid to admit it.

Is this the end of anti-intellectualism in the United States? Will the geek inherit the earth?

Let your big brains show and let us know if you think it's cool to be smart.

Think local, buy global

I work next door to a Whole Foods, so the issue of "food miles" comes up a lot.

However, a recent study from Pierre Desrochers and Hiroko Shimizu called "Yes, We Have no Bananas" synthesizes a good deal of research showing that the food miles concept is severly lacking:

"The most problematic aspect of the food-miles perspective is that it ignores productivity differentials between geographical locations. In other words, activists assume that producing a given food item requires the same amount of inputs independently of where and how it is produced. In this context, the distance traveled between producers and consumers, along with the mode of transportation used, become the only determinants of a food’s environmental impact. But any realistic assessment must reflect both transport to final consumers and the total energy consumption and greenhouse gas emissions associated with production."

The data on this issue are striking. The authors cite several studies showing that 83% of CO2 emissions came from the production of food, while only 4% came from the transportation from the producers to the retailer (the piece on which activists tend to focus).

Ronald Bailey, writing in Reason Magazine, explains the implications:

"Food miles advocates fail to grasp the simple idea that food should be grown where it is most economically advantageous to do so. Relevant advantages consist of various combinations of soil, climate, labor, capital, and other factors. It is possible to grow bananas in Iceland, but Costa Rica really has the better climate for that activity. Transporting food is just one relatively small cost of providing modern consumers with their daily bread, meat, cheese, and veggies. Desrochers and Shimizu argue that concentrating agricultural production in the most favorable regions is the best way to minimize human impacts on the environment."

One of the best ways to do this is to lift the huge subsidies that the US and Europe dole out to their agricultural lobbies. This would lead to more food being grown in advantageous climates, and has the added benefit of being an economic boon to the developing world. Lifting the subsidies would be good for the environment, good for the worlds poor, and would free up $300 billion in US government budget. What's not to like?

Thomas Sowell is wrong on gay marriage

You would never guess from reading this piece, but Thomas Sowell is an articulate and thoughtful economist and commentator. While he discusses both affirmative action and gay marriage in the same article, I wish to focus on the latter.

Sowell's defines the terms of the debate as such:

"Marriage is not a right but a set of legal obligations imposed because the government has a vested interest in unions that, among other things, have the potential to produce children, which is to say, the future population of the nation.

Gays were on their strongest ground when they said that what they did was nobody else's business. Now they are asserting a right to other people's approval, which is wholly different.

None of us has a right to other people's approval."

The obvious (and ludicrous) implication of this argument is that heterosexual couples who cannot have children, or who choose not to, similarly have no business marrying. But the more interesting implication is that government should directly intervene into people's lives in order to advance collective goals. This is a bizarre position for a conservative economist to take, and at least one noted libertarian, Don Boudreaux, has taken notice:

"It's true that marriage laws emerged largely to deal with fact that heterosexual couples have children. But this fact does not imply - contrary to Mr. Sowell's careless claim - that "the government has a vested interest in unions that, among other things, have the potential to produce children, which is to say, the future population of the nation." Certainly in a free country, the state has no business governing in any way or for any purpose people's decisions on having children."

Sowell goes further, making a cruel and ironic argument on the rights of gays:

"While people may be treated the same, all their behaviors are not. Laws that forbid bicycles from being ridden on freeways obviously have a different effect on people who have bicycles but no cars.

But this is not discrimination against a person. The cyclist who gets into a car is just as free to drive on the freeway as anybody else.

The question is not whether gays should be permitted to marry. Many gays have already married people of the opposite sex. Conversely, heterosexuals who might want to marry someone of the same sex in order to make some point will be forbidden to do so, just as gays are."

I don't know how someone can say this and still be considered a serious part of the debate.

Gay marriage is not about "asserting a right to other people's approval" or imposing a way of life on anyone else. It is quite the opposite. Extending marriage rights to gays means removing government-sponsored opposition to sexual preference. It's about letting people choose their own path towards happiness, without needless interference from a nosy state. For anyone interested in the cause of liberty, the choice is clear.

But I can't say it any more eloquently than Keith Olberman:

Waxing poetic on the economy

For all those who think economics is overly mathematical, a haiku courtesy of Russell Roberts:

Fannie and Freddie
Private Gains. Public losses.
Whose idea was that?

If it scares it leads?

A recent CNN piece on gun sales rising since Obama's presidency sent a chill down my peace-loving spine. It also left me wondering where journalistic responsibility lies. It takes CNN 5 paragraphs of this article to get to the point that it is legislation fears that are motivating the surge --- due to the campy anecdotal lede assassination violence is all but directly alluded to. A slow story like that draws away from any substantive trend data (one case study does not a trend make). One has to question the motives of any copy editor that gave the piece a headline that doesn't mention policy.

In fact, many news outlets have chosen to cover assassination possibilities long before inauguration day, one of the more outrageous examples being the Metro this week. Following an election with the highest voter turnout and healthiest margin of support for the victor in the last 8 years, the most appropriate lede is the possibility of assassination. Can it be that the US is so focused on the racial issue that this is the only angle editors can assign? Bush's approval ratings are at an all-time low but the subject of riot or violence against him rarely came up during the past eight years.

Sadly, I believe speculative articles that prey on fear for readership detract from any real value-add potential that coverage of historic events have. The fourth estate often comes under criticism for being insensitive and manipulative of emotion and events. As subscription rates drop, print circulation is cut, editorial layoffs ensue and the cost of online advertising remains low --- it's a good time for the industry to look at it's coverage philosophy.

Yes, journalism needs to ask the difficult questions. But those difficult questions aren't always the most shocking or driven at sparking controversy. Now that we have a biracial president it would be nice if for once everything wasn't a black and white issue in print. In fact often the tough questions are the thoughtful, well-researched ones, that are unique to a particular outlet and not strewn across the top hits on Yahoo or Google news. I challenge 2009 journalists to take the unique position of not mongering only fear and doubt in these challenging times but instead providing relevant news and information.

More on consumption taxes...

One of our readers brings up two important and thoughtful critiques of a consumption tax, which was discussed in a previous post:

"Though a high deductible - like $30,000 - does alleviate any burden the consumption tax might have for the lower and lower middle classes, the deductible is not close to high enough to compensate for the average spending of the middle class, who it seems to me would be most effected by such a policy. The real winners in this type of scenario are the upper and upper middle classes, making this system work in a quasi-regressive manner...

Furthermore, though savings is beneficial on the individual level, spending is what drives our economy and creates both jobs and wealth. Because of the proposed deductible, there would be no tax incentive for people with incomes below the deductible to save"

It's hard to say, a priori, how much the consumption tax described by Robert Frank would encourage savings among lower income individuals. This plan will not help people who have to spend all of their income just to get by. But for people who can save a little money but don't have access to 401K plans, this could be helpful. Additionally, for middle class families who do have retirement plans, a consumption tax might encourage savings above the tax-free limits and will reduce the cost of medium-term savings.

While consumer spending is important for any economy, it is not the only thing that "creates jobs and wealth". Savings and investment is crucial for future growth and for preventing poverty. Laurence J. Kotlikoff, writing in the Concise Encyclopedia of Economics, explains the effect of low savings rates on the baby-boomer generation:

"Compared with their parents, baby boomers can expect to retire earlier, live longer, rely less on inheritances, receive less help from their children, experience slower real wage growth, face higher taxes, and replace a smaller fraction of their preretirement earnings with Social Security retirement benefits. Unless baby boomers change their saving habits substantially and relatively quickly, they may experience much higher rates of poverty in their old age than those currently observed among U.S. elderly."

I would add that encouraging savings (or, more accurately removing disincentives to savings) is important for social mobility. Education costs are rising well above the rate of inflation, while at the same time the returns to education are as high as they have ever been. We want to make sure that savings is no more expensive than it needs to be.

And education yields positive returns to society. Underemployed and undereducated individuals represent one of our country's most wasted resources. More savings means more education, which ultimately means more productivity and wealth creation.

Thanks for the comment!

Just some friendly advice for the new guy...

The New York Times ran a series this weekend asking five of the country's top economists for advice for our new president. Here are the links, courtesy of Economix:

• Alan S. Blinder at Princeton urged Mr. Obama to “Remember That Capitalism Is More Than a Spectator Sport.”
• Tyler Cowen at George Mason University told the president-elect that “The Mood Always Matters, So Restore Confidence First.”
• Robert Frank at Cornell (and a visiting scholar at New York University’s Stern School of Business) explained “Just What This Downturn Demands: A Consumption Tax.”
• N. Gregory Mankiw at Harvard said, “It’s a Time to Listen, and to Obey the Laws of Arithmetic.”
• Robert J. Shiller at Yale argued that “The Real Mandate Is to Bridge the Wealth Gap.”

There's a lot of interesting and important advice in these columns. Specifically, I'd like to highlight the argument made by Robert Frank, who advocates a "consumption tax":

The first reform that Barack Obama should consider is replacing the progressive income tax with a progressive tax on consumption. A family would report its income to the Internal Revenue Service as it does now, and also its savings, as it now reports contributions to retirement accounts. Annual consumption would then be calculated as the family’s income minus its savings. Its taxable consumption would be that amount minus a large standard deduction — say, $30,000 for a family of four.

A family that earned $60,000 and saved $10,000, for example, would have taxable consumption of $20,000. Initial tax rates on consumption would be low, and would then rise steadily with consumption, topping out at higher levels than the current top rates on income.

Such a tax could raise more revenue than the current system, yet would be far less burdensome for families at nearly all income levels. Because of the large standard deduction, middle-income families would pay less than they did before, and high-income consumers could limit their tax increases by saving more.

The argument is very simple: if you want less of something, tax it, thereby making it more expensive. Since the government needs to raise at least some revenue, it has to decide what to tax and still maintain economic efficiency. Given our current spending habits, it seems odd that we tax savings at the federal level, rather than consumption.

Look who's "Nailin' Palin" now

Schadenfreude
Function: Noun
Definition: enjoyment obtained from the troubles of others
Example: Does it make me a bad person that news of Sarah Palin's ignorance and immaturity elicits such Schadenfreude?



I'm probably going to Hell, but I'm enjoying myself right now.

Explaining why the market got so "crazy"

In the past week, two interesting articles about the financial crisis have pointed to the limits of mathematical modeling in finance and the role of group psychology in the market.

Yale economist Robert Shiller blames "groupthink" for why many economists were not outspoken about the housing bubble until it was too late. In explaining the phenomenon, Shiller says:

"The field of social psychology provides a possible answer. In his classic 1972 book, “Groupthink,” Irving L. Janis, the Yale psychologist, explained how panels of experts could make colossal mistakes. People on these panels, he said, are forever worrying about their personal relevance and effectiveness, and feel that if they deviate too far from the consensus, they will not be given a serious role. They self-censor personal doubts about the emerging group consensus if they cannot express these doubts in a formal way that conforms with apparent assumptions held by the group."

Shiller is a proponent of "Behavioral Economics," which looks at the underlying psychological factors behind our economic decisions. In this case, behavioral approaches can help explain the "irrational exuberence" people experienced in the housing market, which caused housing prices to jump far beyond what could be explained by economic fundamentals. Shiller also charges that behavioral economics is still considered a "fringe" field within the discipline and that groupthink makes it harder for economists to advocate behavioral approaches in public.

Steve Lohr also talks about another way that human error contributed to the crisis. Financial institutions were built on complex mathematical models of risk, which were supposed to prevent just these types of crises. Mathematical models are prevalent throughout economics and are truly invaluable tools in both theoretical and empirical work. But it's really important to recognize their limits:

"'The Wall Street models', said Paul S. Willen, an economist at the Federal Reserve in Boston, 'included a lot of wishful thinking about house prices'. 'But', he added, 'it is also true that asset price trends are difficult to predict. The price of an asset, like a house or a stock, reflects not only your beliefs about the future, but you’re also betting on other people’s beliefs,' he observed. 'It’s these hierarchies of beliefs — these behavioral factors — that are so hard to model.'"

Emanuel Derman, a physicist who developed a number of financial models, put it more simply:

“To confuse the model with the world is to embrace a future disaster driven by the belief that humans obey mathematical rules.”

The current crisis may cause more people to change their approach to modeling financial markets. I think it's likely that behavioral economics and social psychology will play a larger role in understanding why markets become so irrational sometimes. This is probably a good thing, which will add to our understanding of how financial markets work. But we shouldn't throw the baby out with the bath water. Emanuel Derman notes that these models are simply tools that can be used incorrectly or inappropriately. Complex financial models will retain their important place within the industry and in academia. But we need to do a better job understanding the assumptions behind these models and how they relate to real human behavior.

Thoughts on the election

I suppose it goes without saying that Tuesday night was a profound and moving moment in American history. Several of the thousands gathered in Chicago's Grant Park carried posters proclaiming:

"Rosa sat, so Martin could march, so Barack could run, so our children could fly"

The New York Times provides a simple narrative for why Obama won:

"His triumph was decisive and sweeping, because he saw what is wrong with this country: the utter failure of government to protect its citizens. He offered a government that does not try to solve every problem but will do those things beyond the power of individual citizens: to regulate the economy fairly, keep the air clean and the food safe, ensure that the sick have access to health care, and educate children to compete in a globalized world."

Interestingly, exit polls paint a similarly straight forward picture of how Obama won. Paul Krugman summarizes the results:

"At the risk of being a party-pooper, I’ll second Andrew Gelman: there’s not much evidence in the vote for anything besides a broad shift to Democrats, almost the same (~8%) across all the states, and probably a reaction to the state of the economy, stupid. There were a few big anomalies in McCain’s direction — what’s the matter with Arkansas? — and a few in Obama’s, mainly Indiana.

But basically there was a national wave against Republicans, suggesting that we don’t need a complex narrative."

Definitely check out Gelman's exit poll analysis. There are some interesting trends, though not shocking: Obama won big among young voters and his largest gains were among ethnic minorities. We saw the usual trend that wealthier voters were more likely to vote Republican, but the relationship changed at the highest income levels:

Obama won 52% to 46% among people with incomes over $200,000. These are the people most at risk from Obama's "socialist" redistribution plans. Robert Frank over at the Wealth Report has some theories on this. It seems likely that given the current climate, wealthy voters placed more emphasis on the nation's financial stability than on their own. Of course, you can't discount the possibility that people are betting against Obama actually raising taxes in a recession.

Should New Yorkers pay for new stadiums?

I'm a big Yankees fan. But as an adult, I realize that not everyone shares my interests. Certainly, I would never ask anyone else to pay for my tickets to a game. And yet, this is exactly what is happening with public financing for new stadiums for both the Mets and Yankees. According to the New York Times:

"Days after taking office in 2002, Mayor Michael R. Bloomberg killed Rudolph W. Giuliani’s plan to spend $800 million in city funds to build baseball stadiums for the Yankees and the Mets, saying they were too expensive during a recession.

Three years later, Mr. Bloomberg unveiled his own plan calling for the two teams to pay the construction costs of their new stadiums, while the city would build public parks, parking garages and transit stations nearby. The cost to taxpayers, the mayor suggested, would be relatively small and the benefits to the city would be great...

But as the two stadiums near completion, the cost to taxpayers is anything but small, a review of the projects shows. Though the teams are indeed paying approximately $2 billion to erect the two stadiums, the cost to the city for infrastructure — parks, garages and transportation improvements — have jumped to about $458 million, from $281 million in 2005. The state is contributing an additional $201 million."

This doesn't include tax-breaks and other indirect subsidies, which have totaled roughly $480 million.

This type of public financing is not uncommon in cities throughout the country. City governments and residents are wooed by "Impact Reports" purporting to show that these new stadiums will revitalize abandon down-town areas, create jobs and spur economic growth. The only problem is, this isn't really true.

Some of the most interesting research in this area has been done by Brad Humphreys and Dennis Coates, two economists at the University of Maryland, Baltimore County. Humphreys and Coates have done numerous studies assessing the impact of new stadiums on cities, generally finding no significant economic benefit to residents.

There are several reasons for this, but one of the most important is that people only have a certain amount of disposable income to spend on entertainment. They might spend it at a baseball game or at a concert or at the movies. But people wont spend more just because there are more entertainment options.

Humphreys and Coates looked at a series of Players' strikes and lockouts, which are perfect natural experiments to test the economic impact of sports franchises. What they found was that strikes and lockouts didn't cause the local economies to suffer; rather, people went to more concerts, movies and restaurants.

The case for public stadium financing is based on it's supposed benefit to the local economy. In reality, public financing is a tax-payer giveaway to developers and teams--exactly the people who don't need government help.

I hope the TV was wearing protection

Journalists have a tendency to get over-excited when reporting the results of scientific research. So I wasn't surprised yesterday when I saw the following headline:

Study links sex on TV to teen pregnancy

Just when we thought we could keep our kids safe at home!

According to CNN:

Researchers at the nonprofit organization found that adolescents with a high level of exposure to television shows with sexual content are twice as likely to get pregnant or impregnate someone as those who saw fewer programs of this kind over a period of three years.

So is it time to turn off Gossip Girl? Perhaps not. Studies like this are good for showing correlations, or the fact that a relationship between two variables exists. They are less apt at proving what causes what. Consider this critique from the Tara Parker-Pope:

"...a closer look at the data shows the relationship between television, sexual content and teen pregnancies is complex. The same study, published today in Pediatrics, also found that teens who watch a lot of television in general are less likely to become pregnant. How can that be? The answer may be that kids who watch a lot of television obviously aren’t out dating and socializing with friends. So as unhealthy as it may be to spend hours in front of a screen, the behavior appears to be oddly protective against teen pregnancy...The link between television and teen pregnancy only shows up when a high proportion of the television shows watched by a teen are filled with sexual content."

So TV has two potential effects on teen sexual behavior. But it is also possible that there is some unobserved factor out there, which is actually at work. It is quite likely that teens who are more sexually active have a preference for more sexually explicit shows. This might make sense given the fact that while TV overall has gotten steamier, the overall teen pregnancy rate has gone down.

Either way, the authors conclude with a point that's hard to argue with:

“If the type of sexual portrayals that teens see on TV are the only messages they’re getting about sex, then they’re likely to approach sexual relationships in a way that might not be the healthiest way,” said Steven Martino, study co-author and a behavioral scientist at the RAND Corporation, the nonprofit health care research firm that conducted the study. “It’s important to talk to them about that and see how they’re reacting, and offer other perspectives to them about sex that they might not be getting on television.”

Election Day Wdigets

It's the big day and we're hooking you up with all the little web widgets you can handle to follow the results.

Intrade's betting widget let's you see how stock broker types are seeing the odds of one candidate over the other through who they are willing to throw money on. More of a predictive tool, but should be interesting to watch the trends over the day.


FiveThirtyEight.com has been a site of choice to follow aggregated poll results over the past few months. Here's how their projecting the election with the lasted poll data.



Here's MSNBC's web widget. The results will be posted in real time on the widget as they are posted on the website.



Here's CNN's map of the latest results. This won't be posting until the polls close this evening on the east coast.



Reuters is reporting more people are turning to the web tonight to watch then ever before. So grab a coffee or beer at your favorite local hotspot and watch the action online tonight.

Vote or... not, I guess

Someone recently emailed me this video, with the subject "A Subtle Urging to Vote".




I am going to vote tomorrow, if for no other reason than because my fiance will kill me if I don't. It's not that I don't feel strongly about the election or that I think there are no differences between the candidates. But, as economist Gordon Tullock explains, voting makes little sense when you do the cost benefit analysis.

Consider the benefit side, for a minute. My vote will only count if the outcome of the election would have been different had I not voted. This means I have to cast the deciding vote; otherwise the outcome would have happened even if I had stayed at home. So what are the odds that I'll cast the deciding vote? It depends on where I live:

The states where a single vote is most likely to matter are New Mexico, Virginia, New Hampshire and Colorado, where your vote has an approximate 1 in 10 million chance of determining the national election outcome. On average, a voter in America has a 1 in 60 million chance of being decisive in the presidential election.

That's from research by Andrew Gelman, at Columbia University. So it's not that my vote doesn't count, it's just that it counts very, very little. And I'm not even lucky enough to live in a swing state.

So does this mean I think voting is a waste of time? Not really. While the benefit side is low (at least as far as expected payoff), the cost side is pretty low too, though perhaps not low enough. I'm lucky enough to live next door to my polling station. Others are not so lucky. Hopefully there will be more support for the idea of moving Election Day to the weekend so no one has to work it around their job.

We can't make the benefits any greater, but we can sure make voting less costly.