17 November, 2008
10 November, 2008
Role Model-in-Chief
First ever op-ed was published today in the Oregonian (circulation 300,000+). It's pretty $#%&ins intoxicating seeing your name in print.
Interestingly, they removed a couple of lines and made a few edits. (Below is my original submission.) I wish they hadn't cut the end of the second and all of the third para; I thought my observation about opinions toward Obama not being policy-centric was relevant and I kind of liked my jab at Bush. My other nitpick is that they changed the reference to GWB throwing the season opener at Yankee Stadium; I was referring to the opening pitch of game three of the World Series on 10/30. I thought the arugula bit was funny too. Still, I'm happy to relinquish some editorial power if they will publish me.
Interestingly, they removed a couple of lines and made a few edits. (Below is my original submission.) I wish they hadn't cut the end of the second and all of the third para; I thought my observation about opinions toward Obama not being policy-centric was relevant and I kind of liked my jab at Bush. My other nitpick is that they changed the reference to GWB throwing the season opener at Yankee Stadium; I was referring to the opening pitch of game three of the World Series on 10/30. I thought the arugula bit was funny too. Still, I'm happy to relinquish some editorial power if they will publish me.
“Confessions of a Young Republican” or “Role Model-in-Chief”
I have a confession to make: I am under 30 and I did not vote for Barack Obama. This puts me in a fairly small minority among my cohort of twentysomething Americans.
It’s not that I have formulated a strong opinion against our next President; I ‘m just cautiously skeptical. Regardless of whether you praise Obama as a political Redeemer or criticize him on any number of topics, some more justified than others, you certainly cannot claim to know with any confidence how exactly an Obama administration will govern. In terms of policy, our President-elect is simply an unknown entity.
This uncertainty isn’t necessarily bad. There have been politicians who we thought we knew and who turned out surprising us. Sometimes we refer to them as Mavericks. Other times they are fiscally conservative Republicans who socialize our financial sector while growing the federal deficit to unprecedented levels and we call them George W. Bush.
So instead of chanting “Yes we can!” my mantra is the less sanguine “We will see.”
There is, however, one thing I am confident Obama can accomplish in the White House. For all the talk of the Decider-in-Chief, the President is also our Role Model-in-Chief. There was a short time after 9/11 when Americans embraced that notion. Heck, we even beamed with pride when Bush threw a near-strike for the first pitch at Yankee Stadium. Given Barack Obama’s bowling skills, I’m not holding my breath waiting for any fastballs (although I hear he has a mean jumpshot). But our 44th President has more than a few other abilities that rarely fail to impress.
Obama is the child of an immigrant and he didn’t exactly grow up privileged. Yet he went on to graduate from Columbia University and Harvard Law School before becoming a professor at another prestigious law school. Then came his speed-of-light political ascent. He is thoughtful, intelligent, eloquent and accomplished. He is raising two beautiful children and he appears to be an exceedingly wholesome family man. By all reasonable measures, Barack Obama personifies the American Dream. Add a picket fence to the White House and the image is complete.
I suspect no parent could resist being proud of accomplishments like Obama’s, even if their “elite” son grew up to prefer arugula. In other words, we could do considerably worse than having someone like Barack Obama for America’s youth to admire.
Why is this relevant?
Consider the recent, and much lauded, research by Harvard economists Claudia Golden and Lawrence F. Katz. In “The Race Between Education and Technology” they present rigorous empirical evidence to make the case, essentially, that too few Americans are graduating from college to meet our economy’s growing demand for an educated labor force. This, they argue, is the primary determinate of sluggish income growth for middle class Americans and has resulted in increased inequality between the rich and the rest over the past 30 years.
Add to this the fact that the achievement gap is especially pronounced for black Americans. Politicians and pundits from every corner have identified educational disparities that leave African Americans behind as the civil rights issue of the 21st Century. Reasonable people can disagree about how these differences arise, but no one can deny the potential benefits when the latest fashion trend is a tee-shirt with the picture of a man with Barack Obama’s background, education, intellect and stature.
That’s not to say we can neglect the real improvements that should be made to ensure our schools and educated labor force remain the envy of the world: investment in early childhood education, greater school choice, reforming the financial aid system, real accountability. The list is long. But for all the faults of our education system, the fact that, against odds, a self-made product of that system will soon hold the highest office in the land is nothing short of inspirational. It may just prove a crucial cultural impetus to improving education and reaching higher achievement levels for American’s of all stripes.
I won’t hesitate to criticize President Obama’s policies if I disagree. And, frankly, I’m more than a bit nervous of the corrosive effect a major shift to the political left may have on our economy’s free-market principles. But I am exceedingly confident that President Obama can succeed as our Role Model-in-Chief and that alone could be transformative for America. On this, even a young Oregon Republican can be in the majority and feel a little hope.
24 October, 2008
Mind Games
Here is taste from an interesting dialog on pschology and behavioural economics:
This is a technique used frequently in the classroom by effective teachers. We would typically refer to it as "illiciting an image". When you ask, "Are there any questions?" students instictively think, "no." When you ask, "What questions do you have?" students instinctively start to think of clarifying or probing questions.
The manipulation is fantastically subtle and not without everyday applications.
HT: MR
KAHNEMAN: Those effects would be small at the margin, but there are those effects that are small at the margin that can change election results. You call and ask people ahead of time, "Will you vote?". That's all. "Do you intend to vote?". That increases voting participation substantially, and you can measure it. It's a completely trivial manipulation, but saying 'Yes' to a stranger, "I will vote" ...
MYHRVOLD: But to Elon's point, suppose you had the choice of calling up and saying, "Are you going to vote?", so you prime them to vote, versus exhorting them to vote.
KAHNEMAN: The prime could very well work better than the exhortation because exhortation is going to induce resistance, whereas the prime ‚the mild embarrassment causes you to make what feels like a commitment, and the commitment, if it's sufficiently precise, is going to have an effect on behavior.
THALER: If you ask them when they're going to vote, and how they're going to get there, that increases voting.
KAHNEMAN: And where.
This is a technique used frequently in the classroom by effective teachers. We would typically refer to it as "illiciting an image". When you ask, "Are there any questions?" students instictively think, "no." When you ask, "What questions do you have?" students instinctively start to think of clarifying or probing questions.
The manipulation is fantastically subtle and not without everyday applications.
HT: MR
13 October, 2008
Krugman Laureate, My 2 Cents
Occasionally (believe it or not), I am compelled by a recognition of my vastly inadequatee expertise on the vast majority of topics to refrain from commenting (in writing, that is. I am [almost] always willing to verbalize my opinions) on a current event. This is usually motivated by my own irritation at others’ eagerness to remark on a current event despite being grossly unqualified to do so. So, upon hearing that Paul Krugman had received the Nobel Prize in econ, I had decided to keep my keyboard out of the matter. (Un?)fortunately, a friend—someone who has an uncanny ability to seek out things he thinks I might find distasteful and rub them in my face, but in a joshing, elbow-jabbing way—, via email, provoked me otherwise.
So, here’s what I think about Paul Krugman, Laureate.
I have no doubt Krugman is deserving of his Nobel. I really don’t have the background to judge his academic credentials or contribution to serious economics. And so I defer to the greater Economics Community which, in general, has a near diety-like reverential fondness for Krugman The Economist. I take them at their word (I’m not smart enough not to) and I am becoming a growing fan of Krugman’s body of work. I made the early mistake of confusing Krugman The Pundit for Krugman’s entire CV. Once I started reading some of his econ writings, I became an instant fan. On economics, Krugman is clear, thoughtful and entertaining. I would put some of his econ prose on par with Hawking’s Brief History of Time in its effectiveness at communicating complex ideas...enjoyably. He really is a great writer, writing in way that only incredibly bright thinkers can.
But the thing about Krugman is he long ago hung up his Economist Hat. Sure he is still an academic. But his Pundit Hat is the one he wears most often and most publicly. And he has become a lightning rod for partisan conflict. And he does not shy away from some good old fashioned demagoguery at the expense of the opposition. And he’s become a go-to-guy for social democrats who are looking for someone with intellectual credentials to buttress their policy de jour.
So, there will be three major consequences of Krugman receiving the Nobel: (1) he will earn deserved recognition, (2) more people will be attracted to his message, and (3) he will receive a larger platform to speak his message. Personally, I think (1) is good and (2) and (3) are bad. Admittedly, this is personal view is largely because Krugman and I aren’t exactly ideological kin folk. But there are objective reason’s to think (2) and (3) are bad too. First, it doesn’t do much for the public’s understanding and appreciation for economics as a science if our most visible figure now spends a good deal of his time doing economic malpractice. At the very least it blurs the line between good economics and partisan punditry. Second, it doesn’t do much for the reputation of the Nobel Committee when they pick a highly controversial figure in the midst of an major election and at a time when we are approaching an apex in political volatility. The pick amounts to an implicit endorsement of Krugman’s politics and the Committee has already received some criticism for being political.
Now, you could argue that the Nobel Committee is so completely apolitical that the decision was entirely independent of the political scene. This could very well be true. But it is still the case that Krugman’s pick will be interpreted by the lay-folks as an endorsement of his ideas AND this was entirely foreseeable. So, by ignoring Krugman’s pop-media status and political views, Nobel is responsible for the consequences when others’ associate the eminence of the Nobel Prize with Krugman The Pundit. It is some serious PR negligence. Even a good pick becomes bad when the timing is wrong…and Krugman certainly could have been given the nod later down the road.
I would extend this perspective to economists whose politics I agree with. There is a good chance Mankiw (I have the t-shirt!) will eventually get a Nobel, but it would be silly to pick Mankiw when the Bush Administration is still has a pulse. (That being said, as an aside, part of Mankiw’s appeal is that he is refreshingly objective and non-partisan despite his clear interest in policy. Is anything “a tad too hyperbolic” for Krugman’s tastes?)
So, here’s what I think about Paul Krugman, Laureate.
I have no doubt Krugman is deserving of his Nobel. I really don’t have the background to judge his academic credentials or contribution to serious economics. And so I defer to the greater Economics Community which, in general, has a near diety-like reverential fondness for Krugman The Economist. I take them at their word (I’m not smart enough not to) and I am becoming a growing fan of Krugman’s body of work. I made the early mistake of confusing Krugman The Pundit for Krugman’s entire CV. Once I started reading some of his econ writings, I became an instant fan. On economics, Krugman is clear, thoughtful and entertaining. I would put some of his econ prose on par with Hawking’s Brief History of Time in its effectiveness at communicating complex ideas...enjoyably. He really is a great writer, writing in way that only incredibly bright thinkers can.
But the thing about Krugman is he long ago hung up his Economist Hat. Sure he is still an academic. But his Pundit Hat is the one he wears most often and most publicly. And he has become a lightning rod for partisan conflict. And he does not shy away from some good old fashioned demagoguery at the expense of the opposition. And he’s become a go-to-guy for social democrats who are looking for someone with intellectual credentials to buttress their policy de jour.
So, there will be three major consequences of Krugman receiving the Nobel: (1) he will earn deserved recognition, (2) more people will be attracted to his message, and (3) he will receive a larger platform to speak his message. Personally, I think (1) is good and (2) and (3) are bad. Admittedly, this is personal view is largely because Krugman and I aren’t exactly ideological kin folk. But there are objective reason’s to think (2) and (3) are bad too. First, it doesn’t do much for the public’s understanding and appreciation for economics as a science if our most visible figure now spends a good deal of his time doing economic malpractice. At the very least it blurs the line between good economics and partisan punditry. Second, it doesn’t do much for the reputation of the Nobel Committee when they pick a highly controversial figure in the midst of an major election and at a time when we are approaching an apex in political volatility. The pick amounts to an implicit endorsement of Krugman’s politics and the Committee has already received some criticism for being political.
Now, you could argue that the Nobel Committee is so completely apolitical that the decision was entirely independent of the political scene. This could very well be true. But it is still the case that Krugman’s pick will be interpreted by the lay-folks as an endorsement of his ideas AND this was entirely foreseeable. So, by ignoring Krugman’s pop-media status and political views, Nobel is responsible for the consequences when others’ associate the eminence of the Nobel Prize with Krugman The Pundit. It is some serious PR negligence. Even a good pick becomes bad when the timing is wrong…and Krugman certainly could have been given the nod later down the road.
I would extend this perspective to economists whose politics I agree with. There is a good chance Mankiw (I have the t-shirt!) will eventually get a Nobel, but it would be silly to pick Mankiw when the Bush Administration is still has a pulse. (That being said, as an aside, part of Mankiw’s appeal is that he is refreshingly objective and non-partisan despite his clear interest in policy. Is anything “a tad too hyperbolic” for Krugman’s tastes?)
12 October, 2008
Not Believing It Doesn't Make It Less True
From the comments on this post at Cafe Hayek:
The USA is [probably] the only country in the world where people engage in the illusion that their employers pay for their health care. In many other countries, the people engage in the illusion that the government pays for their health care.
09 October, 2008
Billions with a B
Good blogging heads. Check it out at 43:40 for the most interesting bit on GMOs, environmentalism and political ideology.
Quotables:
To continue the thread of duplicitous or contradictory beliefs: the same group who argues we don’t know enough about the long-term health effects of agriculture biotechnology (which is a valid and debatable argument) are disproportionately the people who take Echinacea and Ginkgo supplements.
Quotables:
AA: “People who have the kind of politics that suggests they really care about poor people…often have environmental beliefs that are exaggerated and they really are willing to do extreme things that would be damaging to poor people.”
BD: “The very people who are most critical of GM crops are the very people who for their stated beliefs should be its biggest supporters… Too many people let their politics determine their science."
To continue the thread of duplicitous or contradictory beliefs: the same group who argues we don’t know enough about the long-term health effects of agriculture biotechnology (which is a valid and debatable argument) are disproportionately the people who take Echinacea and Ginkgo supplements.
02 October, 2008
Last Post Today, I Promise*
If you are not familiar with KPC, I suggest becoming acquainted. It is hosted by a dangerously (in a good way) cynical econ professor from Oklahoma and a large, hairy, freedom-loving gubernatorial candidate from North Carolina [who is also a professor and who has no chance of being elected (which incidently is evidence democracy is broken)]. They are extremely non-PC and funny in the way your alcoholic uncle is funny. These are people I aspire to emulate...sad, but true. Fair warning: KPC may be an acquired taste.
Anyway, I point this out to direct you to this comment on their blog. In case you have 10-15 minutes of your life to completely burn, it is a seriously outrageous rant.
*Who exactly I am making this promise to is unclear. Only a small handful (easilybalancedontheheadofapin-ful) of friends and family ever read this blog. And when they do I suspect it is only to break up the monotony of their days and not because they are in search of substantive insights and/or entertainment. So I suppose by "promise" I mean that I am self-committing to not completely wasting the last few hours of the day.
Anyway, I point this out to direct you to this comment on their blog. In case you have 10-15 minutes of your life to completely burn, it is a seriously outrageous rant.
*Who exactly I am making this promise to is unclear. Only a small handful (easilybalancedontheheadofapin-ful) of friends and family ever read this blog. And when they do I suspect it is only to break up the monotony of their days and not because they are in search of substantive insights and/or entertainment. So I suppose by "promise" I mean that I am self-committing to not completely wasting the last few hours of the day.
Updating my VP perspective ex ante
I will probably not be watching the debate tonight. Instead, I will be watching this year’s Trojan Killers play Utah.
But I will probably catch the highlights at some point and I am willing to announce how I will update my beliefs about Palin in advance:
(1) If the debate is considered a draw, then I will maintain my previous belief that she was a great strategic VP pick and she is as prepared to be President as any conceivable alternative.
(2) If Palin goes down in a painful, fist-biting, CBSesque blaze of glory, then I will concede that the national political scene was way out of her league; that she was a high risk VP pick and the House won.
(3) If Palin emerges a winner, then my impression of her will not improve (see (1)). However, I will interpret this outcome as further evidence that Biden was a bad pick, experience doesn’t matter, and politics is about in-group drama.
I encourage others to announce how they will analyze the VP debate ex ante. I suspect many folks (many folks = everyone+/-some error) will just have their priors confirmed regardless and we will be right back where we started.
As an aside, some anti-Palins have interpreted my defense of her as an endorsement. Allow me to clarify. (1) My cynicism extends to ALL candidates. It is not that I think she would be BETTER than others; I just think that she will be no WORSE than any plausible alternative. I don’t consider her apparent incompetence or lack of political profundity as either unique or uniquely dangerous. (2) I am a sucker for ideological-class warfare. I have come to the view that coastal elitism is intolerant, ignorant, hypocritical and ugly. I actually share many of the beliefs of the so-called elitists and I would (in most cases) acknowledge their marginal superiority. However, I disdain their disdain of those who don’t share their (our?) beliefs. Call it cheering for the underdog if you like.
But I will probably catch the highlights at some point and I am willing to announce how I will update my beliefs about Palin in advance:
(1) If the debate is considered a draw, then I will maintain my previous belief that she was a great strategic VP pick and she is as prepared to be President as any conceivable alternative.
(2) If Palin goes down in a painful, fist-biting, CBSesque blaze of glory, then I will concede that the national political scene was way out of her league; that she was a high risk VP pick and the House won.
(3) If Palin emerges a winner, then my impression of her will not improve (see (1)). However, I will interpret this outcome as further evidence that Biden was a bad pick, experience doesn’t matter, and politics is about in-group drama.
I encourage others to announce how they will analyze the VP debate ex ante. I suspect many folks (many folks = everyone+/-some error) will just have their priors confirmed regardless and we will be right back where we started.
As an aside, some anti-Palins have interpreted my defense of her as an endorsement. Allow me to clarify. (1) My cynicism extends to ALL candidates. It is not that I think she would be BETTER than others; I just think that she will be no WORSE than any plausible alternative. I don’t consider her apparent incompetence or lack of political profundity as either unique or uniquely dangerous. (2) I am a sucker for ideological-class warfare. I have come to the view that coastal elitism is intolerant, ignorant, hypocritical and ugly. I actually share many of the beliefs of the so-called elitists and I would (in most cases) acknowledge their marginal superiority. However, I disdain their disdain of those who don’t share their (our?) beliefs. Call it cheering for the underdog if you like.
When Being Right Makes You Wrong
Is it possible to think that everyone is wrong despite self-confidence in thier own beliefs while simultaneously being self-confident in your own belief that everyone is wrong?
Wouldn't you then be the exception that proved the rule?
Or you could think that everyone including yourself is wrong? But if you are also wrong, then there is reason to doubt your assertion. In which case, everyone could be right. But then you would be wrong. Which makes you right?!?!
Wouldn't you then be the exception that proved the rule?
Or you could think that everyone including yourself is wrong? But if you are also wrong, then there is reason to doubt your assertion. In which case, everyone could be right. But then you would be wrong. Which makes you right?!?!
Why Narcissistic Women are Easier to Seduce*
Olivia Judson:
Addendum: Also from the article: "Asked to pick out photographs of people likely to support the same political party as themselves, they pick more beautiful people than they do for supporters of an opposing party." Actually, I am of the belief that people who share my conservative (classically liberal) views are, on average, less attractive. And they tend to have bigger asses (again, on average). I fully recognize that this is likely an irrational belief (the first anyway, the second re big butts is probably true). I maintain it (the belief) however, to balance my belief that Democrats bathe less often...on average.
Most of us thus believe we are less biased than other people, less racist, less prone to conform, and less prone to be influenced by advertising. Yet, while good at spotting bias and prejudice in others, we are routinely blind to it in ourselves.*As they say, read the whole thing.
Addendum: Also from the article: "Asked to pick out photographs of people likely to support the same political party as themselves, they pick more beautiful people than they do for supporters of an opposing party." Actually, I am of the belief that people who share my conservative (classically liberal) views are, on average, less attractive. And they tend to have bigger asses (again, on average). I fully recognize that this is likely an irrational belief (the first anyway, the second re big butts is probably true). I maintain it (the belief) however, to balance my belief that Democrats bathe less often...on average.
29 September, 2008
Intergenerational Transfer of Wealth
If you are old, particularly if you are a homeowner, then you likely saw a good chunk of your wealth deteriorate due to the collapse of housing prices directly or due to the MBS fiasco indirectly. Regardless, you now have less wealth. It's kind of like an accounting error...you wake up one morning and realize you had been consuming and planning as if that 2 was really a 5. Opps.
If you are young, particularly if you do not own a home, then your consumption is derived from income and you aren't much impacted by the current crisis. Moreover the housing bubble just made a very important source of investment and forced savings much more affordable for you. This is windfall. It's like walking into the grocery store and discovering everything is now 1/2 price...time to stock up. True, we now know that real estate is not a risk free investment and prices can fall and fall big. But that certainly doesn't mean housing is a bad opportunity for a patient investor. Nor does is it a especially risky investment with the right collateral. People with 20% down are not (yet) sitting on negative equity.
So we are experiencing a transfer of wealth across generations. Lets look at how this could play out for three specific groups:
(1) Many homeowners have children and many homeowners plan to bequest some wealth to their children. But now their kids can benefit from the housing slump. So if you own a home and are planning to leave something for your kids, then fret not. You can reduce the amount you were planning to pass down without guilt. Your balance of wealth is basically a wash.
(2) On the other hand, if you are young and are planning to get a shout out from the old folks, then situation will be a wash for you too. Better start looking for a house to buy if you don't want to take a hit on the inheritance.
(3) Now, if you are like me, then you are in the best position to take advantage of the opportunity the housing slump presents. I can benefit from the affordability of housing AND I don't lose anything because my parents weren't going to give me anything in their will anyway! Woohoo.
If you are young, particularly if you do not own a home, then your consumption is derived from income and you aren't much impacted by the current crisis. Moreover the housing bubble just made a very important source of investment and forced savings much more affordable for you. This is windfall. It's like walking into the grocery store and discovering everything is now 1/2 price...time to stock up. True, we now know that real estate is not a risk free investment and prices can fall and fall big. But that certainly doesn't mean housing is a bad opportunity for a patient investor. Nor does is it a especially risky investment with the right collateral. People with 20% down are not (yet) sitting on negative equity.
So we are experiencing a transfer of wealth across generations. Lets look at how this could play out for three specific groups:
(1) Many homeowners have children and many homeowners plan to bequest some wealth to their children. But now their kids can benefit from the housing slump. So if you own a home and are planning to leave something for your kids, then fret not. You can reduce the amount you were planning to pass down without guilt. Your balance of wealth is basically a wash.
(2) On the other hand, if you are young and are planning to get a shout out from the old folks, then situation will be a wash for you too. Better start looking for a house to buy if you don't want to take a hit on the inheritance.
(3) Now, if you are like me, then you are in the best position to take advantage of the opportunity the housing slump presents. I can benefit from the affordability of housing AND I don't lose anything because my parents weren't going to give me anything in their will anyway! Woohoo.
25 September, 2008
23 September, 2008
Bill "gets it"
Clinton on Palin.
"I get this," Clinton said. "My view is ... Why don't we like them and celebrate them and be happy for her elevation to the ticket? And just say that she was a good choice for him and we disagree with them?"
19 September, 2008
My Simple Model for Dependence on Foreign Oil
Suppose you’re stranded on an island with two other people; call these people Crusoe and Friday. The island is nicely divided such that you control the only fishing spot, Crusoe has exclusive property rights to coconuts, and Friday has private access to firewood. Consumption of fish, coconuts and firewood are all essential for survival on the island. Fortunately, the three of you have an arrangement to trade with each other under mutually agreeable terms. All is well.
Now suppose as winter approaches (assume your island is sufficiently far from the equator to experience seasons) colder weather requires that you consume more firewood to stay warm. Growing demand for firewood increases scarcity and raises the price Friday charges in terms of fish and coconuts. Under these new conditions, Friday starts to accumulate excess quantities of coconuts and smoked (otherwise it would spoil) fish. For reasons of personal safety you become seriously concerned about Friday’s growing stores. For example, what if: (1) natives attack and demand coconuts or fish to spare your life, (2) sources of coconut and fish become depleted and Friday uses his supplies to extort your services, or (3) other individuals wash ashore and fish and coconuts become extremely valuable.
This “transfer of wealth” becomes very worrying, so you consider your options:
(a) After researching potential technologies for generating heat you discover that it is possible to burn coconut husks. Currently generating the equivalent heat directly from coconuts requires 2x the cost of firewood in terms of coconuts. If you fully adopt this method there is an unknown probability that you could improve your coconut burning technology. However, it is unlikely that you would achieve parity or greater fuel efficiency relative to firewood before the end of winter.
(b) You could spend time searching the island for alternative ways to generate heat. Currently you are unaware of any feasible alternative fuel sources on the island. And searching requires forgoing time spent fishing, which currently is your only source of income.
(c) It is possible to be marginally more conservative with your consumption of firewood. However, doing so reduces your energy such that you are less productive when fishing.
(d) Maintaining the current arrangement is always a possibility.
What is your optimal strategy for long term security and comfort?
Now suppose as winter approaches (assume your island is sufficiently far from the equator to experience seasons) colder weather requires that you consume more firewood to stay warm. Growing demand for firewood increases scarcity and raises the price Friday charges in terms of fish and coconuts. Under these new conditions, Friday starts to accumulate excess quantities of coconuts and smoked (otherwise it would spoil) fish. For reasons of personal safety you become seriously concerned about Friday’s growing stores. For example, what if: (1) natives attack and demand coconuts or fish to spare your life, (2) sources of coconut and fish become depleted and Friday uses his supplies to extort your services, or (3) other individuals wash ashore and fish and coconuts become extremely valuable.
This “transfer of wealth” becomes very worrying, so you consider your options:
(a) After researching potential technologies for generating heat you discover that it is possible to burn coconut husks. Currently generating the equivalent heat directly from coconuts requires 2x the cost of firewood in terms of coconuts. If you fully adopt this method there is an unknown probability that you could improve your coconut burning technology. However, it is unlikely that you would achieve parity or greater fuel efficiency relative to firewood before the end of winter.
(b) You could spend time searching the island for alternative ways to generate heat. Currently you are unaware of any feasible alternative fuel sources on the island. And searching requires forgoing time spent fishing, which currently is your only source of income.
(c) It is possible to be marginally more conservative with your consumption of firewood. However, doing so reduces your energy such that you are less productive when fishing.
(d) Maintaining the current arrangement is always a possibility.
What is your optimal strategy for long term security and comfort?
17 September, 2008
I know next to nothing about finance...but what the hell.
My opinion is that the current financial crisis is NOT bad. Admittedly, I would be less nonchalant if I were more exposed. But I think the net long-term effect of a crisis like this on the economy is positive. Our historic prosperity is a function of innovation and efficiency. Failure, uncertainty and fear are necessary inputs in the production of innovation and efficiency learning.
The question is not "will we have economic setbacks?" but rather "how frequent and deep will the impacts be?" Our present situation is serious, yes. But were it not for the current crisis, the next pothole would likely be an even bigger chasm. Ideally, we want frequent, small bumps in the road; the resulting long term trend will be upward sloping and smooth from a distance. Banks fail almost every other week, but we don't hear about them because our economic system depends upon and absorbs these occasional house cleanings in the long run.
I think the "bailouts" (they can hardly be characterized as bailouts) were probably preferrable to not getting involved, however, I'm sure there were better alternatives now that we have the benefit of hindsight. The important question looking forward is whether or not the federal government will allow the current supply of fear to self-regulate the market or if they will impose inevitably imperfect regulations which foster the type of false security that generated the current high-risk situation.
No matter how much you idiot-proof capitalism, a bigger idiot will always emerge. The two alternatives are (1) reject capitalism, or (2) punish the idiots. There really is no middle ground. You cannot design a better variety of capitalism than the one produced by the free market. So, we would do well to take advantage of what educators refer to as a "teaching moment".
And as for those non-idiots who are nevertheless suffering from the crisis: well, that is the fee we pay to live as the most prosperous generation in the most prosperous nation in history.
The question is not "will we have economic setbacks?" but rather "how frequent and deep will the impacts be?" Our present situation is serious, yes. But were it not for the current crisis, the next pothole would likely be an even bigger chasm. Ideally, we want frequent, small bumps in the road; the resulting long term trend will be upward sloping and smooth from a distance. Banks fail almost every other week, but we don't hear about them because our economic system depends upon and absorbs these occasional house cleanings in the long run.
I think the "bailouts" (they can hardly be characterized as bailouts) were probably preferrable to not getting involved, however, I'm sure there were better alternatives now that we have the benefit of hindsight. The important question looking forward is whether or not the federal government will allow the current supply of fear to self-regulate the market or if they will impose inevitably imperfect regulations which foster the type of false security that generated the current high-risk situation.
No matter how much you idiot-proof capitalism, a bigger idiot will always emerge. The two alternatives are (1) reject capitalism, or (2) punish the idiots. There really is no middle ground. You cannot design a better variety of capitalism than the one produced by the free market. So, we would do well to take advantage of what educators refer to as a "teaching moment".
And as for those non-idiots who are nevertheless suffering from the crisis: well, that is the fee we pay to live as the most prosperous generation in the most prosperous nation in history.
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