tag:blogger.com,1999:blog-28053465147571688532023-11-16T02:50:27.794-05:00Publius' Napkin has movedthis site has moved to http://www.publiusnapkin.wordpress.com. thank youPubliushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.comBlogger125125tag:blogger.com,1999:blog-2805346514757168853.post-39022230897803666012009-02-26T16:14:00.002-05:002009-02-26T16:31:52.504-05:00Publius is moving...To Wordpress.<div><br /></div><div>Please update your feeds and bookmarks accordingly</div><div><br /><div><a href="http://publiusnapkin.wordpress.com/feed/">http://publiusnapkin.wordpress.com/feed/</a><br /></div><div><br /></div><div><a href="http://publiusnapkin.wordpress.com/">http://publiusnapkin.wordpress.com/</a><br /></div><div><br /></div><div>Enjoy the new design.</div></div>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com0tag:blogger.com,1999:blog-2805346514757168853.post-38410666307587572262009-02-23T20:21:00.006-05:002009-02-23T20:51:55.803-05:00the decline of the port authority of new yorkEarly successes (documented in <a style="font-weight: bold;" href="http://valerius-publicola.blogspot.com/2009/02/rise-of-port-authority-of-new-york.html">the rise of the port authority</a>) endowed the Port Authority with a great amount of capital heading into the 1960s, however, the law of diminishing returns made it much harder for the agency to leverage its resources with its past efficiency. The principle transit problem of the day -- commuter railroads -- were of no interest to the Authority, as the the railroads were simply huge money pits, and while the Authority had a plan to turn around the previously unprofitable airports, it had no such plans for the railroads. Politicians, however, were anxious to move the losses off their books, and argued that the Authority should use its surplus to absorb some of the losses.<span class="fullpost"><br /><br />The agency reacted by finding big-money projects to make its surplus disappear. Unfortunately, the competency and discipline that served the Authority so well in building bridges disappeared along with the surplus. The agency's major project in the late-70s, the World Trade Center, saw its cost balloon from $355 million to $575 million, for example. Around the same time, the agency agreed to take part of the rail transit burden, while also seeking to expand its prerogative from port-area transportation to port-area economic development, a scope which would would include industrial parks, fishing ports, etc.<br /><br />The Port Authority had always fought to expand its role, but this time its ambitions were greater than its expertise. By the 90s, the agency was facing annual deficits and was forced to contract. The agency had made a few unwise decisions, and political considerations limited its ability to make the politically unpopular business decisions (e.g., raise tolls) needed. The most significant development in the agency's recent history was the name change to Port Authority of New York and New Jersey. Fitting, that a symbolic appeasement underscored these later years, punctuating a period of "drift, patronage and favoritism, and the search for new goals" (Doig).<br /><br />The Port Authority's early successes and later struggles reflect the organizational design and changing context. To begin with the latter, the Port Authority was born at a time when there was a large need for infrastructure. There were few bridges in New York, two piers in New Jersey, no major bus or truck terminals, and fledgling, unprofitable airports. By the 1960s, it was a different world. Generally, I'd shy away from this type of statement -- I'm sure there were many in 1921 that believed New York/New Jersey didn't need much infrastructure -- and I want to emphasize that I am not arguing that 1960s New York/New Jersey had maxed out its infrastructure. Indeed there is still work to be done today. I am arguing that the Port Authority of New York's engineers had a lot more blank canvas to work with in 1921 than 1960, and it's logical that the agency found it easier to plan and execute good projects.<br /><br />And while the agency failed to effectively manage commuter rail, the World Trade Center, and some smaller projects that drew less traffic than anticipated, the Authority's greatest failure was in not finding a next "great" project after the piers and airports. If there was a great engineering project for the undertaking, neither the Authority nor anyone else could find it. Normally, a firm in the Authority's position would do one of two things: expand their business to less mature markets or expand their business offerings. The Authority was prevented from the doing the former by their restriction to the port district, and so the organization was relegated to the latter. At first, engineering competency and visionary planning allowed the agency to shift gracefully from bridges to tunnels to airports to piers; when there were no more airports or piers to expand, however, the agency floundered.<br /><br />I've gone this far with only a brief mention of the elephant in the room -- central planning. It was no accident that FDR showered praise on the Port Authority for its early successes and modeled the Tennessee Valley Authority on the agency. The four-term president saw the agency as the embodiment of the technocratic central management that FDR would strive to spread to much of the American economy. I'm not interested in debating the tenets of central planning, but it's worthwhile to note that the Port Authority struggled with the same challenges that face all attempts to centrally manage a large, complex system -- like the transportation of New York and New Jersey.<br /><br />You'll note that nowhere have I argued one way or another with regards to the Port Authority's planning -- only its execution of plans. Would it have been better to construct a bridge in the 50s? Was it wise to place a bus terminal in midtown? Maybe, maybe not; I am not fit to judge and certainly haven't read any compelling arguments on the matter. Instead I have judged the agency by its ability to produce self-sustaining public works in a timely and economical manner. Therefore, my praise of the agency's early work should not be confused with praise of its planning; I do not believe that the available facts allow for a judgment to be passed.<br /><br />Anyhow, let's wrap up with a review of some of the variables that led to the Port Authority's early successes, later failures, and lessons.<br /><br /><table style="width: 382px; height: 1766px;" class="pbNotSortable" cellpadding="1" cellspacing="1"><tbody><tr><td><strong>Variables</strong></td> <td style="vertical-align: top;"><br /></td><td style="vertical-align: top;"><br /></td><td><strong>Early Advantages</strong></td> <td style="vertical-align: top;"><br /></td><td style="vertical-align: top;"><br /></td><td><strong>Late Disadvantages</strong></td> <td><strong>Lessons</strong></td><td style="vertical-align: top;"><br /></td> </tr> <tr> <td style="font-weight: bold;">Agency led by committee appointed by NY and NJ governors</td> <td style="vertical-align: top;"><br /></td><td style="vertical-align: top;"><br /></td><td> <p style="border-width: 1px; margin: 0px; padding: 0px; font-weight: inherit; font-style: inherit; font-size: 100%; font-family: inherit; vertical-align: baseline; line-height: 1.5em;">Governors appointed gifted apolitical leaders and competent personnel</p> </td> <td style="vertical-align: top;"><br /></td><td style="vertical-align: top;"><br /></td><td> <p style="border-width: 1px; margin: 0px; padding: 0px; font-weight: inherit; font-style: inherit; font-size: 100%; font-family: inherit; vertical-align: baseline; line-height: 1.5em;">Personnel corrupted by political patronage by later governors</p> </td> <td>Have not figured out how to guarantee technocratic personnel management given democratic leadership's influence</td><td style="vertical-align: top;"><br /></td> </tr> <tr> <td style="font-weight: bold;">Agency led by committee appointed by NY and NJ governors </td> <td style="vertical-align: top;"><br /></td><td style="vertical-align: top;"><br /></td><td>Agency planning and execution was largely apolitical and governors supported the Authority against local interests</td> <td style="vertical-align: top;"><br /></td><td style="vertical-align: top;"><br /></td><td>Influence of political interests grew</td> <td>Have not figured out how to sustain an apolitical government agency </td><td style="vertical-align: top;"><br /></td> </tr> <tr> <td style="font-weight: bold;">Self-funded</td> <td style="vertical-align: top;"><br /></td><td style="vertical-align: top;"><br /></td><td> <p style="border-width: 1px; margin: 0px; padding: 0px; font-weight: inherit; font-style: inherit; font-size: 100%; font-family: inherit; vertical-align: baseline; line-height: 1.5em;">Direct incentive to efficiently execute sustainable business strategy</p> </td> <td style="vertical-align: top;"><br /></td><td style="vertical-align: top;"><br /></td><td>Politicians eyed agency surplus and wanted to siphon from it for unprofitable projects</td> <td>Self-funding can greatly improve accountability, but need to protect integrity of agency budget autonomy</td><td style="vertical-align: top;"><br /></td> </tr> <tr> <td style="font-weight: bold;">Depending on user payments for funding</td> <td style="vertical-align: top;"><br /></td><td style="vertical-align: top;"><br /></td><td>Not relevant during growth period</td> <td style="vertical-align: top;"><br /></td><td style="vertical-align: top;"><br /></td><td>Income through user fees threatened by political incentive to oppose all fees (politicians don't benefit from payments; easy populist issue)</td> <td>Clear understanding of user payment levels for each project beforehand </td><td style="vertical-align: top;"><br /></td> </tr> <tr> <td style="font-weight: bold;">Agency limited to port district </td> <td style="vertical-align: top;"><br /></td><td style="vertical-align: top;"><br /></td><td> <p>Many growth opportunities within the port area </p> </td> <td style="vertical-align: top;"><br /></td><td style="vertical-align: top;"><br /></td><td>Forced to pursue less profitable enterprises within area, rather than more profitable elsewhere </td> <td>Don't make agencies servants of jurisdictions, but allow them to grow based on their core competency </td><td style="vertical-align: top;"><br /></td> </tr> <tr> <td style="font-weight: bold;">Empty infrastructure landscape</td> <td style="vertical-align: top;"><br /></td><td style="vertical-align: top;"><br /></td><td> <p style="border-width: 1px; margin: 0px; padding: 0px; font-weight: inherit; font-style: inherit; font-size: 100%; font-family: inherit; vertical-align: baseline; line-height: 1.5em;">Low-hanging fruit that would serve public need and could be profitable to construct and maintain</p> </td> <td style="vertical-align: top;"><br /></td><td style="vertical-align: top;"><br /></td><td>More mature market</td> <td>Frame long-term purpose of agency </td><td style="vertical-align: top;"><br /></td> </tr> <tr> <td style="font-weight: bold;">Vague mandate</td> <td style="vertical-align: top;"><br /></td><td style="vertical-align: top;"><br /></td><td> <p style="border-width: 0px; margin: 0px; padding: 0px; font-weight: inherit; font-style: inherit; font-size: 100%; font-family: inherit; vertical-align: baseline; line-height: 1.5em;">Allowed agency to find success outside initial purpose (rail)</p> </td> <td style="vertical-align: top;"><br /></td><td style="vertical-align: top;"><br /></td><td>Pushed mandate into areas outside expertise and struggled</td> <td>Allow flexibility </td><td style="vertical-align: top;"><br /></td> </tr> <tr> <td><span style="font-weight: bold;">Luck</span> </td> <td style="vertical-align: top;"><br /></td><td style="vertical-align: top;"><br /></td><td>Good luck on timing of pier development with container revolution</td> <td style="vertical-align: top;"><br /></td><td style="vertical-align: top;"><br /></td><td><br /></td> <td>Pray.<br /></td><td style="vertical-align: top;"><br /></td> </tr> <tr> <td style="font-weight: bold;">Monopoly on port district planning and execution</td> <td style="vertical-align: top;"><br /></td><td style="vertical-align: top;"><br /></td><td>Allowed for a coordinated development effort; competition was 'political' (not rational) with few rivals</td> <td style="vertical-align: top;"><br /></td><td style="vertical-align: top;"><br /></td><td>Prevented the rise of a more effective competent replacement and allowed for the Authority's decay</td> <td>Powerful for initial coordination, but lack of effective marketplace for government agencies precludes destruction of decayed agencies </td><td style="vertical-align: top;"><br /></td> </tr> </tbody> </table> <p> </p>I still have some questions. While the Authority has not been 'destroyed' by market forces, it has been castrated by political forces; is this an efficient and/or acceptable end? It's certainly better than the institution growing in size, and likely worse than the institution being replaced by a more efficient and competent firm.<br /><br />In the end, I think the lessons of the Port Authority suggest that a thoughtfully designed 'public goods' marketplace, populated by *private* firms, with well-designed, long-term contracts, would be best, but I also know that this glosses over a lot.<br /><br />For now, I'll just look for more books on innovations in government design and public contracting. Your thoughts?<br /></span>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com0tag:blogger.com,1999:blog-2805346514757168853.post-27836116499430162552009-02-03T19:49:00.005-05:002009-02-24T08:08:38.001-05:00the rise of the port authority of new yorkI grew interested in the Port Authority of New York and New Jersey (previously the Port Authority of New York) after reading of its role in creating containerports in the <a style="font-weight: bold;" href="http://www.amazon.com/Box-Shipping-Container-Smaller-Economy/dp/0691123241">The Box</a>, an excellent history of "How the Shipping Container Made the World Smaller and the World Economy Bigger." I picked up <span style="font-weight: bold; font-style: italic;">Empire on the Hudson</span> (not recommended) and scoured the internet for information on the bi-state agency. I've quoted from the book below and condensed my learnings to two (free!) blog posts (the second is now up: <a style="font-weight: bold;" href="http://valerius-publicola.blogspot.com/2009/02/decline-of-port-authority.html">the decline of the port authority of new york</a>.)<br /><br />The Port Authority of New York was one of the first government programs designed to be "efficient and nonpolitical ... vigorous and experimental." The agency’s significance does not emanate from its good intentions, however, but from its innovative design, many accomplishments, and gradual decline. Many times before, I have stated the importance of understanding the impact of political economy and organizational design on government program effectiveness. Yet many liberals -who should be the most concerned with a high-functioning government- are ambivalent about the subject, and to no one's surprise, small-government conservatives share this ambivalence. This post will not fill this huge void on its own, but it will provide the first half of a two-part organizational biography of the Port Authority of New York. And to tell the Port Authority's story, we must begin with the history of the port itself.<span class="fullpost"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://gothamgazette.com/graphics/port/map.jpg"><img style="margin: 0pt 0pt 10px 10px; float: right; cursor: pointer; width: 233px; height: 225px;" src="http://gothamgazette.com/graphics/port/map.jpg" alt="" border="0" /></a><br /><br />The Port of New York is the United States' largest port, with "nearly 800 miles of waterfront, dwarfing Boston with its 140, Philadelphia with 37, and Baltimore with 120." New York City capitalized on this great natural advantage, with "nearly half of the nation's international commerce - counting both export and import commodities - [passing] through the Port of New York" in 1919. You'll notice in the accompanying image, however, that New York shares the waterway with New Jersey. Yet while New York enjoyed 230 piers at the time, New Jersey had but two.<br /><br />New Jersey was understandably frustrated by this state of affairs. Its waterfront was actually better oriented for transit, because it was cheaper to ship cargo by rail from New Jersey to the rest of the country than from the island of Manhattan or Brooklyn. However, freight rates were not dictated by actual transportation costs, but set by a government regulatory body, the Interstate Commerce Commission (ICC). Despite New Jersey's multiple petitions, the ICC maintained that there would be a single rate for rail transit to the Port of New York, whether it was to the New Jersey or New York side, which carried the hidden cost burden of floating freight across the river.<br /><br />In 1921, New Jersey lost its appeal to the ICC, and New York’s counsel in the case, Julius Henry Cohen, capitalized on the opportunity to win support for a Port Compact, which provided for a bi-state agency to coordinate development for the New York/New Jersey port district. And thus, under the banner of cooperative planning, the Port Authority of New York was born. Each governor would appoint six commissioners to oversee the agency, which would rely "on revenue bonds and user payments (rather than general taxes) to carry out large capital projects," a characteristic unique to the Authority at the time. Furthermore, the Authority worked with the states’ governors to limit local government leaders’ power to disrupt the agency’s plans; a victory for technocratic governance and a (well-deserved) slap in the face of direct democracy.<br /><br />The autonomous, self-sustaining public agency would largely fail in its initial objective, to resolve the rail problems that had led to the rate discrimination case, but it would leverage its vague prerogative to take on an array of other projects. The Authority’s early years were dominated by bridges, completing the Outerbridge Crossing, Goethals Bridge, Bayonne Bridge, and George Washington Bridge by 1932. The Port Authority wasn’t the first to build bridges, but it managed to build all four bridges under budget and ahead of schedule. A factoid that should make every Boston taxpayer fume. In addition, the agency had beaten out a competing government institution to win control over the Holland Tunnel and its lucrative user fees.<br /><br />Former New York Governor and then-President Franklin Roosevelt congratulated the Port Authority for its "skill and scientific planning," and celebrated the agency an example for government institutions across America. This praise not only reveals the fantastic reputation the Authority enjoyed in its early years, but also provides the context necessary to understand the agency as the poster child for technocratic progressive government. The Authority’s successes were counted as victories for government-run corporations and cooperation, in contrast to the failure of private firms and dog-eat-dog capitalism. (I’ll return to this subject in the next post).<br /><br />The Port Authority’s next twenty years were filled with piers and airports. The agency had long lobbied NYC and New Jersey to develop their respective waterfronts, but New York was disinterested in assistance, and Jersey simply couldn’t close the deal. This delay actually ended up working in New Jersey’s favor, however, as by the time the state got its act together in 1955, the shipping container was about to render traditional piers obsolete.<br /><br />Accordingly, blind luck corrected the ICC’s injustice in the rate discrimination case, with Port Elizabeth leapfrogging its Manhattan and Brooklyn competitors to become the largest containerport in the world. The timing of the waterfront development was a stroke of luck for the Authority as well. The agency had fought hard to construct traditional piers up until the container’s arrival, and only their failre to build the necessary coalition saved them from the embarassment of building infrastructure for the horse-and-buggy of shipping.<br /><br />In addition to the bridges, the Holland Tunnel, and the containerports, the Port Authority created the Lincoln Tunnel and world’s largest bus and truck terminals downtown, and transformed the Newark, LaGuardia, and JFK airports into the profitable, consumer-driven facilities we know today -- all by 1955.<br /><br />And there ends the good news. I'l leave the bad news (and the synthesis) for the next post.</span>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com0tag:blogger.com,1999:blog-2805346514757168853.post-50075830511144299102009-01-29T17:44:00.002-05:002009-01-30T14:09:47.082-05:00when cross-disciplinary studies go badI have long respected the work of the <a style="font-weight: bold;" href="http://www.santafe.edu/">Santa Fe Institute</a>, home to "multidisciplinary collaborations in the physical, biological, computational, and social sciences" in pursuit of an "understanding of complex adaptive systems," which are found everywhere from cells to cities. I was therefore disappointed by a <a style="font-weight: bold;" href="http://www.arabianbusiness.com/542705-the-end-of-the-world-is-nigh?start=0">recent article</a> on Santa Fe Institute President Geoffrey West, who appears to believe that mankind is on the path to "imminent destruction" (to his credit, those are the journalist's words, not his.) Beyond the sensational conclusion, I was put off by the surprisingly questionable logic employed by the theoretical physicist and the disconnect between his conclusions and reality.<br /><span class="fullpost"><br />West is an expert in universal scaling laws, and has focused his recent research on "[understanding] the dynamics of organisms, their structure, their organization, how they grow, how they evolve, how they live and how they die." He adds, "I wanted to see in what way an elephant is just a blown up mouse or a blown up human being, or in what way we are just a blown up cell." West's research has succeeded in uncovering principles of scale: "the pace of life gets slower and slower the bigger you are - in a very systematic, predictable way. You can do this from ecosystems down to cells. All of biology, pretty much across the whole spectrum, obeys this kind of behavior." The differences between the mouse and the elephant exemplify these principles.<br /><br />How do these principles hold up when applied to human societies? According to West, not well. Greater size in human societies, be they cities or firms, does not lead to greater efficiency. West concedes that larger human societies bring about more wealth produced per capita, but argues that as "the number of patents that are produced goes up, the greater the number of AIDS cases there are, the greater the number of crimes there are, and the greater the amount of pollution that is produced."<br /><br />Whereas larger organisms will have less disease and consume less energy relative to its size, West found that disease and energy consumption did not decline, leading him to conclude that human societies do NOT benefit from economies of scale like organisms in nature. From West's perspective, human societies grow less efficient as they grow larger. In nature, large animals use less oxygen per gram of weight than small ones, while humans seem to have a unyielding demand for money (the connection between oxygen and money being that each is a "vehicle for transforming goods into something useful"). And while the pace of organisms slows with greater size, activities within human societies grow more rapid with size, from bank transactions to the speed of walking.<br /><br />It's hard to know where to start in rebuttal. First, if we are to test the applicability of scaling laws in organisms to scaling laws in human societies, it's important to properly assign our roles and keep them consistent. This should be straightforward, as small organism: large organism what small society: large society.<br /><br />I will note that West fails to maintain the integrity of this relationship; for instance, when he argues that the pace of societies speeds up with size (unlike organisms), he is not talking about society, but its components. The speed of walking or activity of humans within that society is not the speed of society. Individual human beings: society is analogous to cells: organism. Once again, human accumulation of money (in surplus of what is necessary for reasonable expectation of survival) is not analogous to organisms' consumption of oxygen. There are in fact numerous reasons why this analogy doesn't hold, but there's no reason to go beyond the logic found in an SAT handbook – the analogy is violated by comparing a part (man) with a whole (organism).<br /><br />To restate, West is, in theory, comparing the scaling laws of organisms to the scaling laws of human societies, so the wholes are organisms and societies; analysis of the parts of the wholes (e.g., cells and humans) may indeed be relevant, but they must be contrasted with one another, not with the wholes, to maintain consistency.<br /><br />Perhaps more striking than the bizarre logic employed is the contrast between the reality and West's perception of cities. He sees larger human societies as more inefficient, yet the greater the size of human settlements, the more efficient they are – whether we are talking about environmental impact or otherwise. He sees the prevalence of disease canceling out the wealth created by economies of scale, but in what world is this born out? Wealth creation has allowed those who participate in the economies of scale to live longer, better lives. Economy of scale has given societies more productive, healthier cells, to the benefit of the whole (the society) and its parts (man).<br /><br />The societies and the people who are least healthy, the least productive, and the least well-off are those who are least able to participate in the economies of scale. They are the mice. Their lives are short, nasty and brutish. These people and these societies would love to cope with the problems West associates with societies of great scale, and few if any members of large societies would trade their New York residency for a few acres in New Guinea.<br /><br />West misses an opportunity to demonstrate the scaling laws of organisms actually apply quite well to human societies. From cells to human beings, living things are better able to survive in large vehicles – be they organisms or societies. That is not say greater size is always evolutionary advantageous, but is to say the principles of greater efficiency and durability West found in large organisms applies to large societies as well.<br /><br />Finally, as the article nears the end, West argues that human society is unsustainable because "the pace of life is constantly quickening and the time between major innovations is necessarily getting shorter." He apparently believes it's a bad omen that while "it may have taken 50,000 years to go from stone to iron, and it may have taken 100 years to go from steam and coal to oil … how long did it take to go from being dominated by computers to being dominated by information technology, as being distinct from computers?"<br /><br />Wow. And the final head-scratcher: "Products are coming out one after another. I have in front of me this marvellous Mac, but it is already becoming outdated. It's not only that we are on this treadmill that is getting faster and faster, but we are accelerating it."<br /><br />Perhaps I'm missing something, but I am not sure why any of this is supposed to worry me. Notice that there is no resource depletion argument being made: he's not arguing that we're going to consume our ecosystem into nothingness. Apparently, the human productivity and technological innovation that has come with larger webs of cooperation and exchange have put us on a path to disaster.<br /><br />Given Mr West's credentials, I'm wary of being too critical </span><span class="fullpost">–especially, when judging his work through the lens of a journalist</span><span class="fullpost">– but I am left at a loss.</span>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com0tag:blogger.com,1999:blog-2805346514757168853.post-26127646308899712932009-01-24T21:04:00.001-05:002009-01-24T21:06:27.242-05:00the city: good for migrants, bad for genes?<a style="font-weight: bold;" href="http://econlog.econlib.org/archives/2009/01/urban_death_tra.html">Arnold Kling</a> and <a style="font-weight: bold;" href="http://www.creativeclass.com/creative_class/2009/01/23/where-do-cities-come-from/">Richard Florida</a> have recently started up blog conversation on whether cities are creative growth centers or urban death traps.<br /><br />Kling quotes Razib Khan:<br /><blockquote>up until the year 1900 the world's cities were massive genetic blackholes. Cities only kept their population up through migration, which explains how Rome shrunk to 30,000 inhabitants by the 7th century.</blockquote>Kling asks how this jives with Jane Jacobs, who contends that urban settlements have been the catalysts of economic growth. Jacobs isn't directly contradicted by the genetic data, but the two certainly appear to point in different directions. If cities were genetic graveyards up until 1900, how can it be that cities were simultaneously hubs of economic growth?<br /><span class="fullpost"><br />One way to reconcile the two perspectives is to restate Jacobs' position: when circumstances allow for economic growth, returns on agglomeration will concentrate this growth in urban settlements, which will in turn spur further development. Population density is not a guarantor of growth. Furthermore, when lacking the conditions necessary for growth, urban settlements' negatives, such as disease, may outweigh any benefits to agglomeration, leading to a relatively poor genetic expectancy.<br /><br />The Jacobs question, however, really only touches on a more fundamental question: if cities were genetic graveyards, why did migrants continue to flock to these urban death traps?<br /><br />Why were genetic returns to agglomeration negative during a period when economic returns were relatively high, according to Jacobs and historical migration patterns? What in the name of Charles Darwin was going on?<br /><br />I'm interested in hearing theories (perhaps the immediate prospects for the migrant is better in the city, but their genes are more likely to be wiped out generations later by a plague...), but for now, I am skeptical that millions of people, throughout history, have lowered their genetic expectancy by migrating to urban death traps.</span>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com2tag:blogger.com,1999:blog-2805346514757168853.post-21074433557830373682009-01-22T19:30:00.001-05:002009-01-23T09:57:45.048-05:00in defense of historical contextI was struck by a <a href="http://economix.blogs.nytimes.com/2009/01/13/the-case-for-small-government-egalitarianism/">recent article</a> by Ed Glaeser, which takes a historical look back at the policies and ideologies of politicians from Henry Clay to Woodrow Wilson.<br /><br />While I generally find Glaeser's perspective to be in line with my own, I found his historical characterizations grating: positive depictions of Andrew Jackson and Woodrow Wilson, negative characterizations of Alexander Hamilton and Teddy Roosevelt -- yikes.<br /><span class="fullpost"><br />I can't claim complete objectivity in this matter, as the latter are two of my favorite American historical figures, and the former float around the bottom of my informal ranking of American presidents. For reasons distinct from his economic policy, Jackson may be one of the most despicable blemishes on our national record (I'll be reading the "American Lion" soon - we'll see if that sways me.)<br /><br />But more significant than the details of Glaeser's particular article is what it represents, that is, a tendency amongst modern thinkers to distort the thoughts, motivations, and actions of past figures through a decidedly modern prism.<br /><br />Many small-government folks will pick up the "Jeffersonian" mantle and sneer at Hamilton, with his love of federal power. Now, people do all sorts of crazy stuff, but this bothers me because I happen to otherwise agree with a lot of these people. Often these are disciples of Friedrich Hayek and Milton Friedman, who view the Hamiltonian legacy as a threat to state -and by extension- individual power.<br /><br />These moderns have the nasty tendency of reading the words and actions of men and women (namely men) long since dead and gone as if they were writing and acting in the modern world. 'Hamilton - oh jeez, he loves federal power, he'd be all about expanding the reach of The Man at the expense our Ron Paul revolution!'<br /><br />And so, these men of history are stripped of their historical context.<br /><br />This is unfortunate. A careful consideration of context allows for a more precise understanding of the historical person, a more objective and apt judgment of their actions, and a sounder understanding of just what lessons to learn from their experiences.<br /><br />Myself, I believe Hamilton's presence may have carried the second most weight in securing the United States' future prosperity and relative security <span style="font-style: italic;">while</span><span style="font-style: italic;"> also believing </span>that the US would currently benefit from a devolution of power from the federal to the state level (and from the government to the individual): there is no contradiction inherent in these positions.<br /><br />The age of Hamilton saw the competition of great Atlantic nation-states. The countries were powerful, aggressive, and keen to elbow out competition and expand wherever they might find opportunity. (Just ask the Dutch Republic.) The American colonies were weak and divided, and, without Hamilton's supposedly nefarious central bank and consolidation of debts, would doubtlessly have drifted further apart.<br /><br />Even with Hamilton's work, the United States had to fend off foreign intrigues that sought to play one state off the others to secure geopolitical and economic interests in America. Given the history of Europe, I feel confident speculating that a country with a Spanish Florida, British Texas/South, French Bayou, and/or Mexican/German/Japanese Pacific would have led to considerably more wars and considerably less economic growth.<br /><br />My argument, by the way, implies that this added value also supports the westward expansion (unfortunately named 'Manifest Destiny') in the name of continental integrity (the later Mexican/German intrigue and Japanese hostilities would seem to support this logic), as well as forbidding the South from succession (a tricky issue likely deserving of its own post).<br /><br />Economic liberty should be fought for and celebrated, and Americans are right to be suspicious of any actions that usurp this personal freedom in the name of fighting some greater enemy.<br /><br />That does not necessarily mean that there are no times when such a sacrifice is not just wise, but necessary for the long-term preservation of this economic liberty. In the early 21st century, with the world's great states at rest and a federal government infinitely more powerful than its 18th century counterpart, there are few if any reasons to further concentrate power (and indeed many to devolve it). As noted above, Hamilton's America was an entirely different beast struggling to survive in a far different jungle. And just as evolution may favor a smaller or larger animal at different points of time, the same is true for the natural selection of human societies.<br /><br />The intertwining fates of survival and liberalism are recent developments, and to attack figures like Hamilton for failing to live up to 20th century ideals is as silly as criticizing Caesar as a murderer of democracy. To say that circumstances vary widely is to understate the point: in many cases, it may be more effective to use different terminology for different periods of time, so as not to confuse common terms with common realities.<br /><br />I should note that I don't mean this post to be a final word on the defense of Hamilton, but simply to raise a principled disagreement with the method by which he -and many others- are judged. Economists with no historical background can be just as inane as historians with no economic learning.<br /><br />That said, I think the econs are right on about FDR. ;-)</span>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com0tag:blogger.com,1999:blog-2805346514757168853.post-51969328548310780722009-01-08T22:29:00.006-05:002009-01-09T15:13:23.912-05:00three millenia of waste managementFor the past few months I have searched high and low for a book that would provide me with a comprehensive understanding of the history of waste management in relationship to the rise and decline (or perhaps more appropriately, growth and diseased death) of human societies. This book would cover the history of sanitation, from aqueducts to soap to sewers, and explain how proper waste management acted as an upper bound on city growth, with failure resulting in biblical plagues that would wipe out entire towns and set back development hundreds of years.<br /><br />I came across <a style="font-weight: bold; font-style: italic;" href="http://www.amazon.com/Big-Necessity-Unmentionable-World-Matters/dp/0805082719">The Big Necessity</a> and <a href="http://www.amazon.com/Flushed-How-Plumber-Saved-Civilization/dp/0743474082"><span style="font-weight: bold; font-style: italic;">Flushed</span></a>, among others -reading the latter and adding the former to an increasingly formidable "to-read" pile- but neither had the historical context I was looking for.<br /><br />I then set about to leverage my limited knowledge and the endless information available on the internets to write a blog post on the matter (if I couldn't read it, perhaps I could write it...)<span class="fullpost"><br /><br />Up until the last couple hundred years, waste management amounted to nothing more than disjointed efforts -- e.g., Indus Valley, Greece, Rome -- with little relevance to the society's death or survival (sure, Rome reigned supreme at the time, but I've seen no reason to believe that their water works were the key to, rather than the the product of, this greatness).<br /><br />My hypothesis, of course, is not that waste management leads to glory, but that waste management acts as an upper bound on the growth of human societies; at some point, a city's ability to support their population without falling prey to death and disease depends on waste management. As a further clarification, that is not to say that through adequate waste management a city can avoid the possibility of disease altogether: plagues have many vectors by which they can decimate a population, waste management will not eliminate them all.<br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.burlesontech.com/wiki/download/attachments/8650766/550px-Population_curve.svg.png"><img style="margin: 0px auto 10px; display: block; text-align: center; cursor: pointer; width: 336px; height: 168px;" src="http://www.burlesontech.com/wiki/download/attachments/8650766/550px-Population_curve.svg.png" alt="" border="0" /></a><br />This hypothesis jives with the lack of waste management innovation for most of the history of mankind. Looking at the population chart graphic, it's striking just how flat the world population was up until ~1500 - ~1800.<br /><br />Now, world population growth does not necessarily mean city growth; for a city growth proxy, I took the average of the historical estimates for the top two most populous cities at various points in history:<br /><br />100 AD Rome / Luoyang (Honan), China: 435,000<br />1000 AD Cordova, Spain / Kaifeng, China: 425,000<br />1500 AD Beijing, China / Vijayanagar, India: 586,000<br />1800 AD Beijing, China / London, United Kingdom: 980,500 <br />1900 AD London, United Kingdom / New York, United States: 5,361,000<br />1950 AD New York, United States / London, United Kingdom: 10,661,500<br /><br />Currently, Tokyo and Mexico City are Nos. 1 and 2, averaging ~23,000,000.<br /><br />In this context, it should be no surprise that there was little development in waste management until the 19th century. Little changed in terms of the demands placed on waste management, and so the history of waste management up until the 19th century is nothing more than series of blips, for the most part.<br /><br />That is not to deny that some societies appreciated the value and convenience of fresh and streaming water in a central location, however, which sometimes also involved proper waste management.<br /><br />Water works got an early start, with the the Harappan constructing water systems in the Indus Valley in the third millenium BC. Everyone within the town walls -not just the elite- had running water and indoor plumbing.<br /><br />Outside of the Romans, there would be little improvement over this flash of brilliance until the 19th century (~4500 years). In the mean time, the Persians developed <span style="font-style: italic;">qanats</span> (like aqueducts, but for agriculture); a Minoan ruler built a luxurious castle in Crete with running water and primitive toilet; and finally the Greeks began capitalizing on aqueducts in the 4th century, setting the stage for the Romans.<br /><br />The Romans' passion for plumbing grew out of a greater love for baths. The city's plumbers utilized lead (in place of terracotta and other materials) to construct the pipes of the aqueducts, which were built to provide a continuous flow of water to foundations and the baths.<br /><br />In a trend that continues even up through the 19th century, waste management systems were not created to deal with health issues. Convenience and luxury bear most of the credit for the innovations that did take place. The science of sanitation simply did not exist.<br /><br />Now I must take a moment to talk about the plagues that struck some of the world's greatest cities before 1800. First, before the Black Death struck down ~400 million in the 14th century (with additional waves sweeping Europe and elsewhere for hundreds of years), the bubonic plague decimated the emperor Justinian's Byzantine empire in 541-542 AD. In both cases, it appears disease spread was spread through fleas and rats, which many speculate came to their new homes free-riding on merchant ships.<br /><br />These plagues may have been the first large-scale tests of waste management. Would a 21st century sewage system have saved any of these cities? I'm no expert, but surely the plague would still have made an appearance. The effects, however, would likely have been far less devastating with the appropriate disposal of diseased bodies and waste.<br /><br />For instance, one of the few places with plumbing, Canterbury monastery, escaped unscathed during the darkest days of the plague in London.<br /><br />But still, the science of sanitation remained a mystery, and no lessons were learned form the terrible episodes.<br /><br />The waste management innovations that did eventually emerge were not thoughtful responses to newfound health risks, but responses to superficial concerns.<br /><p>In the 1800s in England, water closets (think toilets) were popular luxury items amongst the have's. These water closets should not be confused with advances in waste management. Quite the contrary, as the water closets grew more popular, more waste emptied into the rivers.<br /></p><p>(Fun fact from <span style="font-style: italic;">Flushed</span>: sewers originally only meant waterways for drainage, it was only after they became deluged in feces that the word took its modern meaning.)<br /></p><p>In this same period, cholera devestated London, and England's mortality rate rose close to 50%,.<br /></p><p>Yet if a plague devestating the entire citycouldn't incite a change in waste management, infants dying of dirty water certainly wouldn't do trick. It would take the "Great Stink" of the summer of 1858, which saw the Thames' stench drive Londoners out of the city and, more impressively, drive the Houses of Parliament, which sit on the Thames, to act.</p><p>Dead babies were a problem, putrid stench was unacceptable.</p><p>Parliament empowered Joseph William Bazalgette, a civil engineer, to construct a sewage network. Bazalgette's system survives today, and successfully ended London's woes, even making the Thames fishable after decades of dead, diseased water.<br /></p><p>At the same time, from 1840 to 1870, the number of communities with water works increased from 50 to 240. Shortly thereafter, the British OK'd public water closets, and inventors brought to bear the innovations that would become the world's modern toilets.<br /></p>And so the stench of feces set in motion the development of the modern sewer system and the principles of separating the water that goes in from the stuff that comes out.<br /><br />But just in case you thought that 20th century innovations in waste management would be rooted in medical knowledge, it would take a powerful Boston politico stepping in poop while running around Quincy before the cesspool known as Boston Harbor would be cleaned up in the 1980s.<br /><br />And here we are, 4600 years after the Indus Valley civilization set a standard for indoor plumbing that was largely ignored up until the late 19th century. While I am troubled that we still haven't guaranteed this basic standard to every man, woman, and child alive today, I am struck by the remarkable progress we have made in the past 150 years, as well as disappointed how small of a role understanding of health risks played in the creation of the waste systems that could have been created hundred of years earlier.<br /><br />I'm not sure what exactly to take away from the history of waste management, but it is both troubling and fascinating nonetheless.<br /><br /></span>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com1tag:blogger.com,1999:blog-2805346514757168853.post-82051890760202738672008-12-20T21:08:00.005-05:002008-12-22T20:15:14.893-05:00first crack at transport cost impactI recently read Marc Levinson's <a style="font-weight: bold; font-style: italic;" href="http://www.amazon.com/Box-Shipping-Container-Smaller-Economy/dp/0691123241">The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger</a>, and was reminded of a task on my to-do list that I have yet to cross off: I want to create one of those fancy maps I love where distance represents transportation cost/time. I'm still not sure of the details. Perhaps I'd take each major market and then have all the other countries orbiting around the market, with distance based on transport cost and country size based on GDP.<br /><br />Unfortunately, I haven't gotten to that point because it's proven damn difficult to get anything near comprehensive data on the subject. Levinson has a few nuggets:<br /><blockquote><span style="font-style: italic;">Being landlocked, one study calculated, raises a country's average shipping costs by half. Another study found it cost $2,500 to ship a container from Baltimore, on the U.S. Atlantic coast, to Durban, in South Africa - and $7,500 more to haul it by the road the 215 miles from Durban to Maseru, in Lesotho.</span></blockquote>I checked the bibliography and snagged the source PDFs online. One of them,<a href="http://www.google.com/url?sa=t&source=web&ct=res&cd=4&url=http%3A%2F%2Fpapers.ssrn.com%2Fsol3%2Fpapers.cfm%3Fabstract_id%3D629195&ei=hatNSYOBMZCm8ASKqpS7Dw&usg=AFQjCNF_in2XJLY9DNbbt2FKuX5gSLkPoQ&sig2=qoXN412xjea81zllTCFYiw"> Infrastructure, Geographical Disadvantage and Transport Costs</a>, has some interesting data on African country transit costs, albeit from 1999.<span class="fullpost"><br /><br />I threw the data into Excel, popped in the current GDP (PPP) per capita, and below is the result. In the original paper linked above, the transport cost for US to Germany was 1.0. I created a "large market" proxy transport cost by averaging the transport costs from each city to the US, Germany, and Japan.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjA_1QP6xLAAGhV0Y92fmNdVi3MeSQilaIjEgJyNYCIhFv0TwKhsbzgjyUG4sIk4FoMgFgVEgBP1UUlvVzAAK2KcYz9RmabFV-XWa-hQDEPilx_avgGVxp-x81RC98QsCDZjsftueTl46g/s1600-h/Untitled-1.jpg"><img style="margin: 0px auto 10px; display: block; text-align: center; cursor: pointer; width: 400px; height: 267px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjA_1QP6xLAAGhV0Y92fmNdVi3MeSQilaIjEgJyNYCIhFv0TwKhsbzgjyUG4sIk4FoMgFgVEgBP1UUlvVzAAK2KcYz9RmabFV-XWa-hQDEPilx_avgGVxp-x81RC98QsCDZjsftueTl46g/s400/Untitled-1.jpg" alt="" id="BLOGGER_PHOTO_ID_5282072817509298418" border="0" /></a><span style="font-size:85%;"><span style="font-style: italic;">*Oil-rich country, transport costs for non-oil products may be underestimated</span><br /><br />In the bubble chart below, bubble size is proportional to GDP per capita, with the Transport Cost on the Y-axis, countries sorted by GDP per capita (lowest to highest) along the X-axis.<br /></span><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjF6qCyJ515bIeibMGBkIsVBqj1S0clEUfNdtaA7H9E-AVHHLEW-dP1kjtLi2WkF1eJa3UeSXMX__1AudiNHxcW4b5LzvWCXqSgoIWCLF5YP-Fc33YHy0IkrNMSW_BauUKk7IkEHTiIp48/s1600-h/Untitled.jpg"><img style="margin: 0px auto 10px; display: block; text-align: center; cursor: pointer; width: 442px; height: 328px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjF6qCyJ515bIeibMGBkIsVBqj1S0clEUfNdtaA7H9E-AVHHLEW-dP1kjtLi2WkF1eJa3UeSXMX__1AudiNHxcW4b5LzvWCXqSgoIWCLF5YP-Fc33YHy0IkrNMSW_BauUKk7IkEHTiIp48/s400/Untitled.jpg" alt="" id="BLOGGER_PHOTO_ID_5282071757207834402" border="0" /></a><br />When I sorted by transportation cost, three countries stood out to me as having some of the lowest transportation costs yet only average GDP per capita: Senegal, Togo, Gambia<br /><br />Further down on the list, three more countries stood out with average transportation cost rates associated with much higher GDP (e.g., $2,000 range) than they achieved: DRC, Guineau-Bissau, Sierra Leone.<br /><br />I don't know a ton about the countries besides violence, but thought I'd bring them up in case an African aficionado happened to have something to offer.<br /><br />For my part, I make no conclusions. This is just the first attempt at exploring transportation costs. I'm still on the lookout for better data, but for now, I'll leave you with conclusions from that 1999 paper.<br /><img src="file:///Users/Prottas/Library/Caches/TemporaryItems/moz-screenshot.jpg" alt="" /><img src="file:///Users/Prottas/Library/Caches/TemporaryItems/moz-screenshot-1.jpg" alt="" /><blockquote style="font-style: italic;">Our main results are, first, that infrastructure – both own infrastructure and that landlocked countries’ transit routes -- is a significant and quantitatively important determinant of transport costs and of bilateral trade flows. For example, improving destination infrastructure by one standard deviation reduces transport costs by an amount equivalent to a reduction of 6,500 sea km or 1,000km of overland travel.<br /><br />Second, being landlocked raises transport costs by around 50% (for the median landlocked country compared to the median coastal economy). However, improving the infrastructure of the landlocked economy from the median for landlocked economies to the 25th percentile reduces this disadvantage by 12 percentage points, and improving the infrastructure of the transit economy by the same amount reduces the disadvantage by a further 7 percentage points.<br /><br />Third, combining estimates from transport cost data with the trade data we are able to compute the elasticity of trade with respect to transport costs; it is high, at around –2.5. This means that the median landlocked country only has 30% of the trade volume of the median coastal economy.<br /><br />Improving infrastructure to the 25th percentiles raises this to over 40%.</blockquote></span>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com0tag:blogger.com,1999:blog-2805346514757168853.post-9342764460948767952008-12-09T22:32:00.001-05:002008-12-09T23:31:01.425-05:00stay loyal to principles, skeptical of meansOnce we've acknowledged the<span style="font-weight: bold;"> </span><a style="font-weight: bold;" href="http://valerius-publicola.blogspot.com/2008/10/incomplete-guide-to-free-market.html">potential for regulation to improve the functioning of a market</a>, the next task is to determine the likelihood that regulation will indeed accomplish its stated goal. Just as our market skeptics are right to point out that we need to judge 'capitalism' by it's real-world performance, we must judge government action by the same. And our pluralistic democracy, for all its strengths, does a remarkable job of turning the most noble of causes into dismal and destructive regulation.<br /><br />The more we break down 'regulation' into its specific components, the better we are able to assess the respective likelihood of attaining stated aims and creating additional negative externalities. Only then can we weigh the likely effects of our darling regulation with the likely effects of inaction. Presumably, at the end of such an exercise, support or opposition of 'regulation' would be less broad and more tailored to specific types of interventions in specific instances.<br /><span class="fullpost"><br />For example, the appeal of government subsidies for investment in alternative energy is clear. It's become a proxy battle for those who support a large commitment to reducing carbon emissions and those who oppose it. Those that support this large commitment, however, should be more circumspect, and allow for the possibility that they might support the principle of carbon abatement, but still oppose subsidies because of what the regulation will look like at the end of the day.<br /><br />Ezra Klein <a style="font-weight: bold;" href="http://www.prospect.org/csnc/blogs/ezraklein_archive?month=12&year=2008&base_name=cornencrusted_pork">has said as much</a>:<br /><blockquote>"One more time: 79 cents of every dollar the federal government invests in renewable energy goes towards corn ethanol, a heavily subsidized boondoggle that is little better than gasoline. Which is why I worry about targeted investment strategies. It's not impossible to conjure up massive investment strategies that would make a tremendous impact on global warming. Gary Lipow does a nice job of it <a href="http://gristmill.grist.org/story/2008/11/25/17212/723">here</a>. But it's hard to imagine such an initiative entering the United States Congress and not emerging as pork encrusted in corn. The incentives are too poorly aligned."<br /></blockquote>Klein goes on to briefly mention the idea of a cap-and-trade system, before again agreeing with skeptics that "so much will be exempted and rebated and set aside that it will, in practice, be nearly as bad."<br /><br />He finally allows that a straightforward carbon tax may indeed be the best option (sidenote: supported by Al Gore and Ralph Nader, among others).<br /><br />Of course, these aren't the only carbon abatement programs in place or in consideration. We have CAFE standards, which many want to make more stringent, despite the fact that "the premise of <span class="highlighted0">CAFE</span> is a little bizarre—that manufacturers are responsible for the choices of their customers and penalized if car-buyers prefer more fuel-intensive vehicles. Across the political spectrum from left to right, the more direct, logical and efficient alternative of a carbon tax has its advocates, but they remain a persecuted minority," as <a href="http://www.economist.com/blogs/democracyinamerica/2008/11/cafe_dingell.cfm">the Economist points out</a>.<br /><br />Unfortunately, the conversation about what to do about carbon has not allowed much room outside a broad-based support or opposition to carbon abatement programs en sum. Opposition to particular programs is seen as a proxy for half-hearted committment to the principle. Yet it's perfectly possible that Ezra believes more in the destructive power of carbon emissions than John Q, yet supports <span style="font-style: italic;">fewer</span> of the abatement programs.<br /><br />Subsidies, CAFE standards, cap-and-trade systems, carbon taxes, and gas taxes represent only some of the regulations applicable to a single unpriced externality (carbon emissions). What's more, I don't want to dismiss the potential of subsidies, for instance, out-of-hand because of their massive failure in alternative energy. In fact, I would invite those sympathetic to subsidies to refine their argument, perhaps forming a push for (and only for) 'subsidies for basic research independent of commercial applications.'<br /><br />I would like to see educated debate move beyond principled support/opposition for more or less government action, and toward a pragmatic analysis of the means. It only takes a look at today's headlines of proposals for a "car tsar" to underscore the importance of differentiating between the principle (well-functioning auto industry that doesn't blow up the planet), which is the end, and the proposal itself (see: tsar, drug... tsar, terrorism), which is nothing more than an often shoddy means.<br /><br />In the mean time, be just as wary of he who supports all efforts to save the world from carbon and auto bankruptcies as you are of those who make the same pledge to protect us from Islamo-fascists (what a term!) If he can't discriminate between wasteful and ineffective means to serve his principle, he probably is an irrational zealot.<br /></span>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com0tag:blogger.com,1999:blog-2805346514757168853.post-71925253267824178492008-11-18T07:57:00.018-05:002008-11-18T16:49:56.091-05:00Gas Prices Fall as Big Oil Reduces ProfitsNEW YORK -- Consumer advocates are dancing in the streets after successfully lobbying Big Oil to <span class="blsp-spelling-error" id="SPELLING_ERROR_0">forego</span> the record profit strategy agreed upon by the cartel this past summer in hopes of improving the competitiveness of the American economy (home to the greatest workers in the world) and the strength of the American family.<div><br /></div><div>After a closed-door meeting this fall, the powerful transnationals agreeing to lower the Big Oil Required Set Price (<span class="blsp-spelling-error" id="SPELLING_ERROR_1">BORSP</span>) from more than $140 per barrel in June to $55 this November.<br /><br />"You know, they were right to <a href="http://www.huffingtonpost.com/chris-kelly/oil-execs-to-congress-i-d_b_103282.html"><span class="Apple-style-span" style="font-weight: bold;">suspect massive collusion and corruption behind the soaring oil prices</span></a>," said Bud <span class="blsp-spelling-error" id="SPELLING_ERROR_2">Budderson</span>, former head of Collusion & Pricing, and now VP of Smiles & Sunshine at <span class="blsp-spelling-error" id="SPELLING_ERROR_3">BP</span>. "You know who set the prices? Me. And you know how I did that? I created a formula based on how many new toys I wanted to buy that week.<div><br /></div><div>"I was a bad guy. But I did some thinking, listened to Barack explain the unfairness of our windfall profits, and decided to make a change."<br /><br />Along with the rest of Big Oil, <span class="blsp-spelling-error" id="SPELLING_ERROR_4">BP</span> made the difficult decision to stop selling oil at a price they now admit was completely detached from supply and demand, supported only by backroom dealing sealed with sweaty handshakes, evil cackling, and whale steaks marinated in peasants' blood.<br /><br />The price reduction has in turn won over many former critics.<br /><br />"The fact that Big Oil, in these tough economic times, has chosen to lower prices by nearly 2/3 for the good of America, serves as a beacon of hope for all those who believe in the essential awesomeness of America," said Tuck <span class="blsp-spelling-error" id="SPELLING_ERROR_5">Tuckerson</span>, senior analyst at <span class="blsp-spelling-error" id="SPELLING_ERROR_6">MSNBC</span>, and author of "Speculation, Gouging, and <span class="blsp-spelling-error" id="SPELLING_ERROR_7">Waterboarding</span>: A Year in Big Oil as a Super-Secret Embedded Reporter."<br /><br />"We just grew tired of being so <span class="blsp-spelling-error" id="SPELLING_ERROR_8">goshdarn</span> evil," said Exxon CEO Money <span class="blsp-spelling-error" id="SPELLING_ERROR_9">Monerton</span>. "You can only read headlines like"<a href="http://www.consumersunion.org/pub/core_other_issues/001086.html"><span class="Apple-style-span" style="font-weight: bold;">Record Gas Prices, Record Oil Industry Profits</span></a>," for so long without rethinking your decision to put excessive personal profit over the humble dreams of hard-working Americans.</div><div><br /></div><div>"Sure, the record profit strategy had its benefits, but this time around, we made the right choice, both for our companies, and for America."</div></div>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com1tag:blogger.com,1999:blog-2805346514757168853.post-11699131776093947172008-11-17T21:21:00.008-05:002008-11-18T15:32:15.707-05:00why bet on climate forecasts?I have long enjoyed <a style="font-weight: bold;" href="http://online.wsj.com/article/SB122610299552410141.html?mod=todays_us_nonsub_weekendjournal">Bjorn Lomborg's critiques of the climate change mitigation plans</a> (e.g., Al Gore's trillion dollar 10-year plan, T. Boone Pickens' giveaway), as he has used numbers of the UN's scientific consensus to show how little sense most (not all) of the plans make.<br /><br />Funnily enough, when "green" advocates see the small impact (and immense cost) of the Kyoto Protocol spelled out, they become far more amenable to perhaps a more interesting discussion on the viability of the UN's forecasts.<br /><span class="fullpost"><br />Furthermore, in the wake of a financial crisis brought on (partly) by a reliance on the financial community's consensus statistical modeling, it's not a bad time to question the reliability of these models in the first place.<br /><br />Both financial and environmental modeling portend to predict the behavior of a complex system, where even small errors can lead to catastrophically wrong predictions thanks to the great number of feedback loops in the system.<br /><br />And while the financial system saw the failure of the (Nobel winning) Black-Scholes financial model with the collapse of Long-Term Capital Management, environmental forecasters believed we were actually entering a "global cooling" only 30 years ago (quickly forgotten by the environmentalists' new Nobel-led movement).<br /><br />In both cases, these massive failures are dismissed with a wave of a hand - 'oh, we have better models this time. I mean, we'd never make a mistake like that again. We just needed to add variable X that my stupid old partner missed and not pay attention to variable Y, which I always thought was wrong.'<br /><br />I greatly enjoyed Nassim Taleb's "<span style="font-style: italic; font-weight: bold;">The Black Swan</span>" as Taleb took the financial modelers - indeed all forecasters - to task for just this arrogance and failure to admit their projections should not be relied upon.<br /><br />He states that he wouldn't trust a projection over five years; for the sake of context, the climate forecasts are 100 years (!) into the future.<br /><br />I should add that I believe I did read somewhere that Taleb has spoken vaguely in favor of conserving the environment as a natural resource. I won't disagree with this. <a style="font-weight: bold;" href="http://valerius-publicola.blogspot.com/2008/09/what-to-do-about-climate-change.html">I have already written on what I think makes sense for climate change</a> (Obama's $150 billion for R&D=good, subsidies for inefficient alternative energy applications right now=bad). This post is about the scientific modeling put forth as a consensus by a community with a long history of making drastically wrong forecasts.<br /><br />Taleb advises, <span style="font-style: italic;">"Learn to read history, get all the knowledge you can, do not frown on the anecdote, but do not draw any causal links, do not try to reverse engineer too much-but if you do, do not make big scientific claims."</span><br /><br />It appears to me that not only are our forecasters drawing causal links based on highly-fragile models, but also making "big scientific claims."<br /><br />Some of my few readers are likely chomping at the bit to add the comment/question: 'Sure, you can criticize the models, or whatever, but Taleb's book is all about protecting yourself from Black Swans - highly improbable events that carry catastrophic risk - how can you possibly distort his arguments into a critique of climate forecasts: you are missing the forest for the trees!'<br /><br />Maybe so - only Taleb knows, as he has been uncharacteristically reserved about commenting on climate change from what I've seen - but I do not believe I am misrepresenting his logic.<br /><br />Taleb writes: <span style="font-style: italic;">"Many of the prediction failures come from hedgehogs who are mentally married to a single big Black Swan event, a big bet that is not likely to play out. The hedgehog is someone focusing on a single, improbable, and consequential event, failing for the narrative fallacy ["</span><span style="font-style: italic;">creating a story</span><span style="text-decoration: underline; font-style: italic;"></span><span style="font-style: italic;"> post-hoc so that an event will seem to have an identifiable cause"] </span><span style="font-style: italic;">that makes us so blinded by one single outcome that we cannot imagine others. Hedgehogs, because of the narrative fallacy, are easier for us to understand- their ideas work in sound bites."</span><br /><br />Taleb emphasizes that Black Swans are Black Swans because they are indeed unknowable -- uncertainty is just that. His advice is to <span style="font-style: italic;">"to focus on the consequences (which you can know) rather than the probability (which you can't know)... Likewise, do not try to predict precise Black Swans- it tends to make you more vulnerable to the ones you did not predict. ... These thinkers advocate the opposite: invest in preparedness, not in prediction."</span><br /><br />Does this sound familiar? It should, because Bjorn Lomborg has advocated investing in preparedness that will pay dividends regardless of climate change (e.g., <a style="font-weight: bold;" href="http://online.wsj.com/article/SB122610299552410141.html?mod=todays_us_nonsub_weekendjournal">"malnutrition policies, immunization and agricultural research and development"</a>). These proposals stand in stark contrast to the energy-exclusive solutions of people like Gore and Pickens, which will make us indeed more vulnerable to the Black Swans we don't predict.<br /><br />To wrap up, I'll return to Taleb: <span style="font-style: italic;">"I do not forbid myself from using the word cause, but the causes I discuss are either bold speculations (presented as such) or the result of experiments, not stories."</span><br /><br />Environmental forecasters have treated us to bold speculations presented as scientific fact as part of a grand narrative that ends in apocalypse -- a Mad Max end of humanity unless if not for drastic, expensive, collective action (but secretly great for our economy!) to reduce our carbon footprints -- and thereby meaningfully mitigate climate change in an environment that has undergone catastrophic changes without the help of mankind for millions of years.<br /><br />Whew. Maybe that is right on target, but I hope that even believers will admit that it just oozes all mankind's cognitive biases and failings that are now well documented in behavioral economics, psychology, and indeed Taleb's work.<br /><br />The ceremonial rain dance is also well documented. People observed climate change. They created a narrative whereby they were responsible for it. They used their scarce resources to participate in ceremonies that would theoretically change the environment. Even after doing it for a period of time, they were able to explain away the many failures of their efforts to preserve the narrative. At least these ceremonies didn't cost trillions of dollars.<br /><br />The late Michael Crichton said, <span style="font-style: italic;">"</span><span style="font-style: italic;">Nobody believes a weather prediction twelve hours ahead. Now we’re asked to believe a prediction that goes out 100 years into the future? And make financial investments based on that prediction? Has everybody lost their minds?</span>"<br /><br />I'll end with some more wisdom from Taleb. We should not play the role of hedgehog, but that doesn't necessarily mean we slump on the couch and wait or a new wild theory to take root. We should take the advice of Lomborg and Taleb in maximizing our exposure to positive Black Swans by expanding R&D and allowing for the trial-and-error process necessary to innovate, while also investing in multi-use preparedness, e.g., malnutrition, disease prevention, poverty alleviation efforts, etc.<br /><br />And lastly, a disclaimer: there are lots of good reasons to reduce our impact on the earth, to use resources more efficiently and expend less energy doing the business necessary to provide humans with a healthy and fulfilling life. This post is specifically criticizing the forecasts that have been coopted and the narrative they support.<br /></span>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com0tag:blogger.com,1999:blog-2805346514757168853.post-10034186175247419222008-11-11T20:48:00.002-05:002008-11-11T21:04:15.757-05:00quigley's critique of the clerks of historyI've already posted my summary of Carroll Quigley's narrative of historical development <a style="font-weight: bold;" href="http://valerius-publicola.blogspot.com/2008/11/useful-narrative-for-civilization.html">here</a>, and now I'll move straight to the end, where Quigley concludes the <span style="font-weight: bold;">Evolution of Civilizations </span>with takeaways for students of the social sciences to better frame inquiries into the past and present. Quigley is disturbed by the inconsistencies and contradictions running rampant in historical study, which he attributes to students focusing on knowing every detail of their area of historical expertise, while failing to carefully consider a deliberate analytical framework from which to understand their historical area. <br /><br />The eager student would be slower to make bold assertions about the past if he appreciated the complexity of the system he studied. Understanding civilization, and social phenomena more generally, is intrinsically very difficult, as human experience is not static but dynamic: it is a continuum:<br /><blockquote style="font-style: italic;">"A continuum is a heterogeneous unity each point of which differs from all the surrounding points but differs from them by such subtle gradations in any one respect that no boundaries exist in the unity itself, and it can be divided into parts only by imaginary and arbitrary boundaries."</blockquote>We are left to cope with the past the same way we deal with the colors of the rainbow, drawing arbitrary lines between red, orange, and yellow. These artificial categories or labels are necessary for discussion, but we must realize they are arbitrary.<br /><span class="fullpost"><br />Quigley asks students to be ‘executives’ of history, rather than simply its clerks. The distinction is that the clerk concerns himself with knowing the details of history, while the executive is interested in understanding history. The executive’s understanding is only as good as his analysis, and to this end he uses deliberate techniques to provide a systematic understanding of historical development.<br /><br />These techniques will not be perfect – a fact Karl Popper and Nassim Taleb would insist upon more forcefully than Quigley – but only through the deliberate choice of one technique or another will the student be aware of the potential blind spots of his understanding. That is to say, every understanding of historical development depends on assumptions, whether the student deliberately makes them or remains blissfully unaware.<br /><br />It is a tremendous err, however, to not deliberately pick a set of assumptions from which to interpret. By unknowingly operating off whatever assumptions make sense at the time, the student ends up with a contradictory and inconsistent assumptions (and interpretation of history). What's more, he never even understands the assumptions implicit in his own garbled understanding.<br /><br />Quigley also takes issue with the how historical phenomena are compartmentalized into incomprehensible units, such as “nations” or “the middle class.” For the purpose of studying historical development, it is necessary to study distinct groups; a nation-state may have more than one distinct group, or may contain part of a distinct group that exists in another nation-state as well. Defining distinct groups is not easy, but it necessary for rational study.<br /><br />Quigley also objects to the language of history. Historical terms should be selected to correspond to the process being studied and the technique being employed. Instead, historical development is explained in a language devoid of consistency or meaning, e.g., periods classified as “medieval” and “classical.” At best, terms are descriptive, at worst they are highly misleading. The exact lines drawn to classify different periods or peoples will always be somewhat arbitrary, but that doesn’t excuse sloppiness.<br /><br />For another example, the time period between 400 and 1400 AD is referred to as the middle ages, medieval period, and the dark ages (for the beginning). The first term provides the student with the knowledge that this period is in the middle of two other periods. Medieval describes the period as “outdated,” which provides the student with the knowledge that this period is less up-to-date than more recent periods. The dark ages provides the student with a similar perception.<br /><br />None of these terms convey how the events within this period figure in the process of historical development. If anything, they suggest that historical development stopped for 1,000 years. Quigley breaks down the same time period into four parts – mixture, gestation, expansion, and conflict. Quigley deliberately chooses a set of consistent and relevant labels for historical phases that correspond with the process of historical development and the on-the-ground reality; therefore, his technique is better able to explain supposed exceptions to the dark ages or medieval period, such as the Carolingian Renaissance. This periodization is more than a small nuisance: it has led to a high degree of specialization limited within these arbitrary designations. Now the most fruitful studies are likely to come from those who study the gaps and borders of these false categories.<br /><br />In sum, Quigley joins Arnold Toynbee in arguing for the importance of analytical technique in historical and social analysis. A systematic technique not only provides a more coherent historical narrative, but also provides the self-awareness needed to understand one’s own potential blind spots. Toynbee properly identified these problems in his studies, but failed to provide proper definitions for his own terms and indeed fell prey to the same sloppiness he condemned.<br /><br />It would be silly to argue that Quigley’s technique of understanding the rise and fall of civilizations is perfect, but with the ubiquitous disclaimer to handle all post-hoc narratives with care, he offers a superior history, an insightful critique of popular history, and a sound reminder for students of history to carefully choose a technique - even if it's not Quigley's.</span>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com0tag:blogger.com,1999:blog-2805346514757168853.post-78883555813717213492008-11-10T19:23:00.006-05:002008-11-10T20:01:59.766-05:00useful narrative for civilization developmentCarroll Quigley provides probably the best narrative of the rise and decline of civilizations I've come across (better than Toynbee, Durant, Braudel) in his book, <span style="font-weight: bold;">Evolution of Civilizations </span>(download a PDF version <a href="http://www.archive.org/details/CarrollQuigley-TheEvolutionOfCivilizations-AnIntroductionTo">here</a>). I recently came across a document where I summed up a large portion of his insights and thought I would share it. I also have some notes on his critique of the study of history as a whole, which I'll share shortly.<br /><br />To begin, Quigley defines civilization as a producing society (as compared to parasitic society) which grows thanks to an “instrument of expansion.” This instrument depends on invention and investment for the purpose of surplus creation. Instruments of expansion appear to be big picture developments, from feudalism to industrial capitalism – means of organizing inputs.<br /><br />Quigley breaks down the civilization's life cycle into stages: mixture, gestation, expansion, and conflict, with universal empire, decay and invasion follow if the civilization fails to find a new instrument of expansion.<br /><span class="fullpost"><br /><span style="font-weight: bold;">Mixture</span>: A new society needs multiple cultures mixing; while there are millions of cases of cultural mixture, only rarely does it create a new society; usually this occurs on frontiers, where cultures mix to find “alternative ways of satisfying human needs,” e.g., a new instrument of expansion.<br /><br /><span style="font-weight: bold;">Gestation</span>: Period before expansion begins, where few changes are apparent; status is still stabile, but investment and invention are taking place under the radar.<br /><br /><span style="font-weight: bold;">Expansion</span>: Four kinds: a) increased production of goods, eventually leads to rising standards of living, b) increase in population of society as death rate declines, c) increase in geographic extent because of exploration and colonization, d) increase in knowledge; all are interrelated. Period typified by democracy, scientic advance, and revolutionary political change, while in the latter half of expansion, the instrument of expansion becomes institutionalized, “increasingly static and legalistic.” In time, all will see “investment begin to decrease, and the rate of expansion (although not expansion itself) begins to decline.”<br /><br /><span style="font-weight: bold;">Conflict</span>: Period of declining rate of expansion and increasing class conflicts, due to a conflict of interests between the vested minority and frustrated majority, with neither side having clear idea of real issues or workable solution to crisis. The programs the majority want - sharing the surplus of the few with the many - are not germane, since expansion can be resumed only with concentrated surplus; such revolutionary programs will actually make the crisis worse by lowering the accumulation of surplus. The period is also marked by increasingly frequent and violent imperialist wars, along with growing irrationality, pessimism, superstition, and other-wordliness.<br /><br /><span style="font-weight: bold;">Universal Empire</span>: This period is often considered to be the golden age by historians, as there is relative peace and prosperity as there are no competing political units and no struggle with outside societies. There may develop a common set of weights, coinage measures, and extensive government spending. This is all misleading, as there is no real economic expansion, as the previously-productive instrument of expansion has stagnated. Inventions are rare, and real economic investment is lacking. Society is now a monument to the vested interest. Masses live off waste of non-productive expenditures. “Golden age is really the glow of overripeness” - a prelude to decay.<br /><br /><span style="font-weight: bold;">Decay</span>: This period is unsurprisingly marked by “acute economic depression, decline in standards of living, civil wars between the various vested interests, and growing illiteracy.” There is often vain legislation to stop the waste. Religious, intellectual, social, and political levels of society lose the allegiance of masses. Religious movements then sweep society, along with a growing reluctance to fight for the society or pay taxes. This period can last a long time, until it can’t defend itself again the barbarians at the gate.<br /><br /><span style="font-weight: bold;">Invasion</span>: The invaders attack the civilization until it can no longer stand, destroying the civilization, and creating a new period of mixture, providing the possibility for a new gestation period. For instance, the Greek invasion of the Minoans was Classical gestation, the Germanic invasion ended Rome, but birthed Western Civilization. This is not a given though, simply a possibility.<br /><br />While Quigley’s model is based on the civilization experience, it applies to groups of all sorts all the way down to organisms. Political parties find instruments to expand their influence and popularity. These instruments become institutions protected by individuals who derive disproportionate benefit from their continuance. Over time, this institution sees a declining rate of utility to the party, and many in the party will think it best to reform or circumvent this institution and invest in a new instrument of expansion. If they fail to reform, their party’s position will decay further until they are replaced.<br /><br />Mancur Olson has a related argument in “The Rise and Decline of Nations,” which argues that small, distributional coalitions form to protect their interests, and as the state endure, it accumulates more and more of these drags on expansion, causing increasing decline.<br /><br />Quigley essentially takes natural selection theory and incorporates the uniquely human ability to choose. Animals change their instrument of expansion through thousands of years of selective survival and breeding. Humans, and any social groups they might comprise, can change their instrument of expansion simply through a will to change.<br /><br />At earlier stages in civilization, it was the battle to see who had the strongest few, who would strengthen themselves through plunder abroad and appropriation at home. The chief instruments were indeed war and plunder. However, this initial plunder created a surplus which allowed for inventions that created new economic instruments that created surplus without conflict, and indeed, depended on cooperation and expansion to mature.<br /><br />This created a lobby for peace and commerce, which butted heads with the entrenched war institution. This economic instrument was also institutionalized to secure its ability to flourish by land barons and guilds. This institution expanded for some time (at less-than-optimal rates) because of expanding items of commerce and expanding markets to sell, before finally commercial capitalism challenged the institution of feudalism. Commercial capitalism became the instrument of expansion until it was displaced by industrial capitalism, which in turn was institutionalized into monopoly capitalism.<br /><br />Each evolution has depended on surplus-holders with weaker ties to the current instrument of expansion than the draw of potential gains in the untapped instrument. This group will only come into being if the vested interests’ instrument incidentally creates a surplus for another group. The pivotal moment in a society occurs when the vested interests trade a share of surplus to a distinct group for a service they could not provide themselves; if so inclined, the secondary group will continue to accumulate influence through its more efficient instrument before either co-opting the vested interests or stripping the vested institution of its privilege.<br /><br />It seems like the US is in the Conflict stage, where Quigley offers some sage advice on the popular proscriptions. In this period of growing tension of evolution and increasing class conflicts between the vested minority and frustrated majority, neither side has a clear idea of real issues or workable solution to crisis; agendas to appropriate the surplus of the few by the many are worse than useless, since expansion can be resumed only with concentrated surplus to fund new or reformed instrument of expansion. Revolutionary programs responding to failure of investment will make the crisis worse by lowering accumulation of surplus; both the masses and the few are blind to what’s needed, a new instrument of expansion, which usually appears by accident or circumvention rather than through reform.<br /><br />Every instrument of expansion sees diminishing returns, and the rate of expansion can only be maintained or increased through reform or circumvention (working around entrenched interests) to ensure surplus is invested in the best available instrument.<br /><br /></span>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com0tag:blogger.com,1999:blog-2805346514757168853.post-8289766904911878402008-11-02T15:49:00.003-05:002008-11-03T09:06:52.514-05:00Fun with pollsI designed a quick and easy game for the election that focuses on the battleground states. I don't particularly follow the polls, but since I have to participate in my own game, I wanted a quick and easy method for making predictions I can at least pretend are more than WAG (wild ass guesses).<br /><br />Battleground states (5): Virginia, Colorado, Ohio, Florida, Pennsylvania<br />Close states (5): North Carolina, Missouri, Indiana, Montana, Nevada<br />Popular Vote (1)<br /><br />For each state, you must pick the winner and the margin of victory. I decided to simply rely on the average polling data, with one minor adjustment. Thanks to RealClearPolitics, I was able to quickly grab the last polling data from 2004 for each state as well as the eventual results. I then compared the polling forecast with the results, and looked to see if the polling data erred for/against Bush/Kerry.<br /><span class="fullpost"><br />The polling data for Colorado, Ohio, and Montana was virtually the same as the eventual voting outcomes. So I let Obama (CO, OH) and McCain (MT) keep their forecasted victories.<br /><br />The 2004 Pennsylvania and Nevada forecasts, meanwhile, underestimated Kerry's eventual wins, so that secured Obama's W's in those states.<br /><br />Bush outperformed his forecasted margins of victory in North Carolina, Missouri, Indiana, Virginia, and Florida. This solidified NC, MO, and IN as McCain victories in my book. In VA, Obama is +3.8, and Bush only outperformed his expected margin by +2, so I'm calling it for the gentleman from Illinois.<br /><br />The toughest nut to crack is Florida. Obama is up big (+4.2), but Bush was only up +0.6 and ended up +5. It's a tossup according to my unscientific method, but I am going to go Obama with a slim margin.<br /><br />For the popular vote, Bush outperformed his forecasted margin by a bit, so I am just taking a bit of shine off Obama (currently, +6.3) and leaving him +5.5<br /><br />According to these predictions, Obama will bring home the victory with 338 votes: 311 if he comes up short in Florida.<br /><br />VA: Obama +2<br />CO: Obama +6<br />OH: Obama +4<br />FL: Obama +0.5<br />PA: Obama +7<br />NC: McCain +2<br />MO: McCain +2<br />IN: McCain +3<br />MT: McCain +3<br />NV: Obama +6<br />Popular: Obama +5.5<br /><br />After the election, I'll recap how everyone did in the prediction game. If you haven't entered yet, <a href="http://www.surveymonkey.com/s.aspx?sm=qcKvk0r5wzlqe8ardKwwsg_3d_3d">Click Here to take survey</a>.<br /></span>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com0tag:blogger.com,1999:blog-2805346514757168853.post-9786381109204989752008-10-21T22:03:00.005-04:002008-10-21T22:12:44.908-04:00incomplete guide to free market regulationI’ve spent the past week or so struggling with how best to write a post on the proper role of regulation in market design. This a difficult topic to synthesize, since each market poses a different set of challenges for regulators; and I do not intend to catalog every regulation that exists and explain why I believe it to be useful or destructive.<br /><br />That said, the current financial crisis has incited a chorus of criticism of the deregulation movement of the past thirty years. This deregulation has transformed numerous industries: air, bus, shipping, telecommunications, and, yes, finance. Now that there's been a financial meltdown, in the mind's of many, deregulation has been completely invalidated (of course, most of these folks felt this way five years ago).<span class="fullpost"><br /><br />I'm less than impressed by this mode of argument, as I believe that deregulation is necessary in many instances to reduce distortions in the market. But unlike some caricatures of the free-market position, I don't advocate deregulation to the point of anarchy. I'd like to remove many regulations, keep many others, and selectively add a few as well.<br /><br />Regulation is tricky business, and I am interested in arriving at a principled differentiation between regulation as appropriate market design versus regulation as nefarious market meddling. I’ve emailed a few highly-regarded bloggers, but in lieu of an appropriate response by these bloggers, I thought I would take a shot.<br /><br />It’s appropriate to begin with a discussion of what I mean by market design versus market meddling. Market design is the set of formal and informal rules that shape and limit participation in the market: market design rules separate a market from anarchy. Market productivity is indeed enhanced by rules to govern market behavior. Thefts indeed reduce market exchange. Beyond security, consumer confidence is essential: forgeries will quickly empty a market place. The purpose of market design is to maximize voluntary exchange between willing parties.<br /><br />Here's my (incomplete) theoretical check list for a free market:<br /><br />* No single buyer/seller should exert significant influence over prices or output (e.g., monopoly, collusion, unions)<br />* No asymmetric/incomplete information: participants must be straightforward in what they are buying/selling (e.g., used car market)<br />* No unpriced externalities (e.g., cost of toxic chemicals released into local lake)<br />* No threats to property (e.g., theft)<br />* No restrictions on who can buy/sell goods (e.g., licensing)<br />* No restrictions on prices at which goods can be bought/sold (e.g., minimum wage)<br />* No restrictions on the quality of the goods exchange (e.g., FDA approval)<br /><br />Many will point out that by this check list, no market is completely free. This is truism akin to the observable fact that no human being is truly free. Still, just as I'd prefer to be "more free" even if I'm not completely free, I'd prefer to participate in markets that are "more free."<br /><br />Indeed many of these concerns will be mitigated by the market participants themselves. Two-faced scumbags will be left without a trading partner, while fair-dealing will be rewarded with more business. You probably don't inspect the newspaper you buy in the morning before you hand over your money. But there is no law against selling newspapers with pages missing.<br /><br />Still, few markets of import are self-regulating in all aspects. Formal legal laws and informal rules are necessary to advance the free-market agenda listed above. This post has served to reestablish the principles of the free market, which has been perverted by critics of the deregulation movement in their zeal to win the political blame game currently taking place.<br /><br />The next post will be a bit more practical in looking at the issues of regulation, including regulatory arbitrage and capture, specifically in the context of our faltering financial system. It's easy to say we need the "right" regulation (which obviously was lacking). It's even relatively easy to state the principles by which this regulation should abide. It's much harder to explain which, if any, rule-making institution (e.g, Congress?) is likely to produce regulation that improves the sustainability and productivity of the market.<br /><br />But let's try.</span>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com1tag:blogger.com,1999:blog-2805346514757168853.post-51197039781932796002008-10-09T18:09:00.005-04:002008-10-09T18:45:54.647-04:00skills to pay the bills - the college yearsWe've covered the i<a style="font-weight: bold;" href="http://valerius-publicola.blogspot.com/2008/10/no-skills-to-pay-bills-pt-1.html">mportance of education, and the problems with our current public school education policy</a>. Next up is the university level.<br /><br />To begin, our universities truly are the envy of the world. That said, we aren't perfect. There are a few low-cost options: community colleges, online degree programs, and technical schools. But these alternatives are generally considered to be "second class" education with a very firm ceiling that rules out many well-paying careers.<br /><span class="fullpost"><br />In response, progressives have fixated on making it possible for every high school graduate to go full-time to a four-year college.<br /><br />On one level this makes sense, even marginal college students can expect at least a 7% wage premium per year of college. This is because the bachelor's degree has achieved a majestical stature for students and for employers, signaling (at the least) a basic capacity to be trained (and eventually perform) in a high-value, well-paying profession.<br /><br />There is nothing inherently wrong with a degree acting as a signaling device; we depend on just such signals for societal trust and exchange.<br /><br />The problem is that the bachelor's degree is a very expensive signal, and there is reason to believe a very wasteful signal. And while it's not a societal problem if rich people want to spend their money on extravagant signalling, it is a societal problem when our anti-poverty program depends on subsidizing the poor's purchasing of this overpriced signal.<br /><br /><object height="344" width="425"><param name="movie" value="http://www.youtube.com/v/mftSrvINl-o&hl=en&fs=1"><param name="allowFullScreen" value="true"><embed src="http://www.youtube.com/v/mftSrvINl-o&hl=en&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" height="344" width="425"></embed></object><br /><span style="font-style: italic;">(This is what $60,000 apparently buys you! Apparently, they didn't budget for a decent sense of humor.)<br /></span><br />In theory, this problem should resolve itself as firms exploit this opportunity by hiring and training smart high school graduates themselves for less than they would pay the college grads. That is indeed what has happened in India: at least one software company is thriving by hiring young professionals whom others disregard. They don’t look at colleges, degrees or grades, because not everyone in India is able to go to a top-ranked engineering school, but many are smart. The firm goes to poor high schools, and hires kids who are bright but are not going to college due to pressure to start making money right away. They train them, and in nine months, they produce at the level of college grads.<br /><br />This is not occuring in the US, primarily because of a coordination problem.<br /><br />Good future workers know they need to go to college to signal their ability to firms and firms know that they have a much higher chance of finding good future workers in the college group. Furthermore, employers are much less likely to have their competence called into question if a hire with a degree doesn’t work out than if they hire a worker without a degree (because of the correct perception of the low likelihood of that hire being a wise choise).<br /><br />The question is how to credibly signal to good future workers that a four-year college degree isn’t necessary to be considered as a candidate and to convince firms that there are enough good future workers without a four-year college degree to make it a wise investment to include them in their employee search.<br /><br />The challenge is to develop viable alternatives to the bachelor's degree that don't confer a 'second-class' status. I'd like to see the proliferation of shorter, no-frills academic programs that focus on teaching professional skills and testing relevant capacity (take a lesson from master's programs). In addition, I do believe that CPA-like exams for different professions (or areas of competency) will allow for a more fair and open competition.<br /><br />There can be great value-added by a four-year liberal arts program, just as there can be value-added by a PHD or masters program; the problem is that the bachelors degree hasn't become an option for those so inclined, but a requirement for a well-paying job - and an expensive requirement at that.<br /><br />It would be wonderful if we could afford to send every child to a four-year sleepaway camp, where they could sleepwalk through four years of classes (if they so chose) and receive a magic ticket to a well-paying job -- but that isn't the case.<br /><br />There is a lot of fat to be cut and changes in educational philosophy to be made. Perhaps rethinking the well-manicured campuses and live lectures, for instance. The academic lecture, by the way, has its roots in the medieval training of theologians in a time when one-book-a-course for four years of schooling would cost about $1.6M in book outlays. Back then, it made economic sense to have a lecturer (from latin lector - reader) read from a single book aloud to a hall filled with students. Yet despite the fact that nowadays students could read the contents of a lecture in an instant at virtually no marginal cost, or even watch a video of the lecture -- the lecture remains at the foundation of university teaching.<br /><br />Everyone in every occupation starts as an apprentice. This is as true of history professors and business executives as of chefs and welders.<br /><br />The challenge is to make both our advanced schooling and our advanced signaling more efficient and thereby, more accessible. A proper long-term strategy is not to subsidize students' purchasing a $160,000 education, but to support the establishment of alternative means, be it CPA testing or shorter, low-cost advanced degree programs for students to prove their merit to potential employers.<br /><br /><script type="text/javascript" src="http://feeds.delicious.com/v2/js/prottas/education?title=My%20Education%20Bookmarks&icon=m&count=40&sort=date&tags&name"></script><br /></span>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com2tag:blogger.com,1999:blog-2805346514757168853.post-89701715516054513022008-10-08T21:49:00.005-04:002008-10-08T22:15:55.483-04:00no skills to pay the bills, pt. 1I'm sure if you asked Barack Obama or John McCain directly about the importance of schools, they'd give you a rousing sermon (or at least a few firm talking points). Yet education reform has been notably absent from our political debate. The candidates love riling up voters' economic nationalism, whether it's talk of foreign oil, foreign cars, China (everyone's favorite boogeyman), outsourcing, globalization, immigrants, or any other buzzword that places blame for American worker woes far from the doorstep of the American government and people.<br /><br />Yet it’s not globalization or immigration or computers that have widen inequality and slowed wage growth for many Americans. It’s the skills gap.<br /><br />And while there are plenty of expensive plans to alleviate American poverty to varying degrees, tax-and-redistribution will never provide the economic opportunity and security that we wish for all Americans.<br /><br />Education should be the primary program to cure our social ills as the key to sustainable high compensation. It is both the key to advancing the welfare of the American poor, and also the means of securing America's economic growth.<br /><br />This post will focus on primary/secondary education, with a post to follow on college education. Some of the prettier lines from this post I've lifted either from my summaries (linked below) or the original articles (also linked below), but I've spent a bit more time for the sake of flow and coherency to reformulate these ideas.<br /><span class="fullpost"><br />First, let's recount why education is more important than ever.<br /><br />The labor market has expanded dramatically in the past 50 years -- undoubtedly for the better of Americans and all mankind. That said, unskilled Americans have had a much, much, much smaller share of the bounty than their fellow citizens.<br /><br />The problem is that employing unskilled American labor isn't much more profitable than buying a simple machine or employing unskilled labor in a third-world country, yet many unskilled Americans will only accept wages that are much higher than a third-world laborer will accept or a machine will cost.<br /><br />The value of unskilled labor is low. This sounds like a truism, but it wasn't always the case. Before the machines took over the world and the cost of doing business far from market plummeted, an unskilled laborer simply giving you a few hours time could get a decent wage (of course, that is relative to his peers; relative to his 21st century counterpart his life would be shorter and more brutish). What's more, the American laborer with a high school education likely still had an advantage over his global competition - that advantage has since disappeared.<br /><br />Meanwhile, unskilled laborers have watched the skyrocketing wages of skilled laborers,. This shift in labor value has been jarring for many Americans, who are ill-prepared to compete for wages based on value-added by their labor, rather than simply time spent at work. And let's be clear, the days of factories full of high-paying manufacturing jobs are gone forever.<br /><br />Most means of fighting this growing inequality carry large costs that reduce the size of the economic pie (e.g., taxes on capital gains, rent control, large welfare programs). By contrast, investing in human capital encourages work and offers the potential for permanent increases in earnings.<br /><br />It is no surprise we are seeing a divergence in income when the most valuable skills (soft) are only being attained by a minority of students who graduate college and high-school graduates lack both hard and soft skills.<br /><br />The skill-wage hierarchy will always exist. Education -increasing skills- is the lone hope for the poor to actually improve their condition.<br /><br />The wage premium for a high school degree has all but disappeared. There is little point in recounting the soul-crushing underperformance of American public schools, so let us instead look abroad to high-performing examples.<br /><br />Two of the best primary/secondary schooling examples to learn from reside in Sweden and Finland. The Fins explain the key to their success is to develop excellent initial training for teachers (only ~10% of applicants are accepted for teacher training), start education late and gently (Fins start at 7), and don't waste resources on national testing. The Fins' biggest problem? Getting rid of bad teachers- even with alcohol problems.<br /><br />While the Fins are more focused on testing achievement (...just not national testing), the Swedes are more interested in developing well-rounded thinkers, evidenced by their varieties of schools and competition, forcing schools to think more pointedly about quality as they risk losing 70k kronor if an unhappy student goes elsewhere.<br /><br />Swedish reforms in 1994 allowed nearly anyone who satisfies basic standards to open a new school and take in children at the state's expense. Schools can't admit based on religion or entrance exams and nothing additional beyond the set payment by the state can be charged for - but making a profit is fine. Since the reforms, the share of Swedish children educated privately has risen significantly, leading to the proliferation of many "chain" schools.<br /><br />In these chains, teachers update material on websites, utilize tutors, student-specific syllabi, and weekly student progress reports, and received performance monitoring and bonuses as personal tutors and subject teachers. There are no large school-owned facilities.<br /><br />The schools are profitable despite only getting a fixed $8-12 thousand per student rate from the locality. The average returns on capital are 5-7% per year thanks to the adept, no-frills, IKEA-style management. I imagine its hard for Americans to imagine so little money can get you student-specific syllabi and tutors - but it can.<br /><br />Back in the US, efforts to reform public education have centered completely on one thing: money. (One exception is the widely panned NCLB... Why is it panned? Big reason is lack of funding!)<br /><br />Yet there is scant to any literature that shows increased spending leading to improved results, despite many court decisions mandating increased spending on the premise it is responsible for achievement gaps. That is not to say that less books are as good as more books, but it is to say that spending is not the binding constraint on academic achievement, and that dramatic increases in funding will not lead to the academic gains we'd like to see.<br /><br />I believe that the public school organizational structure is incompatible with the flexibility and experimentation needed to attain the efficiency and productivity found in Sweden or Finland. Yet until recently, experimentation with other types of schooling has been verbotten. Thankfully, the crumbling public school empire couldn't hold off the barbarians at the gate forever.<br /><br />Free-market types have managed to carve out a few nooks and crannies for educational experimentation in the US, and we are beginning to see the first efforts to sprout out of these charter-school reservations.<br /><br />The nation's largest laboratory can be found in New Orleans, where 55% of public school students attend charter schools, by far the highest percentage of any city in the country. Dayton, Ohio and Washington, D.C. are second and third in charter-school market share.<br /><br />It is still too early to draw firm conclusions on the New Orleans charter system, but there has been demonstrable achievement improvement in what was an entirely stagnant district. Classes are smaller, principals have been reshuffled or removed, school-hours remedial programs have been intensified, and after-school programs to help students increased. Much of the gains are attributed to the quality of instructors.<br /><br />It would appear that government would be able to accomplish these aims, but it has not. New Orleans charter schools have capitalized on their flexibility to try different programs, allocate resources differently - to innovate. Surely, there will be success and failure in this process; the belief is that the successes will survive and reproduce, while the failures will whither away from disuse.<br /><br />Top-down government management is ill-suited to support this process.<br /><br />Meanwhile, in NY, charter schools are experimenting with increased principal autonomy, higher teacher salaries (with cutbacks elsewhere), and other education philosophies. In Washington D.C., there is a pilot program that will pay middle school students that meet academic and behavioral goals.<br /><br />Are any of these ideas answer? Maybe, maybe not. But whether they work or not, the path to progress in education lies in entrepreneurial districts not national standards, empowered teachers not accredited teachers, and education markets not education mandates. Progressives are often quick to suggest we take notes from top performers around the world. I would love to see us take a page out of the Swedish playbook.<br /><br />Next, we will look at what's holding back America's university system from reaching its potential.<br /><br /><br /><script type="text/javascript" src="http://feeds.delicious.com/v2/js/prottas/education?title=My%20Education%20Bookmarks&icon=m&count=40&sort=date&tags&name"></script></span>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com0tag:blogger.com,1999:blog-2805346514757168853.post-52525450717468766762008-10-05T16:05:00.001-04:002008-10-05T16:07:11.490-04:00SNL nails the financial rescueHat tip to <a href="http://gregmankiw.blogspot.com/">Mankiw</a>.<br /><!--[if IE]><object type="application/x-shockwave-flash" id="W4727a250e66f972348e91de187bfdcb6" width="384" height="283"><param name="movie" value="http://widgets.nbc.com/o/4727a250e66f9723/48e91de187bfdcb6/48e90714d330a84b/9ffb44e3/-cpid/267872bcde6272ce/clipID/727521/video_title/Saturday+Night+Live+-+C-Span+Bailout?storeInPid=true"><![endif]--><!--[if !IE]>--><object type="application/x-shockwave-flash" data="http://widgets.nbc.com/o/4727a250e66f9723/48e91de187bfdcb6/48e90714d330a84b/9ffb44e3/-cpid/267872bcde6272ce/clipID/727521/video_title/Saturday+Night+Live+-+C-Span+Bailout?storeInPid=true" id="W4727a250e66f972348e91de187bfdcb6" width="384" height="283"><!--<![endif]--><param name="wmode" value="transparent"><param name="allowNetworking" value="all"><param name="allowScriptAccess" value="always"></object><span class="fullpost"></span>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com0tag:blogger.com,1999:blog-2805346514757168853.post-57897114360728189802008-09-28T13:48:00.008-04:002008-09-28T14:19:46.635-04:00What to do about Climate Change...The '<a style="font-weight: bold;" href="http://delicious.com/prottas/natural_resources">natural resources</a>' tag encompasses everything from oil to water to the earth itself. This is a large area to canvas, and I'll focus specifically on international and national proposals to "green" our development. Once again I've taken much of the language in this digest from the sources linked to at the bottom of the piece, and while this post is quite long, I wanted a comprehensive take. I will note that I left out the many legitimate criticisms of environmental modeling and forecasting in the first place. There are many reasons to be suspicious of all of the forecasts that essentially "predict" the weather in a hundred years. This post will ignore these concerns, however, and concentrate on the data that is put forth by the UN and the UN's Intergovernmental Panel on Climate Change (IPCC). <span class="fullpost"><br /><br /><div style="text-align: center;"><span style="font-weight: bold; font-style: italic">High Cost</span><br /></div><br />Three examples of these environmental proposals are the Kyoto Protocol, Al Gore's plan, and T. Boone Pickens' plan. All three are costly. Pickens plans to generate 20% of America's power through wind, and he estimates it would cost $1 trillion to build that capacity and another $200 billion to update our electrical grid. Gore wants the US to "produce every kilowatt of electricity through wind, sun, and other Earth-friendly energy sources within 10 years. This goal is achievable, affordable, and transformative."<br /><br />Environmental economist William Nordhaus ran the numbers on Gore's idea to reduce carbon emissions by 90% by 2050. He found that such a plan would reduce the maximum increase in global temperatures to between 1.3 and 1.6 degrees Celsius, and it did so at very high cost of between $17 trillion and $22 trillion over the long term. Even at a very, very low estimate, Gore's plan would cost about $300 billion per year for the next ten years.<br /><br />Meanwhile, the Kyoto Protocol is estimated to cost around $165 billion annually.<br /><br />The costs of these plans are large (and I ask that you compare them to the costs of different types of interventions I will raise later), and I will contend they are not worth it, and that lower-cost R&D and "focused adaptation" plans would be far more sensible.<br /><br />But how do the proponents of these plans justify these massive interventions?<br /><br /><div style="text-align: center;"><span style="font-weight: bold; font-style: italic;">Super Ultra Emergency?</span></span><br /></div><br />Thomas Friedman justifies massive green spending by explaining that humans are an "endangered species" and none of us "are going to make it" as we experience disasters "of a biblical scale." Friedman trumps Gore five-fold, coming to claim that sea levels might rise a hundred feet, whereas the UN expects between six inches and two feet this century. Friedman says that in 22 years the evening news will feature 'weather, other news and sports' - in that time sea levels will have risen fewer than three inches.<br /><br />If you buy in to the rhetoric of humans being "an endangered species" with disasters of "biblical scale," then we should start shutting down power plants and confiscating cars tomorrow. We have no good evidence that such a disaster scenario is imminent, but nobody can conceivably prove it to be impossible. Once you get past the table-pounding, any rationale for rapid emissions abatement is really a restatement of the precautionary principle: downside possibilities are so bad that we should pay almost any price to avoid almost any chance of their occurrence. Of course, this same principle would justify spending trillions on countless other "possibilities."<br /><br />I disagree with those who view global warming as a super-ultra emergency, and agree with those view warming as a problem, one that must be managed via greenhouse-gas restrictions and a weaning away from fossil fuels.<br /><br /><div style="text-align: center;"><span style="font-style: italic; font-weight: bold;">Putting the Benefits of Mitigating Climate Change in Context</span></span><br /></div><br />Most scientists warn that a temperature rise of 2 degrees Celsius (3.6 degrees Fahrenheit) could have serious consequences. How serious? Well, according to the UN IPCC a 4C increase – twice this amount – would reduce global economic output by 1% – 5%. That’s in the world of the 22nd century which is expected to have per capita consumption of something like $40,000 per year versus our current consumption of about $6,600 per year. So we are condemning future generations to be only 5.7 times richer than us.<br /><br />But global warming isn't just about wealth reduction -- it's about the death and disease that would hit already at-risk populations. But even using the IPCC's warmest scenario - increased global temperature of 4°C between 1990-2085, climate change will contribute ~10% of the death toll from hunger, malaria — a surrogate for vector-borne diseases in general — and flooding. Thus, eliminating climate change completely would reduce annual mortality by 2 million to 6 million in 2085, depending on the IPCC scenario employed.<br /><br />That's the potential upside of completely stopping climate change. Of course, the initiatives we are talking about don't even pretend to make such claims. The Kyoto Protocol would reduce climate change by less than 10% in 2085-2100, while costing $165 billion annually.<br /><br />I mentioned initially the idea of "focused adaptation," which amounts to dealing with the symptoms of potential climate change, such as hunger, malaria, and coastal flooding. For instance, by 2015, malaria could be reduced by 75% for $3 billion per year, hunger by 50 percent for $12-15 billion per year. Please take a look above again to see how small these costs are in comparison to the efforts to mitigate climate change. Climate change will contribute ~10% of the death toll from these causes and look at the amount of spending it will take to even reduce 10% of climate change. Meanwhile, we can reduce 75% of Malaria for $3 billion per year.<br /><br /><div style="text-align: center;"><span style="font-weight: bold; font-style: italic">My beef with the Environmental Movement</span><br /></div><br />The environmental movement has welcomed a flurry of, at best, benign and wasteful, and, at worst, destructive movements and legislation - all in the name of "green." For instance, Al Gore, among others, pimped ethanol hard, and the government policies that followed made it harder for people to eat -- accounting for as much as 75% of the global increase in food prices since 2002.<br /><br />These same folks want us to commit enormous amounts of resources to ideas like the Kyoto Protocol, Gore's Plan, and Pickens' plan, as they attempt to win support for these ideas with exaggerated doomsday scenarios and refusing to acknowledge the immense opportunity costs of their plans.<br /><br />Environmentalists such as Friedman respond that we should still help the poor, for instance, but instead of giving them diesel, we should give them solar panels to power their lives.<br /><br />That's a nice thought, but not relevant to the question of opportunity costs. If the investment cost for solar power is 14 times more expensive than diesel, the money spent on helping the poor will simply not go as far -- instead of 14 kids getting power you help just one. The large-scale emissions abatement central to Gore and Friedman's strategies would carry astronomical costs, and they would carry real tradeoffs that its proponents should acknowledge.<br /><br />It's time to quit endorsing every lame-brained environmental strategy lobbyists dream up.<br /><br /><div style="text-align: center;"><span style="font-weight: bold; font-style: italic;">Ideas I'll get behind</span></span><br /></div><br />Contrary to popular belief, many of us who are 'skeptics' of the environmental movement's claims don't believe in doing nothing at all. The harshest critics of Gore's plan still believe that global warming is real and poses a serious risk, and agree that an R&D program is a component of a solution. We also support adaptation to weather problems (disease, hunger, flooding mitigation), and believe ongoing efforts to analyze physical and economic trade-offs involved in various proposals through the IPCC and similar bodies are valuable and should be supported.<br /><br />The government has no business picking winners in the alternative-energy competition (sorry, Illinois constituents and T. Boone Pickens), but augmenting basic research spending (as it is does in medicine) makes sense. And, again, taking steps to deal with hunger, disease, and flooding will do much more to help poor people, whether the climate change predictions come true or not.<br /><br /><div style="text-align: center;"><span style="font-weight: bold; font-style: italic">Conclusion</span><br /></div><br />Thomas Friedman sums up the environmental position when he equates spending trillions of dollars on greening with "training for the Olympic triathlon. If you make the Olympics and you run the race and do the whole triathlon, you may win. But if you don’t, even if you come in second or third, you’ll still be so much fitter, so much stronger, so much healthier, so much more respected, so much more secure. Which part of this sentence don’t you understand? Why would we not want to run this race?"<br /><br />To continue with his analogy, my response is that while in 100 years you are much more toned and fit, your wife has left you, and your kid dropped out of school to sell drugs. But hey! You are in TERRIFIC shape. No denying that. The point of the analogy is that our resources are not unlimited, and that you concentrate them on one area (climate change mitigation) to the detriment of other areas (UN's Millenium Development Goals).<br /><br />Attempting to be an Olympic gold medal winner in "greening" isn't the smartest use of our limited resources. As I've argued above, we can do much more to help both ourselves and the poorest people in the world by using some of the resources (that would otherwise be sucked up by the cost of olympic training) on other things we care about.<br /><br />We live in a world abundant with poverty, disease, dictatorships, terrorism, nuclear proliferation, lack of girls' education, and more than 1 billion people without cleaning drinking water or electricity.<br /><br />These people would likely be better served if Daddy ditched the Olympic medal delusion, and started acting like a rational adult. That doesn't mean he shouldn't stay fit; but maybe instead of buying muscle milk he gives the kids some clean drinking water.<br /><br /><script type="text/javascript" src="http://feeds.delicious.com/v2/js/prottas/natural_resources?title=My%20Natural%20Resources%20Bookmarks&icon=m&count=40&sort=date&tags&name"></script></span></span>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com1tag:blogger.com,1999:blog-2805346514757168853.post-27394822446688543882008-09-22T19:29:00.000-04:002008-09-22T19:34:22.919-04:00digest: trade, the global growth engine<a style="left: 0px ! important; top: 15px ! important;" title="Click here to block this object with Adblock Plus" class="abp-objtab-05050323591918985 visible" href="http://www.theonion.com/content/themes/common/assets/videoplayer/flvplayer.swf"></a><a style="left: 0px ! important; top: 15px ! important;" title="Click here to block this object with Adblock Plus" class="abp-objtab-05050323591918985 visible" href="http://www.theonion.com/content/themes/common/assets/videoplayer/flvplayer.swf"></a><embed src="http://www.theonion.com/content/themes/common/assets/videoplayer/flvplayer.swf" type="application/x-shockwave-flash" allowscriptaccess="always" wmode="transparent" flashvars="file=http://www.theonion.com/content/xml/86616/video&autostart=false&image=http://www.theonion.com/content/files/images/OBAMA_SHITTY_JOBS_article.jpg&bufferlength=3&embedded=true&title=Obama%20Promises%20To%20Stop%20America%27s%20Shitty%20Jobs%20From%20Going%20Overseas" height="355" width="400"></embed><br /><br /><span style="font-size:78%;"><span style="font-style: italic;">(Much language borrowed from the summaries and articles linked at the bottom of the post)</span><br /></span><br />Free trade is blamed for a lot of things, often for exporting American jobs and forcing poor people to work in terrible circumstances. Of course, the poor locals are not enslaved, they are offered jobs, and while (sometimes) these work standards may not be up to 21st century American standards, they are still better than the poor people's other options.<br /><br />With regards to American job losses, trade is often tarred with blame that would be better assigned to technological innovation. American industrial production has actually increased significantly over the years, the secret is that Americans have lost their job to machines. Like technological innovation, trade can lead to losses for particular groups of workers; however, if you oppose free trade on these grounds you should realize you are borrowing your argument from the Luddites and should call for horse-and-buggy subsidies as well (and of course, those workers' jobs wouldn't have existed in the first place were it not for trade). <span class="fullpost"><br /><br />More practically, if it was good for Vaclav in W. Czech to trade with Vlad in E. Czech in '88, why is it any less good for them to trade now that the country is split in two?<br /><br />One of the better arguments against simply advancing free trade is that while the gains to winners from free trade are sufficiently large that a hypothetical redistribution of these gains from winners to losers could make everyone better off, economic analysis doesn’t say that these compensations actually take place.<br /><br />This is true, but again, it's also true of all change, whether it's from trade, technological advances, or simply a change in people's tastes (Woe is the Pog maker! Where is his safety net?)<br /><br />To oppose free trade on these grounds is again to take up arms with the Luddites. Would you have supported a "timeout" on technological innovation until we came up with a plan to help out the horse-and-buggy industry? Then why <a style="font-weight: bold;" href="http://www.portfolio.com/views/blogs/capital/2008/02/20/clintons-time-out-on-trade">support a trade timeout</a>??<br /><br />Free trade gets a bad rap because of man's wonderful suspicion of foreigners and tendency to divide people into "in groups" and "out groups" and to elevate one and demonize the other. So free trade and immigration get tarred and feather as the enemies of America's workers, as opposed to the truly significant (entirely domestic) problems, e.g., health care, bad schools, and, in recent times, bad banking practices.<br /><br />Overall, trade has yielded not only a bounty of material good, but also of intellectual and cultural capital, an understanding of our neighbours, and a desire to sell things to others rather than to annihilate them. Yet the astonishing increase in the sum of human happiness that has been wrought by lifting hundreds of millions of Asians from the misery of subsistence farming into comfortable prosperity is [often] conveniently forgotten.”<br /><br />In the course of human existence, poverty has been the rule. The past few hundred years has seen an explosion of wealth previously unimaginable. Those that have been left behind are notably those excluded from the global exchange. Trade doesn't impoverish people; people are naturally impoverished, and in global exchange there lies the opportunity (not a guarantee) to attain wealth and security.<br /><br />I'll quickly add that none of this it to argue against a societal safety net, which I believe can be justified (in some forms) as creating a more resilient workforce and therefore economy. It is to say that free trade should not be held up as we figure out what the safety net should look like (alas, it likely will.)<br /><br /><script type="text/javascript" src="http://feeds.delicious.com/v2/js/prottas/trade?title=My%20Trade%20Bookmarks&icon=m&count=40&sort=date&tags&name"></script></span>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com0tag:blogger.com,1999:blog-2805346514757168853.post-85674821108157767592008-09-16T19:07:00.005-04:002008-09-16T19:20:14.024-04:00American poor see major gains after '80Of course, the day after I write up the post on 'American poor,' the <a style="font-weight: bold;" href="http://online.wsj.com/article/SB122143692536934297.html">WSJ features a piece that reexamines income growth for the poorest Americans</a>. What follows are my takeaways from the piece, which can also be found at <a style="font-weight: bold;" href="http://www.delicious.com/prottas">www.delicious.com/prottas</a>. My one sentence conclusion is that the poor have shared in the gains of the past 25 years - especially historically oppressed groups (e.g., black females) - and that chronic American poverty is a much smaller problem demanding a more surgical solution.<br /><br />When all sources of income are included and taxes paid are deducted, households in the lowest income quintile saw a roughly 25% increase in their living standards from 1983 to 2005: the poor are not getting poorer. Looking at the last two business cycles, this low-income group experienced a 10% rise in their after-tax incomes from 1983 to 1992 and then another 11% rise from 1992 to 2002. Household income gains have been underestimated for a few reasons: number of people living in the households has been shrinking (44% real income gain per capita for low-income households from '83-'05), and EITC requirements have led to counting more poor families today than in the past. 66% of '87 most poor have attained a higher tax bracket. Top 1% in '98 saw a decline in their income of 52% over the next ten years. Only 3% of Americans are chronically poor (impoverished for three years or more). Since '80, white males have seen the smallest income gains (+9%), black females the largest (+79%).<span class="fullpost">Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com0tag:blogger.com,1999:blog-2805346514757168853.post-63703935495501531292008-09-15T21:32:00.005-04:002008-09-15T21:52:16.809-04:00publius' digest: american poor editionThis post will look at understanding the <a style="font-weight: bold;" href="http://delicious.com/prottas/american_poor">American poor</a>, and critique some of the efforts to help them. This post will not cover <a style="font-weight: bold;" href="http://delicious.com/prottas/education">education</a> (my top priority for the American poor), <a style="font-weight: bold;" href="http://delicious.com/prottas/health_care">health care</a>, or <a style="font-weight: bold;" href="http://delicious.com/prottas/trade">trade</a>, which I cover under those '<a style="font-weight: bold;" href="http://delicious.com/tags/prottas">tags</a>' specific to those categories.<br /><br />I agree with the Dems that alleviating poverty is a moral call which also has positive externalities for all. I depart from the Democratic party line when they talk about relative poverty or inequality. I believe that relative poverty 'justice' is not rooted in an objective assessment of the negative consequences of income disparity (though I would love to see such a study of income disparity, not poverty, effects), but an emotional, superficial gut reaction to seeing the wealth of others when many are in need. I am concerned with advancing the condition of those in need, but I believe relative poverty taints the moral imperative of poverty alleviation with jealousy and envy -- relative status warfare.<br /><span class="fullpost"><br />While I am not very concerned with the cries of relative poverty, I am concerned with the decline of wage growth for many Americans. Growing income inequality is caused by the returns to highly-skilled labor outpacing the returns to low-skilled labor, of which there is an abundance outside of America with workers who have much worse options than the American poor. Americans whose labor does not add value over the global poor's labor are seeing their income and job security decrease. I explore this with the '<a style="font-weight: bold;" href="http://delicious.com/prottas/education">education</a>' tag.<br /><br />People like Barbara Ehreneich do a disservice to the debate on how best to help the American poor with their narrative of class warfare. She is wrong in saying that total compensation has stagnated since 1981, and (more importantly) <span style="font-style: italic; font-weight: bold;">wrong in linking compensation to class warfare, instead of productivity.</span> She is wrong in implying that the presence of high CEO pay is what is holding back the American poor's compensation (instead of the value of their skills).<br /><br />While wage growth has been leveling off, the past 15-20 years made it much cheaper to clothe and feed poor families due to the benefit of global trade (inflation on 'poor' goods is less than that of 'rich' goods); so income inequality statistics also undervalue the improved well-being of the American poor by ignoring how much further a dollar goes for a poor American in 2008 as compared to 1985.<br /><br />As I near the end, I'll look at housing policy and the minimum wage as examples of policies I think are not helpful, and representative of many efforts from the left aimed at helping the American poor.<br /><br />Housing policy had noble aims, securing the poor by making it easier for them to own homes, but the policies created a huge industry built on taxpayer guarantees of inherently risky lending -- a very bad idea. Better plan would be checks/vouchers for putting towards a down payment, if home ownership is really something we want to incentivize in the first place. Rent control is another well-intentioned bad idea; the real solution to low-income housing is making it easier and cheaper to build new housing. Increase the supply, you'll lower the cost of renting and buying.<br /><br />Meanwhile, the minimum wage increases the cost of employing low-skilled workers. If a poor person's labor is worth less than $6.55 an hour, you don't help that person by making it illegal for anyone to profit from hiring them. Thankfully, the wage floors are low enough that they don't make a difference one way or another -- they are political distractions from real anti-poverty programs like the EITC.<br /><br />In both cases, I think that assistance that takes the form cash transfers either through tax refunds or through vouchers are preferable. If we want to guarantee a 'living wage,' then let's use the tax system to subsidize their income, not create incentives to buy houses they can't afford or create a wage floor.<br /><br />Overall, Americans making $2,000 a year are still in the top 18% in the world, and the great majority of the American poor are doing just fine by world standards. <a style="font-weight: bold;" href="http://delicious.com/prottas/immigration"> Immigration</a> is by far the number one 'American poor' issue. I'll explore it later, but it trumps every other issue as both a moral imperative and in the interest of the American economy. More generally, global welfare rates higher as a moral cause worthy of investment than the American poor. That said, we should should spend more time thinking creatively about education, as well as slums, or poverty traps, (different than simply low-income areas), which cannot be corrected by providing more money, but still demand attention.<br /><script type="text/javascript" src="http://feeds.delicious.com/v2/js/prottas/american_poor?title=My%20American%20Poor%20Bookmarks&icon=m&count=40&sort=date&tags&name"></script></span>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com0tag:blogger.com,1999:blog-2805346514757168853.post-17400193312940335142008-09-09T19:45:00.003-04:002008-09-09T19:49:30.149-04:00overview of foreign policyOur chief foreign threats do not rest in the developed world, but in failed states, which are present with great suffering and pregnant with the potential for great destruction to us. Both morality and self-interest dictate that we intervene if we can have a positive impact, and despite our past mistakes, I believe we can develop a strategy, which is economic, diplomatic, and militaristic, to "prepare our partners to defend and govern themselves." We need a 21st century coherent doctrine that includes both soft and hard power.<br /><span class="fullpost"><br />We have missed many opportunities to advance our interests in areas from Central Asia to Somalia, and there many more human rights atrocities taking place every year that could be resolved or prevented by a legitimate, credible commitment to peacekeeping and conflict prevention.<br /><br />Clearly, we cannot count on China to sacrifice their immediate interests for these moral aims, and I would add that Europe's moral posturing is just that, and nothing more (by extension, I include the UN). While international support is desired, we should seek it as a political tool, not as moral approval. Likewise, state sovereignty is a very real political concern, but not a moral reason to avoid intervention.<br /><br />Global stability is a public good that only we have the incentive to provide at any cost greater than lip service. In many instances, if we do nothing, no one will.<br /><br />To this end, our military must continue to shift from its historical large-scale conventional warfare focus to a 'small-war' mentality. We should maintain an active, albeit selective, participation in aiding in governing failed states. Concretely, I think this will take the form of security guarantees and quick-response peacekeeping initiatives.<br /><br />This is not an inclusive post, but I will summarize: we must learn from our recent mistakes, and engage much more thoughtfully; that said, we should not lose or nerve; we should not hand out moral compass to the UN, and we should not shy from engaging the world economically, diplomatically, or militarily. Isolationism, in any of these instances, is immoral and unwise.<br /><br />Scroll over the link titles to read the summary.<br /><br /><script type="text/javascript" src="http://feeds.delicious.com/v2/js/prottas/foreign_policy?title=My%20Foreign%20Policy%20Bookmarks&icon=m&count=40&sort=date&tags&name"></script></span>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com0tag:blogger.com,1999:blog-2805346514757168853.post-9263872311467623362008-09-07T19:50:00.007-04:002008-09-08T11:39:32.870-04:00overview of health careIt's been awhile, but I've been trying to figure out how to leverage the delicious tagged articles and reduce redundant writing (and reading). So below is a summary I've written up on the health care perspective I've amassed, along with supporting articles and their summaries below.<br /><br />US health care is bad, but less so in providing access to expensive treatments (we do have the best cancer survival rates) than in paying for everything under the sun. Universal health care is not the primary health care issue facing the US; the primary problem is cost containment. If you want universal health care, you better first deal with that - Medicare spending is projected to some insane percentage of GDP (like 30-40%) of GDP, yes GDP, in not too long - as neither Medicare (nor private payers) have figured out how to deny coverage or payment to over-priced products or services. The reason Western Europe is more cost-effective than the US is that they DON'T COVER a lot of expensive drugs and therapies (explaining why our cancer survival rates are better). They let the government apply a cost-benefit analysis to every product/service -- if a private payer or Medicare does that, they end up in SiCKO.<br /><br />We shouldn't try to emulate Western Europe, but take lessons from less-visible systems like Singapore. We need to separate redistribution for care for the sick from actual health insurance. We also need to change the way we think about care and coordination, which means changing Medicare's payment systems for physician services and health care products. The emphasis should not be on reducing profits, but ensuring payment is linked to value-added, not service provided.<br /><br />Below the fold is more information.<br /><span class="fullpost"><br />Scroll over the link titles to read the summary.<br /><script type="text/javascript" src="http://feeds.delicious.com/v2/js/prottas/health_care?title=My%20Health%20CareBookmarks&icon=m&count=40&sort=date&tags&name"></script></span>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com0tag:blogger.com,1999:blog-2805346514757168853.post-14451103719351723342008-08-26T18:09:00.002-04:002008-08-26T18:25:16.083-04:00step back to step forwardI've enjoyed blogging on current events and policy issues as new happenings and writings trigger responses that end up being blog posts, but I've found it a bit frustrating. The idea of spinning my wheels, repeating myself on the same issues bores even me. I would like to make a point, record that point and the supporting evidence, and move on -- drawing on that point when useful in further discussions.<br /><br />That's a bit problematic. The blog medium has become (needlessly) something of a disposable art. Written, sometimes read, and forgotten; it's no surprise that bloggers repeat their main points in slightly altered forms, like a late night TV host who provides the same slightly off-kilter angle on daily events.<br /><br />I've neither the time nor the interest in disposable reporting. I would like to isolate some of the larger issues of the day and explore the validity of potential solutions. This means updating the blog with any new arguments or developments in the issue area, expressing my perspective, and isolating and exploring disagreement.<br /><br />To this end, I've signed up for <a style="font-weight: bold;" href="http://www.delicious.com/prottas">delicious.com</a>, a social bookmarking website that allows you to "tag" webpages with titles, descriptions, and labels (e.g., immigration). I am in the midst of converting my posts and the articles I've shared through Google Reader into labeled delicious entries. It's quite a process, but I think worth it. It will allow me to systematically accumulate knowledge and understanding of particular issues, and hopefully allow this site to serve as a medium for acknowledging the valid points on both sides of the argument, and debating the points of contention.<br /><br />Furthermore, I hope some will find it useful for finding interesting points of view on the topics found on this blog -- from cognition to immigration to trade to health care.<br /><br /><script type="text/javascript" src="http://feeds.delicious.com/v2/js/tags/prottas?title=My%20Delicious%20Tags&icon&count=100&sort=alpha&flow=cloud&name&showadd&color=73adff-3274d0&size=12-35"></script><br /><br /><span class="fullpost"></span>Publiushttp://www.blogger.com/profile/11330245120362834979noreply@blogger.com0