The Angry Economist

Paul Osman wrote a letter to the Nature Conservancy, published in their Summer 2008 magazine. In order to maximize his shame and embarrassment, I will reproduce the letter in whole:

The "experts" missed the point in "The Poverty Question." The real debate should not be how to bring other people's standard of living up to our own; it should be how to reduce our own standard of living.

For most people reading the glossy pages of your magazine (in a home full of unessential luxuries), it is very easy to critique the Africal boy cooking a monkey over a small, open fire ("Dispatch"). However, his overall impact on the environment is a very, very small percentage of our own. We, not the world's poor, are the problem.

Bringing the world's poor up to our standard of gluttony will only result in the complete and total destruction of the environment. The debate should be how to reduce our gluttony and make us more like them.

Regardless of the correctness of his issue or not, the Nature Conservancy really would like to be in a position where it can act to preserve critical habitat in countries where poor people have political clout, e.g. India. For a fucking certified idiot like this to express his opinion in the Nature Conservancy's official journal is complete stupidity. THESE PEOPLE READ, YOU KNOW. And it's very, very unlikely that they view their own poverty as something to be desired. They're likely to tie the Nature Conservancy together with this idiot's opinion.

As for the issue itself, if the Osman-Idiot wants to reduce his own standard of living, nobody is stopping him. Voluntary poverty has a long history among the self-righteous. For myself, I plan to be self-wrongteous, and will continue to try to help everyone on God's green earth to become as wealthy as I.

Apparently no cost is too high to protect the environment. You know those little inhalers that asthmatics use to STOP FROM DYING? They are powered by compressed CFC gasses. Apparently these environmentalist fuckers feel that asthmatics should fuck off and die. Because, you see, the replacement for CFCs, HFAs, doesn't work as well. They will taste and feel different. The spray may feel soft. Each must be primed and cleaned in a specific way to prevent clogs (this is the serious one). And they tend to cost more.

These people disgust me.

The F.X. Matt brewery in Utica, NY, suffered a fire on Thursday. It's a serious problem for them because it's their canning operation. They presumably have insurance, but of course the problem is that they can't sell any product until they rebuild. This is going to be hard for them, but they will recover.

Unfortunately, you also have these assholes sticking their noses in:

Gov. David Paterson's office and the Empire State Development agency are already pledging aid. The Oneida County executive, state legislators and Utica's mayor also talked Thursday night of finding ways to assist F. X. Matt recover and rebuild.

This is mercantilism! This is BAD, folks! Governments don't know how to run businesses. They don't know this because they get paid by taxpayers. Taxpayers MUST pay their taxes regardless of whether they like the government or not. Their only alternative is to leave. Voting against taxes is ineffectual. We voted down the school budget for next year, and yet the State of New York allows them to run with a provisional budget ANYWAY in spite of the voter's preferences.

F.X. Matt will rebuild. Government will help them. But don't confuse this with capitalism. It has the stink of mercantilism, through and through.

Eleanor Gibson, Norwood, is quoted in the local free weekly (North Country This Week) as saying about gasoline prices "Something needs to be done, an investigation into this -- it's ridiculous."

Did she complain about low oil company profits when gasoline prices dropped? Probably not. So why does she think she has the right to complain when gasoline prices have gone up? Arguing for your own interests over those of other people is called "selfish".

I always have to wonder quite what people think can be done when they say "Something needs to be done"? Do they think that Congress can repeal the law of supply and demand? One might as well try to repeal the law of gravitation. There are very concrete causes for the increase in gasoline prices. It comes down to having to pay more than anybody else wants to pay.

I suspect that people think that Congress and the President run the economy, and can turn prices up, or down, as they wish. They should be careful what they wish for. Our current health care mess was caused by wage and price controls during WWII. Wages were limited, so to attract the best employees, employers bought them free health care. After the war was over, employees took free health care for granted. Health care was still affordable then, because most people paid for it out of pocket. Now that very few people have to pay their own medical bills, they don't care how much health care costs, so they don't care to economize, and the medical industry is happy to oblige their spendthrift ways. Everybody complains about how the insurance companies don't want to pay for anything. If people were paying their own money, they wouldn't want to pay for anything, and the medical industry would find itself needing to keep the cost of health care low.

Many people who believe that we should be thinking less of ourselves, and more about the future, cite the Iroquois maxim of thinking "Seven Generations" ahead. Why seven? Why not eight? Economists who have studied this issue call that number the result of the discount rate.

People discount the future. Not entirely, and not all at once. Life is uncertain, and with the passage of every bit of time, your plans have a chance of being disrupted. After enough bits of time, the chances of being disrupted add up to a probability of one. Beyond this time, you cannot plan, and you SHOULD NOT plan.

How do you determine the discount rate? As it turns out, the discount rate is proportional to the (natural) interest rate. That rate is what people charge to lend money. Getting paid back is a plan, and those plans could be disrupted because of unforseeable future events, so people insist on being paid back more than they have loaned.

People's discount rate is roughly equivalent to the level of civilization in which they find themselves. Every sane person wants the discount to be as low as possible. Political action increases the discount, because it makes people's plans less likely to come to fruition. That's why, when economists say that they want a small government, what they really are saying is that they want a prosperous society.

Those who say "people before profits" fail to understand why profits are important. Profits tell you that you aren't wasting resources -- that customers value what you are creating, over and above the cost of doing it. Without a system of free enterprise, private property, and capitalism, you can't tell how much to pay your workers, how to price your products, how much to build vs buy, how much to make in one day. I can't imagine what mechanism these people would use to replace the decision-making power of profits.

I think David Isenberg is a little frustrated with me, because he keeps snarking at me about economics. The problem is that not only does he not "get it", he doesn't understand that he's not getting it. It's like the guy who adds 2 plus 2 to get 5, and then when you say that he's bad at math, he says "Oh yeah? Well I know that 3 plus 4 is 8!"

From the looks of things, David is good at finance -- at least that's what his later posting is about. Trouble is that finance is not economics. Finance tells you how much, but economics tells you why. Finance can let you determine that two things have the same value, or the same cost, but only economics can tell you why people would buy one versus the other.

This seems to be a fairly commonly executed fallacy. Many many people feel free to criticize economics and economists, when it's clear that they don't know the first thing about economics. I think that's because they, like David, confuse finance for economics. They figure that they can balance their checkbook, so they know as much as somebody who has studied economics for years and year. At least, that's my best guess, but I might be wrong.

Usually, customers seek the maximum value at all times. This could mean paying a lot for very high quality, or paying a little for something that barely suffices. But customers optimize for value -- bang for the buck.

In the American health care system, nobody is optimizing for value. The patient demands the highest standard of care regardless of the cost. The insurance company demands the lowest payments regardless of the quality of the care.

This is totally wrong. We need to move to a system where most people pay most medical bills out of pocket, and insurance companies step in only when the costs are completely unaffordable. To get there, we need to eliminate the deductibility of health care costs. Why should health care be deductible on income taxes when food is not? Food is way more important to your health than is a doctor's care. So is exercise, but neither one is deductible.

We also need to accept that most insurance companies will need to fire most of their employees, and that doctors' offices will need to fire one or more employees. On the bright side, consider that that will free up their labor for production that makes American society better rather than worse, as is currently the case.

David Isenberg drives me batty. He's the fellow who pointed out that a stupid network (intelligence at the edges) produces more public benefit than the smart network that his then-employer, AT&T, was building. Well, of course when you make a public fuss like that, you either change your employer's direction, or you have to leave. He left, and has been a successful consultant since then.

Unfortunately, David doesn't know much economics. Like most people who don't know much economics, he feels free to cast aspersions on what he calls junk economics. He complains therein that some of his friends deny the peak oil hypothesis. Maybe he means me? I don't deny the hypothesis in the sense that I'm not an expert on oil. I have been studying economics, however, and can make some predictions which counter David's "Junk" economics.

First is that there are sources of huge amounts of oil which are not profitable to extract when the Saudis are dumping oil. Second is that nobody is going to invest in these oil sources unless it looks like they can successfully sell their oil. So they're not going to act simply because the price of oil is high. Everybody expects the Saudis to try to push the price of oil up to extract the maximum possible profit.

But if the Saudis are artificially restricting the supply of oil, they can artificially expand it as well. The people sitting on more expensive oil are going to wait to extract it until they're sure that the Saudis can't screw them by expanding production.

As I said at and after David's WTF conference back in 2004, people will not act simply because experts say that peak oil has occurred on such-and-such a date. People will act when they wish to avoid discomfort and not before.

Yes, the end of cheap oil is going to be a challenge. But it's not going to be the end of the world. Probably the only bigger challenge we'll face as a species is the global cooling of the next ice age. That is going to be a problem when the ice starts covering the northern hemisphere.

UPDATE (since a friend pointed out that I hadn't made my point) 5/5.

The world lurches from crisis to crisis. You might think this is a sign of mismangement, a flaw in human nature, or simply God screwing up. (As for the last, I believe that God stops in from time to time to see if we've blown ourselves up yet, so he can promote the great apes, but that's the extent of his involvement in the world.) Regardless of your opinion, that is how people work.

In these crises, many people take different actions to try to resolve the crisis. People fitting underneath a bell curve, they will try all sorts of things. Some of them work, some do not. Sooner or later, a smart person invents something that totally crashes through the crisis. Blows it apart. The crisis is gone, and what we have is better than what we had before the crisis. For example, a hundred years ago, New York City was fast approaching a crisis of equine proportions: piles of horse shit in the streets, and no place to put them. "We" invented the automobile, and have experienced huge benefits in personal mobility.

The key to remember is that nobody can predict who will invent this new thing, nor what it will be. In order to facilitate this solution to the crisis, the best thing government can do is: nothing. Don't favor anyone or anything, let everybody do everything, don't stop anything that's peaceful.

You may ask yourself, "but why don't we get the government to do something to avert these crises before they become full-blown crises?" The answer is simply that the government is doing something. It is actively maintaining the peace. It is choosing not to interfere with peaceful human relations. It is choosing not to favor one solution over another. Choosing not to choose is a choice -- probably the hardest choice to make.

UPDATE 5/12: David doesn't have much to say about this post. I think he is trying to trivially refute me by pointing to the fact that I don't think much of some people who call themselves economists. I've been saying that all along.