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This is not a picture of me, though. |
http://zaxec.livejournal.com/44147.html
For the record, I'm pretty sure I am not facebook friends with anyone who could benefit from this advice in anything but entertainment value. Do share this with any loser acquaintances, however.
[This post was originally written for my employer’s blog, Show-Me Daily.]
According to the Post-Dispatch, some are leveling criticism at MOSERS, a Missouri state employee pension fund, because of bonuses paid to investment staff for their performance while the fund was losing money. The nature of the criticism is obvious, until considered in context.
As pointed out in the article, the entire market was down during this period, and the MOSERS staff lost less than the average investor, percentage-wise. It would be difficult to independently check the numbers, but — if true — this is certainly a good reason to give bonuses. The relevant thing to consider is that it is difficult to maintain positive gains in such a losing market, and that if the folks at MOSERS hadn’t invested the way they did, the fund would have lost MORE money than it did.
Here’s a tortured analogy: Suppose that all the investment personnel are engaged in a ditch-digging contest, and the deeper their ditches, the better off they are. Every day, the ditches grow deeper. However, because of a general lack of foresight and some misguided government policies, the dirt removed from each ditch is stored right next to the ditches. One day, there’s an earthquake that fills in a large portion of everyone’s ditches, and everyone’s long, arduous work seems undone. Because of one digger’s foresight and good practice, however, the earthquake filled the MOSERS ditch with much less dirt than everyone else’s holes. That ditch is worse off than it had been before the earthquake, but thanks to the employee’s efforts, it’s not as bad as everyone else’s ditches. Should this employee be rewarded or punished?
Again, I haven’t run the numbers myself, but from what I’ve heard and read, this loss does not bode well for an already underfunded system. We needn’t blame the managers for this particular loss, but this is a good time to pay attention to Missouri’s public pension systems. Check out the Show-Me Institute’s recent study for more information.
I still have things to say, though. So whenever I want to write something and I want to show it to my friends, I will put it on my livejournal and link it in a FB note.
Here is the first:
A justification of my current morality:
http://zaxec.livejournal.com/43863.html
I have just changed my facebook info page’s Religious Views to “Prisoner’s Dilemmist.”
This is a reference to the classic problem, the Prisoner’s Dilemma (I shrink at the thought that I am insulting my reader’s intelligence here).
I have decided that my morality from now until I change my mind(I don’t expect to do so) will be based on adherence to the cooperative portion of the prisoner’s dilemma. It’s sorta like a game theorist’s answer to the golden rule. Let me explain.
Let’s face it: The payoff from stealing things is high, and the chance of getting caught is low. As an economics student I can’t ignore the expected value of occasional thievery as positive for the thief.
However, if I steal from anyone, I am made marginally better off, but they are likely made proportionately worse off. Moreover, if everyone steals from everyone, we will all spend all our time worrying about protecting our things and not have time to live our lives. This is unacceptable.
If I decide not to steal from anyone, they may still steal from me, but there is also the possibility of punishment for them, and more importantly, I wish to demonstrate my intention to enter into a stable equilibrium of “no one steals” and I can broadcast this by sticking to my principles in spite of being a victim of theft.
Let me say that I was not a thief before I wrote this, this is merely a way for me to logically justify continuing my (arguably economically irrational) behavior.
Let me also say that I refuse to appeal to a higher authority who refuses to show up for court (or indeed, at all) to justify moral behavior. I’m still an atheist. This system allows for atheist morality.
[This post was originally written for my employer’s blog, Show-Me Daily.]
In fairness, I would not write about this if I didn’t live just down the street and drive by it nearly every day, but I am sad to report that the Historic Pevely Dairy building suffered a devastating loss to fire on Sunday.
I have no historic context for the loss, having grown up in north county and being no connoisseur of dairy, but I feel the tragedy on some level. I’m sure that the building was, at one time, the livelihood of many, though it’s been unused recently. According to the article, it was shut down last November and the site was scheduled to be sold.
This brings me to my point. There is and always will be tragedy and unexpected loss in the world. We can never escape this. But people fight the hardest to overcome and return to “normal” when their livelihood is on the line. When property is the sole responsibility of one person — or, occasionally, when owned by a few people — with a vested interest in its proper functioning, they will go to great lengths to maintain and preserve it. One (perhaps unpalatable) logical extreme of this insight that a friend proposed to me is, “If environmentalists want to save endangered species, they should find a way to commercialize them.” They could be pets, or have some industrial application, whatever it takes to make it in the interest of firms or individuals not only to preserve them, but to proliferate them. No one worries that cows, dogs, or cats will disappear. Indeed, many are concerned about overpopulation of dogs and cats.
I am not saying that this building burned down because it was abandoned or nationalized, only that if it were an active concern, it would be rebuilt in short order. The sad scar of loss would be healed with the revitalizing touch of a new and modern factory, perhaps producing Pevely milk and butter more cheaply and benefiting customers and workers alike. At present, I don’t anticipate a speedy rebuild. More likely, the lot will languish awaiting a buyer interested in owning one more vacant lot, this one with some singed rubble included. The lesson rings in the background: If you want to save it, create a market for it.
[This post was originally written for my employer’s blog, Show-Me Daily.]
According to this New York Times article, a number of states were competing for the honor of “first to spend federal stimulus money on infrastructure,” and, by some accounts, Missouri won.
Even die-hard free-marketers will likely agree that once the federal government decides to spend a certain amount on stimulus, the taxes that pay for the program are “gone” in a long-term accounting sense. So, obeying proper economics and ignoring sunk-costs, the question is “why not try to get as much stimulus money as possible?” Someone is going to get it and invest in their infrastructure, why not us?
I am interested in readers’ thoughts on the matter, but I will start with what I think.
Even if we assume that our state government will more efficiently allocate the funds than our neighbors will, it is still dangerous to accept and spend federal funds. Government bureaucracies have a long history of taking every opportunity to ratchet up their budgets, resisting pressure to cut costs. We’ve blogged before about benefits of governments cutting spending in the face of budget pressures. If you already agree that government spends money on things that perhaps it shouldn’t, then take note that stimulus funds will certainly not encourage them to reduce spending. Indeed, before the promise of federal funding, our governor and General Assembly were facing a harrowing budget crisis, and seemed poised to make deep cuts from which Missourians would benefit for years to come. No longer is this the case. The story for the past several weeks has been giddy excitement at new spending opportunities.
Other states will certainly invest in their infrastructures if we don’t. The opportunity we are missing is a chance to discontinue some useless state spending, and trust that the people who will foot the bill for the stimulus package will be wise enough to find their way out of our current economic doldrums without ramped-up state spending.
Only tangentially related, but highly recommended, is this video about the bailout/stimulus from under-appreciated reporter John Stossel. The rest of the program can be found here.
Please weigh in with your thoughts about accepting federal stimulus, tax-funded bailouts, and whether John Stossel is as evil as they say.
[This post was originally written for my employer’s blog, Show-Me Daily.]
There is a lot of talk at present about job creation. During the Great Depression, the federal government engaged in job creation. Currently, our General Assembly is discussing a bill to promote job creation. Some are frustrated that this bill is not being fast-tracked.
There is a mistaken view that governments can solve economic problems such as unemployment. History has shown that government solutions may create short-term fixes, but have long-run unintended consequences often worse than the problem they set out to solve. Our fine editor Eric Dixon recently mentioned to me, “There is a correlation between economic growth and job creation, so government officials tend to think that they can cause economic growth by creating jobs. But it doesn’t work that way.”
Voluntary economic exchange, often coupled with competition, produces wealth and leads to a greater number of people getting what they want, for less — and it brings rising employment. It is true that those who are employed have a lot going for them that the unemployed may lack. For one thing, they have a regular paycheck and are likely self-sufficient. When someone who owns a business decides that hiring a new person will add more value to her business or product than it costs to remunerate the new employee, the business wins, the employee wins, and the customers win.
Tax-incentivized job creation is a cruel parody of this win-win scenario. When the government steps in, there is reason to believe that the legislator who controls the direction of the subsidy knows less about what people need and want than do the people themselves, so incentives are misdirected. Tax dollars go to support things that people may not have wanted, or at least didn’t want at that marginal rate of exchange. When job creation is subsidized, employers and employees win (at least temporarily), and customers may win — but taxpayers lose.
[This post was originally written for my employer’s blog, Show-Me Daily.]
Criticizing economic stimulus on a free-market blog is like wearing school colors to the pep rally. Sure it will get you a lot of high-fives, but there’s a risk that people who don’t share your spirit will miss the point. Widespread wealth should be our goal. We want more people to have more of what they want. During recessionary periods, there is often a cry for the government to “do something” in spite of academic economists assuring us that markets clear and GDP growth is not a straight line. Another warning, heard less often, is that a frequent cause of recessions is governments redistributing income, spending taxes on infrastructure, and manipulating trade.
The problem with stimulus is the problem of economic calculation: Where can the money be put to best use? In a free market, people spend money on things they want, and in the next round of production and sale, there is then more of what people want produced (to meet the demand). In a planned economy — or one based on redistribution — it is up to the experts to decide what should be produced, and in what quantity. If the experts don’t feel up to the job, they can always ask the people what they would’ve bought if they’d been allowed to keep their money, but that’s probably less efficient than just taxing less in the first place.
[This post was originally written for my employer’s blog, Show-Me Daily.]
This entry is about wealth. I highly recommend this article (which covers similar topics to this entry, perhaps better).
The term “wealth” gets thrown around a lot. Like “public good,” however, economists mean something specific when they talk about wealth. It is not just money; it is anything that people want. When a person has more of what they want than they did a year ago, we can say that they are wealthier. If they have more of what someone else wants, we can also say that they are wealthier if they are then able to trade with the person who desires their things and thus get more of what they want.
The question of what people want is somewhat normative (econ jargon meaning “opinion-based”), but some examples will help here. Fishing, farming, and hunting are all ways of obtaining very simple forms of wealth: food, or the stuffs to make it. Besides food, people want clothing and shelter almost universally. Thus, making or trading those things can create wealth.
This point requires some explanation. The term “create wealth” is by no means a misnomer. Any time a person exerts effort to make some materials a little bit more useful or desirable to others, they are creating wealth. As an example, oranges on a tree in Florida aren’t of much use to us in Missouri. When someone makes the effort of picking, packing and trucking them here, they have created wealth.
Trade is another way to create wealth. Any time a person trades something they have for something else, economists tend to assume that they gave up one thing for another thing that they valued more. Because trade usually happens between two people (or two families, businesses, etc.) we can assume that they each feel like they got more out of the trade than they put in, or else they wouldn’t have traded.
Adam Smith more or less invented the modern study of economics when he published “The Wealth of Nations” in 1776. It’s safe to say that no economist today disagrees with his fundamental assertions that societies are made wealthier through specialization and trade (I thought about linking to eBay and Craigslist here, but the fact is that most people do their trading face to face, at the store, etc.).
Today, and for many years now, human civilization has been able to support a standard of living well above subsistence for many people. Specialization and trade, coupled with the concomitant improvements in technology made possible through the application of science to business, have made our current level of total wealth possible. It is also possible to destroy wealth, however. When willing traders are forbidden to trade by force or by law, wealth is destroyed. Property destruction is by far the most obvious form of wealth destruction (not counting campfires or other destructive acts where the destruction itself has value).
I have tried to explicitly avoid mentioning money so far. Though it is essential to our current degree of specialization, money is not truly necessary for specialization and trade — it’s just very convenient, and uneclipsed in efficiency as a medium of exchange.
Try thinking about wealth in the terms I’ve laid out here. Imagine the wealth you create for yourself, your friends and family, your employer. See whether you can think of any forms of wealth destruction that I didn’t mention. I look forward to any and all comments pertaining to this important free-market concept: wealth.