Thu, 27 Sep 2007

Rationing

Rationing is a completely irrational response to a shortage. Rationing is predicated on the assumption that it's fair for everyone to have the same allocation of a resource. Nations typically behave towards each other like toddlers. Within a nation, the politicians seem to treat citizens like children, where every child gets an equal sized piece of cake.

I'm not a child. Neither are you. None of us are (except our children, of course). Giving each of us identicaly sized pieces of cake ignores all sorts of issues. For example, we are carbon-based lifeforms. Some of us are bigger than others, are comprised of more carbon, and need more carbon to live. Or for example, some of us use our carbon to reduce our carbon emissions. I own 225 acres of land. It has a growing forest which is pulling carbon out of the air. I'm a hero -- shouldn't I get a higher carbon allowance? What if I can consume (emit) carbon dioxide (in the form of fossil fuels) to optimize my carbon consumption (in the form of woody growth)? How does the carbon ration account for this? Particularly in the UK where land ownership is far more class-based than in the US.

An equal share is not obviously fair; not at all.

Posted [01:21] [Filed in: ] [permalink] [Google for the title] economics,rationing [digg this]

Bob Frankston

If you know Bob Frankston, you will agree with my comments to him:

You are an extremely perceptive individual, Bob. You can look at something and immediately cut through all the crap. The rest of us can't do that. You need to spend more time leading the rest of us past the crap. Otherwise, in your lightning path to the correct solution, the rest of us get scraped off in the crap. And let me tell you, sitting in crap is no fun.

Posted [00:58] [Filed in: ] [permalink] [Google for the title] bobfrankston [digg this]

Game Theory

I'm dubious of the value of game theory to economics. Games have winners and losers. Markets have participants. Free market only have winners; the would-be or potential losers choose not to play.

I'm simplying, of course, glossing over the existance of human error. People who think they're going to win will lose, but they do so only because they've made a mistake. Perfect markets are not an option, as any economist will readily acknowledge.

So where does the idea of "perfect markets" come from? Economists must use thought experiments to create theories about how markets work. One of these experiments is the perfect market; one without human error, without transaction costs, and where every participant has equal knowledge. Another experiment is the unchanging market; one without growth, decay, decisions, or any other number of human values. Within these simplifications, you can say what a market will do.

Of what value is that in the real world? It helps economists to say what will tend to happen at the margin. If transaction costs are lowered, markets will behave more like perfect markets. If human error can be reduced (hey, at great cost, we did it for the Apollo missions), markets will behave more perfectly. If real markets then turn out to behave differently, the theory is wrong, and the economist goes back to the drawing board.

Unfortunately, undergraduates have been imperfectly taught about perfect markets, and you can see the results.

Posted [00:54] [Filed in: ] [permalink] [Google for the title] economics [digg this]

Government vs. Monopolies

If you're looking to governments to save you from monopolies, you're asking the devil for salvation. A government is itself a monopoly on the creation of violence. Why would you expect one monopoly to be hostile a priori to other monopolies?

The theory is that a government is controlled by its citizens. However, control over the government is a public good. Like all public goods, it is underproduced.

Posted [00:50] [Filed in: ] [permalink] [Google for the title] economics,monopoly [digg this]

Mon, 24 Sep 2007

Nevermind the Bleating

Nevermind the bleating of the leftists. Americans are doing much better than 30 years ago. Can anybody deny it? Just look at Clarkson University. They've doubled the size of the Quad parking lot, and the Pit parking lot. Now they're building another parking lot in the useless curvey space between the Pit and the Quad. The cars they're parking in that lot all have cruise control, power windows, power brakes, radials, and rack-and-pinion steering. Back when I was in Clarkson 30 years ago, cars with those features were considered luxury cars. Now? Meh, those features are all standard.

Yet the Krugmans of the world think we're no better off. Does anybody honestly think he's an economist? Can't we get MIT to say "Oops, sorry, Paul, can we have that PhD back?"

Posted [17:42] [Filed in: ] [permalink] [Google for the title] economics [digg this]

Thu, 13 Sep 2007

The Dying of Elephants

Doc Searls laments the dying:

This is why I've lamented the dying not only of local newspapers, but of full-service local radio in most smaller U.S. cities, and the failure thus far of everybody (bloggers, public radio, you name it) to fill the void. Old acts are failing and new acts are not fully together.

Anybody who hopes to benefit from the dying of elephants definitely wants to not be there during the death, because there can be much thrashing around and crushing of smaller beings.

Remember: good things happen slowly, bad things happen quickly.

Posted [02:59] [Filed in: ] [permalink] [Google for the title] economics [digg this]

Tue, 04 Sep 2007

Unions and Free Riders

Unions are in a hard place. On the one hand, they need people to actually be union members and pay union dues. On the other hand, they want non-union members support the ability of unions to keep them from working in a union job. So they walk the fine line between bragging about how unions help labor in general, without mentioning that people who gain those benefits are free riding off unions.

Posted [14:23] [Filed in: ] [permalink] [Google for the title] economics [digg this]

Mon, 03 Sep 2007

Gold Bugs

I know that some people are gold bugs; I am not one of them. A chief advantage of gold is that it limits the supply of money, making for a constant predictable mild deflation. In a free market society, as each person trades, they increase the total valuable of the tradable items. If you have a fixed amount of gold, and your money is gold receipts, then you will have a small value of deflation, as the same money chases goods worth more and more.

For some reason, people think that deflation -- any deflation -- is bad. They say that when money is deflating, people will hold their money because they know that it will always be worth more the next day. Thus, the economy shuts down because nobody wants to spend their money. That's a great theory, but it neglects the fact that people can get used to anything, including deflation. So yes, their money will be worth more the next day, but so will their money if they invest it. The same incentives apply: don't spend now because you'll have more to spend later.

Yet a fiat currency can work exactly the same way. Keep the amount of the currency fixed, and you'll have a small amount of deflation. Or, you can inflate the currency at the same rate of growth as the economy. The money-maker (the person who prints money and turns bills into money through their promotion of the currency) can earn money at the growth of the economy (which is a tolerable income) by constantly inflating money to keep prices constant. That is one way that a private money-maker could earn a profit on turning pretty pictures into money.

Note, though, that issuers of fiat currency have the weight of law behind them forcing people to accept fiat currency as if valid. Gresham's law applies, and a fiat currency will drive all more valuable money out of the market.

Posted [22:58] [Filed in: ] [permalink] [Google for the title] economics [digg this]

Regulation of Commerce

Dave Rogers makes a few oopsies in his Competing Messages: Commerce and Sociality posting (Hat tip to Doc Searls). He asks "What presses back against competitive commerce?" and then answers his own question saying "Very little, it turns out." Oops! He misses one thing, which causes the rest of his argument to tumble to the ground. All this commerce, all this competition exists for one purpose: to maximize cooperation. Who decides when the level of cooperation is sufficient? Consumers. Consumers are what pushes back against commerce. Consumers regulate commerce, continuously in time and space. If you disagee, try selling something people don't want. Try selling something when people want something else more.

Dave also thinks that government is not a competitive enterprise. Oh, no, how wrong! The state governments in the United States are competitive. There are no legal barriers to prevent you from moving from one state to another. You can subscribe to any state government you want, simply by changing your residence. No permits, no forms, no fees, nothing but the cost of moving your butt from one place to another. In this manner, the states must compete for citizens and tax dollars by enacting the most sensible laws.

Of course, we have allowed the federal government to interfere in this process. We have allowed it to take on tasks it was never intended to perform, tasks that the Constitution gives it no permission to perform. For example, the Department of Energy. Or the Department of Education. Mentioned nowhere in the Constitution. Completely illegal organizations.

And as for Dave's final point -- that commerce corrupts society -- I'd be happy to socialize with him over a beer at the corner pub -- and I'd even buy -- but that would be that awful corrupting commerce, wouldn't it?

One last point: "This just in...". Yes, Upstate New York is a beautiful place.

Posted [15:23] [Filed in: ] [permalink] [Google for the title] economics [digg this]

Sun, 02 Sep 2007

Unions are not completely wrong

Richard C. Iannuzzi, president of the NYSUT (teacher's union) is not completely wrong when he says: After all, it's not because of the kindness, generosity and benevolence of employers that many workers enjoy benefits such as Saturdays and Sundays off, 40-hour work weeks, health benefits, paid vacations, a dignified retirement, and safety rules that protect us on the job..

It's true that employers don't do these things for those reasons. They do them because they have to. In order to get the employees they want, they have to pay them more. Worse than that, they have to pay the employee more than they might be paid in any other industry. They're not just competing for employees within their own industry, they're competing for them in every industry. That's how it is that productivity increases in one industry result in every other industry having to pay more for labor.

Like everyone else, they have to compete in a free market for labor. But oh, the point of a union is to not have a free market. The point is to force employers to employ union members regardless of their qualifications for the job. So the reality is that unions cause employers to have a less productive labor component. This can only result in lower benefits. So rather than praising unions for getting workers those benefits, we should be damning unions for getting in the way of workers having even larger benefits.

Posted [23:24] [Filed in: ] [permalink] [Google for the title] unions,economics [digg this]