Politics

So...Governor Walker is union-busting. How should we understand this?

Facts:

1. The state's budgets is busted
2. The problem is increased spending.
3. ALL (+/- 5%) of an average state's budget is employee compensation.
4. Benefits cost the state more than salary compensation.
5. Public employee benefits are the primary problem facing state government finances.
6. Unions are the primary fundraising arm of the Democratic party
7. Public employees are unionized at a rate of 4-5x that of private employees.
8. Public unions get automatic paycheck-withdrawals from public employees.
9. Damaging unions and their automatic paycheck withdrawal from public unions may well destroy the finances of the Democratic party.

So...how do we evaluate Governor Walker? Shrewd political operator? Heroic accounting realist?

(from a conversation with my dad)

PoTD

Found by Isegoria. Read his outtake, or just click through to the whole article. Monkeybrains. I just wish he'd extend it from 15 to 75.

Free trade becomes epistemology

Foseti responds on Free Trade with a very thoughtful post. Mark Horning also chimes in, suspicious.

I'd suggest that one of Foseti's key lines is:

However, free trade is an area where history and economic theory disagree.

And I think that this is the crux of our disagreement. Foseti, having read List, believes that Free trade is not how folks have gotten richer. I, having read academic economists and libertarians, believe that whenever you compare two countries that are SIMILAR, the one with freer trade does better. You can get other results by anecdote, but not by regression.

It's like saying women are paid less than men. It's crap. Yes, the schoolteacher who works 35 hours a week, 180 days a year makes less than the investment banker who went to 8 additional years of school, and works 96 hour weeks...but that's not a real comparison. Women who work 40 hours a week are paid less than men who work 50 hours a week. Women of child-bearing age are paid a little less than men, because the employer is bearing a risk-premium of having to pay 6+ weeks of maternity leave. Women who are 35, and have been working for 6 years (time off for babies) are paid less than men who are 35, and have been working for 12 years. Women doctors who choose pleasant, low hour, low stress specialties (pediatrics/family practice) are paid less than men who choose less fun, high hour, high stress specialties (neurosurgeon, say). Compare apples to apples (instead of peaches to cucumbers), factor out work experience, education, real hours spent (not nominal), and specializations...and women end up earning a rate of between 97-105% of what men earn, depending on the study you read..

Certainly one can cherry pick examples...but when one does a serious analysis that goes beyond anecdote...Free-er trade kicks serious ass. This is the academic economist position. It has an awful lot of historical data and regression analysis behind it, besides the really elegant theory. For 2 comparable countries, the country with freer trade is both richer, and has more jobs created. The country with less free trade is poorer and has fewer jobs, ceteris paribus.

Responding to Both Mark and Foseti:

The key element that does not appear in either of your analyses is that trade creates jobs locally as well. Local regulations don't impact that at all...they do kill jobs, but the effect is domestic. Local regulations = -n% jobs. Local regulation + Free trade = -(n/2)% jobs. Free trade creates both jobs and wealth. I think that the problem we're having is that neither Foseti nor Mark understands that the argument includes jobs. Free trade = MORE jobs than protectionism. Both historically, and theoretically. EVEN in the face of stupid domestic rules.

All it takes is a proper understanding of dynamism in the economy...10% of the jobs in the manufacturing sector of the US economy are destroyed each year. A different 10% are created. Every year, year in year out. Protectionism does NOT protect jobs...it has the net effect of destroying jobs, but it does stabilize (somewhat) which jobs exist.

If you're going to argue anti-free trade, you really have to do it on national security grounds, as Foseti sometimes does. The other arguments are just factually wrong, based on the best data anlysis we've got.

The discussion of future value is more complex...and requires its own post. Summary: growth is about innovation and adjusting better to new information. The free trade argument is that (1) short term and long term economic growth are not different on country-sized scales. (2) free trade promotes growth. Using Foseti's simplest example....in a family-by-family calculation, pro-natalist policies have a long horizon. On a country-level calculation pro-natalism reaps benefits every year.

Links

• Caplan reviews World on Fire. Foseti reviewing the same book.
• Sonic Charmer on the God-metric. My name is Aretae, and I endorse this message.
• Kent McManigal on preference vs. law. I hereby outsource the venting of my libertarian rage to Kent. He just does it better than I do...and more frequently too.
• Dan Mitchell discussing flat tax/fair tax differences. This is the big discussion on what sucks least for inefficiencies in taxation.
• Kling sends us to Wagner Today discussing William Easterly on "guy named Bob" theory. I encourage you to follow all 3 links. Summary: Benevolent autocrats suck. Next choice?
• Ken Anderson @ Volokh quotes the Mark Perry in the WSJ on US Manufacturing: We make more stuff than ever before...we make more stuff than China, with 1/4 the people China has...the shrinking US manufacturing sector is almost 100% a result of huge productivity gains.
• Foseti links to Mangan's on Texas (unsanitary link -- Mel). Instapundit links to Rick Perry on Federalism. I grew up in California, but am nonetheless a native Texan, having spent 10 years there. Furthermore, I think this is another test-case for economics vs. HBD folks. I believe that Texas continues to be a better and better place to live, as growth skyrockets, and growth drives all good. HBD folks think that (yes, simplified) IQ/race drives all good. Texas, with fabulous growth and crappy (from HBD perspective) demographics should provide a solid point of Bayesian updating. Anyone want to bet a beverage?
• David Henderson expands on John Goodman on Government Failure.

Continuing the Education Conversation

Foseti mocks me correctly for not putting qualifiers on my 1-factor learning. What I meant to say is that of the factors that a teacher has anything to do with...there is only 1. Of course there are the big 4 innates as well: talent/IQ, Conscientiousness, Patience, and Self-Efficiacy...but since there's basically not a damn thing a teacher can do about them...I only remember to reference them about half the time in my discussions of education. For future reference...innates are assumed to have some effect.

OTOH...it's rather obvious that for medium amounts of practice (100-5000 hours), practice dominates innate talent (within 2stdv or more -- see Magnus Carlsen on chess and smarts). Chess, Piano, Math...you name it. On the other hand....past ~10,000 hours, the difference between practice of the top folks is effectively zero. Everyone has HUGE motivation, well-targeted practice, good feedback systems, and HUGE quantity of practice. So...what's left is ONLY innate ability. Though...it's interesting that even at super-high levels in the highest profile games on the planet (NBA basketball, International Soccer), Motivation (to win) still seems to be highly variable. AFAICT in basketball, Jordan (then) and Kobe (now) simply WANT to win more than other folks. Motivation does not seem homogenous, even at the very very top.

To answer Foseti's facetious question

Does this mean that you could turn a retard into the world’s most prominent experimental physicist with enough practice?

NO...of course a retard (EDIT: Of course I'm assuming the technical definition of mental retardation -- someone below 70 IQ .. ~2stdv under normal) can't compete at the very top levels of experimental physics. He'd be competing against other folks who have ALL spent as much time on the topic as he has, all of whom are as motivated as he is...and against whom the ONLY difference will be the talent, on which he loses (in Foseti's example) by 5+ sigma. That sucks for him...in a competition, he loses.

Issue #2:

Motivation...there is a rather serious pile of evidence in studying interest that folks are most interested in stuff that is challenging but not impossible. 15:1 says that said low-IQ person won't get interested in physics, because he is low-talent compared to others.

Issue #3:

Extrinsic motivation via punishment/reward fails for high-end activity. Either you care or you don't.

Liberaltarianism + Free Trade

I think this is Will Wilkinson first...but I think this is a safe general second best solution for we anarchist types as well, given that we're stuck with evil governments:

Even if you’re a moderate Hayek-Friedman pro-welfare-state libertarian who does not think taxation or inflation are indistinguishable from theft, it’s still impossible to convince most liberals of this:

• It’s best to just maximize growth rates, pre-tax distribution be damned, and then fund wicked-good social insurance with huge revenues from an optimal tax scheme.

It’s not even clear to me what’s especially libertarian about this. It’s sorta just anodyne welfare-state liberalism plus economics. I’d be elated to get just this. When a not insignificant group of liberals start saying, “Of course! Of course this is what we should do!” then I’ll feel we’re really cooking with gas, and I won’t care what we call it.

Or...if you're a conservative/reactionary, and want a good life...push for maximizing economic growth, and then direct government transfers to encourage social ends.

Sane (economically literate) conservative positions would be:

• Use incentives to encourage employment.
• Kill minimum wages, use flat taxes, and structure welfare like an upside-down N. Very little if you're not working...but as you work more, your welfare payments go UP with your income. Somewhere ($50K?), it reverses direction, and slowy fades to 0 near 50K. Ditch-digging for welfare eligibity. Especially work to kill bad marginal tax rates.
• Use incentives to encourage marriage & age-appropriate childrearing.
• Flat tax rate, no deductions, except an increasing per-person deduction. 1st person, $5000...2nd person $6000...3rd person $7000. Include seniors. Stop throwing all black men in prison for drug crimes. No money for dependents if you're under 18.
• Use incentives to discourage criminality
• Panopticon in public, with automatic, immediate, physical punishment and reparations. Computers should write the arrest warrants.

But for God's sake...don't make everyone's life suck by killing growth rates, just to do some 3rd order effect that is marginally good.

Response 52 on Free Trade

The current sequence:

• Caplan sez: Economics knowledge and IQ increase support for free trade.
• Foseti on Caplan
• Aretae on Free Trade
• Sonic Charmer on double-agreement
• Foseti expanding
• Sonic Charmer doubling down

I largely endorse Sonic Charmer's analysis. I would, however like to hit a point or two of Foseti's

1. Foseti:

Finally, it’s not clear that what we should be most concerned about is maximizing the financial position of everyone. I would argue that we have higher concerns and I think this is our fundamental disagreement. If what matters most to you is the current level of wealth in society, you should listen to and agree with Caplan and Aretae.

I think Foseti is right that this is our core disagreement, though I would phrase it differently. It took me ~20 years to get to the position, but my current conclusion is that economic growth rate is the god-metric. I believe that ALL (!!!!) other social metrics that matter follow from level-of-wealth, which follows necessarily from growth rate. I (and, I can assume Caplan) am not arguing for current wealth...I'm arguing for growth rates.

2A. Aretae: Fact 3:

Trade restrictions do exactly TWO things. (1)Pay off favored constituencies at the cost of making the whole country poorer. (2) purchase support for politicians. They always incur a cost of (say) $1 from each of the 300M people in the USA, and pay GM $100M in trade benefits. Net $200M loss. Collecting $.50 from everyone in the country, and giving it to straight to GM is better for EVERYONE, except the politicians who are hiding the the net $ transfers behind anti-foreign bias.

2B. Again, this is not a fact. A fixed and flat tariff would not satisfy criterion (1) or (2) and it is a trade restriction.

This is true. a fixed, flat tariff simply screws everyone in the country, and everyone we trade with, with no net benefit to anyone. It's as useful as burning $, with the corresponding ozone depletion from the smoke. It does, however, collect some revenue. I forgot that this position was on the table. It does, however, make it so our "competitiveness" relative to other countries without such trade barriers suffers, and it does mean that our populace will tend towards stable, useless jobs instead of value-positive jobs. I guess that makes it potentially value-positive to "our enemies". I wonder if the Russians were economically smart enough to use their Gramscian influence to encourage trade restrictions to weaken the USA...or whether anyone in the state department is economically literate enough to use said techniques to weaken our enemies? Or is it just SO bad that it's like dropping a nuke on a next-door neighbor...screws them real bad, but we get lots of radioactive fallout too.

3. Foseti:

No one is pretending that they’re doing something to enhance economic efficiency. Would you rather pay a guy to sit at home and play video games or pay them to show up to a job every day?

I'm down with workfare. Indeed...I anticipated this objection, and argued for workfare in the portion of the post that Foseti was responding to that:

Pretending they’re doing something useful is pure delusion. Digging trenches and refilling them is less value-destroying.

I'm not sure how much we disagree that doing something is better than NOT. Though I'm nowhere near as certain of this position as I think Foseti is. Overall, my ideal taxation scheme looks an awful lot like the Kling-style flat/negative consumption-tax...politically impossible, because it eliminates the possibility of graft, but awful good in a lot of places.

4. Overall, I think Foseti's strongest point is the following:

I find it fascinating that Aretae believes that any restraint of trade would be terrible because politicians will screw it up while simultaneously believing that politicians could run a perfect wealth transfer system without corruption resulting. What am I missing?

Not much. I overstate the easiness of this. Overall, I figure government will break everything it touches (incentive problems). Universal free trade is untouched by government, and thus not broken (as one of his commenters suggests), while tariffs have grubby government paws on them, and thus necessarily suck. My relatively realist/heartless-libertarian position that economic growth REQUIRES folks to lose their old jobs and switch to new jobs that are more value-creating. So cope already. If you're not switching into new roles semi-regularly...you're mostly parasitic on productive folks.

Something like 1 in 30 people in the USA switch jobs in any given month...and the RATE at which job turnover happens is (substantially) positively correlated with economic growth. Stable jobs are value and growth destroying, if convenient, pleasant, and nice for lazy folks.

My policy preference space (what I think is good for the country, net) is:

1. No powerhungry bastards preventing trades between consenting adults. Full stop.

2. No powerhungry bastards preventing trades between consenting adults. With retraining support.

...

35. Burning ants with a magnifying glass.

...

52. Protectionism.

5. Sonic Charmer says that the disagreement is:

The free-trader would say ‘that’s a wrong/immoral and we could help that worker more cheaply anyway’ – which I believe is correct. The protectionist would say ‘however true that may be in the abstract, I live here and now and I doubt your thought-experiment solution would or could become reality’ – which is a fair point

If I heard the protectionists acknowledge up front that there's HUGE NET value destruction going on in protectionist policies...but that the other policies available have EVEN WORSE value destruction...that's an argument worth having. Arguing in the politically viable space is even harder...and the kind of argument Will Wilkinson likes to have. I'm less convinced that ANY politically possible choice can be good...and it's always about minimizing how much more damage the government does.

6. I'm relatively sympathetic (when talking in the government/nonspace) to arguments that are anti-government discretion. Flat+Negative consumption tax minus a single flat per-person deduction, free trade, required Health Savings Accounts, unrestricted education vouchers.

If Foseti is making the argument Sonic Charmer is making...I hear it as...

"the system is already incredibly screwed up...since fixing it would have some costs, let's screw it up even more, which might have lower visible costs."

From First Principles

The modern malthusian equation:

If the growth rate of bad shit is higher than the growth rate of good shit, you're screwed...if the reverse is true, you're golden.

Romer's new Growth theory:

Innovation = Growth

The Hanson-Falkenstein hypothesis:

Status/Envy dominates human social decision-making.

Aretae's competition law:

Power comes from scarcity/economics, not from formal structure or guns.

Commentary: The only mechanic in a (sufficiently isolated) mining town has more power than the guy who tells the guys with the guns what to do. Furthermore, if 10 different groups have guns...the power of each is highly constrained.

The Mancur Olsen equation:

All stable systems tend to damage innovation

Commentary: This is because innovation upsets status-patterns, and the high status people ALWAYS lose relative to some newcomer.

The Game Theory hypothesis:

The results of most social or biological systems can be predicted by calculating the Game theory (at an individual level) of various behavior patterns.

Pournelle's Iron Law:

All systems are captured by folks who attempt to increase/stabilize the system's power vs. outsiders.

(Yes, Aretaevian reformulation)

BBdM's theory:

The game theory patterns of how to increase/stabilize a ruler's power are well-defined, and (nearly) completely determined by the size of the selectorate (% of population necessary to have support of in order to maintain power).

Modern experimental epistemology:

Individual prediction-making/rationality sucks badly.

When compared experimentally to betting markets, aggregation, team-based decisionmaking, experiment, or automated statistical analysis

Hayek's knowledge problem:

It is IMPOSSIBLE to effectively plan an economy in a way that increases welfare over what the market will provide. Information of the important types CANNOT be centralized.

Conclusions:

BECAUSE the above are true

1. there are precisely 2 political choices...
   1. unstable growing systems with constantly changing power dynamics
   2. stable systems that travel towards the malthusian wall.
2. established powers are guaranteed to prefer B, based on status stability.
3. Government is the most established power, and will always move towards prefering B.
4. The stronger the government, the MORE they prefer B.

This place

Last weekend, we took the kids out to look at the breakwater at the beach nearby in the storm. Unfortunately, timing was off, and the waves were only splashing over the breakwater, not breaking over the breakwater...and it was a little cold, so it looked like it was going to be a kinda l0w-value trip.

But then my little girl started getting excited by the tiny waterfalls running off the rock...and there were a couple bigger wave splashes...and then the really exciting (to me) thing happened. I saw a pod of dolphins swimming in front of the breakwater. They weren't jumping out of the water doing flips...but it was kinda cool to see porpoises in the wild, just going on a trip.

However...the rumor is that folks living in warm weather places aren't happier than folks living in cold weather places. I figure they've got to be over-correcting for stuff that isn't environment-independent. I ain't gonna find a pod of dolphins swimming around near chicago.

Education

My friend Andrew sends in a study about quality of practice...and suggests that my focus has been unreasonably on the quantity of practice angle. I hope that I've just misrepresented myself to Andrew, and not to my regular readership...

In learning...especially past the 1st 100 hours of study on a given topic (which we can consider light overview, rather than learning)...the Aretaevian claim is that there is only 1 factor: Practice. Furthermore, I have been claiming for many months (years?) that there are (only?!?) 4 relevant factors inside of the practice umbrella that need attention.

1. Quantity of practice
2. Targetted Practice...don't practice ping pong to improve your baseball swing.
3. Practice Feedback systems...how fast is the cycle:
   • I did it
   • I did it wrong
   • I need to correct this somehow
   • I did it again with corrections applied.
4. Practice Motivation...how invested in the learning is the learning

I've certainly said something like this before...but the study from Andrew should lead us to emphasize #3 in our understanding of learning more than we have previously done. Of course...the eternally half-done Aretaevian math education software has (for 2+ years) been focused on the feedback system in math education as the primary issue in learning. Apologies if this hasn't been clear enough. I had thought I'd written almost precisely this post before 2-3 times...but my quick search does not seem to find it.

QoTD

Robin Hanson captures the meme perfectly:

But if you plan to mostly ignore the experts and mainly base your beliefs on your own reasoning and analysis, you need to not only assume that ideological bias has so polluted the experts as to make them nearly worthless, but you also need to assume that you are mostly immune from such problems!

The fundamental problem is NOT that we think experts make some mistakes, or some systematic mistakes...the fundamental problem is that we (each) think we (individually) don't.

I personally make this mistake (I insufficiently account for the fact that there's an awful lot of folks who know more than I do about the topic, some of whom are as smart or smarter, and who disagree with me) most seriously in the fields of climate science and macroeconomics. AFAICT, a large majority of the "experts" in each field think that they have predictive capability, and I'm suspicious of the claim.

BBdM's hypothesis

BBdM suggests that basically all group interactions (with skilled players) can be predicted using relatively simple tools in game theory.

Furthermore...I read BBdM as suggesting that formal systems of government are a distraction from the actual balance of power. Kingdom, Democracy, People's Republic...whatever...the (only) question is ... what alliance is necessary to maintain the balance of power? It's not like we didn't have lots' of intrigue and King-replacement when there were kings.

According to BBdM, the game theoretic answer to the question, when addressing the question of ruler-subject relations...is very simple. Small number of power-players = rapacious ruler distributing favors to a small group of power-holders, or else, the ruler replaced by other power-holders with someone more rapacious...so as to better funnel ALL of the country's surplus into the hands of the power-holders. The claim is that this is the stable game-theoretic solution...and we should expect that ALL countries with concentrated power will tend towards this position over time. The game theoretic solution that leaves power-holders with more net value in less concentrated power distributions tends is making the entire polity better.

If this is true...and the math looks good to me...then this is a sufficient explanation for how rulers of nations behave. Castro and Leopold and Louis XIV and Catherine the Great and Stalin and China for 3000 years all faced the same game-theoretic problem, and found the same game-theoretic solution. The under-10M population rich democracies all face a different game-theoretic problem...and are all trending to the same game-theoretic solution as well (attempt to make the whole citizenry's life better...and more egalitarian. Methods vary, because rulers don't really know how to do this, and have to guess. ) City-states throughout Western history have faced similar problems to the current small rich states.

The interesting part here is that the leaders' interests don't much matter. The question is how does the balance of power actually lie (The military is only a small part of the power-distribution) ..and that determines how the leaders behave...in terms of who benefits from his/her rule.

What's interesting about this is that BBdM is doing science, not just pontificating. He has a math-based method for predicting what outcomes will be, and he uses it on real world problems before the fact...and he predicts results, and gets answers correct an awful lot.

Confused about free trade

Foseti again cites a confused Moldbug and the experience of his grandfather in promoting poor understanding of economics and free trade, while critiquing Caplan's book.

Fact 1:

Free trade and labor-saving devices are EXACTLY equivalent domestically. Anyone who doesn't understand this is simply economically ignorant. If you oppose free trade for domestic reasons, you should also be opposing industrial robots. The effects are EXACTLY the same. If you're not opposing Industrial robots, because that position is insane, you should not be opposing free trade, because the results are EXACTLY the same. Oppose both, or oppose neither. The domestic effects are indistinguishable.

Fact 2:

Free trade + taxation + compensating payments (welfare, workfare, retraining, whatever) is financially better for EVERY SINGLE PARTY IN THE WORLD than unfree trade.

Fact 3:

Trade restrictions do exactly TWO things. (1)Pay off favored constituencies at the cost of making the whole country poorer. (2) purchase support for politicians. They always incur a cost of (say) $1 from each of the 300M people in the USA, and pay GM $100M in trade benefits. Net $200M loss. Collecting $.50 from everyone in the country, and giving it to straight to GM is better for EVERYONE, except the politicians who are hiding the the net $ transfers behind anti-foreign bias.

Fact 4:

If I want to trade the Plums in my yard with my buddy Jesse's Oranges, and some bozo with a gun says stop trading or I'll shoot...because I want you to buy George's oranges which are 3x as expensive...the guy with a gun is a Thug, and morally in the wrong. Full stop.

Taking Foseti's examples....

Oregon's no self-service gas "tax". DUMB AS ROCKS. It is net welfare improving to hire teens to dig trenches, and refill them out of general revenues. Pretending they're doing something useful is pure delusion. Digging trenches and refilling them is less value-destroying. Nearly everyone is richer...and the Thug-in-chief could probably target the tax better as well. OTOH, there's undoubtedly also some transfer from the public to the Gas Station owners, which is why the policy persists.

Foseti's grandpa the cabinetmaker. Every person in the country can be made wealthier paying Foseti's grandpa his full cabinetmaker wages (and then some) out of taxes for the rest of his life to dig ditches and refill them, while not interfering with free trade than they would be by limiting free trade. Yes...Foseti's grandfather has a vested interest in hiring thugs with guns to stop me from trading with cabinetmakers in China...he gets to do something that he is not (relatively) very value-creating at, because he likes it...even though it destroys wealth for everyone who wants cabinets. You may as well keep the buggy-whip makers, for all the value it builds.

Of course...the super-value improving result is to do exactly what happened. Pay the ex-cabinetmaker for a small number of years, and then allow him to move on to a different value-creating activity, so the country gets EVEN richer.

EDIT:

SUMMARY:

For any (domestic) outcome you are looking for, trade restrictions are a crappy way of accomplishing the outcome. Compared to other visible alternatives, they make EVERYONE poorer. Besides that, they're immoral on self-ownership. And in the 1st world...they furthermore decrease the welfare of the foreign poor substantially.

Locally destructive, Internationally destructive, and immoral to boot.

Except for the protectionist insanity...the rest of Foseti's review is good and thoughtful. I recommend it.

Meme otW II

The Dale + Kreuger paper. With commentary by: Hanson. Sailer. Falkenstein.

What we knew before the study:

Top predictors of income:

• Parents income (heritable -- twin study tested -- separately from IQ)
• IQ
• Conscientiousness
• Self-Efficacy
• Patience/ability to delay gratification
• College price (not selectivity)

Also

• Women who marry rich prefer not to work.
• While black men without college degrees experience discriminatory effects in income, when a college degree is added, the reverse is true.

What we know now that's different....

• Success in college helps NAMs a lot.
• ???

Super-simple point of disagreement

Is it true that the formalists believe that in general, the interests of the rulers (or potential investors/shareholders) of a country align with the (actual, as opposed to felt) best interests of the citizenry?

The Aretaevian monkeybrains hypothesis argues (along with most leftists and BBdM) that leaders and citizens have quite different interests, and that the primary problem facing government is in how to constrain the leaders so that they don't screw the citizenry too badly.

We monkeybrainers think that Castro/Saddam/Stalin/King Leopold-in-the-Congo (see, I stuck a full-blown King in there) is the natural evolution of the investor/leader interests, and that Denmark/Sweden is the current stop in the natural evolution of the egalitarian impulse.

Unions

I know everyone cares what I think...so here:

Rule 1: Facts first, normative decisions second. Basic economics:

1. The only relevant variable when discussing pay is total compensation...even better would be total costs to employer.
2. In the private sector, there are 3 players competing for $ inside the firm...the customer, the capitalist (shareholder), and the worker, and usually at least 4 players competing for $ outside the firm: other firms competing for customers, other firms competing for capital, , suppliers (for whom firm 1 is the customer), and other workers competing for jobs.
3. Competition between firms (basically) sets the price of goods in the market economy, so there is (usually) no surplus in the short term to extract from customers or suppliers. Therefore, unions tend to extract $ from capital. The workers get paid more, and the return on capital drops.
4. As the price of labor (in a union shop) rises, the capitalists will tend to buy less of it. Generally, unionization also results in hiring fewer (new) workers.
5. Also, unions tend to make labor more rigid and less flexible, and according to Pournelle's Iron Law, focused on preserving advantages.
6. This has the effect of making the company that the union works for less competitive, and ultimately killing the company.
7. Summary of private unions: Good for existing workers. Good for new workers who do get hired. Bad for capitalists. Bad for the unemployed. Bad for innovation and the health of the company.
8. Public unions: there are still 3 players, but ... instead of customers, you have taxpayers, who have little ability to switch governments.
9. Same economic rules apply, so public unions are good for existing workers, good for new workers in the government, bad for taxpayers, bad for other government priorities, bad for the unemployed, bad for innovation in government.
10. Megan McArdle has an interesting comment on the topic here

    I generally assume that at any given time, taxes are, within some margin of error, basically as high as taxpayers are willing to tolerate--or at least, as high as they're willing to tolerate for a given level of services. To put it another way, taxpayers are virtually never looking to pay higher taxes so that their teachers, firefighters and cops can have higher pay.

11. Will Wilkinson does too.

    We’d very much like to increase nutritional assistance for impoverished children. In fact, we’d love to. What could be better? But, you see, we have promised very large, richly-deserved pensions to some very important people very dear to our hearts, and, to put it frankly, money these days is, well, tight. I know. It’s very dispiriting. If only the selfish rich bastards would pay their fair share of taxes! But, no. No. Whatever happened to the idea that we’re in it together? Huh? Whatever happened to love for our fellow man? It’s sad. Anyway, we are so sorry the bastards have chosen to steal from the mouths of hungry children. I wish we could do something. I really wish we could.

12. Robert Reich, on the other hand, seems to be ignoring all the economic issues, and blaming it on the rich. Not, mind you, that he's wrong in his focus...just that it's irrelevant to the union issue.

Unions

I know everyone cares what I think...so here:

Rule 1: Facts first, normative decisions second. Basic economics:

1. The only relevant variable when discussing pay is total compensation...even better would be total costs to employer.
2. In the private sector, there are 3 players competing for $ inside the firm...the customer, the capitalist (shareholder), and the worker, and usually at least 4 players competing for $ outside the firm: other firms competing for customers, other firms competing for capital, , suppliers (for whom firm 1 is the customer), and other workers competing for jobs.
3. Competition between firms (basically) sets the price of goods in the market economy, so there is (usually) no surplus in the short term to extract from customers or suppliers. Therefore, unions tend to extract $ from capital. The workers get paid more, and the return on capital drops.
4. As the price of labor (in a union shop) rises, the capitalists will tend to buy less of it. Generally, unionization also results in hiring fewer (new) workers.
5. Also, unions tend to make labor more rigid and less flexible, and according to Pournelle's Iron Law, focused on preserving advantages.
6. This has the effect of making the company that the union works for less competitive, and ultimately killing the company.
7. Summary of private unions: Good for existing workers. Good for new workers who do get hired. Bad for capitalists. Bad for the unemployed. Bad for innovation and the health of the company.
8. Public unions: there are still 3 players, but ... instead of customers, you have taxpayers, who have little ability to switch governments.
9. Same economic rules apply, so public unions are good for existing workers, good for new workers in the government, bad for taxpayers, bad for other government priorities, bad for the unemployed, bad for innovation in government.
10. Megan McArdle has an interesting comment on the topic here

    I generally assume that at any given time, taxes are, within some margin of error, basically as high as taxpayers are willing to tolerate--or at least, as high as they're willing to tolerate for a given level of services. To put it another way, taxpayers are virtually never looking to pay higher taxes so that their teachers, firefighters and cops can have higher pay.

11. Will Wilkinson does too.

    We’d very much like to increase nutritional assistance for impoverished children. In fact, we’d love to. What could be better? But, you see, we have promised very large, richly-deserved pensions to some very important people very dear to our hearts, and, to put it frankly, money these days is, well, tight. I know. It’s very dispiriting. If only the selfish rich bastards would pay their fair share of taxes! But, no. No. Whatever happened to the idea that we’re in it together? Huh? Whatever happened to love for our fellow man? It’s sad. Anyway, we are so sorry the bastards have chosen to steal from the mouths of hungry children. I wish we could do something. I really wish we could.

12. Robert Reich, on the other hand, seems to be ignoring all the economic issues, and blaming it on the rich. Not, mind you, that he's wrong in his focus...just that it's irrelevant to the union issue.

The libertarian difficulty

It is difficult to talk with folks and remain civil in many cases.

Here's the line...I wish to be peaceful, and to trade my time and resources with other folks. Anyone who isn't (roughly) in the anarchist position wants to pay thugs with guns to come rough up me, my family or my friends for the crime of disagreeing about which plants to grow in my garden...or where to wear hats...or from not responding to extortion with proper submissiveness.

It's awful hard for a libertarian to not see the world in 2 categories:

pro-freedom...and apologists for thugs.

Kent McManigal has the same theme, but louder.

Meme of the Week

Bryan Caplan discusses the libertarian penumbra: Ideas that cohere with libertarianism, but have no obvious connection.

Caplans list:

1. pro-HBD
2. pro-homeschooling
3. pro-population growth

Sumner (in the comments):

1. Crackpot theories of money/macro. A tendency to overlook the problem of demand shocks.
2. Global warming denial. (But skepticism about Gore-type solutions is fine.)
3. Overlooking the importance of having a "civic-minded" culture, such as you observe in Denmark.
4. Distrust of democracy.
5. Overlooking the importance of private non-profit enterprises.
6. Making the perfect be the enemy of the "much better."
7. Confusing individualism with libertarianism.
8. Seeing history through middle class white male eyes.
9. Too much nostalgia for the past, and for the future. Right now was once the future, and will soon be the past.

Observations:

1. IQ is for persuasion. People argue for positions in order to get what they otherwise want. Desire drives positions.
2. Monkeybrains. People believe things PRIMARILY for social reasons. All people. My super-smart readers. Bryan Caplan and Scott Sumner. Me. EVERYONE. In-group agreement is MOST of why almost everyone believes everything (everything more complex than, say gravity sucks). We should not expect that libertarians, economists, or formalists are immune to this phenomenon. Maybe a few fully autistic folks are largely immune. Anyone suggesting rationality as the primary reason a group of people believes something cues a laugh-track in my head.
3. Opposition. If "the other team" argues for a position that gets what they want (and what you don't want), you argue against it.
4. Libertarians identify as anti-progressive. If the progressives say it...they are saying it to increase government control, and the libertarians are automatically opposed.
5. Some items naturally cohere. Scott & Bryan notwithstanding, there are STRONG, natural correlations between some positions and libertarianism.

The anti-libertarian position argues that we need to give government more authority to do stuff. The primary libertarian position is that we need to pull stuff away from government control.

Government activity rests on several assumptions:

1. Human nature isn't, so social planning can edit the kind of society we have.

HBD is the anti-social planning theory. If human nature is fixed, the progressive social planning is guaranteed to fail.

2. Catastrophe requires massive government action

Global Warming is the most recent iteration. Before that, it was Paul Erlich's population bomb, and general malthusianism. The libertarian anti-AGW position is pure defense, as is the pro-Julian Simon position.

3. Government is needed to do X, say schools.

A. Schooling is a HUGE government activity that could easily move into the private sector. Presently, the homeschooling movement in the USA is a MUCH stronger force pushing schooling into the private sector than the private schools are. I think that the pro-homeschooling position is a historical artifact.

B. School truly does encourage obedience, which is a substantial portion of what the libertarians are fighting against.

4. General association

Unionism, non-profits, democracy over capitalism, multi-culturalism, Scandanavia, and Government currency management are standard progressive positions. To agree with them is to validate the progressives. It is important to object, just on principle, for social-monkey reasons.

Aside:

One reason to sit between positions is that it keeps you from getting too socially committed to any insane positions, just for subconscious social posturing. If there is ANY group that you're a committed part of ... 10:1 says that you're purchasing bogus associated positions along with their correct key insights.

QoTD

Robin Hanson on education:

But in fact schools arose with industry to get folks to accept the regimentation and ranking of the industrial workplace, and to curb natural human creativity, exploration, and challenging of authority. As Katja’s proposal’s illustrates, schools could in fact teach folks how to question common beliefs “scientifically,” if in fact authorities wanted common folks doing that sort of thing.

And that's what homeschooling is breaking. Have fun in obedience training, kids. FWIW, I consider Robin's statement about the history of schooling to be factually true, and barely disputable by anyone who's actually looked into the history.

Iron Law vs. Hero

There are 2 basic positions on having a leader.

Position 1 is perhaps best said by the beautiful movie Hero. 1st...I encourage everyone to watch it. Beautiful. 2nd...there's some hard political philosophy in there. Summary position by the King: I need to cause significant destruction, and conquer all of China, so that we will have peace, and prosperity can reign.

Position 2 is best exemplified by Jerry Pournelle's Iron Law of Bureaucracy (also noted today by Borepatch):

Pournelle's Iron Law of Bureaucracy states that in any bureaucratic organization there will be two kinds of people: those who work to further the actual goals of the organization, and those who work for the organization itself. Examples in education would be teachers who work and sacrifice to teach children, vs. union representative who work to protect any teacher including the most incompetent. The Iron Law states that in all cases, the second type of person will always gain control of the organization, and will always write the rules under which the organization functions.

ALL organizations exist (sooner or later) PRIMARILY in order to benefit the organization, NOT to accomplish the organization's nominal goal. Coupled with the notion that ingroup benefit comes at the expense of outgroup cost...Organizations are all trying to screw the greater public and benefit the ingroup. This included governments.

All governments are trying to screw everyone that isn't part of the ruling class all the time.

To some extent, everyone has to pick a side. I think the evils of organizational sclerosis and (even worse) of government sclerosis, are the killer problem threatening to destroy growth, and condemn us all to the Malthusian hell that China suffered through for 2-3000 years.

EDIT: The Iron Law also helps explain this.

Comparative Advantage II

Fred kindly sets up the opposition position on comparative advantage.

Albania makes a lump of chocolate or a dumpling in 1 hour.

Italy makes 100 lumps of chocolate or 100 dumplings in an hour.

There is no need or advantage for either country to trade. Over time Albania might increase productivity to an Italian level, and then consider trade if the numbers work.

As Fred points out...in a 2-factor economy...it could be that there is no value to trade. However, the chances of this happening in a 4-factor economy (add Eggs and Frankfurters) are near zero, and in our economy with Millions of factors...we find that Albania and Italy actually trade Knives for Zithers....2 dimensions was for calculation.

Fred's next challenge:

An enterprising Italian off shores to Albania with Italian production methods. He pays Albania 2 dumplings an hour and he exports 98 dumplings an hour back to Italy. Albanian dumplingers have doubled their wages, and Italy has seemingly free dumplings, but Italian dumpling makers and the associated infrastructure are in shambles with former workers living out of dumpsters.

Sounds scary...but it doesn't work that way.

• Wages + Productivity track one another very well.

If the Albanians can make dumplings at the same rates the Italians can, they get paid awful close to the rates the Italians do. In real life, though, we find out that when moving the Italian system to Albania, we manage to increase the Albanian productivity to 4 dumplings per hour...but not more. However, that's still a rate of 4 dumplings per chocolate.

• Total production:

Albania was probably making 1000 dumplings and 1000 chocolate lumps a day, using 100 workers in each field.

Italy was making 100000 dumplings and 100000 chocolate lumps a day, using 100 workers in each field.

Once the tech transfer happens,

Albania ends up making 8000 dumplings a day using 200 workers, and no chocolate.

Italy ends up making 96000 dumplings and 104000 chocolate lumps (with 96 and 104 workers, respectively)

• Competition

We also have to remember that competition will drive the wages for Albanian dumplingers up. Because Eddie Entrepreneur will be followed VERY quickly by Erwin, Edwina, Eggbert, and Ellen. And the Edgar will try Italian Chocolatiering techniques as well.

• It sucks for the dumplingmakers.

If Eddie the Italian Entrepreneur invented a machine that converted 1 lump of chocolate into 2 dumplings...the dumplingmakers would hate it. And everyone who ate dumplings would benefit. Is that good or bad? Once Eddie has his machine, it seems as if dumplingmakers are in the same place as buggywhip makers...and need to change jobs. Too the heck bad if they don't like it. Their old job is unsustainable. If Eddie calls his machine the dumpling-o-matic...nobody blinks. If Eddie calls his machine Albania...everyone freaks.

If Bob the biologist made Cameras grow on trees...is that good or bad for the economy? It kills our camera industry, most likely...but it's an unequivocally good thing. Everyone gets a free camera, or 7. And Cameras start being used for things they weren't used for before: everyone photographs their meals...sets up home security cameras, etc. Net welfare goes up substantially, because cameras are cheaper. Do we worry about the jobs at Kodak? No...we treat it as something unpleasant for the folks who used to make cameras...and with all our newfound wealth, we can probably afford to collectively give them each $100,000 dollars of tuition to learn a new trade...and still come out ahead.

Wealth is fundamentally and deeply about consumption. Wealth increases when folks find ways to increase the total amount (or quality) of stuff created.

• Adaptation

Not all the dumplingmakers are living out of trash heaps. Denny Dumplingmaker noticed early that the Albanians were outcompeting him. So he quit making dumplings, and joined the Chocolatemakers. He's a junior chocolatemaker, and he used to be a senior dumplingmaker, but he's doing just fine. His cousin Dingus Dumplingmaker is the one living out of a trash heap, repeating endlessly "Damn Albanians" Maybe if he'd get off his bahocus, and be proactive, his life would improve.

What is competition?

Competition is the business wherein party A and party B have a constrained fight, and the spectators benefit.

If Shell and Exxon are competing to sell oil...everyone anywhere near the oil industry benefits.

All oil consumers, all oil resource owners, and anyone who works in the oil industry (rig workers, petroleum engineers, decision science folks, wildcatters, etc.).

As soon as competition pops up...and it does as long as there's more than about 3 parties, and the parties aren't forced to cooperate via violence...

The return on capital drops quickly to its historical level of about 5%. ALL of the $ made from oil gets spread between the folks who own the oil source (because the oil companies are competing for crude) and the folks who work for the oil company (because the oil companies are competing for talent)...and every efficiency possible gets squeezed out of the production process, almost all of which ends up as benefit to the consumer. Only people who get screwed by competition are the owners of Shell and Exxon.

Adam Smith:

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices"

So...the natural goal of business folks is to attempt to restrict competition...honestly, it's the ONLY way to keep prices high. Fortunately for the rest of us...the NORMAL path to restricting competition (cartel) suffers from two major problems. First, there's the prisoner's dilemma. It's better for everyone in the cartel to cheat than to follow the agreement. Second...new entrants are not a member of the existing cartel, and either new entrants will undercut cartelized prices, or the new entrants will be cartelized as well, thus diminishing returns for the existing members and increasing their incentives to cheat...AND increasing the incentives for further new entrants.

As far as I've been able to tell...the ONLY cases EVER where cartels have been maintained and successful were in 2 categories.

1. Government enforced monopolies or cartels. AT&T was built via government action. Microsoft was built off patents (government monopoly on an idea). All the government ventures (Post office, schools).

2. Limited natural resources. DeBeers successfully ran the diamond industry for years because there are only about 2 places in the world you can mine diamonds. OPEC controls a substantial portion of the petroleum deposits known to the world over the last 50 years. This seems to be shifting, though...and it's never done a very good job of control, due to the prisoners dilemma issues. 1970s oil shortages were price-control induced, not OPEC-caused.

Competition -- bad for the competitors. Good for everyone else.

Bumper Sticker oTD

Dan Mitchell has it.

Comparative advantage

If there are 2 goods in the world, and 2 persons...

Alex can make Yoyos for $1 each and Zithers for $2 each, while

Bob makes Yoyos for $5 apiece and Zithers for $20 each,

how should Alex and Bob trade?

Alex should make Zithers, Bob should make Yoyos, and Bob and Alex should trade Zithers for for Yoyos at a 2-4:1 ratio. Any ration better than 2:1 makes Alex richer, and any ratio less than 4:1 makes Bob richer.

What if two nations, Albania and Bulgaria, each make goods... Chocolate and Dumplings.

If Albania is worse at making EVERYTHING than Bulgaria...the same logic applies. Even if It's Albania's stupid government that all the crap happen.

Albania can make a lump of chocolate or a dumpling for 1 hour of work.

Bulgaria can make 2 lumps of chocolate or 4 dumplings for 1 hour of work.

What happens? Albanians and Bulgarians trade 2 lump of chocolate for 3 dumplings, more or less.

Albanians are richer than they were before. Bulgarians are richer than they were before.

Perhaps some Albanian dumpling-makers and Bulgarian chocolatiers are unhappy with the arrangement...but the result is as if there were a machine that turned 2 chocolates into 3 dumplings or vice versa.

It is IMPOSSIBLE, given very very basic trade theory, for a person or nation not to have a comparative advantage with another nation. It misunderstands how international trade works.

The government conflict

Everyone and their dog is commenting on the Wisconsin public unions issue. Most people have also noted that Ohio, and Tennessee are in motion in that direction as well. New Jersey seems to be moving as well.

Of the explanations I've seen of the issue...the best summary is probably the set of charts used in this video from this post.

Summary in words: Reagan cut government spending from 22.2% to 21.2% of GDP. Clinton (starting even before the Gingrich revolution) cut government spending (taking advantage of the peace dividend) from 21.4% to 18.2%. Between Bush II and Obama, government spending has gone up in the last 11 years to 25.1% of GDP.

Spending an additional 7% of GDP on government activity, because Bush II spent like a drunken sailor and Obama spends like a gambling addict with a trust fund is simply unsustainable. And well more than 50% of government spending is spending on employees.

Note also that the government has not been able to get more than ~20% of GDP in revenues EVER.

The government budget problem is a spending problem...and the problem is government employees. The budget is insoluble unless get less money, and lower growth. This is what the Midwest budget fights are about...and what the rest of the states will face as well. And then it will move to the federal government ... especially after '12.

Following Aretae's 1st law (Rates, not states), it's not actually necessary that there are any real CUTS. What needs to happen is that the rates of future expansion, and especially pension/benefit plans are cut rather dramatically. Maybe to below inflation. ONLY path to budget balancing...and that's before addressing the real issue: Medicare.

Sentence otD

P. Henry Saddleburr:

Unlike the people of Wisconsin, New Yorkers are known for their manners, civility and genteel nature, so don’t expect that they’ll act out the way we’ve seen in Madison.

Sentence otD

Adam Ozimek:

I suspect the problem is the people whose welfare we aren’t fully considering.

I think that's usually the problem. His context is the drug war. But it's the big deal for all your questions...when doing your moral calculus, who matters?

Usually, it's folks in jail and folks who don't speak your language who get left out as unimportant. This is true for free trade, it's true for the drug war.

RTWT

Iranian Nukes

BBdM says: I predicted this publicly in '09.

Smart people social problems

Why do leaders cluster near +2Stdv IQs (125/130)? Aretaevian noodling:

• Humans were apex pack predator somewhere between 2 and 6 million years ago.
• Apex pack predators survive/thrive inside their pack almost exclusively on group relations/alliances.
• Dunbar's research (human natural packs of 150) also includes the idea that for a 150-pack, it takes ~42% of the average pack member's time focused on social activities to maintain proper cohesion.
• Evolution therefore strongly drove intra-pack survival
• IQ is the primary intra-pack survival mechanism.
• The primary evolutionary purpose of IQ is to get what you want ( for self /alliance )
• The IQ mechanism is persuasion: your special privileges / rule bendings are justified.
• IQ manages this by giving you more and more capacity to construct argument.
• IQs past about 130, though, get so good at argument that they see holes in ALL arguments, most notably their own and their friends arguments.
• IQ too high gets in the way of being actually convinced of your own arguments.
• IQ too high also predisposes you strongly to fail to ally properly when you notice "your team" being stupid
• IQ before 130 folks can lead honestly because they don't SEE the contradictions
• IQ past 130 folks have to LIE to lead. (Nixon, Clinton)
• Lying is hard. -- therefore leadership caps near 130

Free Trade 48

Mark sez:

Free trade with Japan may be a machine that turns wheat into cars, but free trade with China is a machine that turns Jobs into Welfare.

This misunderstands international trade badly.

• China replacing US jobs is (with respect to the US economy) the same mechanism as labor-saving devices replacing US jobs. You can't find a domestic difference

But then there's the more complete answer

Americans buy American stuff with American dollars.

Chinese buy Chinese stuff with Chinese Yuan.

If Americans want Chinese stuff, they have to first get some Yuan by selling China some American stuff.

If Chinese want American stuff, they have to get some $ by selling Americans some Chinese stuff.

Currently, Americans are sending China a lot of paper and a little stuff, in exchange for a lot of Chinese stuff. GREAT deal for american consumers.

I think an analysis of Walmart indicated that PURELY the Walmart value-add of foreign trade was $2500/American/year extra spending power. *300M Americans, and the value add from Walmart's portion of foreign trade works out to almost a T-trillion dollars.

Again...how is this different from a machine? NOT AT ALL. China is a machine that turns wheat and paper into plastic toys? And what do machines do? Displace labor. Banning (or substantially taxing) trade with China would have the same effect as banning backhoes. It would give us a lot of very-low value jobs (in cheap, low-value manufacturing, or in ditch-digging respectively), and decrease the total value produced both by Americans and by Chinese.

Do you want to ban (or tax) backhoes too...or give up trying to limit trade? It's the EXACT SAME problem from a domestic point of view. Heck, the candlemaker's petition is still relevant. Let's ban the SUN. If you give up your anti-foreign blinders, there are no differencess to OUR consumers or our producers between more-efficient machines and foreign trade.

Word oTD

Courtesy of Illka:

Proglodytes

Read in context.

Privatizing marriage?

Bryan Caplan:

New Hampshire privatizing marriage?

Nock + Law

As Albert Jay Nock once wrote...there are 3 layers of activity which constrain your behavior.

1. Most important is manners. What you do should be polite.
2. Next most important is ethics. In the event that manners doesn't tell you what to do, ethics will.
3. Finally, there is law. Law is only there for the gross violations. Ideally, it is all-but-invisible, with manners, then ethics handling things.

However, it can as easily be said that

Law is a result of ethics, just as ethics is the grossest outline of manners.

Certainly, it is part of a deep moral code in America that produces the freedom of (or from) religion that we enjoy. And it is part of a deep moral code in Iran that produces the lack of freedom of religion that they legislate. Law is a result of Ethics.

Fundamentally then, the core problem in the USA is that the collective ethics of Berkeley, and those of Dallas are not terribly well aligned...and yet we are trying to make a legal system that supports both of them.

As far as I can tell...the only sane solution is to move stuff out of the realm of federal control, and into local control. The more the better...with real results occurring only after tax authority moves away from the feds to the local unit.

EDIT: removed extra words.

Most interesting idea today

Towns are stripping corporations of their "personhood"? Rock on. The limited liability of the corporate structure is a major issue in how rich folks screw poor folks.

Free Trade, part 47

Restrictions on free trade must, of logical completeness, fall into one of several categories. Let's take a 10% tariff, for instance, on imports of Chinese Steel, as our example.

It's obvious that a 10% increase in prices of Chinese Steel

(A) HURTS all folks in the US who were buying Chinese Steel (and all downstream products).

(B) HURTS Chinese Steel producers

(C) HELPS US & Brazilian Steel producers (More business)

(D) DECREASES the total amount of steel sold/used (as well as the total amount of any product made using steel)

It's also obvious, but takes a moment to reflect, that this 10% tariff on Chinese Steel will, almost universally (historical experience) be met with an equivalent Chinese 10+% tariff on American Wheat, which

(A) HURTS American Wheat producers

(B) HURTS Chinese Wheat Consumers

(C) HELPS Chinese & Brazilian Wheat producers

(D) DECREASES the total amount of wheat sold/used.

NET, therefore, the tariff causes harm to almost every consumer in both countries, decreases total welfare substantially, as the amount of both wheat and steel traded drops noticeably, and transfers some small value from Chinese steel producers to Chinese wheat producers, and from American Wheat producers to American Steel producers, and from American and Chinese businesses to Brazilian businesses.

Overall, tariffs are a really crap-tastic move.

If we universalize tariffs (10/20% across the board), then we've just succeeded in decreasing ALL economic activity substantially.

For the 47th time...foreign trade with Japan is indistinguishable economically from having a machine that converts wheat into cars. A tariff on trades with Japan hurts the American Wheat producer AND the American consumer, and decreases total activity. Without counting the effects on Japan at all, it's a disaster.

Responses to Cowen's Stagnation Hypothesis

Growthology has some questions about it.

Tino, as usual, brings a big data stick to attack the hypothesis.

Modern problems

A few days ago, I threw down a list on the BIG modern problems:

1. Trade restrictions
2. Government regulation of industries which prevent low-cost new entrants. Finance, Education, Law, and Medicine are especially bad here.
3. Intellectual property law.

Historically, I've also included a couple other things

Just now, Scott Sumner throws down a different, larger list, not that far away from mine:

1. The huge rise in occupational licensing.

2. The huge rise in people incarcerated in the war on drugs, and also the scandalous reluctance of doctors to prescribe adequate pain medication (also due to the war on drugs.)

3. The need for more legal immigration.

4. The need to replace taxes on capital with progressive consumption taxes.

5. Local zoning rules that prevent dense development.

6. Tax exemptions for mortgage interest and health insurance

In this larger context, I think that his #1 should include the FDA, financial regulation and such. Not just occupational licensing, but the HUGE mass of regulation that prevents folks (in medicine, finance, law, education, etc.) from trying new things.

Most interesting thing I read yesterday

Parasites used to fight autoimmune diseases? HT: Patri.

The Next Thousand Hours

So...I've been trying to get a handle on where my educational interests diverge from those of many of the folks I might be talking with...and I think the title of this post (and future promised title of a book) defines the problem.

Most learning...and almost 100% of teachers are focused on the 1st 100 hours someone spends learning a topic. (1 quarter of a 3-unit college class is roughly 3 hour in class, 7+ hours outside of class, for 10 weeks: 100 hours). In my opinion that is roughly enough time to discover what a topic is about. Learning stuff? It's as effective in learning stuff as the pre-workout stretching is in building muscles. Necessary, useful...and not really part of the process. Your first 100 hours are warmup.

My interest is in the next thousand hours of learning about a topic...in which someone actually learns the topic. When they move the topic from their brain into their bones. Who covers this topic decently? As far as I know...sports coaches and martial artists are the only folks who take this idea seriously. My proposition is that a sports coach, an on-the-job coach, or a sensei should have as their primary focus the question of the next thousand hours. 1000 hours of practice after the student leaves your lessons...what understanding/capability will they have built? That's the metric we care about. Sillinesses about the first hundred hours are an aside.

Leftist? Positions I'm slow to absorb

Do the police exist to

1. Protect the people from dangers
2. Enforce the Ruling class's preferences upon the masses.

I think that in the modern world, it is almost invariably B, rather than A that is the primary function of police. However, I think that almost the entire conservative and minarchist pro-police position assumes that the answer is A. Calling out the distinction might help clarify some things.

Foseti's String of Posts

While I'm frequently at odds with Foseti over issues of proper solutions to government...his recent posts discussing the actual working of government...and the application of his practical knowledge to the theoretical work we face is phenomenal.

If you haven't read Foseti's series on being a government worker, or his recent post on Kling's Unchecked and Unbalanced, you are really missing out.

Interesting Posts

• Tyler Cowen: Individual, Family, State...3-way conflict. Which cultures subordinate which ones?
• Robin Hanson: Damn near everything the guy writes is worth reading. I can't link to him, because I want to link every day.
• Kling: The administration's Housing Finance report. Key Line: "In my view, their backstop idea is what you would expect from a graduate student--an idea that on paper sounds clever but which is not well suited to practice"
• Brutus: States compete to produce bads.
• Ben Casanocha: Identifying empty rhetoric.
• Psych today: Making mistakes is important. I don't quite endorse the title of the post...but the idea that mistakes are indispensable in getting things right is very important. ALL the evidence I'm familiar with is that success of all sorts (brilliant work included) is primarily a result of quantity, and trying more things...NOT thinking more.

Blog Post Title oTD

Seth Roberts:

Chairs: The Carbohydrates of Furniture

Behaviorism pro and con

Humans act an awful lot like rats in terms of stimulus/response training -- It's tremendously effective, when done right.

For ALL subject brains bigger than that of a cockroach, the interaction is NOT a classic trainer-subject relationship, but rather a 2-player game where both players are trying to manipulate the other using every evolutionary tool available.

Shorter:

Behaviorism works ... in both directions.

Where Wealth Comes From

Since I believe that Wealth is the uber-metric...

(If pressed, I'd say something like like the geometric mean of the mean, median & modal PPP-adjusted annual income)

There's an important question as to where wealth comes from.

Grok and Klunk owned 2 clubs and 2 rocks, and died at 24

A random Grok today has a 97 inch flatscreen TV, 3 cars, and a 3000 square foot house that they live in with a wife and one kid and lives until 80.

Where did the difference come from?

There are huge numbers of questions as to the prior causes...

de Soto argues that effective property rights is the KEY feature.

Matt Ridley argues for trade as the motivator.

Deirdre McCloskey argues very interestingly for the ethics of commerce.

Gregory Clark argues for IQ.

All of these are interesting hypotheses, and all likely have portions of truth in them.

But That's not my question. My question is...what are the proximate causes of wealth?

In super-short version, I'm familiar with only 2.

1. Accumulation of practical knowledge. As per Paul Romer, wealth is fundamentally about aggregated know-how.
2. Trade. As per all of economics, I am wealthier because I can teach the nice folks at Dell to write enterprise Java, and the nice folks at Dell can, in exchange, give me a computer.

What then decreases wealth? Interfering with trade, and interfering with accumulation of practical knowledge. If I were going to summarize the 3 great evils that are holding 1st world people back from becoming much wealthier today it would be:

1. Trade restrictions
2. Government regulation of industries which prevent low-cost new entrants. Finance, Education, Law, and Medicine are especially bad here.
3. Intellectual property law.

I can't say which one of them is the greatest evil...but between the 3, they eat more than half (I've seen 7/8 estimated) of the potential wealth available to 1st worlders.

Trade restrictions are pernicious not just because they increase the cost of buying things...but because ALSO they decrease total economic activity substantially. Simple economic explanation here, detailing all the costs to the country imposing a tariff. The modern economist who has most strongly argued for the theoretical possibililty of Tariffs being positive-valued for an economy is Paul Krugman (whose work on related topics earned him a Nobel prize), and his commentary on the topic says that in real life, the situation doesn't come up where a tariff isn't a substantial BAD for the country imposing it.

Intellectual property is bad because ANY good artist knows that "good artists borrow and great artists steal." Idea combination is no different in this than art...but in the modern world, it has become illegal to even borrow practical innovations.

And regulation, contra the normally intelligent Robert Reich, is the other problem. Regulation is a way of increasing the cost of entering a field, and increasing the cost of doing something new. Basically, every regulation ever written is wealth-destroying. Occasionally, one might find a redeeming feature...but mostly it's a way of destroying wealth.

This all relies on the FACT that most innovation comes in the form of unpredictable disruptive influences, which are not predictable (in any useful fashion) by anyone.

Wealth comes from new, disruptive ideas, implemented, and then traded. Both IP Law and Regulation actively prevent the implementation of new disruptive ideas, and trade restrictions both massively increase the costs and decrease the potential benefits.

Free Trade

Foseti has another post up, positively reviewing a book that is critical of free trade.

Here's the economist line on Trade.

Al wants to trade with Jill.

Al grows corn, Jill builds cars.

Since Al has more corn than he needs, and Jill has more cars than she needs, the trade makes both Al and Jill happier.

If Al grows corn, and both Jill and George make cars...if Jill makes cars better than than George (cheaper or higher quality), then Al will trade with Jill.

Protectionism is when George convinces his Uncle to threaten (anonymously) to beat Al senseless if he trades with Jill. Then Al buys from George, is less happy than he would have been, Jill is less happy than she would have been...maybe Al doesn't buy at all, because it's not worth the trade....but most likely, we've transfered a lot of value away from Jill (no corn), a little value away from Al, and a medium amount of value to George.

Clearly, in the first place, Uncle is immoral, and clearly the net benefit to everyone has gone down substantially. Unsurprisingly, this kind of thing only happens when George convinces his Uncle to threaten folks. It's bad for Al, bad for Jill, and good ONLY for George.

If Mechanic Mike went out and built a machine that transformed corn into cars...then George convinced his Uncle to smash the machine...it would be EXACTLY the same situation.

George uses thuggery to prevent Al and Jill who want to trade from doing so. George gets rich off his thuggery. Al and Jill or Mike are worse off. It's questionable whether the net benefit to George is higher than the net loss to Al. It is obvious that Uncle has net-destroyed significant value once everyone is taken into account...though if you have some way of counting Jill/Mike as somehow unimportant, then you can edit your calculus substantially.

Protectionism is preventing (with violence) Al and Jill from trading IN ORDER TO make a George richer and the other two poorer. Nothing more, nothing less. Frequently it even works.

Money flows, as always from the poor and weak to rich, politically connected confabulists who can spin myths that explain why their interest is "good for the country".

QoTD + Commentary

CoyoteBlog:

You can’t really love capitalism without being able to accept chaos (chaos in the sense of “unpredictable, bottom-up, unregulated and uncontrolled,” not the more nihilistic Road Warrior connotation)

Further... unpredictable, bottom-up, unregulated and uncontrolled is deeply disruptive to the status of the elite. If anyone has power, among their first activities is to consolidate their power and prevent others from usurping it. In the status+economics sense, the prime directive of folks with power is to prevent disruptive economic activity that will lower their relative importance. See: GM, Teacher's unions.

This is why the left-libertarians are largely correct. A freed market is the only way to prevent too much power from aggregating in the hands of the capitalists.

I suppose that there's a reason my most memorable D&D character ever was a servant of Arioch. I'm personally simply uncomfortable with orderliness. More order = fewer possibilities for serious improvement. If there's not noticeable amounts of disorder for me to stir and improve...I get uncomfortable. Stable = dead. Creative destruction, important choices with insufficient information, the knowledge that the plans you make today may well be obsolete tomorrow...this is my comfort zone.