Monday, February 28, 2005

Am back

So, I returned to Boston this morning to find 6 inches of grubby snow over everything, another 10+ due tonight, my fish dead, and a $25 fine from the city because I had the terminity to take my garbage out a day early instead of letting it fester and stink up my appartment instead. It is 20 degrees outside and I am leaving this city. The Deaniacs can have it.

On a lighter note, imagine that you were a evil mastermind bent on destroying the credibility of the Left. Why not attack one of their great bastions, the Academy? How splendid would it be if you had one prominent academic getting pilloried for suggesting that men and women are different, while another professor (and fraud) who likens the 9/11 victims to Nazis being held up as all that is Good and Noble about academia? I know it sounds unlikely, but it would still be pretty effective if someone pulled it of.

Monday, February 21, 2005

Welfare States and Redistribution

If you want more government, you are going to need higher taxes. As taxes get higher, it becomes more important that they are efficient. Destroying 30 cents to gather a dollar is bearable when you're gathering 30% of GDP (roughly where the US is now). Destroying 30 cents on the dollar when you are taxing at 50% of GDP means you are taking about 15% of your economic productivity and burning it.

Taxes become more efficient when levied on things that 1) can't run away and 2) are numerous. This means taxing labor, or better yet consumption, over capital, and taxing lots of people a moderate amount instead of a new people a lot. You will note how the larger state and efficient taxation are at odds with each other. This article is very long winded, but has some good detail.

Sunday, February 20, 2005

Losing Battles

You need to be an academic to beleive that there is no difference between men and women. Or someone very sympathetic to academics. Slate's Meghan O'Rourke argues that the Larry Summer's comments at Harvard have educated him on how little he understands the nuances between socialization and genetics, and how he should not have blabbed on about something he clearly does not understand. In actuality, I think the world (or at least the fraction that reads papers and cares about this issue) is getting educated on the intellectual caliber of Harvard's faculty in particular, and academics in general.

Incidently, one additional reason why men are overrepresented in jobs that require long dedication to work is because the are not allowed by society to be stay-at-home dads. Once your outside option is devalued, it is less costly to sacrifice your life to work. So the problem from this point of view is not discrimination against women, it's discrimination against men.

Sympathetic Idiots

I first read about the heartfelt and softheaded Judith Warner's "Perfect Madness: Motherhood in the Age of Anxiety" (also a book, now I learn) on Lileks, where James (a stay-at-home dad) recommends that she take a "big frosty glass of chill-the-hell-out with a kicky pastel umbrella."

The book is a hysterical whine about how modern mothers in the US have it so tough today, about how competitive the mothering world has become, and how impossible it is to raise a child and have a career at the same time. It ends calling for higher marginal taxes and a society that is more like France's. I could sneer at this suggestion but it is actually very insightful--France (like most of Europe) has stopped breeding and thus solved the problems of motherhood Warner details.

I think that the emotional seat of Warner's issue is similar to that of Stumbling Tongue's when he calls for a mandatory 40 hour (or less) work week. Their complaint is that life is hard, unnecessarily hard, and that it should be easier than this. They see the striving and competition around them as being pointless, but they feel compelled to compete in that rat race anyway. Clearly some form of top-down, enforced collective agreement is required to Stop the Madness once and for all.

I also think that this ties in with the latest Larry Summers kerfuffle on women being underrepresented in high-end, prestige positions because of some combination of biological bent and having to take time off for mothering. Jane Galt has thoughts on these here, here, here, and here.

Firstly, I think that each of us has a finite set of decisions to make about our lives, and these decisions are either made by ourselves or by something external to ourselves (family, society, technology). For example, you may decide what you want to do for a career, or your family may decide what you will do for a career. Society has changed so that both men and women have more choices than they did before, just as technological advances have given us more choices as well. Are women worse of because they can now choose between motherhood and investment banking, whereas in the past they were only able to do motherhood? Warner and her fellow whiners would say yes, because making the choice is so difficult. I sympathise--making choices is difficult--but I also think that having the choice is better than not having the choice. Making choices is what distinguishes grown-ups from children.

Secondly, Warner whines about the ferociously competitive and lavish birthday parties she is forced to give. I guess all those hard driving ex-professional mom's are now putting their ambition into children's decorations instead of powerpoint presentations. Unfortunately for Warner et al., competitive urges and ambition are part of human nature and cannot be legislated away. Just as the Moms have turned their energies from seeking professional advancement to being the most envied parent on the block, government restricted birthday parties will just move that ambition to some other plane, maybe lawn manicure, or weight of birthday cake. Ambition is here to stay, the question is how to channel it.

Thirdly, all the resources that Warner etc. demands be shifted to moms ignores who these resources will be taken from. In other words, which individuals is Warner putting her personal wants before? These would include single women, single men, and couples who do not want children. It is not clear why individuals and families making these decisions and sacrifices should have stuff taken from them to pacify those unwilling to make any decisions or sacrifices at all.

Finally, all of this conversation ignores all the men underrepresented in prestige positions. For every male tenured Harvard professor, there are thousands of male grad students and post docs slaving away in obscurity. For every male CEO, there are hundreds of thousands of male cubicle drones, punching the clock and grinding away. For every male Partner, there are dozens of male analysts and associates, working late nights on idiotic drivel. What about these guys? Don't they deserve a break?

Many ambitious young men decide that they don't want to be Faculty/CEO/Partner and opt for something quieter and easier. They drop research and focus on teaching, they join a smaller firm, or they decide to leave partner-track and work in a corporation instead. These are real decisions to forsake money and prestige for a better lifestyle, more time with the family, etc. Some of them now are becoming stay-at-home dads. This to me is exactly the situation women are in, except women can leave the madness that is academic/corporate life for the sanity that is the home.

Friday, February 18, 2005


Most people have no idea how terrible life was before the industrial and green revolutions. Most people have no idea how desperately poor we were then, and how shockingly rich we are now. I strongly recommend reading U Chicago economist and Nobel Prize winner Robert Fogel who has published a lot of work calculating what people had then, and what we have now. In particular, The Escape from Hunger and Premature Death, 1700-2100 : Europe, America, and the Third World (Cambridge Studies in Population, Economy and Society in Past Time) outlines the remarkable advances we have made.

This post also details how desperately poor Eastern Europe was behind the Iron Curtain. Some people think that capitalism has made these economies poorer, but the article argues that this seriously underappreciates how incredibly poor they were before.

Follow the Good and Services

At Chicago, when wondering about what people would do in the future, I found it much easier to think in terms of good and services than money. Money is weird, government accounting is a joke, and "lock boxes", "accounts" etc. are confusing. You cut through this clutter if you focus on goods and services.

Landsberg does this when talking about social security. He argues that the problems with social security is that the changing ratio of old people to young people means that, at current distribution rates, tomorrow's young will have to be very very heavily taxed to give enough stuff to tomorrow's old. This is correct, and has been accurately described elsewhere.

Landsberg goes on to say that there is very little we can do about this now. Changing benefits will not work because benefits can just be changed again. Changing taxes will not work, because taxes can just be changed again. Changing the retirement age will not work because people can just change that too. The only thing left is economic growth -- if there is more stuff out there to mvoe around, we can give more stuff to old people without being taxed to Europe ourselves.

Landsberg says that higher savings is one way to get higher growth. After all, savings get invested and build capital, and capital is the stuff that economies are made of. I don't agree with Landsberg here -- the US may have all kinds of problems but insufficient capital investment is not one of them. I don't know of any other place on the planet where it is as easy to finance good ideas as the United States, and a higher (or lower) national savings rate is not going to change that.

Now, it is true that the US does not save very much, but this does not matter because foreigners have been only to glad to lend us their money for investment instead. This is what drives the current account deficit. If this foreign investment money was to run out (the way it has in various Latin and Asian countries), then interest rates would go up, which would increase domestic savings because now you'd get 5% on your checking account instead of the current 0.001%. This market mechanism does not look like a problem to me, it looks like a solution, and since the current real interest rate in the US is so low, I really don't know how anyone can say the US is hurting for investment capital.

I favor personal savings accounts because it would lower marginal taxes, and therefore decrease deadweight loss and create wealth out of, literally, nothing. Right now, social security is taken out of the paycheck as a tax -- what you will eventually get when you retire is dictated by the whims of fortune and Congress. If it went into a personal account you could see exactly how much you had and you would not suffer at the whim of anybody. This means that instead of being taxed, you are now being forced to save. Lower taxes = faster economic growth.

Work and Thrift vs. Redistribution and Paternalism

Arnold Kling has a very good article about how those who beleive in Work and Thrift would approach education, health care, and retirement, in contrast to those who beleive in Redistribution and Paternalism. This is all in the context that in 1875, food/clothing/shelter accounted for 74 percent of total consumption (including leisure) while in 1995, they accounted for just 13 percent of total consumption. These days our neccessities are taken care of, our spending goes to education, healthcare, and retirement.

On vacation

Blogging will be light

Saturday, February 12, 2005

Stephenson Unplugged

I am about 300 pages away from finishing Stephenson's Baroque Cycle, which I am enjoying but which is also very very long. I went to a Stephenson talk when the first book came out and was very unimpressed. This interview is much much better. In particular, I was interested in this:
Speaking as an observer who has many friends with libertarian instincts, I would point out that terrorism is a much more formidable opponent of political liberty than government. Government acts almost as a recruiting station for libertarians. Anyone who pays taxes or has to fill out government paperwork develops libertarian impulses almost as a knee-jerk reaction. But terrorism acts as a recruiting station for statists. So it looks to me as though we are headed for a triangular system in which libertarians and statists and terrorists interact with each other in a way that I’m afraid might turn out to be quite stable.
The current alliance between the Political Left and Fascist Islam has also converted the Political Right to become the party of government. I don't beleive that this, or very much, is driven by anything ideological. When a left-wing, feminist, human-rights lawyer starts aiding a fascist Muslim in conducting suicide bombings and kidnapping Philipino children, it's clear that this isn't about ideology, it's about sides. If 9/11 had happened on Gore's watch, the Democrats would be the party at war against terror and Republicans would become the isolationist nay-sayers finding common cause with their fascist bretheren.

Thursday, February 10, 2005

Inefficient status seeking

It is pointed out that the desire to out-do the Joneses has bad externalities, in that it leaves us perpetually unhappy and unsatisfied. In addition it can also add the sin of inefficiency -- all of these efforts to one-up the next guy may lead to working more than 40 hours a week. Tragic.

Hey, I work more than 40 hours a week, so I can sympathise.

Therefore the solution to this is to tax effort radically, so the benefit we get from effort becomes so small we stop doing anything extra and become content with our lot, thus avoiding the collective madness that is zero-sum arms races over relative status.

One could argue that status competition may make people miserably overcompetitive but 1) maybe that's what people want and 2) do we really care about this sort of misery?

I am not sure why those who feel like keeping up with the Joneses in material possessions wouldn't simply sublimate those urges into keeping up with the Jonses in immaterial possessions. Who has better taste, who has more friends, who has a prettier partner, who is bigger and stronger, who is smarter, etc. etc. are all dimensions that we want to do better along. So now, instead of being unhappy because you have a smaller car than your neighbour, you are unhappy because you have lamer taste in music, fewer friends, an uglier partner, smaller muscles, and a dull wit. We are no happier, we are just unhappy (and envious) over different things.

The Greeks understood that humans were by their nature competitive. The question is how to channel that competitive urge into constructive acts, not destructive acts. Any attempt to eliminate that competitive urge is as doomed to failure as removing the wetness from water. I think that anyone who does not understand the competitive urge inherent in us all is a poor student of human nature.

As for the negative externalities of this zero-sum status-at-the-expense of others seeking, there may also be one or two positive externalities. Things such as, oh I don't know, better medicine, faster cars, bigger TV-sets, nicer food, safer planes, and all the "stuff" generally associated with Progress. In my mind this is an unambiguously good thing, and people who do not think so can go join some jungle tribe and stay there as the parasites get stuck in.

Our natures may doom us to a rat race, but they also bring us wonderful wonderful stuff. Those of us who can overcome our petty, status-seeking instincts get to leave the rat race behind, but get to keep all the stuff. Discouraging work leaves us with our petty instincts AND takes away our stuff. This is an unambiguously bad outcome.

[Finally, "Keeping up with the Jonses keeps everyone at the grindstone... we face a kind of a tragedy of the commons" misrepresents the Tragedy of the Commons. A tragedy of the commons is when the failure to make a good "rival" (ie. you own it OR I own it -- we can trade it but we can't share it) results in its overconsumption and thus, destruction. High status--the good being sought in this case, is in no way diminished by many people seeking it.]

I recommend reading through the comments on the original Stumbling Tongue post. The Tongue agrees that one cannot outlaw envy, but longs for a utopia where society offers "diverse scales of prestige and status, reflecting the diversity of human nature". Winterspeak does not understand how that Utopia differs from our fallen world, where Ivy-educated whizz-kids routinely pass up the lure and lucre of Wall Street to follow gentler pursuits. The Tongue feels a 21st Century Aristotle would become an Investment Banker. Winterspeak feels he would become an academic Philosopher. Winterspeak knows several academic Philosophers, and has now doubt that Aristotle would do fine in their company.

Sunday, February 06, 2005

Larry Summers

I like Larry Summers -- he seems to make the right people angry. He got rid of that snappily dressed charlatan, Cornel West, which I think is a sartorial blow for the school but an academic improvement.

His recent comments on the scarcity of women in science and math also has the usual suspects riled up. Becker comments that intelligence may have very little explanatory power in this arena, because women's comparitive advantage over men at child rearing means that even if women are better and smarter than men at everything there will still be more women than men in non-child rearing fields. Becker rightly notes that similar biological aptitude questions may have been raised in an earlier generation with regards to MBA programs, law schools, and medical schools, areas where women have increased their representation dramatically.

Posner points out that Summers was stupid to have said such a thing -- what was he trying to prove? -- and besides his subsequent capitulation undermines whatever his original intent might have been. But the reaction also reflects poorly on Harvard and academia in general:
One comment compares his apology to the confessions of Stalin's purge victims: "Everyone should oppose a 'signal of discouragement to talented girls and women.' [That is a quotation from Summers's first apology.] But the truth is that such a signal, to the extent it occurred, resulted from deliberate, intense, and misleading responses to his remarks. That's classic totalitarian suppression of an unpopular view, with forced public acknowledgment of guilt and forced repudiation of the 'wrong.'" Another comment quoted: George Wills: "Forgive Larry Summers. He did not know where he was...He thought he was speaking in a place that encourages uncircumscribed intellectual explorations. He was not. He was on a university campus."

But no one who has spent much time around universities thinks they've ever "encourage[d] uncircumscribed intellectual explorations." The degree of self-censorship in universities, as in all institutions, is considerable. Today in the United States, most of the leading research universities are dominated by persons well to the left of Larry Summers, and they don't take kindly to having their ideology challenged, as Summers has now learned to his grief. There is nothing to be done about this, and thoughtful conservatives should actually be pleased. As John Stuart Mill pointed out in On Liberty, when one's ideas are not challenged, one's ability to defend them weakens. Not being pressed to come up with arguments or evidence to support them, one forgets the arguments and fails to obtain the evidence. One's position becomes increasingly flaccid, producing the paradox of thought that is at once rigid and flabby. And thus the academic left today.
The capture of higher education by far-left idealogues gives left wingers a place to hang their hat and right wingers an opponent that is weak. Everyone wins something.

Philip Greenspun had my favorite view on the subject, arguing that women are under represented in science and math because they are smarter then men. To prove his point, he then puts up this post on Che Guevara.

Friday, February 04, 2005

More on real SS reform

It seems I'm not the only one utterly unimpressed by Krugman, a "columnist" for the NYTimes, and his "analysis" of social security.
Response to Paul Krugman’s Op-Ed, “Many Unhappy Returns,” in the New York Times February 1, 2005 by Jeremy J. Siegel, Professor of Finance, The Wharton School

Paul Krugman claims that social security privatizers are caught in a Catch 22: If stocks, the bedrock of the privatization schemes, are to yield good future returns, then economic growth will be good enough to make our Social Security System solvent without personal accounts. Yet supporters of personal accounts maintain that the pension system will be in crisis because of slower future growth. This suggests stocks will not yield good returns and, following Krugman, the case for personal accounts collapses.

But conceding that economic growth will slow does not mean we should forsake either personal accounts or equities. Let us accept all Krugman’s assumptions, including that future real growth in the US falls to 1.9% per year. If we add this pessimistic growth rate to the current 3% yield (dividends plus buybacks) on stocks, we get nearly a 5% real return on equity. Although this is not as high as the 6.5% to 7% historical real returns, it is still much higher than the real returns that are offered by bonds currently bought by the Social Security Trust Fund, which now yield well below 2%.

But capturing the higher return from equities is not the most important reason to favor personal accounts. Despite government language that calls social security taxes “contributions,” workers see little connection between the taxes that they pay and the benefits they receive. Survey after survey indicate that a very small percentage of young workers believe Social Security system will even exist when they retire. Personal accounts will help restore trust in the system by lowering payroll taxes, raising after-tax wages, and allowing workers to retain ownership of the income they rightfully earn.

The crux of the coming pension crisis is that there will be too few workers supporting too many retirees. We need to do as much as we can to encourage workers to enter and remain in the labor force. Reducing payroll taxes by establishing personal retirement accounts cannot but encourage these workers. Certainly this will not by itself eliminate the crisis, but lowering payroll taxes is a step in the right direction.

Furthermore, equity returns need not follow U.S. growth downward. Although growth in the developed world will likely slow in the coming decades, the growth in the rest of the world is accelerating. The booms in China and India are already creating a new class of investors who are using the dollars they earn from their exports to buy our assets. Despite the growth slowdown in the aging developed countries, the future for the world equity markets and those firms that take advantage of this global growth is extremely bright.

Finally, there is agreement among both Democrats and Republicans that Americans save too little. What better way to motivate saving than by allowing workers to see that part of their pay growing over time in personal accounts dedica
Private accounts lower tax rates by making a transfer, a tax, defered consumption. This, by themselves, makes it a good idea.

Private accounts do not fix social security, that must be done through some combination of a tax hike and benefit cut. I'd like to see more benefit cut and no tax hike -- let the current shortfall be covered by debt and higher interest rates (which spread the cost most evenly).

Wednesday, February 02, 2005

Real Social Security Reform

If both Arnold Kling and J Bradford Delong agree, then it must be a good idea! And what do the ex-academic classical economist and deep-in-the-Krugman/Berkeley-fever swamp professor agree on?
1. Shift responsibility for maintaining actuarial balance off of the Congress and onto the Social Security Administration--have it gradually raise (and lower) the retirement age or the benefit-rule bend points in order to keep the system in projected balance.
2. Uncap FICA and apply it to all wage income in order to top-off private add-on accounts for the poor and boost benefits for widows.
3. Make enrollment in private accounts automatic (it's done automatically on your 1040) but voluntary (you can fill in an extra form to get the money the IRS earmarks for your account back as part of your refund).
4. Use the government's existing Thrift Savings Plan as a vehicle for managing private add-on accounts--and keep its choices restricted: churning and extra administrative costs caused by asset shuffling are not your friend.
5. Mandate that in fifteen years a commission consider and recommend whether or not two percentage points of FICA should be diverted and added to the add-on accounts as a forced savings program.
Any social security reform must do some combination of cutting benefits and raising taxes. This one does it by raising the retirement age (very sensible) and raising the payroll FICA tax (quite sensible). Actually, it does not raise the retirement age, it merely moves that decision to a body able to act without Congress' 2 year re-election time horizon, and is unnaccountable to the general public. I don't think much of Congress, nor do I think much of unaccountability, so it's not clear that this will actually result in a benefit cut. Maybe I should downgrade that to "quite sensible" from "very sensible".

The plan also has other good features, including automatic enrollment with opt-out (a nice acknowledgement of Libertarian Paternalism) and severely restricts what individuals can invest their money in (acknowledging both Chicago School Efficient markets and Behavioral Economics). Not too sucky.

Brad would have a commission decide, in 15 years, whether FICA could be diverted to the new personal account, while Arnold says 15 years experience is enough for Regular Joes to make up their own mind. But Brad likes committees and Arnold doesn't.

I don't think this is a terrible plan. I anticipate getting zilch from SS myself (being under 35) so this is an improvement from the current state of affairs.

This should serve me right for going to Brad's website. A later entry has him calling Luskin an idiot because he gets some SS math wrong. I don't know if Luskin actually got the math wrong but it's quite likely. I know for sure Luskin is a fool because anyone who makes a fetish out of bashing Krugman is a fool--not because Krugman isn't ridiculous, but making a fetish out of bashing anything is just foolish. (Whatever, go to Luskin's site and make up your own mind).

At the core of Krugman's argument (and Brad's support) is that if the economy grows fast enough to make privitization work, it will grow fast enough to keep social security solvent. And by "work" Krugman means throws off enough cash to cover the current gap between benefits promised and taxes collected. (This gap is sometimes called the "transition cost" of moving from pay-as-you-go to personal-savings, but in fact there is no transition cost, there is just the gap between benefits promised and taxes collected.) Krugman does not point out that transitioning to private accounts will speed up economic growth because they would lower marginal taxes. FICA is a tax, while saving for yourself is not, it's just defered consumption. To take the position that growth will be equally high under a high-tax and low-tax regime is to say that people do not respond to incentives, which is to repudiate the core of Economics. So I don't know what to call Krugman (and by extension, DeLong). Certainly not "Economist".

Tuesday, February 01, 2005

The Learning Curve

Another excellent post from the Belmont Club putting the Iraqi election into context and outlining some of the regional ramifications.

He makes several good points. The first is that the insurgency took time to develop and organize itself, time that was granted to it by the UN farce Bush went through to please Blair. In retrospect, it turned out to be an error for Bush to involve the UN and I think this has been observed and noted. For all the excellent analysis Global Guerrillas does in explaining the power that these insurgency forces have, the truth is that capital accumulation is still important (in some ways) to running a fighting organization. Exactly which ways is not well understood, but very important.

Belmont Club's Wretchard makes another excellent point:
The terrible enemy losses on the battlefield could not be wholly overcome by media plaudits which they received. At least 15,000 enemy cadres have been killed in the 17 months since OIF. Recently, the remains of a French jihadi were identified in Fallujah and his fate is probably a common one. While Afghanistan was once where the young fundamentalist fighter went to get experience, Iraq was now where the fundamentalist fighter went to die.


But I think the main problem with the Newsweek analysis is that first, it doesn't fully recognize the significance of the economy of force operation against the Sunnis in April, 2004 as the US dealt with Sadr first in mid-year before returning to crush the Sunni insurgent stronghold of Fallujah by year-end. It was a classic example of using a small force to defeat a numerically superior foe by attacking them in detail. I hope future historians give it its due. Secondly, Newsweek almost ignores American political warfare. The establishment of the Interim Governing Council and the Elections had huge military implications from the start, something which is only being belatedly recognized. The strategic center of gravity of the American thrust into the Middle East was not Iraq the geographical entity, as so many have I believe, mistakenly put it, but the Iraqis. The war aim was access to an alliance with an unlimited pool of Arabic speakers, not a puddle of oil in the ground. The return of Iraqi security and intelligence forces will be a nightmare for regional dictators in the short term; but the advent of even a quasi-democratic Iraqi state will, without exaggeration, be their death-knell.
The "more boots on the ground crowd" seem to ignore the fact that in modern warfare, or rather in effective warfare, the individuals in the boots matter as much as the number of boots themselves. There are certain skills and experiences, human capital, needed to fight this new kind of war and that human capital needs to be grown and accumulated. This is done by keeping your veterans alive, having them train newbies, experimenting, and observing. The US Armed Forces now has over two years of training in fighting Islamic terrorists, and has moved from a force where no one knew how to do any of this to one where it's being taught as part of the new-recruit curriculum. A tremendous advance. By contrast, the jihadis trained in Afghanistan have been decimated, all that hard won knowledge has been lost forever.

In a couple more years, democratic Iraq will start to pay real dividends as it produces Arabic speakers with detailed, local knowledge of the Middle East. This is something that America was unable to produce, but Iraqis will probably be better at it anyway. And in case people haven't bothered pulling out a map recently, Iraq continues to border Iran and Saudi. I can't think of a better place to station one third of America's military arsenal and intelligence capability. Thos pushing for a rapid American withdrawal from the region are like those cheering for double sixes while the dealer is flipping over the turn. Bush II, on the other hand, will continue bet hard through to the river.