Random political commentary

Income Disparity and the Occupy Wall St. Crowd.

2011-11-05T17:43:00.000-07:00

I've posted before about the income gap in this country. Alas, I have to acknowledge I made a prediction that ultimately turned out to be wrong that the economic downturn would shrink the gap. Well, as they say, predicting is hard, especially about the future, but even if I can't predict the future well, I stand by my overall points of what we should make of the income gap itself.

Anyhow, income inequality is back in the news with the Occupy Wall Street (OWS) protesters making a big deal of it. It's certainly a real issue (albeit, as I've said before, a symptom of underlying problems rather than a direct problem itself). But I think the OWS folks both make the mistake of viewing it as the problem, but also making assumptions about the causes that imply fixes that would not be appropriate.

At a macro level, there are 3 ways that income inequality can arise. For the sake of illustration (and easy math), let's assume we start with a nation of 100 people, each of whom makes $100/year. The entire annual economy is thus $10,000, and there is (initially) no income inequality.

How can inequality arise? I think there are three basic scenarios, and I think it's important to point out that they are not mutually exclusive. Quite the contrary: I think they all happen, in varying degrees, over time, simultaneously with the others.

Scenario 1: "Malthus Model". In this scenario, one or two people ("the 1%") enrich themselves at the expense of the rest, but the overall economic pie remains fixed (hence the name "Malthus Model", after the man who predicted starvation due to growth in population that outstripped production).

Bernie Madoff would certainly be an example here, as were the CDOs that sliced and diced mortgages and got rated AAA despite having lots of sub-prime crappy mortgages in it. I think CEO pay (another OWS complaint) could also arguably be placed here, to the degree that any "excess" pay they get above and beyond the value the create for the company comes at the expense of shareholders and employees. Whether any CEOs pay is excessive, of course, is a subjective call, but there is good evidence that it has gotten disconnected from CEO value, especially when more than half of company boards target their CEO pay to be above the 50th percentile. That is, of course, mathematically impossible to achieve, but it results in CEO pay that increases much faster than the underlying fundamentals.

Lotteries, by the way, are also in this model: 100 people spend $1 on a lottery ticket, one person wins $100, so that person gets $99 richer at the expense of the others.

In any case, it seems to me that Malthus-model driven economic disparity is often (though not always, as the lottery example demonstrates) indicative of a problem.

Scenario 2: "Steve Jobs/MicroEconomic Success": suppose that one of the 100 people is Steve Jobs, and he invents Apple Inc. This creates a huge amount of value, and since the company is Steve's he will keep a significant amount of that value. Everybody else still makes $100 (or perhaps a they take home little less that year because they buy an iPhone), but Steve makes a lot more money. So now there is huge inequality between the 1% (Steve) and everybody else. Two things to note here: (a) the other 99% did not suffer due to Steve (to the degree that they spent money on iPhones, they did so because they felt the iPhone was more valuable to them than the money it cost), and, more importantly, (b) the overall pie grew significantly due to Steve's creation.

I would argue that income disparity from Scenario 1 is not a problem, and is in fact a "good thing."

Scenario 3: "MacroEconomic Changes". This is arguably a variant on scenario 2, but in this case it isn't that the folks that get rich create disproportionate value and wealth for themselves, but rather that the entire economy grows by some percentage (sometimes negative). So our economy may grow from $10,000 to $10,400 one year, and then drop to $10,200 the next year. The inequalities arise here from the fact that the growth (positive or negative) is not spread evenly across the population.

There are many factors why this growth is uneven. For example, not surprisingly, people with more education and/or more marketable skills tend to weather the downturns better and ride the economic growth more than their less educated or less market-ably skilled fellow citizens. People who get hurt or sick have trouble even in good times, and may not be able to change jobs due to health insurance concerns. Our aforementioned lottery winners do well regardless of the economy. Workers with skills that match open jobs may not be able to take those jobs because it requires them to move and they can't sell their homes because their mortgages are under water (this is proving to be a huge stubborn issue in the current recession given its housing bubble origins). Macroeconomic trends can change the value assigned to skilled labor, moving jobs to where it can be done more cheaply. (I can address why I believe fighting this trend rather than adapting to it is generally a bad idea in another post).

There are many moving parts here, many reasons why economic ups and downs affect different populations or economic sectors in different ways.

For that reason, I think that income disparity from Scenario 3, unlike scenarios 1 and 2, does not easily lend itself to a "problem" or "good thing" label.

Furthermore, I think that this scenario is by far the dominant driver of inequality, followed by scenario 2. I think the Malthus scenario covers too few cases to be a major cause.

And therein lies my issue with the OWS crowd's take on income disparity. To hear the chanting and slogans and placards, one would think that our income disparity is almost exclusively due to Scenario 1. If that were the case, then it would be a simple matter of shifting "ill gotten" wealth back to its rightful owners and all would be well again. But alas, in a Scenario 2 world that sort of explicit wealth transfer truly would be punishing success (hold that thought) and in a Scenario 3 world that probably wouldn't solve anything anyhow. So I think the OWS crowd is dangerously naive here.

Now before you think I'm totally dissing OWS and everything they believe in, let me put in a defense of the 99%: It is important that we have a strong and vibrant 99%. If you are a member of the 1%, you need to realize three things. First, if you think you got to be a 1-percenter in a vacuum, you are delusional. You did it in a society with good transportation infrastructure, rule of law, low corruption, security, and so forth - all of which are government functions. Secondly, stability is critical to your success, and places with high concentrations of wealth tend to be less stable than places where there is broad economic participation. And finally, having a healthy 99% is critical to your continued membership in the 1% club. Steve Jobs would not have made very much money, after all, if nobody could afford to buy Apple products.

I do not advocate any solution that has a direct aim to reduce wealth concentration. Robin Hood is decidedly not the answer. But there are reasonable steps to help ensure that the broad middle has a fighting chance to be economically significant participants in the economy.

Fortunately, America has long done well with this. For example, we already have a progressive tax system. Indeed this is (by definition) a higher burden on the wealthy than on the poor, but as long as it isn't punitive, it is a very reasonable way to ensure that healthy 99%. A 35% top marginal tax bracket simply is not punitive, but then neither was 39.6% (which we had throughout the boom of the 90s) or even a little higher. (I think when you start hitting 45% or more things start to get punitive). There are good arguments that the overall size of government needs to shrink - and if so, the rates obviously could come down. But unless and until that shrinking happens, the tax rates need to reflect actual costs. "Starving the beast" has yet to actually work to tame government spending.

Another place where America has long shined is in making the Steve Jobs scenario above an attainable dream for anybody willing to put in the sweat and innovation necessary to achieve success. There's a reason that Apple, Microsoft, Facebook, etc. are American companies.

But the fact is that there remains much more to "solving" income inequality than having a progressive tax system and a good environment for startups, but I think they revolve around addressing the Scenario 3 issues. Our housing crisis is exacerbating things. Health costs are devastating for many people. Our educational system is a mess, and a huge percentage of people studying STEM (Science Technology Engineering and Math subject) are foreigners who twenty years ago would have stayed here with their skills but who are now going back to their newly-stable and newly-prosperous home countries, while more and more American students are studying far less marketable subjects like journalism.

These are not easy problems to solve, and simply transferring wealth does nothing to address them. If the OWS crowd is serious about addressing inequality, they would do well to focus their energies on real solutions to the big macro-economic challenges that we face, not just getting angry about some perceived "unfairness" that (gasp) some people have more wealth than others do. That's simply not productive.

The problem with global warming (or climate change)

2011-08-18T20:32:00.000-07:00

I am pessimistic about our ability as a species to deal with the threat of climate change, and I think it's because this is an instance of a larger class of problems that we simply don't handle well.

Let me start by saying that I am not intending this to be a discussion of the science behind global warming. I have no particular scientific background in this area, and discussions/debates about this should really be limited to people who have that background. (I.e., being a politician makes you competent to discuss policy around global warming, but not to make pronouncements about whether or not it is real or man-made).

In any case, my point here does not depend on whether you believe climate change is real or not.

The usual tradeoff matrix for something like climate change is usually expressed something like this (AGW = "Anthropogenic Global Warming"):

	AGW is real and bad	AGW is bunk (or not as bad as feared)
We do nothing	We're hosed	Hooray - we didn't hurt the economy
We do something meaningful	It cost a lot, but we're saved	We killed the economy for nothing

As a broad generalization, conservatives tend to look at the downside of the lower right quadrant, the upside of the upper right quadrant, and the uncertainty of the lower left and conclude that there is no point in taking aggressive action to fight climate change, while liberals tend to look at the downside of the upper left and the upside of the lower right and demand action.

This is a classic tradeoff matrix, of course. But the challenge with climate change that makes this sort of analysis vexing is that if we choose to address it, we end up "making the wrong bet".

(If you believe AGW is bunk, please suspend your disbelief for a moment and assume it is real for the sake of the argument below; I'm not trying to get you to change your mind, you can resume your AGW skepticism afterwards.)

First of all, given all the uncertainties around climate models, there is no way to know for sure if we were to over-invest. So we could end up putting a greater economic drag on ourselves than is necessary (either because we could solve the problem with less cost, or, more pessimistically, because it's all futile anyhow). Actually "could" is the wrong word - there is no way to accurately predict precisely how much would be the right amount of cost to successfully fight climate change, so we would necessarily miss the mark.

But there is a broader challenge: suppose that somehow that we were to nail it: we make whatever changes manage to stop climate change in its tracks. Then it turns out that there is no way to distinguish success in the lower left quadrant above (we defeated global warming) from the lower right quadrant (we wasted a lot of money on something that isn't real). The economic cost of fighting climate change will be relatively easy to measure, but the underlying climate change that didn't happen cannot be measured - suggesting (though not proving!) that AGW was bunk in the first place, or at least that the economic cost incurred to fight it was overkill. And since we can't do a controlled experiment (two earths, one with lots of CO2 and one without), we can't determine if we spent the right amount or if the threat was less than advertised.

As a result, I suspect that the debate about policy will inevitably creep over the line into an (inappropriate for politicians) debate about the underlying science. And the only way that this ultimately gets settled is if we find ourselves in the upper-left quadrant. In other words, we only react well to hard provable evidence; we don't have the tools to deal well with theoretical issues. That doesn't seem like the right way to resolve an issue like this.

In Praise of Crackpots

2011-06-29T14:45:00.000-07:00

There are a lot of crackpots out there. Not just political ones (though there's more of them than any other flavor), but conspiracy theorists who believe the moon landings were faked, people who believe that they can subdue tornadoes with electrical fields, people who believe that they have a cure for cancer but are being oppressed, and, yes, the most strident climate-change deniers. (In the latter category, I'm not including the folks who have legitimate scientific questions about the quality of data or the interpretation of that data or with the theories that arise from it; I'm talking about the folks who disregard any data that supports man-made climate change and embrace any and all data that could be seen as refuting it).

It's very easy to write off crackpots as a bunch of nutjobs. But it wouldn't be wise to do so. Every so often - very rarely indeed, but not never - the crackpot is right.

I think that the thing that makes a crackpot a crackpot is that they grasp on to the non-disprovable. The state of science is such that not everything that is false can necessarily be disproved. In the cases like the moon landing conspiracy, I think the conspiracy theory has been thoroughly disproved and we can ignore these crackpots.

But the are the folks who claim to have a cure for cancer, or who think that there is no anthropogenic climate change are generally in a different place: it's harder to definitively prove them "nutty," and sometimes they aren't.

If 90+% of scientists agree on something (again, take climate change), it is certainly wrong to say that it must be true. It's just super likely to be true. If a huge majority of scientists believe something, then the burden to show them wrong is very high indeed. Science is, after all, based on peer review and you advance if you discover replicable advancements in human knowledge; if it isn't replicable, you don't go very far.

But, ironically, the great leaps in science come from the crackpots. Newton, Galileo, Einstein (just to pick a few of my favorites) were "crackpots", espousing theories that were distinctly in the minority. I think it's fair to say, for example, that much better than 90% of scientists thought time was inelastic prior to Einstein's theory of relativity.

So the great paradox of crackpots is that we should dismiss almost all crackpots almost all of the time, because almost all of them are almost always, well, nuts. But we need to be careful because every now and then one of those "nutjobs" will turn out to be right.

I wonder who the next significant crackpot to be found right will be?

Self-un-fulfilling prophecies

2011-06-27T10:32:00.000-07:00

Thomas Malthus is famous for predicting that population growth, which grows geometrically, will eventually outstrip the arithmetic growth in our ability to grow food (or provide any important resource such as energy). Poor guy, he's always been proven wrong (at least so far).

Of course, Malthus ultimately has to be right. For a ridiculous example that proves the point, I think it's pretty clear that the Earth alone cannot support more than, say, 10 to the 25 (1 followed by 25 zeros) people because the people alone would then weigh more than the whole weight of the earth.

But this is indeed a ridiculous limit; the more salient point in the criticism of Malthus has generally been the accurate observation that he neglected to account for the effects of innovation, and indeed innovation has always intervened before Malthusian limits could apply.

A great example of this is the very food production which spurred his theories, where the capacity of 19th century agriculture extrapolated across all potentially arable land would be sufficient to feed perhaps a billion or 2 people. But alas here we are today pushing 7 billion people, with lots of wasted food and an obesity problem in many nations. This is due to innovations in fertilizers and pesticides, which have dramatically increased yields faster than the population has grown.

Yet there is a perverse self-unfulfilling prophecy at work here: human innovation is motivated, at least in part, by the fear that failure to innovate will prove Malthus right. As described in the book "The Alchemy of Air," it was precisely the fear of starving populations that drove the discoveries of new fertilizers.

So I think there is an interesting irony that it is precisely the fear of Malthus being right which has led to his consistently being proven wrong.

Great article about facts and opinions

2011-05-21T15:48:00.000-07:00

A friend pointed me to this great article in The Week that, in my opinion, explains so much about partisanship. Note that I'm not talking right-wing vs. left-wing, this is a human artifact. We simply don't like to be wrong.

The rapture is due to happen in 2hrs 10 minutes from now. I'm sure that tomorrow morning, when the rapture didn't happen, the folks who believe in it will have some perfectly "rational" reason for why.

Why the TSA needs to be dramatically overhauled

2011-05-15T15:07:00.001-07:00

I know that I've complained about the TSA before. I need to do so again. The TSA is structurally broken.

Allow me an analogy.

I think we can all agree that the acceptable number of murders in, say, Chicago, is zero, that even one murder is one too many.

In that vein, imagine if we proposed that in order to reduce the number of Chicago murders to zero, we are going to impose the following new policies:

No weapons of any kind, or things that could be weaponized (steak knives, for example) are allowed within city limits.
Because arson could lead to murder, we ban all flammable liquids within Chicago. For good measure, though, since we can't easily distinguish flammable from non-flammable, we disallow any other liquids over 3oz from being taken into the city.
Every person, without exception, is subject to a full search of everything in their possession in order to enter the city. They can refuse, but will be denied entry if they do.
For good measure, a bunch of people who we think might be associated with gangs, or otherwise just don't seem right to us, will simply be prohibited from entering Chicago. The list of these people will be secret, and there is no recourse if you find yourself denied entry into Chicago.

This might achieve the goal of reducing the number of murders to zero (then again, it might not). But I think we can all agree that these restrictions would be ridiculous overkill (pardon the pun) to the murder problem, and an unreasonable restriction on people's rights.

Yet substitute "airline system" for "Chicago", and "terrorism" for "murder" (not that there's any meaningful outcome difference on the latter substitution) and it's exactly what we have with the TSA. Why do we treat these two situations differently?

It should not be surprising that the TSA is a one-way ratchet to increasingly intrusive and unreasonable "security" procedures. After all, we've given the TSA a single goal: zero tolerance for any sort of security threat. If they think of anything that could be exploited and don't do something to address it, they will be blamed, yet there is little or no incentive to put limits on how intrusive these procedures are, nor any reason to evaluate their efficacy. (And of course, the TSA is famous for thinking up new threats only after somebody has tried it, not before). As a result, first we take our shoes off, then we can't take liquids on board, now we have a choice between giving up our right to travel or giving up our right to be free from unreasonable searches.

So now we have full-body scanners and/or intrusive pat downs. Is there any evidence that these actually enhance security? Have they found any bad guys with the new procedures and technology that they would have missed with the old metal detectors?

Perhaps, although I certainly haven't heard of it in the news. So at the moment, the hypothesis that "The TSA is effective at providing security" seems to me to be without data to support it. One might argue that we haven't had a terrorist attempt to do anything with an airplane originating in the US (the TSA's jurisdiction) since 9/11, and therefore the TSA is doing its job. But I'd counter that with the observation that we hadn't had a hijacking or similar incident with a US-originated flight in the 20+ years prior to 9/11 either (pre-TSA), which is more than double the current lifetime of the TSA, so I don't think a 10-year absence of airline terror in the presence of the TSA proves that they're doing their job.

In fact, I have an alternative hypothesis: it is not the TSA that has kept the skies safe. Rather, it is old-fashioned intelligence gathering and alert passengers. In fact, I can think of 3 attempts to commit an act of terrorism on an airplane in the past several years. One was the plot to blow up airplanes over the ocean using liquid explosives, while the other two were the shoe-bomber and the underwear-bomber. The first, of course, was thwarted by intelligence, long before the TSA would have gotten involved, while the latter two were missed by TSA-equivalents in other countries (the flights didn't originate in the US) and were thwarted by alert passengers.

I recognize that my examples here are anecdotal and don't actually prove anything, but they also don't support the idea that the TSA is actually effectively thwarting terrorism, and they certainly are suggestive that my alternative hypothesis could very well be the accurate one.

I'd love to hear any sort of counter argument supporting the argument that the TSA is providing any meaningful value.

Pakistan: get over it

2011-05-10T13:27:00.001-07:00

Pakistan's president yesterday loudly condemned any notion of incompetence or "complicity" with Al Queda and expressed indignation at the violation of his country's sovereignty, particularly over the fact that Pakistan was not consulted prior to the raid.

I understand that of course he has to say that to pacify his domestic audience. It is, after all, them who he serves.

But that doesn't make it total nonsense.

I should start with a few bits of defense for Pakistan. First of all, I believe that the government is in fact our ally. Not a good ally or a reliable ally, and one with decidedly different priorities and interests from us. But Pakistan has also lost many of its citizens to Islamic extremists, and the rational ones in the government realize that the monster they helped to create is dangerous to them. (Hmmm...that wasn't much of a defense, was it?)

Secondly, nobody has yet produced any evidence that the Pakistani military or ISI knew about or protected Bin Laden. Again, I suppose that wasn't a strong defense, but it needs to be said.

But enough of defending Pakistan. The president of Pakistan deserves all of the suspicion and ridicule he is experiencing.

First of all, most of the criticism is that Pakistan should have known that Bin Laden was in their midst. It is perfectly reasonable to ask why the US, halfway around the world, was able to figure out Bin Laden's presence, when the elite of the Pakistani military trained only half a mile away in ignorance. It begs the question of whether the Pakistanis were merely incompetent or actually in cahoots. Not a comfortable question for sure, but I'm afraid it's a perfectly reasonable one to ask. It is, I suppose, possible, that Bin Laden was just that good and his network of support was just that secure (i.e., a third option in the loaded question above), but as we learn more, that possibility seems less and less likely.

Scondly, there is good reason that we didn't coordinate with Pakistan in the Bin Laden raid. Whether or not your military or intelligence organizations knew about Bin Laden's presence, somebody did. Al Queda and the Taliban have a strong presence in the country, and the lack of concrete evidence tying that support to the military or ISI is no reason to assume that there is in fact no such support. As such, any warning or coordination would have had a very real - and very reasonable - risk of tipping Bin Laden off. Pakistan can be indignant about not being told, but the cold fact is that they did not deserve that level of trust. Yes, I suppose we did violate their sovereignty. And if Bin Laden had been in, say, England, with whom we do share common interests and where there isn't a strong base of support for Bin Laden, and where corruption is not endemic, we wouldn't have done it without coordination or permission. But alas, Pakistan is no England, this is a war, and this was not a police action. If a country does not want its sovereignty violated, perhaps it is better to first ensure that the world's most wanted terrorist does not take up residence within its borders.

My message to Pakistan: you'd have done the same if the tables were turned. Your protests are hollow and unjustified. Get over it. If you really want to help defeat Al Queda, after screwing up Bin Laden so badly, you should double down and work with us on the follow up: interrogation of Bin Laden's widows and helping track other cells and other operatives.

Pakistan's government may actually be an ally. And The fact of the matter is that Pakistan

A spending problem? What is the right level of spending?

2011-05-10T13:26:00.000-07:00

I saw a Facebook post the other day that mentioned that "the problem with our deficit is that congress has a spending problem." It's a sentiment that I've heard many times, and while it's not surprising that this generally comes from conservatives (it is, after all, not exactly a common liberal complaint), what I find fascinating about the statement is that it's ironic coming from folks who are very market-oriented.

Let me quickly say that I have no problem with the sentiment being expressed here. I am extremely worried about our deficits and debt, and spending is obviously one of the two ways you can address these huge problems (the other, obviously, is revenue). While I personally think we need to address both spending and revenue, my point in this post is not to make an argument about that particular issue, if only because I don't think I have anything particularly enlightening to add to that discussion.

Rather, I want to focus on two somewhat more esoteric points:

The amount of spending is "correct".
Politicians are not addicted to spending

Huh? Am I making some liberal argument that we aren't spending too much? No, no, don't worry - I do agree we are spending too much. But the amount of spending is nevertheless the "correct" level, in that it is the best level as determined by the relevant marketplace (in this situation, Congress).

Allow me an analogy. What is the correct price of a share of, say, Microsoft? That is fundamentally an unknowable question. There are lots of ways to compute it, but they don't all agree. We generally view markets as the best way to determine such prices, and when we say that a share of Microsoft is worth, say, $25.50, that doesn't mean that everybody agrees that it should be $25.50. Some people believe it should be higher (and they're generally buying), some believe it should be lower, but this is the price where such forces balance out. At a broader level, the level of the Nasdaq index is a similar process, just one level higher. after all, nobody really buys or sells "the Nasdaq index", instead they just do the aforementioned process with each of the constituent stocks of the index and the index rises or falls as a side effect of these thousands of individual price movements. So if you ask "what's the correct level for the Nasdaq," you're really asking a nonsensical question. The correct level for the Nasdaq is not a particular value, but rather a process, and as long as it is computed correctly from its member stock values, then it is at "the correct" level. It may be a bubble, it may be oversold, but it is nonetheless "correct" and it is meaningless really to suggest that the value should be higher or lower. (Predicting where it will go is another matter altogether, but that is not the same thing as saying it is "wrong".)

Congressional spending is really the same way. The total spend is not something anybody formally agrees on really. Rather, it is a whole bunch of individual spending decisions: defense, social security, etc. Like the stock market, each of these individual spending items has people who think spending should be higher and those who think it should be lower, and the ultimate value in the budget is not correctly viewed as a "consensus" level so much as a "market clearing" level. And to continue the analogy, the total budget is analogous to the Nasdaq index: it's just the result of thousands of smaller market-clearing decisions.

The analogy carries one step further as well, actually. The stock market, for all of its efficiencies, is still a rather imperfect pricing mechanism, which is why prices swing, bubbles form and deflate, and so forth. But we use it because it's better than any alternative yet devised. I do not need to point out the flaws in our government's budget process (often compared to sausage making), but democracy, like the market, is also the worst possible way to do this, with the exception of all the others that have ever been tried. (Apologies to Churchill, who I believe is the source of that).

But the larger point here is that if you don't like the level of spending on an individual item (whether you think it's too low or too high), it is generally the result of something akin to a market process. If you don't like the result of it, you really have two options: (a) get involved and start buying or selling in that "marketplace", or (b) get the process changed. Note: the former is generally easier than the latter.

Which brings me to the second point. We don't have a spending problem per se. Politicians do indeed spend money, but they're not spending it on themselves (other than corruption, which thankfully is a minor problem in the US), so it's hard to see them doing it to serve some personal need that they have. I think a far better explanation is that politicians are addicted to their jobs (or to power), and spending is a powerful tool for satisfying that need.

More to the point: politicians don't spend money just to spend it. They do it for constituents. They build roads in their districts, steer contracts to their districts, spend money on things that their voters believe to be important such as national defense or social security and so forth. Which means that in the end, it's the voters who receive the benefits of the spending.

There's an important corollary to this: we all complain about the overall level of the budget and say that spending is too high (and we're right), but the problem is that pretty much all of that spending is going to things that somebody wants. Everybody has ideas about where spending should be cut, but there's very little consensus among those ideas for this reason. So it all gets worked out in the aforementioned budget "marketplace", as a huge aggregation of individual spending decisions.

We have met the enemy and it is us, not the politicians. If we really want to reduce overall spending (and I reiterate that I am in that camp), the only effective and non-reckless way to do it is to slog it out item by item in the budgeting marketplace. Focus on the individual spending decisions and the "budget index" will fall.

Environmentalists hate progress, right?

2011-05-06T09:32:00.000-07:00

I keep seeing posts by folks (usually, but not always, on the far right) portraying all environmentalists as extremists who want us to effectively go back to living in caves in the name of reducing carbon footprint, and who are otherwise opposed to freedom and economic growth. In fact, some of the rhetoric here comes right out and says that it's about "control," such as Penn & Teller's episode of "Bullshit" where they "debunk" recycling, in which they declare - without any evidence - that control is in fact the real motive behind getting people to recycle. I'll leave my problems with this particular P&T episode for another day, but I think I need to stand up for environmentalists.

I recall a number of years ago hearing a conservative friend of mine talk about how when environmentalists see a suburb he sees wealth, better lives for people, freedom, etc., but environmentalists just see negatives: sprawl, degraded habitat, etc.

Who is right? Well, of course the answer is "both." Nothing is free; upsides like greater wealth and economic growth come with costs. You can focus on whichever you like, you can decide the where you believe the balance between the two lies, but it is naive to pretend that either upside or downside doesn't exist.

Environmentalists indeed tend to focus on the downsides of growth, and focusing on the downsides of course never makes anybody popular.

But let's use an economic analogy. At most businesses, there are two ways to increase profits: increase sales or lower the cost for each sale (thus increasing the margin for each sale). These are, of course, not mutually exclusive - in fact, they are often self-reinforcing. WalMart, for example, has a laser focus on lowering costs, which allows them to offer lower prices, which helps them to increase sales. And at a successful company like WalMart, I should point out, nobody who points out a way to lower costs gets accused of being opposed to increased sales.

Of course, businesses focus on those costs for which there is an economic signal to which they can respond - i.e., it is usually something that can be represented on the balance sheet or income statement.

Environmentalists are the cost-watchers for the stuff that doesn't have those direct impact on the financial statements. This doesn't mean they aren't costs, just that reducing the impact of these costs doesn't improve the bottom line, so the economic signal to reduce those costs is not nearly as strong, and thus it often requires other forms of pressure, such as that provided by environmental organizations.

I don't mean to imply that companies like WalMart don't respond to environmental costs - in fact, large companies such as WalMart, Coca-Cola, etc., have been leaders over the past decade in recognizing the need to make their practices sustainable, to lessen the impact of their operations on the planet. And they should be commended for this.

And I also don't mean to imply that there aren't extremist or naively idealistic environmentalists who truly want to reduce freedoms and/or economic growth in the name of saving the planet (or "control", if you are prone to conspiracy theories). Earth Liberation Front comes to mind here. Thankfully, these represent a tiny fraction of environmentalists and are viewed by the greater environmental movement the way the majority of Caucasians view the white supremacy movement - i.e., with great disdain.

But it is irresponsible to paint all environmentalists with a broad "extremist" brush when they fill an important role as the cost-watchers for our ecosystem.

Climate vs. Weather

2011-05-02T19:08:00.000-07:00

OK, folks, I feel compelled to weigh in on this. I'm tired of people looking at individual weather phenomenon (Katrina, the recent tornadoes in the south, cold winters, heat waves) and declaring a connection to (or a refutation of) global warming.

It's apples and oranges. Weather and climate are different things.

Allow me the analogy to a roulette wheel in a casino. Imagine that when the wheel is spun, you knew the exact velocity and position of the wheel. You then use that to predict which number will be pointed to at any given moment, using the basic laws of physics. You predict what number will be at the top in 2 seconds, 4 seconds, 6 seconds, and so forth. Your prediction for 2 seconds will likely be pretty good. But due to imprecision in your measurements, your prediction for 4 seconds will not be OK but not as good as the 2-second prediction, for 6 seconds will be not as good as the 4-second prediction, you will not be terribly accurate at all at predicting the final resting number of the wheel. (If you want the details for why the predictive ability falls off, it is due to chaos theory.)

This is analogous to predicting the weather. A roulette wheel is of course far simpler than the weather (and doesn't have nearly the chaos-inducing non-linear variables), so in practice you'd do a lot better than a weather forecaster, but the principle is the same (and this is, after all, an analogy). In particular, you can see that predicting the roulette wheel (weather) gets significantly more difficult as time passes.

If the casino made its money "predicting" the roulette wheel, they'd lose money like crazy and go out of business quickly. But of course, we know empirically that as a rule casinos have a bit of a habit of making, not losing, money.

Why? Simple: they're not predicting the weather, they're looking at the climate. If predicting the weather is analogous to predicting the outcome of given roulette wheel spin, looking at the climate is analogous to predicting the AVERAGE outcome of MANY roulette wheel spins. In other words, it's looking at the statistics of the system rather than any individual outcome.

In the case of the roulette wheel, we know that over the long time, a fair roulette wheel will end on red a little less than half of the time, on black a little less than half of the time, and occasionally on 0 or 00. And that "little less than half" is where they make all of their money at the roulette table.

In the same way, climate is not about individual weather events, it's what the statistical averages and trends are in temperature, precipitation, etc. Having a "warming" climate doesn't mean that winter snowfall stops, or that we have nothing but heat waves and no cold snaps. But it does mean that over a long-ish period of time, when these things are averaged out, there are measurable trends in the statistics.

One heat wave, one hurricane, one deep freeze - it is impossible and thus meaningless to say that any of these would or would not have happened without climate change, or that any such event proves or disproves climate change theories.

This is like saying that 4 spins of the roulette wheel which, in a row, yield 4 reds somehow "proves" that the odds of the roulette wheel favor red. Assuming the wheel is not rigged or flawed, this proves nothing of the sort. People who make similar claims relating weather to climate are doing everyone a disservice by saying so. Climate science has its flaws, but its model and accuracy will be refined and improved in the aggregate, not by the individual weather event.

Being serious about the deficit

2011-04-02T10:17:00.000-07:00

I've been a deficit hawk for a long time. I believe that our deficits are woefully unsustainable, that the interest on the debt costs too much, and that our debt will be a long term drag on our economy.

First, a few disclaimers about my own opinions on the budget.

First, I do not have so much of an opinion as to whether our deficit is because of excess spending - certainly much of it is - but that is generally more of a policy question than a financial question. I tend to be pragmatic on this front: if we as a nation decide that something is a priority to spend money on, we should fund it appropriately; if we don't, we should stop the spending. So the question isn't about the level of spending per se, it's about spending responsibly and then generating the right revenue for that.

As I've mentioned previously, I also do not know whether Keynes was right about government stimulus in a recession - whether we are talking about the benefits of increased government spending to make up for reduced consumer demand, or the perils of cutting spending during a recession - but I'm willing to give the benefit of the doubt on short-term basis. A one year stimulus spike is not terrible; when it becomes a permanent new level of spending, it is a huge problem.

Finally, I also do not believe we need to balance the budget. A small deficit can be fine, can provide a bit of upside leverage without much downside risk. Few households are completely debt free; all debt is not bad. The big danger is too much debt, and I believe that the US has too much debt.

Mathematically, there are exactly 2 ways to reduce the deficit: increase revenue or reduce spending. And there are 2 ways to increase revenue: raise taxes or allow economic growth to increase revenues under an existing tax structure. (One could argue that lower taxes leads to disproportionate economic growth such that it too ultimately leads to increased taxes; I don't think this has been either conclusively proved or disproved, though. That, however, is a secondary debate that does not alter my assertion about "increasing revenue.") These approaches are not mutually exclusive - in fact, it seems to me that one must both increase revenue AND reduce spending.

Politicians have talked about the deficit a lot over the past decades, but unfortunately taming the deficit is not something that historically has gotten people elected. I applaud the tea party for changing that dynamic: deficit reduction is finally getting some traction among the already-elected crowd.

The problem is that nobody - neither Republicans (tea-party affiliated or not) nor Democrats - are being serious in such discussions. This isn't surprising - the challenges to real change are structural as they require cutting spending that voters like or generating revenue that ultimately comes from somewhere in the voting economy, so there is a strong built-in incentive for politicians not to actually achieve anything meaningful. And I think that is why we're seeing a lot of meaningless "deficit" discussions.

First, they are talking exclusively about non-defense discretionary spending. Certainly a good place to start, but as has been pointed out in numerous sources, we could cut this spending to $0 and we would still have a significant deficit.

It's quite simple. If you're not talking about entitlement reform, if you're not talking about whether we need our current level of defense spending to achieve our defense objectives, then you're simply not serious about tackling spending; rather, it suggests that you're serious about tackling spending on programs you don't like, which is a properly described as a policy discussion, not a deficit reduction problem. After all, everybody is willing to trim the deficit by cutting spending that doesn't benefit themselves.

Secondly, nobody is talking about revenue increases. Especially since politicians don't seem to be willing to talk about entitlement spending, the only other way to tackle things is to increase revenue. My preference here - along with everybody else, I presume - would be for the economy to soar, employing lots of people and causing tax receipts to rise. But alas, that doesn't seem to be in the forecast for the next few years, Republicans would argue that the best way for government to achieve this is to get out of the economy (which means that they at that point basically hope to grow our way to fiscal stability), and Democrats would argue that government policies can grow the economy, but they would almost certainly try to do so by spending a lot on programs that would be poorly implemented, would miss the key timing to do good, and which would hang on long after they outlive their usefulness. In other words, I don't see a soaring economy fixing our deficit anytime soon.

That leaves taxes. Of course, raising taxes in a weak economy risks pushing everything back into recession, and politicians again have numerous structural incentives not merely to not raise taxes, but to actually lower them, increasing the deficit in the short term (and quite possibly the long term too).

Even with the tea party's influence and noise about the debt and deficit, nobody is talking about anything that will actually fix it. I think that's too bad; we have a real opportunity to do something useful here, and we're squandering it.

UPDATE April 6 - I posted this blog entry too soon, as it appears that the GOP is proposing to make changes to Medicare/Medicaid. I can't comment on the details of the plan, and it does not appear to deal with social security or to do anything to raise revenue (in fact, it appears to lower some taxes further), but nevertheless I must applaud the GOP for actually dealing with the reality that we have to address entitlements. The Democrats still have their head in the sand that we don't have to touch these programs. Unfortunately, the GOP will likely have their heads handed to them in 2012 over this, but that doesn't change the fact that making a proposal like this is necessary. Kudos to them for having the courage to do it.

Constitutional justification for proposed laws

2011-03-21T09:16:00.000-07:00

One of the ideas that's been getting a lot of attention lately, particularly (though not exclusively) from the Tea Party movement, is a requirement that any proposed law state it's constitutional authority up-front. This is undoubtedly motivated by a perception that many laws (such as last year's health care overhaul law) are blatantly unconstitutional expansions of government power.

My perspective is that such a rule would be harmless political theater at best, and at worst would have the unintended consequence of actually killing perfectly good (and constitutional!) bills in the womb.

Any proposed law falls into one of 3 categories: clearly constitutional (for example, an enumerated power of the constitution, such as establishment of the post office), clearly unconstitutional, or “somewhere in the middle.” These are generally fuzzy boundaries and subject to quite a bit of interpretation, though, and even then they don’t guide politicians very much.

For example, laws to ban desecration of the flag are routinely proposed because they are politically very popular, yet these laws are also pretty clearly unconstitutional, having been adjudicated to the supreme court where majorities that include both liberals and conservatives (see Texas v Johnson and United States v Eichman) have found them to be violations of the 1st amendment. Politicians are often lawyers and would be familiar with the constitutional case law here, but politics is politics and the calculus says that support for such a clearly unconstitutional law is far better, politically, than not. Bills like these that are clearly unconstitional simply aren’t proposed for that very reason, or else politics trumps and a constitutional interpretation can be offered (even if courts subsequently would disagree), so I don’t see this exercise adding much value.

The vast majority of proposed laws, though, fall in the middle – they are neither clearly contrary to or authorized by the constitution, they are implied (the commerce clause being a frequent broad justification) or inferred or otherwise subject to interpretation.

So as a legislator you have the option to admit upfront that a politically popular bill is unconstitutional (which nobody will do), to redundantly explain something that is clearly authorized (which is a waste of time and effort), or to point out that the justification is subjective, which doesn’t accomplish anything useful. So I ask what purpose would be served here.

Of course, the constitution does explicitly make clear that the role of interpreting the law is assigned to the judicial branch. So one could argue that legislative opinions as to the constitutionality of a bill are themselves unconstitutional (or at best meaningless in any enforceable way). So we would find legislators offering bills with constitutional justification, only to be later found unconstitutional by the courts, or we would find perfectly constitutional and good bills being self-censored because the legislators cannot form a consensus around the constitutional basis for the law. The latter is, of course, an explicit goal of many conservatives who want to shrink the role of government, but that is a political goal here being presented in the guise of a constitutional process.

Since this is a rule that is largely being pushed by small-government conservatives who favor a strict interpretation of the constitution, I think it is worth pointing out some other unintended consequences that could follow. For example, there is nothing in the constitution that explicitly grants a federal role for the definition of marriage, or the banning of recreational drugs. And pro-life advocates would need to have a constitutional finding that a fetus is a person, which would in turn provide a constitutional precedent towards laws governing behavior of pregnant women (for example, criminalizing drinking or smoking while pregnant), which would perversely be precisely the sort of nanny-state expansion that most small-government conservatives fear.

Unless, of course, any of the constitutional justifications for a given law are later thrown out by a court.

In which case, one has to ask: if the court ultimately gets to decide the constitutionality of a law, then what purpose is served by declaring it up front?

In praise of failure

2011-03-16T12:34:00.000-07:00

I think failure has an undeservedly bad reputation. It has many virtues, and we would do well to recognize and encourage those virtues.

Two very disparate things made me realize this recently. One was a Planet Money podcast on the relative rates of defaults and late payments on mortgages between the US and Spain. Another was a discussion about teaching math to young kids who are intimidated about raising their hands in class for fear of giving the wrong answer.

What do these things have in common, and what do they have to do with the virtues of failure? The short answer is that failure is a powerful contributor to success. In both cases, the ability to fail paradoxically stimulates greater overall success.

In the case of the housing market, the fact that there is an orderly process of foreclosure or bankruptcy, where one can start over again if necessary, makes it easier to assume the risks involved in buying a house than it is in a place like Spain, where there are typically no such protections and where the bank can come after you for every last cent for however long it takes. This lowered barrier to home ownership means more people can enter the market, which leads to a healthier and more liquid housing market.

In the case of teaching math, if a child is terrified of giving the wrong answer, they will likely be significantly more timid about raising their hand in class, which will reduce their participation (and increase their stress about the subject). Contrast that with a classroom where wrong answers, while not rewarded (they are wrong, after all), are not stigmatized and lead instead to a discussion about the process that led to that answer as a way of identifying where the process went wrong, the student can feel much more comfortable about participating and will actually learn where they went wrong. (Stated another way, I believe that in math class the best way to achieve correct answers is, ironically, not to focus on the answers themselves but rather to focus on the thought process; if you nail the process, the answers will follow. But that is a topic for another post.)

Let me back up and say that I'm deliberately being provocative in my thesis title here. Failure should not be without negative consequences - after all, it is by definition the opposite of success. If the goal was worthwhile, failure to achieve the goal will have some degree of pain and cost.

But failure does not need to be a bad thing, nor does it need to be stigmatized, provided that two important conditions are met.

First, the failure must not have been due to a lack of effort or diligence in one's efforts to achieve the desired goal; if one is reckless, careless, or doesn't make an effort, then failure is the appropriate reward and is without virtue. I.e., you have to do everything you can to set yourself up for success. I used mortgages as an example of "good failure" improving the health of the housing market. The mortgage crisis of the past few years, however, clearly shows "bad failure", with many people not meeting my reckless/careless condition. No-doc loans to people who can't afford a house is certainly not "setting up for success", I would argue it is reckless.

Secondly, every failure is an opportunity to learn. As Thomas Edison once said, "I have not failed. I've just found 10,000 ways that won't work." Making a mistake is quite forgivable. Making the same mistake twice is not.

These two principles are key factors for America's entrepreneurial success, especially when compared to other countries that do not share this cultural and legal attitude. When an entrepreneur starts a company, does everything possible to set themselves up for success, and the company fails anyhow, our system allows them to stand up, dust themselves off, and try again. After all, they've just found "another way that won't work." In fact, venture capital investors generally view a few failed startups on a resume as a positive. (Successful startups are generally better, of course, but success can often result from a dose of good luck, which doesn't provide learning opportunities). But this is only true if the entrepreneur was not reckless and shows that they learned from their past mistakes.

We can all learn from our mistakes, and we should not fear making them.

Obesity and Limbaugh

2011-02-28T19:50:00.000-08:00

So now the Limbaugh/Palin/Bachman crowd is criticizing Michelle Obama's anti-Obesity campaigns, primarily on the grounds that it promotes a "nanny state," where the government tells you what you can and can't eat.

Maybe I missed something, but Michelle Obama is not an elected official or otherwise an employee of the federal government, so I fail to see how anything she does is promoting a "nanny state". And are these folks actually in favor of more obesity? I doubt it; I suspect this is just another example of ideological painting as threatening anybody who is on "the other side" of the ideological spectrum.

Really, all Michelle is doing is using her fame to promote her views on a cause that she believes passionately in. Isn't that precisely what Rush and Sarah do?

The problem with angry people

2011-01-10T09:36:00.000-08:00

I don't want angry people in government. Concerned people, passionate people, principled people yes. But not angry. People do reckless things when they're angry. They don't listen to data that doesn't fit their existing world view (this is a problem many people have even when they aren't angry!).

At the moment, I'm seeing a lot more anger on the right than on the left (birthers, "obamacare", the tea-party in general), although the right certainly has no monopoly on this, and in fact I think anger's center of gravity shifts around politically depending on who is "in" and who is "out" of power.

Often I think the anger can obscure perfectly legitimate concerns and overshadow legitimate political philosophy. I agree with the central tea party notion that our deficit and debt are one of the gravest threats to our long-term economic health, for example. I just don't let that confuse me into thinking that all government beyond what we had in 1789 is unconstitutional.

You even see this with the latest fight over the health care law: the law may be good or bad, it may or may not be constitutional (I don't pretend I'm qualified to comment intelligently on the merits of the law), but political affiliation seems to be dictating everything in the debate, down to the name of the law to repeal it, and the stubborn refusal to even use appropriate data in the debate. Heck, here FactCheck.org, whose sole mission is to sort out fact from fiction, pressed Eric Cantor's office to respond to their findings, the response was this:

...spokesman Brad Dayspring, told us: "This is a job-killing law, period. Anyone who argues otherwise is ignoring the construct of the health care law and the widely accepted facts."

It seems that if you say something enough, it becomes truth. This is almost Orwellian.

I get very frustrated with liberals when they clearly show that they don't understand market capitalism, religion, or the unintended consequences of good intentions. I get very frustrated with conservatives when they demonstrate a lack of understanding of the very same things.

Why we should consider eliminating the TSA altogether

2010-11-25T11:56:00.000-08:00

I think this article sums up the inherent problem with organizations like the TSA.

These are structural issues - you can't change your management or your strategy to address it; it is built-in to the very notion of what the TSA (or other security agencies) is about.

How much terrorism is acceptable? None, of course. We should never accept any. But that's actually not the right question. The question is "how much effort and money is it worth relative to the threat posed?" We answer this question every day with our police force and military and find a reasonable balance (or else we adjust). With the TSA, as the article above points out, the question simply cannot be answered. They are tasked with providing 100% security, and there is no balancing mandate to say when they have gone too far.

China and the Nobel Peace Prize

2010-10-12T14:37:00.001-07:00

This week Liu Xiaobo was awarded the Nobel Peace Prize, and the Chinese government, not surprisingly, responded like a petulant child, throwing a tantrum.

Perhaps it was a dumb decision by the Nobel committee - after all, last year, they proved that they do in fact make some pretty stupid, clearly political selections. But not in this case.

China is claiming that Liu is a convicted criminal and thus the prize is a politically motivated sham. This is rich, considering that Liu's crime is purely political (and technically not even illegal, as if that matters in modern China). If Liu were a terrorist or otherwise guilty of violence or other true crimes with victims, this argument might carry some weight, but he won the prize for precisely the fact that he was advocating for human rights in a peaceful way, and the Chinese government, by convicting and jailing him, has clearly demonstrated that why he deserved the prize.

China is now taking out its nationalistic anger on Norway, this politicizing the prize in retribution for it being...politicized. That's irony, especially since the peace prize is by its very nature fundamentally political. The Chinese regime is also claiming that the prize is proof that the world does not want to see a rising China, and in doing so is displaying exactly the sort of belligerent, petty, insecure, and immature China that we in the rest of the world do not in fact wish to see. I can't quite decide if this is more irony, or if it is a self-fulfilling prophecy.

The Chinese government tolerates no criticism from within its borders, but it obviously does not tolerate it from outside either. This is not how civilized countries behave. China demands to be treated with respect on the world stage, yet throwing a temper tantrum like a child because others in the world express disapproval of their policies shows that China has not yet earned the respect it seeks.

My advice to the Chinese government: Get over it and grow up, you damned crybabies. Maybe if you didn't mistreat your own people and walk all over your own constitution (which guarantees freedom of expression) and jail people for speaking their minds, then the Nobel committee wouldn't feel it necessary to reward your victims.

Deficit, Stimulus, and the Political Parties

2010-10-11T16:44:00.000-07:00

The conventional wisdom is that Democrats believe in the Keynesian philosophy of using increased government spending as a means of stimulating the economy, whereas Republicans believe that "stimulus" is not the answer (and will balloon the deficit), but rather that burdensome taxes are a drag on the economy, and thus reducing taxes will let the economy flourish. (Feel free to substitute "liberal" for Democrat and "conservative" for Republican, if you like.) I recognize that these are broad generalizations of positions, but they're largely true, and they sound like they are quite far apart.

I am not a sufficiently trained economist to be able to comment wisely on which theory is more accurate, but I think it is worth pointing out that the two models are actually almost exactly the same on all but one count.

First of all, for all of the conservative bashing of "stimulus spending", both plans are all about stimulus. In the liberal model, government spending provides demand that the economy is missing. In the conservative model, people keep more of their money and are thus able to provide more of the demand that the economy is missing (or, alternatively, more money is left in the private sector where it can be invested.) But in both cases, the claim is that it is essentially that the economy benefits because the policy leads to more economic activity.

The theories are actually the same on the deficit as well. Conservatives like to bash liberals for ballooning deficits that result from stimulus spending, but the irony here is that these same conservatives typically advocate large tax cuts. Deficits, however, are indifferent to spending or revenues; a deficit only cares about the gap between the two, and a tax cut of $100 Billion increases the deficit (at least in the short term) but exactly the same amount that a spending increase of $100 Billion does, all else being equal.

Of course, the Democrats defend the deficit-busting spending by pointing out that if it rescues the economy, the economy will grow and generate new revenues which would otherwise be lost to the recession, and these new revenues will ultimately pay for the increased spending. And Republicans make a similar argument, namely that reduced taxes cause the economy to grow, which generates the income necessary to pay for the tax cuts. (Republicans also make the argument that reduced taxes help to "tame the spending beast," which would be great if it were actually true. Unfortunately, empirical evidence strongly suggests that this benefit does not materialize.) In any case, the theories essentially make the exact same argument that their particular form of stimulus ultimately pays for itself (or is, at least, cheaper than not doing it).

The only meaningful difference I can see here is who does the spending, the government or the taxpayers. With the spend-to-stimulate model, you can clearly see that the money is being spent, but there are legitimate questions as to the efficiency and efficacy of such spending. With the cut-taxes-to-stimulate model, the money may not go into economic activity (for example, people may save it or pay down debt), but one can make a strong argument both that people in aggregate are smarter about where to allocate their money than the government is, as well as that allowing people to make these decisions rather than their government is the "right" thing to do.

As I said above, I'm not enough of an economist as to decide this question, but I think this is really the core question that separates the two major parties. Despite all of the rhetoric and other issues around it, it's not actually all that significant of a philosophical difference.

Regulatory Capture and Washington DC taxicabs

2010-09-30T13:12:00.001-07:00

I flew to Washington DC's Dulles airport a few days ago. The airport is something like 30 miles outside of the city, and there is no metro service to/from the airport, so taxis and shuttles are pretty much the only choices for getting into the city if you don't rent a car. I took a taxi, and realized that the system serving Dulles is truly messed up.

Specifically, for regulatory reasons, only one company is allowed to pick up at Dulles airport, and that company is not allowed to pick up in DC city limits.

The airport actually highlight the fact that only this one company is allowed to provide taxi services, as if it's some sort of benefit to the traveling public. But this seems to me to be a total scam.

After all, these rules mean that each fare from the airport to DC must return empty to the airport, and each fare from DC to the airport must return empty to the city. As a result, taxis are consuming twice the necessary fuel for each passenger, are losing revenue-generating opportunities while dead-heading (it takes more than a half an hour to get between the airport and the city if there is any traffic), and are making traffic that much worse by the fact that twice as many taxis are on the road as are truly necessary to serve the round-trip passenger traffic. Fares, as a result, are undoubtedly higher than they need to be to compensate for these expenses and inefficiencies.

What we have here is a case of regulatory capture, which usually at least serves the interests of the industry that provides the relevant service. (See another example of this in Louisianna, where regulatory capture protects the funeral business.) But here, it seems to serve nobody's interests, since this cannot possibly be good even for the taxi drivers who must dead-head one-way for every Dulles passenger.

I wonder why this insane policy continues at Dulles.

What's the matter with "Elite?"

2010-09-23T16:17:00.001-07:00

One of the clearest signs of populism and demagoguery that I've noticed is using "elite" as a dismissive term for an amorphous group of people who think they're better than "us" or who otherwise are not sufficiently tuned in to what is happening in the real world. This happens often when people deride politicians in Washington DC, or scholars in their ivory towers at universities. The follow-on is invariably that we need "folks like us" in office, because only "folks like us" understand us. Just listen to Sarah Palin and you'll see outright disdain for "elitism."

I think this is a shame. Obviously, to the degree that people are disconnected from reality or behave as if they're superior to everyone else, that's a problem and should not be tolerated. But very few politicians or academics (or other members of the otherwise-not-well-defined "elite") are actually guilty of either of these sins.

Rather, they're guilty of either (a) being part of a governmental body that is empowered to do something that affects "us" from a distance, or (b) being smart and well educated.

Being part of a governmental body is not a sin of the participant, it merely makes one a bureaucrat. But it makes little sense to blame the bureaucrat; if we want to change policy to bring more things local, our system has ways to affect such changes.

But it's the "being smart" part of "elitism" that I think is really problematic: we create an atmosphere where intellectualism is a sin (see again Sarah Palin - compelling in many ways, but not an intellectual heavyweight). The irony here is that this slur on "elitism" typically comes from people who consider themselves hard working, and who feel that ivory-tower "elitists" don't have to work hard like they do. And yet, we (and they!) value truly "elite" people like Bill Gates, Jeff Bezos, Warren Buffett and so forth - people who are an "elite" group by any reasonable definition of the word.

We should all aspire to be the smart, educated (even if they don't have college degrees) intellectuals that these elite people have. That's the best hope for our country, I think.

A defense of "spreading the wealth around?"

2010-07-06T10:48:00.000-07:00

I just finished reading The End of the Free Market by Ian Bremer. Great book (and fairly quick read), describing the differing approaches to market based capitalism in the West, which has a fairly free-market approach to the economy, and in other nations, most notably China, which use capitalism and markets but have a much heavier government hand in them.

The central thesis of the book - which makes sense to me - is that there are two main models for capitalism (across a broad and continuous spectrum). In the "free market" model, exemplified to varying degrees by the US, Japan, and most of Europe, the goal is economic growth. In the "state capitalist" model, best exemplified by China and Russia, markets are used primarily to preserve and strengthen political power; wealth creation is not an end unto itself, but rather a means of keeping stability.

Bremer obviously goes into a lot more detail about the consequences of this, and I recommend the book, but it got me thinking about a slightly different issue.

Back in the campaign, Obama got flack for saying that we need to "spread the wealth around." And I realized that there are two ways that this phrase could be interpreted.

If one assumes that Obama is an unrepentent leftist/socialist/communist, one could reasonably interpret "spread the wealth around" to be a Robin Hood call to take from the wealthy and give to the poor. If that's what he meant, then I condemn the statement on just about every level as being a bad and immoral idea. For just a few examples of failures to "spread the wealth" in this way, look no further than the Soviet Union of a hundred years ago, or Zimbabwe of ten years ago.

But there's another, far more benign interpretation of what he said. (And while I believe this interpretation is what he meant, I'll leave it to you to decide which he meant.) That interpretation is that we need to make sure that the opportunities for wealth creation are broadly available. I.e., we want to have a dynamic, broadly diversified economy, which makes it possible for anybody who is willing to work hard to do well for themselves.

I've blogged before about how I don't think that the income gap is a problem per-se, rather it's a symptom of a concentration of economic opportunity, and that likely is a problem. After all, the United States is wealthy and stable today in large part because it has done well at creating this broad base of opportunity. One need only look at other countries where the economy is highly concentrated in just a few sectors (such as, say, oil) to see that concentration of economic activity is almost always a bad thing.

And it makes sense that it would be a curse: after all, if the government is reliant upon a single industry for the majority of its revenues, then one should not be surprised when that government nationalizes the industry, or when it ignores or mistreats the bulk of its people (from whom it generates no meaningful revenue) in order to satisfy the goals of the cash-cow industry. After all, the old adage of "he who pays the piper calls the tune" applies - it's only natural that governments will become corrupted by dependency on concentrated economic power.

This is why an income tax or a VAT, or something like that is actually a good thing. I don't mean that as a defense of high-taxes; I don't advocate high taxes at all (merely sufficient taxes to pay for the spending and debts we incur.) But the beauty of these sorts of taxes - when not overly burdensome - is that they are broad-based. This means that the government must be responsive to the population as a whole because they are the source of its revenues. And it gives people some "skin in the game" - they can hold their government accountable because they are paying the bills.

In other words, if you want to "spread the wealth around" as a way of directly treating the symptom of a wide income gap by punishing the rich to give to the poor, you are asking for trouble. But if you want to "spread the wealth around" by making sure that we have a strong, broad-based economy with lots of opportunities, which will have as a side-effect the growth of the middle class (and a corresponding narrowing of the income gap - which is absolutely a form of "spreading the wealth around"), then I think this is something to which we should all aspire.

Religion vs. Science

2010-06-08T10:14:00.000-07:00

I've never quite understood the perennial conflict between religion and science. I've commented indirectly on this in the past, but I think it's worth addressing the issue head-on.

Science and religion are fundamentally different things. I'd use the common analogy that comparing them is like comparing "apples and oranges", except that those are at least both fruits. In this case it's more like apples and screwdrivers. An apple is a tasty and nutritious fruit, and the fact that it sucks as a fastening tool doesn't diminish its value at all. Similarly, one doesn't worry about the taste and vitamin content of a screwdriver.

Yet we seem to treat science and religion as if they actually encroach each other's turf. I think we get confused when we see such encroachment.

As I see it, religion (whether formal and organized, or informal spirituality) provides 3 specific roles in human life: it provides a moral/ethical framework, it provides a cultural framework (traditions and norms of behavior), and it provides meaning. And faith is an integral aspect to each of these, as it must be: while I suppose one can make utilitarian arguments to suggest that one moral position has a net human benefit, no moral system is strictly utilitarian. And one certainly cannot "prove" that one cultural tradition, or one interpretation of the meaning of our existence, is "correct." Ultimately, one's embrace of a particular culture, understanding of meaning, and moral system must be based on faith.

Science addresses none of those three areas. Sometimes science is viewed as answering "why" (as in "why does the world behave the way it does?"), which arguably encroaches on the "meaning" attribute of religion. But I think it is more accurate to say that science helps us answer not "why" but rather "how." For example, Newton's theory of gravity says how the apple falls from the tree to the ground. But it doesn't actually answer anything as to why the world is set up such that gravity works that way.

In answering questions of "how," science is fundamentally based on direct evidence, predictability, repeatability, and constant revision/refinement. None of these are attributes of religion. But that's precisely my point: since science doesn't do the things that religion does, and religion doesn't do the things that science does, it seems to me that there is no reason for these two areas of human life to come into conflict.

The big-bang theory provides an explanation for how the universe came to be (perhaps correct, likely to be revised/refined), but doesn't say anything about why it came to be. The creation story from the Bible doesn't explain how God created the universe, but pretty clearly provides a statement of why we're here.

Religion does a truly lousy job of answering "how." Creationism simply doesn't cut it as an explanation for how we got here (nor does "Intelligent Design," for that matter). Nobody ever successfully predicted the weather or created a new medical treatment or designed a car using the Bible or Koran as their guide. And science does an equally lousy job of explaining why young children die of disease or whether stem-cell research or abortion are ever appropriate or under which circumstances.

One of them is an apple, the other is a screwdriver. I leave it to the reader to decide which is which.

Tea Party - Good or Bad?

2010-04-04T21:44:00.000-07:00

OK, I gave this a loaded title. Loaded in the sense that it implies that the Tea Party - like almost any political party - can be labeled "good" or "bad" (despite what Glenn Beck thinks).

I think the simplest way to sum up my attitude toward the Tea Party folks is this: right concerns, wrong approach.

One of the biggest Tea Party concerns is deficit spending, and I have to say I completely agree. This could well be the biggest threat to our long-term economic future, and we need to get our debt in order, no doubt. I understand that we just came through a very nasty recession and I don't know enough about economics to say whether or not Keynes was full of crap for his prescriptions on what to do during a recession. But we're emerging now, so whether or not Keynes was right, his prescriptions for stimulus spending no longer apply, so getting our national balance sheet in order should be priority one.

And I also agree that what makes our country the greatest on earth - and what has made it so successful economically and with so much innovation - is the freedom we all enjoy. Cripple that with government mandates, heavy-handed meddling, stupid regulations, etc., and you are killing the goose that keeps laying golden eggs.

My main point of disagreement with on political grounds with Tea Party folks is on the "TEA" part - i.e., "taxed enough already." While nobody likes paying taxes, I think it's hard to make the case rationally that Americans are substantially over-taxed relative to the benefits they receive from their federal government. This is, of course, a subjective view, and it's hard to argue that government couldn't be more efficient and thus get more done with fewer tax dollars, but I'll go out on a limb and say that our federal government does a reasonable job. Not a great job, but a reasonable one.

So I actually mostly agree with the Tea Party on basic philosophy.

But I could never join a tea party rally because I think the Tea Party methods miss the mark in 3 critical ways.

First, the Tea Party movement is so blatantly partisan that it is hypocritical, which completely undermines its credibility and appeal. Under George W. Bush, TARP was passed and we bailed out AIG, Fannie Mae, Freddie Mac. A few grumblings from the right, but the phrase "tea party" had not even yet been invented. There were no mass protests. Then Obama got elected and essentially continued the policies started under Bush: he signed a huge stimulus bill and bailed out GM and Chrysler. These were not novel moves, they were a continuation of a trajectory started under Bush, but he got labeled a socialist for doing so, despite the fact that it was different in no meaningful way from what Bush had done. These actions are either socialist tyranny or they aren't; the political party of the actor doesn't change it. Those who cry "tyranny" about the behavior of one leader but forgive that same behavior of another have obviously lost sight of the fact that tyranny knows no political party.

Secondly, the movement offers lots of complaints but few constructive solutions and policy proposals. I know what they oppose, but I actually don't know what they support. They complain loudly about many things - taxes, "loss of freedom", "socialism", but I have yet to hear something that an elected official could do that they would approve of that would actually solve the problem, other than the ever vague "cut spending" (which always has the subtext of cutting "somebody else's spending.") I think the shouts of "keep your government hands off of my medicare" last summer pretty sell summed up the schizophrenic issues here.

The other "policy" here I think can be described as "starving the beast:" the classic approach of controlling government spending by limiting revenues (i.e., limiting taxes). Great idea, except that the past 30 years have shown pretty decisively that starving the beast does nothing to rein in spending, and therefore only exacerbates debt and deficits. I.e., despite all of the theory, all of the actual data suggests that starving the beast simply doesn't work as a tactic. Oops.

Finally, while the movement has a commendable focus on freedoms, it is very confused as to which are real and meaningful threats to those freedoms as opposed to abstract or imagined freedoms.

For example, the movement focuses on real but mostly abstract freedoms like the right not to carry insurance (ignoring the fact that this "freedom" imposes very real - and expensive - costs on other taxpayers) and on imagined threats to freedom like gun rights being taken away (ignoring the fact that gun rights have - so far - actually expanded under Obama). And yet there has been silence from these quarters on very real, tangible, and significant erosions of our freedoms such as increased restrictions on our ability to fly (no fly lists with no due process or appeals process, restrictions on our ability to carry our personal belongings on-board aircraft), or warrantless wiretapping, etc.

I understand that these things are done in the name of national security, but these are very real limitations to our freedoms for a theoretical improvement in security. And that's a very slippery slope. Given the choice between a mandate to carry health insurance (wow, that sounds almost as controversial as a mandate to brush my teeth - it may be a mandate, but at least it's for something that I actually want!) and having a government spook access my email or telephone conversations, I'll take health insurance, thank-you very much. Yeah, in the abstract, I don't want government telling me to buy health insurance, but in the real world, I would want to buy it anyhow.

So I think my conclusion with regard tot he tea party movement is best summed up as: "right issues (mostly), wrong battles."

When is terrorism not terrorism?

2010-03-11T13:24:00.000-08:00

When is terrorism not terrorism? When it would be politically bad to speak of it as such. Janet Napolitano recently declared that when Joe Stack flew his airplane into the IRS building, it was not an act of terrorism.

I can see that the definitions of terrorism are controversial and subjective enough that one can come to different points of view. But her logic is twisted. Specifically, she says this:

"To our belief, he was a lone wolf. He used a terrorist tactic, but an individual who uses a terrorist tactic doesn't necessarily mean they are part of an organized group attempting an attack on the United States"

Fair enough - there is indeed no reason to think Stack was part of an organized group. But look at what she says here: "he used a terrorist tactic." The definition of terrorism may be a bit squishy, but I would think that the one thing we'd all agree on is that the use of a "terrorist tactic" (however squishy that is to define) would make one a terrorist. After all, for whatever definition you have of "terrorist tactic," if you don't use a tactic that meets that definition, you're not a terrorist, and if you do, then you are.

A big learning of the past decade, I thought, was that we are not at war with "terrorism," that we are at war with "terrorists." And this distinction is driven entirely by the fact that "terrorism" is a set of tactics, and terrorists are those who employ those tactics.

Joe Stack was not part of an organized group. Good. He also thankfully did not cause nearly the harm that he could have, also good! He's not foreign, you can decide whether that's good or bad. But since when have we ever included organization, competency, or nationality as a criteria for whether or not one is guilty of terrorism?

Napolitano went on to justify this characterization, saying that "lone wolf" actors like stack is not where DHS should be focusing its resources. This is a perfectly fair argument to make. But she shouldn't take the cowardly approach of defining it away from being terrorism to support this position.

Am I a liberal? Or a conservative?

2010-03-08T16:35:00.000-08:00

While I have a great disdain for ideology, that doesn’t mean I don’t have principles that guide my points of view on various issues. I think the key word here is "guide."

One can usually do a pros and cons analysis for any given approach, and rarely are both of these columns completely empty. The rational thing to do, it seems to me, is to look at the pros and the cons and make a judgment (and it is inevitably a judgment, with all of the human subjectivity that implies!) as to which side outweighs the other.

The problem with ideology is that it turns gray issues into black-and-white: it says that the presence of something in one of the two columns (pros or cons) completely negates everything on the other side. The trouble is, the world is gray, and being gray does not preclude making smart policy decision.

Anyhow, here are some of the principles that guide my political thinking. I'll leave it to you to decide whether I'm a conservative or a liberal.

Why I’m a liberal:

I believe that freedoms are not absolute, that it is OK under certain circumstances to give up some freedom for the sake of a better society. For example, I hope even conservatives can agree with: I give up my right to drive anywhere I want in the road because the convention of everyone driving on the right side (here in America) keeps everyone safer. This is admittedly a trivial example; the disputes obviously come as the degree of freedom encroachment increases as to where to draw the line. (I think, for example, that the burden imposed on flying by the TSA is too much).
I believe people should be allowed to unionize, although I think it’s almost always a bad idea to do so.
I believe that markets are often imperfect, and that reasonable and smart regulations enhance them. They key word here is "smart." Regulations are not inherently bad; unfortunately, it's very easy to create bad regulations or regulations with unintended consequences. In any case, markets need a level playing field, consumers and investors need transparency, and externalities (such as environmental issues) need to be accounted for.
I am an environmentalist and a conservationist. See above about externalities, but the bigger issue is that market forces usually do not account for harm to the environment, nor do they typically provide sufficient reward to conserve species or enhance the environment; this requires the public sector.
I believe there are some things that government is best at. I suppose this isn't controversial - even conservatives admit that things like national defense are properly the realm of the government.
I think it's OK for the government to try to ensure that it's people get educated and that there is a sufficient safety net that job market liquidity is maintained.
I dislike guns, and I suspect that on balance gun owners are no safer than the rest of the population. I support sensible regulations on them.
I believe that taxes and other revenue should support the level of spending that we choose (via democracy) to have.
I supported the bailout because I believe (although I cannot prove) that the economic recession would have been far worse otherwise; increasing the deficit, I fear, was the lesser of two evils.
I believe that the 1st amendment unambiguously requires a separation between church and state.
I support the ACLU.

Why I’m a conservative:

With freedom comes responsibility. The government shouldn't come to save you, shouldn't be the one to create a job for you.
I believe in a strong national defense.
I have an instinctive bias against unions; while there may be a few exceptions, most have long since outlasted the purpose for which they were created and now are an impediment to innovation, improved productivity, and economic growth. I think they're almost always counterproductive for their members. That said, I support the right to form/join one; I just think it's almost always a bad idea.
I am not impressed with our public school system. A few examples: I have little sympathy for teacher complaints about low pay. If you don’t like it, quit. When schools can’t hire enough teachers, pay will go up. I think teachers unions are a huge impediment to improving education. I think charter schools and other innovations should be tried more broadly.
I believe that government should only do those things that are worth doing and that only government can do.
Bad regulations are a huge problem and should be modified or eliminated.
I believe markets as the best way to solve most things and market-based solutions should be preferred before government-based solutions unless there is strong evidence that they will not work. Even for environmental problems. For example, this is one reason why I favor a carbon market rather than a carbon tax (a government-based solution); I think the market would inherently adjust more quickly and accurately than a tax would.
I support the right of people to arm themselves to defend themselves (even if I don't think that's a particularly wise approach in general).
I believe that taxes should be as low as possible.
I believe government spending should be as low as possible.
I do not believe it is appropriate to deliberately attempt income redistribution.
Our deficit and national debt are out of control and are a huge problem. I believe that budgets should be balanced except under extraordinary circumstances, or at least the national debt should be no more than about 10% of GDP.
I believe in the first amendment, allowing people unfettered ability to speak their minds and to practice any religion they choose.
I support the ACLU because I believe in the personal freedoms that they defend. Yes, I list this as a conservative point of view because I think the ACLU actually supports conservative values and limits on government intrusion.

I could probably list more, but these are the ones that come to mind right now.

Our anti-gun president?

2010-02-22T21:55:00.001-08:00

One of the things that I've noticed in the virulent anti-Obama rhetoric is the notion that, as a liberal, he wants to take away all of our guns.

I'm sure he's no NRA member and he probably does support gun control laws, but today I noticed that the first piece of gun-related legislation to pass and take effect under his administration expands gun rights by allowing loaded guns in national parks. Not exactly the action a rabid-anti-gun fanatic would take.

The thing that annoys me the most about partisan politics is the habit of starting from a conclusion and filtering facts based on that, rather than vice-versa. Nobody would ever mistake Obama for a conservative, but it's pretty clear that at least on some fronts (like gun rights), he's not the communist/socialist monster he's portrayed to be either.

Terrorism or not?

2010-02-18T20:42:00.001-08:00

Today a guy crashed his single-engine plane into the IRS building in Austin Texas because he was angry with the government and its tax policies.

Horrible tragedy, and I worry that it will lead to more senseless and ineffective restrictions on our freedoms (particularly freedom to fly), but what caught my attention here was something more academic.

Officials took pains to stress that this was a criminal act and by and large studiously avoided the "T" word - "Terrorism." Interesting that they should do so. I wonder why? This looks and feels like domestic terrorism to me.

The word "terrorism" is notoriously difficult to define. I've always used as a basic sniff-test definition any act of violence that is specifically targeted against civilians or non-combatants for the purpose of making a political statement.

By that definition, I can't see any semantic distinction between what Joe Stack apparently did today and what 19 Saudis did on Sept 11 2001.

Perhaps my definition is inadequate? I've tried on a number of variations of the term, but I have found none that classifies 9/11 as "terrorism" yet excludes today's event and still works for other "obvious" examples of terrorism.

For example, if one insists on the presence of religion, which does distinguish 9/11 from today, then one must conclude that Timothy McVeigh and the Unabomber were not terrorists.

Today's events do appear to be more out of personal revenge than to advance a broader cause, but even that feels more like a matter of degree, not a fundamental distinction. And after all, crashing a plane into a building with hundreds of people inside sends a very broad message of intimidation and fear regardless of whether that was explicitly intended.

I'm curious if any of my readers have a definition of terrorism that yields a positive match results for "obvious" terrorism cases like 9/11 or Timothy McVeigh, yet yields a negative for today's sad events.

Personal mandates to buy insurance

2010-02-10T11:44:00.001-08:00

One of the many controversial pieces of the health care legislation being discussed in congress (perhaps ready to be eulogized?) is a requirement that people purchase health insurance. Some have raised a question as to whether this is constitutional, as it appears to be the first time the government has required a citizen to purchase a product simply for existing in the country.

Not being a lawyer, I have no idea whether or not this argument has legal merit. But I will offer the observation that we do have precedent for something like this in our requirement to educate our children. This obviously does not apply to every citizen, but to the citizens who choose to have kids, we tell them "you must get them educated."

We actually go a step further, in a way that is analogous to the healthcare bill: we offer a government "public option" (public school), which you can opt out of (private school or home school). In fact, the education scenario is actually harsher than the health-care scenario, since the health-care proposal doesn't have a public option. And with education, if you choose to send your kids to a private school, you still have to pay your pro-rata share of taxes towards public education.

There are actually other existing analogous mandates as well. We require drivers to wear seatbelts and to carry insurance because of the burden that an unbuckled and/or uninsured driver can place on society if they are in an accident. If we were willing to turn away uninsured drivers from emergency rooms after an accident (which we aren't), or had some way that the victims of accidents could be compensated without the driver carrying insurance, then it could make sense to relax these requirements. But until we do, the damage a driver can potentially do is sufficient to justify the imposition of a purchase requirement for insurance.

Health insurance is quite similar in this regard. If we were willing to say that only people who can pay out of pocket or who have insurance could get treated at the emergency room, then there'd be an argument against a personal insurance mandate. But as long as people can carry the risk of being a big health-care cost to the system, then it seems reasonable to require them to mitigate that risk by carrying insurance.

I don't mean this as an argument in favor of the health care bill, just as a reason that we shouldn't freak out about the notion of the government requiring citizens to purchase some form of insurance.

Are teachers professionals or auto workers?

2010-02-10T11:34:00.000-08:00

Last night I saw a great talk by Geoffrey Canada, who is an educator who has spent his career trying to change the culture in Harlem to one where education is valued and where kids realize they have opportunities beyond the streets. It was a good talk, with something of a church revival feel (lots of people in the audience obviously were already true believers).

He had a few choice things to say about teachers, though. First was the obligatory point that if we want success in education, we need to treat them like the professionals that they are, and that it's hard to attract talented professionals if you don't pay them like professionals.

But then he made a number of points that I suspect would make many teachers - particularly unionized teachers - uncomfortable. For example, that they need to work really hard (i.e., he makes no apologies for the fact that his schools run from labor day to the first week in August). Or that they need to be open to change, to experimentation, to measurement. He decried how difficult it is to make change, and called out the unions as one (but by no means the only) source of this resistance.

It got me thinking: teachers need to make a decision. Are they professionals or are they blue-collar workers? While there are certainly some professional unions, most of them - and in particular the ones which tend to impose the most innovation-resisting work rules - tend to be the domain of the blue-collar space.

If they want to be treated as professionals, who must live and die by their merits, then perhaps unionized teachers should think about how to act like professionals.

A good definition of "independents"

2010-01-25T21:27:00.001-08:00

Or at least I think this Newsweek article about Obama's relationship with independents defines them in a way that describes my attitudes pretty well:

They yearn for "good government"—government that is open, fair, efficient, free of special interests' domination, and nonpartisan or bipartisan in spirit. They find no glory in ideological combat; they see it as destructive. They search for leaders who exhibit a sense of good will. They tend to fret about deficits and debt, but not in a reflexively antigovernmental way. They are not against social programs, but want them administered with old-school thrift. They are not "centrists" in the sense that they exist in some mathematical middle ground between "left" and "right." Nor are they necessarily angry "populists," eternally resenting and distrusting anyone with any power. They are outsiders who wish Washington were a better place

Brown victory in Massachusetts

2010-01-20T08:40:00.000-08:00

So Massachusetts elected a conservative Republican to succeed Ted Kennedy. I'm not a fan of many of his positions. For example, I do not support waterboarding (I think it undermines our values and is not terribly useful), I support some form of cap-and-trade, and I think our health care system is flawed (although I don't claim to know enough to accurately judge whether the Democrats' proposed overhaul would make things better or worse).

But I'm actually happy that he won. Why? Because regardless of how I feel about his individual positions, I am a fan of competition. Having one party which is able to exert its will unchecked seems to me to be far more dangerous than any particular particular issue going some way that I don't like. Competition is good in the marketplace, and it's good in government because it reins in the worst excesses of either side. Compromises in legislation and policy are ugly sausage making, but nevertheless it's necessary to get any sausage at all, much less sausage that is edible.

Punishing banks

2010-01-14T09:32:00.000-08:00

Today the Obama administration is proposing hefty new taxes on large banks, including ones that never took TARP money or have paid it back.

This has "bad idea" written all over it. It is nakedly vindictive and punishing people and companies for the sin of bad business practices. (And where the greater sin of actual fraud took place, tax policy in place of judicial action simply makes no sense, especially since it punishes the honest as well as the guilty.)

I don't mean to diminish the emotional appeal of the proposal. All taxpayers are (or should be) justifiably angry that they had to bail out the industry, and it is absolutely unseemly to see those very banks handing out huge bonuses to their executives. Alas, emotion and smart policy are rarely connected, and today's proposal from Obama is populist pandering at its worst.

But if we calm down for a moment and look at the situation, we see that we had banks that were teetering on the brink. We held our noses and gave them billions of dollars with the express goal of stabilizing them so that they could live another day to make another loan. They did, and in fact have been making profits (which is precisely the key ingredient to the very stability we wanted) and those banks that have been making profits have been paying back the TARP money. Wasn't that precisely our best-case scenario?

In the case of one of the banks most vilified for bonuses, Goldman Sachs, they paid it back in full (and my understanding is that they never wanted the money in the first place). In other words, they did exactly what we asked them to do, more quickly than we expected, and now we want to punish them for it?

There are many good reasons for reforming the financial industry. In particular, we need to ensure that no company is "too big to fail" (as I've posted before, this is not a statement of size per se but rather a statement of systemic risk posed by a company) so that we can let companies that make bad bets fail without worrying that they will bring down the entire economy with them.

This tax proposal from the administration is nothing more than a feel-good measure that punishes the banks for playing by the rules of the environment in which they found themselves. The only word I can think of for this is "stupid." If there was fraud, prosecute it. But if you just didn't like the way that banks responded to the incentives of the environment in which they operated, don't blame the banks - fix the incentives and regulations.

A great article on our response to terrorist threats

2010-01-10T19:50:00.001-08:00

As usual, Fareed Zakaria pretty well captures my thinking about how we should (and should not) respond to terrorist threats.

I think he nails it that having us spend billions of dollars making travel miserable for millions of innocent non-terrorists and diverting planes and scrambling swat teams whenever somebody crosses into a secure area that wouldn't have been secure if not for the threat of terrorism seems like doing the terrorists jobs for them (admittedly, and thankfully, minus the bloodshed). But to the critical point: it doesn't make us any safer, it is a huge drain on our economy, and it perpetuates the very fear and tension that the terrorist seeks to create. How is that possibly justifiable as "defeating terrorism?"

The Israeli model for the US?

2010-01-05T20:12:00.000-08:00

I've seen a number of posts such as this one since the failed Christmas bombing attempt about whether or not it's time for the TSA to adopt more Israeli-style security methodologies.

I completely agree that the TSA seems to be a bureaucrat's idea of security rather than an actual security mechanism. While I'm sure that it actually does prevent the casual/amateur/copycat/wannabe terrorist (and that's a good thing), I think that the harm it does in terms of false positives (i.e., people getting busted not because they actually are a security threat but because they break security-related rules, resulting in a security scare) and overall expense and hassle far outweighs the benefit. And as the Christmas attempt shows, any halfway trained professional can get through TSA-style security.

The Christmas attempt also shows that fellow passengers are among the best security mechanisms available. They stopped Richard Reid, they stopped this guy.

In other words, we are spending billions of dollars and untold delays and hassles for the appearance of security, without actually providing significantly improved security. And I would argue that appearance of security is worse than actual security, because it diverts attention and resources from finding true threats.

Which goes to prove the next point, which is that the folks advocating Israeli-style security for the US are on the ball when it comes to the fact that it is not about x-rays and removing shoes, it's about behavior. While I'm not wild about the intrusiveness of this approach, it's certainly a lot more effective and a lot more efficient.

My main concerns with Israeli-style security are twofold: scalability - we have dramatically greater numbers of air passengers, and the necessary intrusiveness which violates both our explicit constitutional protections and implicit expectations with respect to the degree to which we have to prove to our government that we have the right to travel before we are allowed to do so.

Nevertheless, I think we could learn a lot from Israel in this space and adjust our procedures to focus more on what works rather than on what "looks" secure. I suspect that we can both improve our security and lesson the burden, if only we were to take a data-driven approach to the problem.

Are carbon offsets like papal indulgences?

2009-12-11T15:53:00.001-08:00

Today Ellen Goodman penned a column connecting fertility rates and women's to the environment, but it was this comment that caught my eye:

Well, I am not a fan of carbon offsets, which have been described as a get-out-of-jail-free card. I don't cotton to the idea that we can neutralize our wasteful ways by planting a tree in the rain forest. The idea that I can balance flying by preventing a few little carbon footprints smacks of an elitism I thought went out with the Raj

I've heard this sentiment before, although the comparison has usually been made to the old practice of selling indulgences.

I think the notion that a carbon offset is like "paying for a right to sin" or a "get-out-of-jail-free" misses the point entirely, and that belief can have dangerous consequences for policy discussions.

A sin is something you shouldn't do at all - that's why it's a sin (or if you prefer the get-out-of-jail analogy, something illegal is something you shouldn't do). Period. Hence an "offset" for sinful or unlawful behavior is anathema, and people like Goodman are absolutely right to view offsets such as indulgences or "get-out-of-jail" cards as a terrible thing.

But here's the key point: there is NOTHING WRONG with emitting carbon. The climate is not threatened by the emission of carbon. This is where Goodman and others get confused about offsets. The problem faced by the climate is the increase in CO2 concentration in the atmosphere. If you emit a ton of CO2 in one place and store or sequester it in another place, then you have added no net CO2 to the atmosphere, and thus truly have "offset" your "sin." Indulgences or get-out-of-jail-free-cards do not undo the harm to the world of the original sin, but carbon offsets do.

Of course, this all presumes that the offsets are real, measurable, etc. - that they truly are offsetting emissions, sequestering carbon, planting trees, etc. But there is no intrinsic reason why a carbon offset cannot truly negate the effects of one's emissions.

If we view carbon emissions as intrinsically sinful, we will not make practical progress on climate change. Not that the best offset isn't an emission reduction, but the fact is that we can reduce but not eliminate many sources of carbon emissions, and offsetting can be a practical and useful means for ensuring that those emissions that remain do not become a "sin" to the climate.

Book report: "Turning oil into salt."

2009-11-26T12:48:00.000-08:00

Just read "Turning Oil Into Salt" a couple of weeks ago - a great and insightful read. While I don't agree with the author on everything, I do agree with the basic premise of the book. That is that oil has become a strategic commodity because it enjoys a monopoly on transportation fuels, and that this provides both security and economic threats to America. Breaking that monopoly (i.e., allowing other fuels to compete with oil - even on today's internal combustion infrastructure) is not actually all that hard: about $100 added to the cost of a car makes it fully flex-fuel capable, enabling it to run on ethanol, methanol, or gasoline.

There are obviously a lot of policy decisions (e.g., do you allow imports of sugar-cane based ethanol from Brazil or use corn-based ethanol from Iowa?) and market issues to work through, but other countries have successfully addressed this issue. Brazil is a great case in point: the entire fleet there is flex-fuel, and they have lots of low-cost sugar-based ethanol. When oil prices skyrocketed last year, the mix of fuels significantly shifted towards ethanol; when oil prices eased, the blend shifted back toward petroleum. Brazilians were thus largely shielded from the shocks of the oil price swings, and oil had to actually compete on price for a share of Brazilians' fuel tanks.

And as newer plug-in-hybrid vehicles start hitting the streets (cars such as the Volt which primarily use an electric motor for the first 30-50 miles of travel, using an internal combustion engine either as a backup drive when the batteries deplete, or as a generator to supplement the batteries, thus extending range), you get an even bigger benefit: these cars can already make 100-200 miles per gallon of gasoline, and if they are made flex-fuel, they could conceivably go an arbitrary distance with no petroleum at all.

It's the sort of thing that would drive Ahmadinijad crazy. And isn't that a good thing?

More on "Too Big To Fail"

2009-11-26T12:36:00.000-08:00

I've posted before about "Too big to fail," and it's back in the news again with discussions about regulatory reform. Planet Money (which I love) has been talking a bit about it, as has the Motley Fool.

As I've thought about this issue more, I've realized that the issue is not that we need to regulate entities when they become "too big" per se. Rather, the problem is that being "too big to fail" is actually saying something more subtle: the entity has introduced systemic risk into the system.

Boeing is a huge company, and were it to implode tomorrow it would cast a lot of damage in its industry and among its suppliers and would be an all-around "bad thing", but it would not destabilize the economy as a whole or unrelated industries. Lehman's implosion, on the other hand, demonstrated that it's risk-taking ultimately inflicted severe collateral damage throughout the entire financial sector - and ultimately throughout the entire economy as lending froze up in its wake.

So the issue is not size, and asking if we should break up banks if they become too "big" (which begs the question of how big that is and how you know), but rather that regulators should have full authority to be alert for introduction of systemic risk, and should be empowered to strictly regulate such behavior above and beyond whatever regular day-to-day regulation they are authorized. Maybe it means breaking up large companies, but when viewed in this light, breaking up a company becomes just one possible tool at a regulator's disposal, not the default.

By the way, I also particularly liked this quote from the Motley Fool article, which I think cuts through the heart of any anti-regulatory ideology on this point:

A commenter to our article suggested that suppressing the scope of banks runs contrary to the free market. "I guess you don't believe in free enterprise, and ... neither does the federal government," the poster wrote. This couldn't be further from the truth.

Economic freedom relies on individual risk-taking. In our current financial system, the stupidity of a few reckless bankers and traders creates unintended collective risk-taking. It's as far from freedom as you can get. We want a system where bank failures wreak havoc on stakeholders of just that bank, and nothing else. You can still screw up; just leave me out of it. That's freedom, and we're big fans of it.

Bad math at Fox News

2009-10-24T17:05:00.001-07:00

The other day I was working out and flipping channels, and I saw Fox News folks commenting about a recent poll that showed support for the public option in the health care debate. What struck me was that they were latching on to the fact that more of the respondents to the poll identified themselves as Democrats than as Republicans, and they claimed that this made the poll flawed. In fact, they specifically said that the poll should have sampled an equal number of Democrats and Republicans.

Nice sentiment, but bad math. The point of a poll is to figure out the popularity of an issue among the general population (or a specific subset of that population such as voting adults, or seniors, or such if that is the specific goal of the poll). If you believe that the poll should equally sample Democrats and Republicans, that is basically assuming that the percentages of Democrats and Republicans are equal, which they are not. Rather, the ratio in the poll of Democrats and Republicans, if done correctly, should approximately match the ratio in the target population, and this almost certainly is not 1:1, as the Fox commentators seemed to think.

I do not know whether the ratio reported in the poll does match the broader population; if it was off by a meaningful amount, then that would have been a sign of a potential flaw in the poll. But alas, Fox did not report this information, so I find myself strangely uninformed by their broadcast.

Obama wins the Nobel Peace Prize

2009-10-09T06:51:00.000-07:00

This was a dumb decision by the Nobel committee. Really bad. It will only confirm the worst cynical accusations of political bias by the committee.

Don't get me wrong, I have nothing against Obama, and there are many things I like about him. But the fact is that he has not yet had any meaningful "peace" accomplishments. He's changed the tone of the debate, he's had great rhetoric, that's all well and good and in the right direction, but that's only a prelude to accomplishment, not an accomplishment itself.

I don't know if the committee was trying to reward those gestures - in which case it is premature and can be legitimately accused of fawning over the young presidency. Or perhaps it is trying to influence decisions such as how to proceed in Afghanistan, in which case it is truly political.

But without any concrete accomplishments to cite - just "hope" and "tone" - this debases the value of the peace prize as a neutral reward for making the world a better place. I really hate to say this, but this decision demonstrates the peace prize committee (physics/chemistry/medicine, so far, still appear untainted) to be far more politically oriented than they are supposed to be.

The smart thing here would be for Obama to turn down the prize, pointing out that he has not had any success yet that would warrant it. That would gently, gracefully (and diplomatically) chide the committee and I think Obama would actually earn a lot of credit for doing so. I'm not optimistic he will do so, though.

Health Care Debate

2009-09-22T11:47:00.000-07:00

I've resisted weighing in on the health care debate because it's a super complicated issue about which I don't know a lot. But I've been listening and learning, and I have reached some conclusions, more about the debate itself than about any specific policy within it.

The first issue, I think, is how we characterize the problem. I don't generally quote communists or Chinese leaders, but Deng Xiaoping is widely credited with the quote "I don't care if it's a white cat or a black cat. It's a good cat so long as it catches mice." While the quote probably predates him, the point is good: we should not be caught up in ideological purity, we should worry about whether a given proposal "catches mice." Labeling the various proposals "socialist" is not helpful. Whether or not the proposals meet the bar of being "socialist," the label is an emotionally charged one and it puts the recipient on the defensive at a personal level, which eliminates any chance of a productive discussion on the issues.

Even the implied personal insult of "socialist", we forget that the reason that we typically do not like "socialist" things in this country is not because they are "socialist" per se, but rather because most socialist solutions to problems are far worse at "catching mice" than free-market/private enterprise-based alternatives, and usually with other negative consequences (such as government control of decisions that we view as our own.)

These are good reasons to be exceptionally skeptical of "socialist" programs. We should, however, remember two things. First, we have had a number of generally accepted "socialist" programs for decades already - social security and medicare come to mind as two prominent examples - and they haven't destroyed our country (their biggest problem, I would assert, is that they are huge and growing budget items). The second thing to remember is that these two "socialist" programs are also hugely popular, and that politicians view them as 3rd rails. Funny thing: as a country we hate socialism but love socialist programs.

But there's a third reason we should take the word "socialist" out of the debate. As I said above, when comparing socialist solutions to market-based solutions, market-based almost always perform markedly better, which is why "socialist" has become a shorthand for "grossly inferior to market based solutions." But alas, in healthcare the "free market" is quite distorted in many significant and fundamental ways, so it is not at all obvious that "socialist" would be worse the way it would be in other similar situations.

Anyhow, my point above is NOT to defend socialist solutions to our healthcare problems (heck, if we can find a way to fix the market, that strikes me as vastly preferable.) Rather, it is simply to argue that the name calling is not helpful, and far better would be to judge whether one model "catches mice" better than another model.

Alas, this leads to the next question: what does it mean to "catch mice?" I think a huge part of the gap between our leaders is that there is no real agreement on the problems to solve, on what "success" looks like. Broadly speaking (and at the risk of stating the obvious), many Republicans believe that the system is basically sound, but needs incremental improvements such as malpractice reform, better use of information technology, and such. And obviously, they want as little governmental role as possible. Many Democrats believe that the system is fundamentally broken and needs more structural changes, including a stronger role for government.

Since there isn't agreement on the problem, we're unlikely to find agreement on solutions.

My personal view, as is often the case, is somewhere in between - we need to fix what's broken, but I don't see any reason to upend the pieces of the system that do work. I think there are areas, such as uniform insurance regulations or requirements for everyone to have some sort of insurance, or portability, can only be done by the federal government. But I also do not welcome a huge new government bureaucracy managing health care, even if such a thing already exists with Medicare.

Many on the right have spent all their time trashing the various Democratic plans, which is a shame because frankly I'd like to better understand their own definition of the problem and their proposed solution. I suppose such is the lot of being in the minority.

But there are quite a few for whom it seems the best solution is "do nothing." I cannot support that position. We do have very good healthcare in this country, but it is not demonstrably better than in other countries, and yet we pay more per capita than other nations. This strongly suggests that something is wrong, and it shouldn't surprise anybody. Healthcare, after all, is a highly distorted market:

Consumers (patients) do not weigh cost/benefits (as they would in any functioning market), and have no incentive to do so. (This is not necessarily a bad thing, after all - we want people to get the care they need.) If they have insurance, then that will pay for everything after a duductible or co-pay. And with or without insurance, this is people's health so they will make decisions not on the economic inputs but on whether they can get well.
Doctors have few incentives to contain costs. First of all, most doctors are fee for service, so they get paid for doing more, not less procedures. But more to the point, our litigious environment strongly encourages the doctor to do everything possible to ensure that nothing gets missed.
People without insurance make disproportionate use of emergency rooms, which is one of the most expensive ways to provide health care. People don't get denied care here, even if uninsured, so this cost gets absorbed into the system and ultimately gets paid for by insurance premiums of covered people.

(NPR's Planet Money podcast, by the way, has done some great stories recently specifically explaining the economics and incentive structure in our current healthcare system.)

As a result, nobody should be surprised that insurance rates have doubled in just a few years or that insurance companies deny coverage to customers that could cost them money. In fact, I believe that we should be seeking universal coverage not because it's a wonderful lofty "human right" goal as the left often portrays it (that's not a sufficient reason, laudable though it may be), but rather because (a) we're paying it anyway by covering the uninsured in emergency rooms, and (b) we're paying higher rates than we would need to if everyone - including healthy people who don't use a lot of services - is paying into the system. That's the purpose of insurance, after all, is to spread the risk around. (I've blogged about this previously.)

So we have a pseudo-free-market system. Once can try to remove these distortions and let the markets do their gloriously efficient thing. Or we can say that it's fundamentally not a market system and try government. My instincts are to try the former and only go to the latter as a last resort, but I reach the limits of my competency in this space when I try to suggest my own solutions, so I can only use these guidelines to judge proposals made by others.

I have come to a few conclusions, though:

The status-quo is going to become ever more expensive. So while I cringe when I hear the huge price tags associated with the various proposals in congress, I remind myself that the right metric is NOT what the cost of the program is. Rather, the metric is how that cost compares with the cost to the economy of doing nothing.
The "Rationing" scare is a red-herring. The fact is that we have rationing today, based on economic situation (which is acceptable in a functioning market, which is not what we have) and by insurance company bureaucrats. People are concerned about government bureaucrats making health care decisions based on cost, but does it really make any difference if that bureaucrat is paid by the government or by an insurance company? Black cat/white cat. In any case, unless one supports the idea that everybody should have unlimited access to unlimited healthcare regardless of cost (which I presume nobody actually supports), then one necessarily accepts "rationing" of some sort or another. So the question is not whether there is rationing, it's a question of finding the best mechanisms for doing that rationing.
The fundamental issue is that treatment is and always will be more expensive than healthy maintenance. The best thing that we can do to lower the cost and improve the quality of health care in this country is to provide incentives for healthy living and disincentives for unhealthy living. Obviously someone falling and breaking an arm, or suffering from a genetic disease are not the results of lifestyle choices and thus it is not fair to penalize people for this. But when lifestyle choices - smoking and obesity are two obvious examples - put a burden on the system that do not come with corresponding economic consequences, there is yet another market distortion to correct. And correcting that can lead to vastly more efficient (by which I mean "high quality at low cost") health care.

Joe Wilson Racist?

2009-09-22T11:35:00.000-07:00

So now even Jimmy Carter is spouting off that Joe Wilson's "You Lie!" outburst was racially motivated. C'mon, people, this is ridiculous speculation. There's no way to prove that it wasn't racially motivated, and there's only one way to prove that it was (namely Mr. Wilson coming out and saying it was racially motivated, which I'm not expecting him to do), so it's pure hypothetical speculation of the form "it could be true and it can't be proven false, so it must be true." Never mind that there is plenty of evidence to suggest that the true motivation for the outburst was (gasp!) political.

This is frankly a waste of everyone's time to debate such issues.

Racism is a real problem and it exists in many places, sometimes openly, sometimes subtly. But it is counterproductive to the goal of eliminating racism when we make it up where it doesn't exist. Let's get angry about real instances of racism. And it is especially counterproductive to useful debate when people who disagree (even rudely, as Wilson did) politically with a black president are labeled a racist or "uncomfortable with a black president."

And another good post on global warming

2009-08-12T23:27:00.000-07:00

With all the "heat" (pardon the pun) around global warming, local meteorologist Cliff Mass has a good comment about the recent heatwave in the Pacific Northwest and what it means in the bigger picture of "climate change."

I don't know if I could have said it better myself.

2009-08-12T13:53:00.000-07:00

A great post on TechDirt about how media companies are taking entirely the wrong approach to their customers. I've blogged before about how various industries (airlines and the recording industries in particular) seem to hate their customers, and this Techddirt post does a great job of making my point for me, both from the business model perspective and from the legal perspective.

Quit calling it a "tax"

2009-06-30T09:44:00.000-07:00

The Waxman-Markey bill, which would establish a cap-and-trade system for carbon emissions, is making its way through congress. While I do favor the establishment of a cap-and-trade system, my purpose in this post is not to debate the merits of such a system in general or of Waxman-Markey in particular, but rather to focus on one part of the debate over the bill which I think is disingenuous: calling it a tax.

Cap-and-trade is fundamentally different from a tax in just about every sense of the word, especially so if the carbon emission credits are initially given away (and in Waxman-Markey as it currently stands, 85% are given away).

So why is this different from a tax? I see at least 4 reasons:

Other than the initial auctioned permits, the government is not receiving revenue from the cost of carbon permits. Taxes are levies where the money goes to the government. In a cap and trade system, most of the money is going into the secondary markets. And the initial auction permits are no more a tax any more than the government selling radio spectrum could be called a "radio tax." If the government has a valuable resource owned by the people (such as radio spectrum or the right to pollute), it is quite reasonable to get compensation for letting individual people or companies use that shared resource; this is a permit, not a tax. Any amount that individuals pay on the energy bills is not going to the government, which makes it difficult to call it a tax.
Tax rates are set by governments, not by markets. In a cap and trade system, markets set the price for carbon emissions. If the price goes up, the government does not make any more money. If the price goes down, the government does not lose any more money (again, excluding any initial sales of auctions).
Taxes cannot go to zero by the behavior of the people being taxed. But under cap and trade, if the economy produces less total carbon than the cap allows, then the price of carbon can go to $0. This would actually be a good thing (though I don't expect it will actually happen).
You're not allowed to offset your taxes, but you can in cap and trade. If I go into a high tax bracket, I can't average my salary with a homeless person's salary to get a lower tax rate. If I buy a house, I have to pay taxes on the land even if I give land away somewhere else. True carbon taxes have also been proposed, where the emitter would pay a price (probably set by the government) for each ton of emissions, regardless of how many trees they plant or how much they reduce carbon elsewhere. But with cap and trade, if I raise my carbon here and lower it there, I have no need for more permits and thus pay no more.

I'm not trying to argue that cap-and-trade systems have no cost (they certainly do), or that this particular bill is either a good implementation of cap-and-trade or effective at fighting climate change (I actually don't know enough to answer that, although my inclination is "yes" if only because it establishes a price for carbon, which currently has a rather arbitrary - and almost certainly incorrect - price of $0.) I'm sure there are lots of valid arguments against this bill, or against the timing (although I'm getting somewhat tired of the weak arguments that we shouldn't do anything at all, especially the arguments that climate change is a "hoax" or has no manmade cause).

Rather, I just want to make sure that we're calling this for what it is: it is an attempt to put a price on carbon, which is currently unaccounted for in our economic activity. This is a fundamentally different thing than a "tax."

The US position on the Iran elections

2009-06-26T09:42:00.000-07:00

There's been a bunch of consternation over the past week over whether or not Obama has taken a tough enough stand on Iran's elections. He resisted for a while and finally gave in to the pressure, condemning the violence and repression of the demonstrations, while not directly saying that the election was a fraud. This I think was an appropriately tough stance.

Last week, Congress voted overwhelmingly to condemn Iran. I think this was a mistake.

Shouldn't we be supporting democracy and human rights around the world? Of course we can. The problem with the congressional vote and with a stronger statement from Obama is simply that it is counterproductive.

Look, everyone knows that the Iranian election was stolen. Saying so only gives the regime an excuse to say that the opposition is a puppet of the Americans, and as such actually hurts the cause of democracy. (Never mind that Mousavi isn't exactly our dream candidate). Pointing out that the election was a sham won't get them to change it and simply gives them an excuse for a crackdown. We should just be quiet on this point.

Focusing on the repression of demonstrators (rather than the election itself) makes much more sense, for the simple reason that it is not a direct commentary on a political process, and that beating up civilians is a much less tenable position than claiming that a rigged election is legitimate.

Dumb application of copyright law

2009-06-26T09:02:00.000-07:00

Once again we have various content organizations misapplying copyright law. First, the usual caveat that I am not a lawyer, I'm approaching this from a layman's point of view regarding what the purpose of the law is, and what constitutes reasonable application thereof. Now we have ASCAP claiming that ringtones should be subject to a royalty each time they are played, claiming that it amounts to a "public performance."

An analysis based on the law is here, which reaches the conclusion that this is an untenable position to take, but I'll provide my own reductionist reasoning to prove that ASCAP is being ridiculous.

In fact, I have created my own ringtones out of music that I have legally purchased. The copyright holders for that music would probably believe that I need a separate license to use the music as a ringtone, but I believe that this is an unsupportable position.

I'll do this step by step. Please stop me (especially if there are any lawyers reading this!) at the point that I cross a legal or ethical line.

I purchase a song from Amazon. Technically, I have purchased a license to play a song and the MP3 file representing that song, but I do not have rights to "public performance," I do not have rights to resell it or sublicense it, etc. Since Amazon has not been sued for the MP3 business, I will assume that this is entirely kosher.
I put the music on my iPhone. It's an MP3 player, it seems hare to argue that putting MP3 files on an MP3 player is problematic.
I put my iPhone into a docking station with speakers to listen to it. This is where ASCAP is making the dubious claim that a "public performance" is taking place because others could walk by and hear the music. But that claim is ridiculous because people have been able to listen to music on boom boxes in public for decades and nobody has ever claimed that this crosses some "public performance" line unless the music is clearly there with a purpose of entertaining other people. I.e., if I own a bar, then I may need to pay royalties for playing music for my customers. But a private party is OK because it's private, and if I go to the park and listen to the music while I lie in the sun but other people passing by can hear it that's also OK because I'm not doing it for their benefit - I'm still enjoying music that I have every right to listen to.
Now I decide I like this song so much I'm going to play it over and over again. No violation here - that's something I'm allowed to do. I could do it with records, with tapes, with CDs, an MP3 is just a different medium.
In fact, it's actually just the first 30 seconds of the song that I really like, so every time the song gets 30 seconds in, I rewind it and start over. Again, something I could do with all previous media, and nobody ever claimed that I am somehow legally or ethically required to listen to the full song.
I get so tired of selecting the song, playing it for 30 seconds, and rewinding it to play it again that I program my iPhone to play that song whenever I press a button, wait 30 seconds, and then stop it. I haven't changed anything here but the means of activation, which clearly is not covered by copyright law. I.e., copyright law covers the rights to the music, not the user interface for the player of that music.
I decide that a physical button is too much work and instead decide to hook up the button to an electronic signal that is triggered whenever somebody calls me. Again, I have simply changed the activation method.

Presto, in seven perfectly acceptable steps I have a ringtone. Of course, the copyright holders and/or Apple would far prefer that I purchase a ringtone from them, and that's fine. (In fact, on my iPhone, I have to go through a few contortions to do the above process - they've deliberately made it obscure how to do this precisely to support purchase of ringtones rather than do-it-your-self.) But they cross the line when they demand that I do so or claim that somehow I am unethical or breaking a law when I do so. As long as I have purchased the MP3 and did not explicitly agree to additional contract terms (i.e., beyond simple copyright), I am entirely within my rights to do so (and even then, if I violate the contract then I have not broken copyright law but rather have broken a contract - a civil matter). And if the phone rings where other people can hear it, oh well. It's simply not a public performance anymore than playing a legally purchased CD on my boom box where others can hear it is.

This seems to be a specific application of a more troubling broader trend by content holders. The purpose of copyright is to protect content owners from the stealing of their intellectual property; this is a perfectly reasonable goal. When you buy an album or a movie you are really not buying the content per-se, but rather buying a license to consume it. (This is why you cannot legally make copies and redistribute it; that is beyond your licensed right.) But over the past ten years or so, we are seeing more and more attempts to control the exercise of that right, not just the granting thereof. The DMCA, for example, makes it illegal to copy a DVD to your computer's hard drive (because doing so requires bypassing the anti-piracy encryption on the DVD), even though the specific medium (DVD or hard drive) is immaterial to one's right to watch a movie. The ASCAP claims are another example of not only controlling whether you can consume their content (which is reasonable) but to also control the where/when/how of that consumption, which is a disturbing trend and which should not be enshrined in law.

More homegrown terrorism

2009-06-12T08:35:00.000-07:00

The shooting at the Holocaust museum in Washington DC earlier this week reminds us that the threat of terrorism is not confined to foreigners or to followers of any particular religion. And yes, it is terrorism: the shooter targeted innocent, non-combatant civilians in order to make a broader political point. If that isn't terrorism than I don't know what is.

This is why we must go beyond basic profiling or bureaucratic mechanical charades that value appearance over actual provision of security. Terrorists can be hard to identify (although it seems that in this case, von Brunn, the accused shooter, had a long and public history of indications that he could do something like this), and neither removal of shoes at airports or the closing off of public areas do anything meaningful to help identify them. It takes intelligence and behavioral observations - tasks which are less easy to farm out to $10/hr unionized rent-a-mall cops, but which ultimately yield much greater bang for the buck in terms of actual security.

Why China doesn't deserve the respect it craves

2009-06-08T20:28:00.000-07:00

Two words: "North Korea."

Despite all of the good it's done economically for China, the Beijing government recognizes that it would likely not remain elected were it freely chosen by its population. This is why it bristles so strongly at any notion of "interference in internal affairs." It values stability (translation: status quo, with it in power) above all else, and thus it is unacceptable for other nations to so much as comment on how the Chinese regime runs its affairs.

Alas, China also wishes to be respected as a first rate power on the world stage, and this desire, unfortunately, runs headlong into their first goal to be left alone in their authoritarian ways. Nothing exemplifies this more than North Korea. Here is an outlaw nation, which flouts every standard of civilized behavior both within and beyond its borders, which abuses its population mercilessly and threatens other nations recklessly. It is a problem which must be dealt with. And it has one clear Achilles heel: it is utterly dependent upon China.

China thus has a dilemma. It can do the right thing on the world stage and show that it is a responsible member of the world community, not a threat to others, a nation whose power others should welcome rather than fear. In other words, it can wield its influence over North Korea - by carrot and by stick - to get that petulant brat of a nation to behave or face consequences.

Or China can take the cowardly and self-serving approach of "stability" and consistency with its own mantra of not meddling in any other country's internal affairs. After all, if it is OK to influence a country from the outside (no matter what manner of evil is happening within that country's borders), that opens China up to similar inspection from the outside. It's pretty obvious that if Hitler were to come to power today that China might make some weak statement of protest, but would utterly refuse to stop trade in Zyklon B. After all, cutting off trade would be meddling in the internal affairs of another country. If you think this is a harsh statement, consider that genocide is occuring in Sudan, and China is doing a brisk business there.

True leadership and maturity come when one does things that are not necessarily in one's own direct interest, when one puts the broader good ahead of one's own personal good.

China is being tested, and it's obvious which approach it is choosing. And as long as it does so, it proves that it has not matured to the point where it deserves respect in world affairs. It simply is not yet a constructive member of the world community.

An ubelievably bad argument against gay marriage

2009-05-22T10:36:00.000-07:00

RNC chairman Michael Steele tried the other day to turn the argument over gay marriage into a financial one. Here is what he said:

"Now all of a sudden I've got someone who wasn't a spouse before, that I had no responsibility for, who is now getting claimed as a spouse that I now have financial responsibility for," Steele told Republicans at the state convention in traditionally conservative Georgia. "So how do I pay for that? Who pays for that? You just cost me money."

I think Jon Stewart on the Daily show and Matt Bandyk's comments in US News and World Report pretty well summed up how farcical this particular argument is, but I'll pile on as well.

Specifically, I think this line of reasoning has one of two logical consequences:

Since this is true for straight marriages as well, this would mean that Steele - head of the party that prides itself on its support of traditional family values - is arguing against straight marriage as well, since that obviously also costs business owners the cost of providing benefits.
Or perhaps he's making an alternate point that businesses are currently able to save money by hiring homosexual employees, and allowing gay marriage would erode this current savings. Republicans have also traditionally been the ones who opposed what they perceive as "special rights" for gays; a policy that promotes the hiring of gays over straight people (who run the risk of getting married and thus driving up costs!) sounds like a special right to me! As a married heterosexual, I find such a policy of discriminating against non-gays to be quite disturbing.

I don't offer any of this as an argument in favor of gay marriage (with which, as it happens, I don't have a problem), I'm just pointing out that the absurdity of this particular line of reasoning. If this is the best argument against gay marriage, then there is no real debate here. Bring on some real issues we can discuss!

Why I like Wikipedia

2009-04-16T08:51:00.000-07:00

A common refrain I hear about Wikipedia is that it is not to be trusted because anybody can edit any article, that unlike a traditional encyclopedia, there is no enforced expert review of articles. While those observations are true, I think dismissing Wikipedia as a result is the wrong conclusion to draw from them.

It seems to me that in general, the very fact that the broad community can edit articles is actually Wikipedia's strength. The argument behind this is essentially the thesis of the book The Wisdom of Crowds, and can be summarized as this: large groups of people - including experts, amateurs and even crackpots - collectively contain more wisdom on a given topic than any single expert.

We actually see this every day in the stock market. What is the value of a specific company? Any given stock analyst - who we typically consider experts in the field - can give an answer to this, yet multiple analysts often disagree with each other by a considerable degree. So why would we trust any one of them to give a "valid" answer when we have no way to know whether one is any more accurate than another? Well, we actually do have a way to know this: the stock market itself - composed of experts, amateurs, and crackpots alike - does a pretty good job ("pretty good" is a key qualifier - I'll come back to that below) at figuring out the value of a company, and most people put a lot of trust in that value, and it is remarkably accurate at doing so over long periods of time (i.e., not so much on a day-to-day basis).

The same dynamics are at work at Wikipedia. Any given article is created and edited by a collection of experts, amateurs, and crackpots, and yet the net result can be remarkably accurate - not perfect, but "pretty good," as with the stock market.

Just as there are day-to-day fluctuations in a stock's value that have nothing to do with its intrinsic value, there are edits that are made day-to-day to articles on Wikipedia that may be accurate, biased, or outright nonsense. This is what Wikipedia's naysayers tend to focus on, but I think it misses the point. Rather, the more interesting fact is that Wikipedia's community and process has a set of rules that not only allow anyone to edit, but also anyone to flag something as problematic, so that discussions can take place and - equally important - controversies can be exposed.

Pick an article on, say, butterflies, and you're not likely to get a lot of controversy. Pick an article on George W. Bush and you're likely to get somewhat more. Readers do need to understand that while Wikipedia in general is quite accurate and unbiased, that any given assertion in any given article may or may not be; one must decide for oneself how much to trust these statements. (This, by the way, is why Wikipedia values references and attributions for assertions).

Yes, Wikipedia can be gamed, yes it can be flawed. But for the most part, it is like the stock market - much more comprehensive, up-to-date, and (yes) accurate in the big picture than any collection of "experts" could produce.

Cuba policy

2009-04-14T08:16:00.000-07:00

Yesterday the Obama administration eased some restrictions on travel and transfers of money to Cuba. Seems to me that this is a reasonable step to take.

I've thought for a while that we should scrap most of our current embargo against Cuba. To be clear, the Cuban government is an evil dictatorship that abuses and represses its people, and we should not be supporting it. But I think our Cuba policy is emblematic of a mistake that we make quite frequently in our policies: we very often confuse what is justifiable or morally right with what actually achieves worthy goals. We're all familiar with the admonition that the ends don't justify the means. Our Cuba policy is a great example of the inverse to this rule: justifiable means failing to achieve our end goal.

The Cuban revolution was 50 years ago. We've been using the embargo to try to undo the revolution for 50 years. And yet Castro is still alive and has achieved a peaceful transfer of power. And meanwhile, other nations have established productive trade relations with Cuba, which means that they not only fill in the void left by the U.S. but also make it harder for us to eventually establish similar relationships. The net result is that I suspect we hurt ourselves much more than we hurt Cuba. I think that anyone who claims that the policy of isolation has been effective is out of touch with reality.

So why do we cling to it? I suspect it's two reasons: primarily the distaste for "legitimizing" the Cuban regime (never mind that that cat is out of the bag), but the other reason is of course the political clout of the Cuban-American community that cannot let go and has a degree of political clout that is quite disproportionate to their size.

My personal opinion is that we should hold our noses and scrap the embargo. We can achieve more change in Cuba through a bear hug embrace than we can through an arm's length relationship. China and Vietnam are political paradises by nobody's standard, but their populations today enjoy both a much higher standard of living and considerably more freedom than they enjoyed just 20 years ago, all due to engagement in trade. Having a Cuba that is like China or Vietnam, while distasteful, is certainly a step up from what Cuba is now.

It's been 50 years and the policy of isolation simply hasn't worked. If for no other reason than that, we should try a new policy.

Is Canada preparing to attack the US?

2009-04-01T10:04:00.000-07:00

I'm getting quite worried about an imminent attack on the US, and this time the threat is not from radical Islamicists. I fear that our neighbor to the North is plotting an attack.

All of the evidence is there, if we as a nation would only open our eyes and face up to the facts.

First of all, I notice that Canada has slowly been creeping closer and closer - almost imperceptibly - until it has come right up against our northern border. In fact, if you just step across the 49th parallel from south to north, you'll discover that Canada is right there!

They've also been moving their populations closer to us in anticipation of an attack. Something like 75% of all Canadians live within just 90 miles of the US border! They seem so friendly, those Canadians, but why else would they be inching their country and their people so close to us if there were no underlying sinister intentions?

Finally, I'll point out the most shocking fact of all: Canada has quietly gone ahead and created their own military, their own government, and has even begun printing their own money. Why would they do these things if not for an intent to govern? Clearly they are intent upon imposing themselves upon us, usurping all for which we stand.

It is time for Americans to recognize the Canadian threat and go to defend our borders!

Twisting fairness

2009-02-26T09:54:00.000-08:00

This morning I read a news article about an Obama administration proposal to raise taxes on the wealthy. One of the mechanisms for doing this in the proposal is to cap deductions at the 28% tax bracket.

In other words, someone in the 28% tax bracket who makes a $100 donation would effectively get a full $100 reduction in their taxable income (and a corresponding $28 reduction in taxes owed), but someone who is in the 35% tax bracket who makes a $100 donation would effectively only be able to get an $80 reduction in their taxable income. (To help with the math here: they would get the same $28 reduction in taxes as the 28% tax bracket individual. Since they are in the 35% tax bracket, this is equivalent to a reduction in taxable income of $80, since 35% of $80 is $28.) In other words, people in high tax brackets could only deduct 80% of their donations.

The piece of the story that raised my hackles a bit was where they said "White House officials said it is unfair for high-income people to receive a bigger tax break than middle-income people for claiming the same deductions or making the same charitable contributions."

This is twisting the notion of "fairness" into a pretzel, and it is an unfair (pardon my pun) characterization of how the tax deductions work.

The problem arises from the fact that we have a progressive tax system, which is by definition unfair. I don't say that as a judgment about progressive taxation - in fact, I am quite OK with it - but let's not kid ourselves by pretending that it is "fair." "Fair" means everyone gets treated equally, and progressive taxation explicitly makes a point of NOT treating everyone the same; only a flat tax would truly be "fair." We (generally) accept this unfairness, though, because it has pragmatic benefits for the country as a whole, among them (a) it allows for a lower rate of taxation for the poorest people than a flat tax would allow (for a particular level of revenue), since the wealthy effectively subsidize the poor; (b) the wealthy are presumably most able to contribute and have most benefited from societal infrastructure that made their wealth possible, so it is reasonable to ask them to pay more than others, and (c) even the higher tax rate on the wealthy consumes a smaller percentage of their required income for necessities like food and housing. It's certainly possible to have too much progressivity in the income tax (perhaps we do today, though I doubt it; it's less progressive now than it has throughout most of its history), which can amplify the differences in taxation, but the right level of progressivity is not something I feel competent to debate. My point is that if we as a nation agree to have progressive taxation, then we have thus decided that an intrinsically unfair system is something we're OK with.

Given that, to imply that people in the 35% tax bracket should not get the full deduction from charitable giving is not correcting an unfairness; rather, it is compounding unfairness upon unfairness. In particular, it conveniently forgets the fact that the high-income person seeking the deduction is already paying a higher rate of taxes. So it seems quite hypocritical to complain about them getting a bigger deduction than the 28% tax bracket donor without complaining that they are already paying more taxes on $100 of incremental income than that 28% tax bracket earner; one cannot occur without the other, after all.

So if one is to accept a progressive tax system, which has an inherent unfairness built-in, the only "fair" thing to do is to allow that wealthy individual to get the full write-off of a deduction.

As an aside, this is also precisely the reason that I get annoyed when people complain that "the wealthy" get all of the benefits of a tax cut. Well, duh - it's because of precisely this math. The wealthy pay the most in taxes, so if you cut their rates, it has the greatest dollar effect on the wealthy. It's another immutable attribute of a progressive tax system.

If all of the above sounds like a rant against progressive taxes or against taxing high-earners, please don't take it as such; I don't have a philosophical problem with either concept, and I don't think the practice has been carried beyond any appropriate boundaries. My problem is simply with the notion that the White House is advancing that somehow we should compound unfairness in the name of being fair.

As a policy matter, I'd also add that this is a bad idea for another reason. As a nation, I'd think we'd want to be encouraging high-earning individuals to be giving more to non-profits and similar, especially in tougher times when people at lower income levels are giving less. It's high-earners who are going to be providing a larger portion of non-profit budgets over the next few years. This tax proposal specifically provides a disincentive for that, which will undoubtedly lead to lower giving.

If the administration wants to tax the wealthy more, then right way to do it, frankly, is to be upfront and honest: raise the top tax bracket by some nominal amount, but let people continue to take deductions to reduce their income dollar for dollar.

But it serves no purpose to distort the concept of "fairness" to make something palatable that is wrongheaded.

Wow, I sure hope it works

2009-02-10T14:32:00.000-08:00

I have been learning a lot lately about Keynesian economics from all the economic news of late. The gist of this theory is that massive government spending can help pull a nation out of recession, in the same way that World War II is often credited with ending the Great Depression. Of course, this also has obvious impacts on interest rates, inflation, and the national debt; in fact, the Congressional Budget Office predicts that the stimulous plan could increase output by 1.4%-4.1% by the end of this year, but that it would actually lead to a shrinkage of 0.1-0.3% by 2019.

I've always been something of a deficit hawk. I don't mind carrying a small deficit: debt provides leverage, a little of which is a good thing. But the current crisis and collapse of so many financial institutions illustrates beautifully the problems of too much leverage when things turn sour. One should always have the cushion of being able to fairly easily take on more debt; if you're at your debt limit, you have little margin for error, and little maneuverability. But being a deficit hawk must also have its limits: attempts to balance the budget and tighten the money supply are widely blamed for exacerbating the great depression.

So what do I think of the Obama plan? Well, if Keynes was right, then it's probably the right thing to do, regardless of whatever warts it has. And if Keynes was wrong...well, I hope that the spending is at least productive and useful. Trouble is, I don't know which it is.

Either way: I'm very disappointed to see such lopsided voting. This is problematic for a few reasons. First of all, it suggests that for all the talk of bipartisanship, it isn't actually happening. Secondly, I want both parties to have skin in the game. When significant legislation passes with only one party's votes, then the other party can play blame-game and use it for political gain later. The Democrats did this during Bush's tenure, and the Republicans seem to be doing the same. If it's a more evenly distributed vote, then both parties are making a commitment to solving the problem and giving up the opportunity to use the vote as a political weapon. Finally, the lopsided vote certainly reinforces the suspicion that Democrats are more interested in pet spending projects or advancing other agendas than in a bill that is truly targeted to economic stimulus and only economic stimulus. I get that the Democrats won the election, but they are repeating Bush's mistake of confusing a victory with a mandate.

Taking DNA samples upon arrest

2009-02-04T19:48:00.001-08:00

There is a somewhat controversial proposal in Washington State to take a DNA sample from people when they are arrested, regardless of whether or not they are charged with a crime (much less convicted).

I confess that I don't understand why this is controversial. If it's OK to take fingerprints from arrested people (and it seems to be), then a DNA sample is really nothing more than a far more accurate (and more commonly left-behind at the scene of a crime) means of identification. As long as the DNA sample is, like fingerprints, used strictly for identification purposes (rather than, say, determining hereditary diseases or other genetic information, which absolutely would be a violation of privacy), I can't see how this would be legally distinguishable from fingerprinting.

After all, the taking of fingerprints upon arrest is to enable identification, so the legal underpinning for this practice must supports the notion of enabling future identification. If that's the case, then DNA samples meet the same bar in terms of what it accomplishes.

Conversely, if DNA samples are somehow unconstitutional as an identification mechanism (again, assuming that it isn't used for anything beyond that), then it seems to me that fingerprinting must also be unconstitutional.

I usually agree with the ACLU's point of view on things, and I'm certainly not wild about increasing the government's ability to keep tabs on citizens, but I don't understand the distinction the ACLU proposes between fingerprints and DNA samples in opposing this measure.

Stimulous problems

2009-02-04T14:27:00.000-08:00

Two details related to the bailout and the proposed stimulus bill caught my attention.

The first is the proposal to limit executive pay to $500,000 at any company receiving bailout money. This is a classic illustration of something that is a great idea that is nevertheless a terrible idea to mandate. Should companies that are receiving taxpayer rescues be paying obscene compensation, flying fancy private jets, etc.? Of course not. So if it's such a bad idea to engage in such practices, why is it a bad idea to ban them in the strings tied to the money? The biggest reason is the classic law of unintended consequences.

In particular, companies today argue that if they don't pay a lot of money to their CEO, they will not be able to retain good CEO talent. They're half right about that, but not in the way that they think. They will be able to retain their lousy CEO that got them into the mess because THAT CEO has nowhere else to go in this economy. But think about what is undoubtedly the best course of action for many troubled companies: they should dump their existing overpaid CEO and bring in smart, proven turnaround talent CEOs. I suspect that good turnaround artists are in fact in high demand right now, and $500K seems like it could well be a small salary to dangle for such a high-stress and high-risk role. (Yes, turnaround CEOs should be taking equity compensation to align long-term interests, but there typically needs to be a strong salary component as well to recognize the risk). At the very least, it is an arbitrary number.

Another example: Corporate jets. A corporate jet that is used as an executive perk is obviously wasteful and not a good use of taxpayer dollars. But there are many companies that in fact use their jets for very productive purposes, and for which a corporate jet actually makes operational sense. (I think our own president provides an example of this. Do we really want the President flying commercial?) A fact of airplane economics is that the fixed costs are enormously high, so any additional flying actually lowers the overall cost-per-hour of flight, so - assuming that the company is properly compensated (i.e., reimbursed at appropriate market rates) - letting a business jet make additional flights for personal reasons can actually lower the cost of business for the company. I am not saying that many companies with corporate jets do in fact make economically sensible use of them; I'm simply saying that corporate jets are not a-priori wasteful and inappropriate.

There are more, but in general even with the best of intentions (and the intentions behind this provision are noble indeed!), government is not good at running businesses, and this is a one-size-fits-all approach that in practice will likely be one-size-fits none.

The second stimulus detail to catch my eye is the "buy American" restriction that is proposed. There's a great commentary on this in the Los Angeles Times, but this is another case of Great Idea/Bad Rule. Do I want money spent in America on American products and services? Heck, yes. But it has to be because the right products/services are here. And it is in our interests and the interests of our economy to have healthy trading partners who also prosper and become customers for American products. Protectionism has been shown time and again to reduce overall trade and raise prices, which are precisely two outcomes we do not want to have. In fact, there is a lot of evidence that the Smoot Hawley Act was a factor in prolonging, rather than relieving the depression. Why on earth would we do something that is likely to make things worse?

While I take points away from Obama for letting the whole stimulus bill get weighed down and lost, I give him credit on this one: he has signaled opposition to the Buy American provision. Good for him. As painful as it might be for stimulus money to go out of the country, that medicine is almost certainly less painful and more effective than protectionist restrictions.

Taxes

2009-01-27T11:32:00.001-08:00

Twice yesterday I received an email that is being forwarded around that lists all of the taxes that we pay now, claims (erroneously) that 100 years ago none of these existed, etc. and basically makes the point that taxes are simply too high.

I think that this claim is meaningless at best and whining at worst. It's like making the claim that "boxes are too big." Ummm...ok, boxes are too big...for what? Which boxes? A matchbox is too big too hold a crumb, too small to hold a dishwasher.

The claim "taxes are too high" only has meaning in relation to what we get for those taxes. If the government's budget is $1, then our tax rate is clearly too high; if the government's budget is $10 Trillion, our tax rate is clearly too low.

So I think that any productive claim about tax levels can only be had in relation to:

How much is government spending, and whether it is too much or too little (and, of course, whether it can be done more efficiently)
How much financing we are willing to bear to support that level of spend (some national debt is a good thing, too much is a drag on the economy in the same way that too-high taxes are also a drag)
How the tax burden that remains is distributed among taxpayers.

Only in this context can any statement about whether taxes are too high or low have any meaning whatsoever. Thus I tend to be quite dismissive about claims that our taxes are too high (never mind that for much of the past hundred years they've been a lot higher) when they come without corresponding suggestions of significant spending to cut.
There are additional arguments for lower taxes. One is the trickle-down argument, whereby lower taxes lead to greater economic activity, which leads to higher overall receipts. I'm not an economist so I can't evaluate the merits of this although it does seem like a reasonable theory. But it doesn't change the fact that it is still arguing for alignment of tax revenue with spending. The other argument is "starve the beast" whereby reducing revenues will lead to lower spending. Again, this still tries to reconcile spending and receipts, so it is a rational discussion to have. (Of course, even with my earlier disclaimer, I believe that we have ample evidence that the beast keeps spending even when starved, leading to huge deficits. Exhibit A here is the Reagan years.)

I am particularly amused by the anti-tax missives that whine about how the tax system punishing entrepreneurs and other successful people. They, after all, do pay the highest incremental tax rates. This is, of course, a direct result of having a progressive taxation system. There is only one way to avoid this consequence: eliminate the progressive rate structure and go to a flat (or a declining-rate) tax. I've actually pointed this fact out to some of the anti-tax people, who have surprisingly disagreed with this conclusion. (If anybody can tell me how I am wrong, though, I'd love to hear it, but I think the mathematics is pretty clear).

I'm not opposed to a flat tax or declining-rate tax per-se, but here's another fact about them: for a given level of government spend, switching from a progressive to a non-progressive tax scheme must necessarily shift more of the burden to the poorer segments of society. At some level, this is a good thing: I'm a huge believer that we want broad participation, that we want as many people as possible to be a paying customers of government services, even if it's paying just a little. Of course, the downside is that the poorest segments of the population are by definition not a great source of revenue, so if you went flat you'd have to give them a fairly substantial rate hike to generate enough revenue to compensate for the substantial cut that going flat would give to the wealthiest. And a rate hike on the poorest segment would be a far greater hardship for a far greater number of people than the current progressive system imposes on the wealthiest. I'm going to go out on a limb and suggest that this is perhaps the reason we decided to adopt progressive taxes.

There's another thing about the tax "debate" (I use that word generously) that irks me, and that is all of the class-warfare terminology that gets thrown around. Particularly, the Democrats love to complain about "tax cuts for the rich." Of course tax cuts benefit the wealthy more than the poor - the wealthy pay vastly more in taxes! (And our progressive tax system amplifies this. If you don't believe me, just do the math.) So if you cut taxes, the people that pay the most will get the most benefit. There's really only one way to avoid this artifact: only cut the taxes for the lowest end of the spectrum, the people that are barely paying taxes at all., and keep the taxes the same for everyone above that level. While such a policy would be good for those poor people, it's a bad idea for several reasons: (a) we're simply not talking about much money, so why bother; and (b) you would inevitably end up making many people pay essentially no taxes, which is a very bad idea from both a fairness point of view, but also from the participation point of view mentioned above; and (c) it's not a fair way to distribute a tax cut if most people - particularly those who pay the most - get none of the benefit of the cut.

Cut taxes or don't cut taxes, I don't really care beyond how the resulting revenues compare to the level of spending and debt (both of which I do care a lot about). But if taxes are cut, don't complain about the fact that it affects different groups differently.

Folks, don't we have real problems to solve?

2009-01-14T20:22:00.000-08:00

Apparently now South Carolina is trying to ban profanity. Joy. Never mind that this is patently unconstitutional - at least it used to be.

On the downside, distracting governments with random acts of...acts keeps them from doing useful work. On the bright side, it keeps them from...doing anything. Hmmm...maybe this isn't such a bad thing for them to work on (provided, of course, that it never actually takes force)?

Gotta love the Confederate states for periodically reminding us why the rest of the country has all of those negative stereotypes about them. (Ooh, that was below the belt.)

Waxing philosophical

2009-01-14T08:53:00.000-08:00

For Christmas, Luann bought me a few books that explore philosophical issues, and that got me to over-thinking a few things.

Religion and philosophy often intersect, and I had an insight about the statement "I believe in God." I realized that this is actually a dual statement. First, it is a statement about the speaker's beliefs, and as such is pretty much irrefutably true - if they say "I believe in God," then unless you have reason to believe they are lying, you can pretty much assume that yes, they do in fact believe in God.

But it is also necessarily a definitional statement. To play a bit of linguistic algebra, "I believe in God" is equal in meaning to the statement "I believe in the God that I believe in." (Obviously, since "I believe in the God that I don't believe in" is nonsensical.) In other words, this second meaning implies that there exists a particular meaning to the (inherently ambiguous) word "God". This second meaning is, of course, neither true nor false - it is a statement of definition. And it has to be - after all, if everyone agreed on what "God" means, then we wouldn't have so many religions nor so many conflicts based on religion.

I don't know if there's a meaningful point to this, it's just an insight that I had. So I will move on to a second, unrelated overthinking insight.

Science is not truth, we should not confuse the two. Science is a model of truth. The better that this model can mimic reality or predict it, the better the science is, but it is not itself "truth." Newton's theories of motion do a great job of modeling the world around us and even let us get 747s to fly, but alas, they have already been shown to be poor models at the edges. Evolution is a great model - it has its flaws, but it works better than any other model; it will likely be replaced by a better model at some point. But none of these theories are "true," they are merely "good models."

I thought about this the other day, when we brought our new puppy to obedience class. The instructor told us all sorts of things about why we should do this or that, expressing it in terms of how the dog thinks, how the pack works. A lot of this is about establishing who is dominant. And it occurred to me that here is a great example of confusing science with truth. It is very easy to think "here is what the dog is thinking" and act based on that. While this works very effectively for training the dog, it is ridiculous to assume that this is in fact what's going on inside the dog's head. Rather, the "correct" way to think about this is that it is a predictive model for whatever the dog is thinking. Perhaps they are thinking in terms of dominance/pack, but especially given that they don't have the level of abstract thinking that these words require, it is almost certainly some doggie equivalent of these notions, and we really have no idea whether it really is dominance/pack or something else that just exhibits similar behavioral tendencies.

Am I splitting hairs and being a bit retentive on this point of science and truth not being the same? Absolutely, but I think it is a useful point to make. When one thinks of science as a model, then debate leads to refinement and improvement of the model, which is non-controversial. When one thinks of science as truth, then debate often leads to a somewhat more emotional and visceral reaction. After all, "truth" is binary - something is or is not true. But models are not. They are either bad, good, or better.

More security charades

2009-01-04T18:15:00.000-08:00

The TSA is proposing a new set of security regulations for "large" aircraft, defined (rather arbitrarily) as anything over 12,500lbs. Among the proposed requirements are criminal background checks for any crew members, matching of passengers to no-fly lists, prohibiting weapons or dangerous materials, and audits - at the operator's expense.

At one level, this proposal may seem reasonable. After all, all of these are currently required of the airlines; airplanes in the 12,500lb category and up include small jets like Citations which are often used for charter operations, so this may seem like it is simply closing a loophole in current aviation security.

But there are two fatal problems with this point of view. The first is that commercial and private aviation are fundamentally different. The former is scheduled prior to being sold, and any individual consumer of the transportation has a reasonable expectation of being provided security from the strangers around them; in the private aviation world, this is not the case: one does not fly with strangers, and there is no up-front schedule.

The second problem with the "closing a loophole" point of view is that this "loophole" has no limit. Fundamentally, if the goal is to close off transportation options for terrorists, surely an 11,000lb aircraft would work just as well as 12,500lb aircraft but would avoid the additional layers of security. And if an 11,000lb aircraft works, then perhaps the regulations should cover anything larger than 6,000lbs. In which case I suspect that any terrorist with half a brain would find a way to get a 5,000lb aircraft to work. And so on until all private aviation in the country is subjected to TSA-level security every time they want to dust their crops or fly their friends to the next county for a hamburger. And at that point, a smart terrorist would follow Timothy McVeigh's example and pack a pile of explosives into a rented U-Haul (which, incidentally, can pack a lot more punch than a small jet). Which would argue in favor of similar restrictions on U-Hauls. Perhaps you see where I am going with this, and where I believe this sort of security creep ultimately leads.

Fundamentally, what is so dangerous about this proposal is that it is crossing a line from public and commercial transportation into private and charter transportation. This may seem like a semantic distinction, but it is precisely the boundary between where they have a legitimate role to play and where they have no business. If this proposal is put into effect, then it will be a precedent to allow the TSA to declare jurisdiction over any random thing they want, and it will only be their good intentions and discretion that limits abuse.

There are, of course, other reasons to strongly dislike this proposal. There is the fact that there is no problem which is being solved. General aviation simply has not been a security problem.

And even if we were to take on faith that there really is a problem here to solve, these sorts of security measures don't increase actual security, and in fact likely make security worse. My evidence for this is the flying restrictions that were placed around the Washington DC area immediately after Sept. 11. In the years since, a large number of pilots have violated this airspace, after which they are typically intercepted by military fighter jets, detained by the FBI for a period of time, lose their license and undergo considerable expense and hassle. Now I have little tolerance for pilots who should know the rules and follow them (despite the rules being hard to follow, but that's a separate rant), but consider that fully 100% of these airspace violations turned out to be inadvertant and by pilots who posed no security threat whatsoever. Think of the cost of the fighter jet intercepts and the opportunity cost of having the FBI grilling pilots who simply made a mistake, and you realize that we're spending a lot of time and energy on people who are not security threats. What the TSA is proposing only expands this ludicrous approach to security.

We Americans take it on principle that we should have freedom of movement in this country without having to justify anything. We accept that we may lose such freedom after appropriate process (e.g., losing a license after a proper DUI conviction), but we do not accept having the burden of proof that we are entitled to do something. As a means of transportation, general aviation differs from privately owned and operated automobiles or taxis/limousines in really only two respects: speed to destination, and cost. And Timothy McVeigh proved rather conclusively that they don't differ much from a security point of view either. So this regulation, if passed, provides

The TSA should rescind this power-grab and focus on things that actually provide security and simultaneously protect our freedom, rather than trampling it.

Follow up on the "death of newspapers."

2008-12-21T15:15:00.000-08:00

A great article today in the New Yorker by James Surowiecki discusses the "death of newspapers," which I addressed a few days ago. While we both agree that margins for newspapers are coming down (into the red for many for sure), he's a bit more pessimistic than I am about the final outcome: "Soon enough, we’re going to start getting what we pay for, and we may find out just how little that is."

That may be, although I think that we'll still get quality news, just via other media.

Here's the part, though, that I loved - I think he makes my point exactly (I am one of the "many" in the last sentence):

Papers now seem to be the equivalent of the railroads at the start of the twentieth century—a once-great business eclipsed by a new technology. In a famous 1960 article called “Marketing Myopia,” Theodore Levitt held up the railroads as a quintessential example of companies’ inability to adapt to changing circumstances. Levitt argued that a focus on products rather than on customers led the companies to misunderstand their core business. Had the bosses realized that they were in the transportation business, rather than the railroad business, they could have moved into trucking and air transport, rather than letting other companies dominate. By extension, many argue that if newspapers had understood they were in the information business, rather than the print business, they would have adapted more quickly and more successfully to the Net.

A small step in the right direction

2008-12-19T10:13:00.001-08:00

This from the Wall St. Journal today: the RIAA is going to stop suing file sharers. Well, at least they'll be doing less of it and trying other things first.

I think that this is a sign that the RIAA is finally starting to realize that while they may be morally and legally justified in suing people who swap music files, there is a huge difference between what is justifiable and what is sensible.

I'm still not super happy with this because the RIAA is still using ISPs as their enforcement mechanism, but at least it is a lot less heavy handed and it seems to have an actual process around it, and one that protects privacy at least somewhat.

A journey of 1000 miles begins with a single step.

A Music Tax?

2008-12-18T08:51:00.000-08:00

Over the past few months there have been a number of proposals for ISPs to assess a fee from users to cover the cost of unauthorized music sharing. One such proposal is discussed here.

The theory behind the proposal sounds reasonable, at least at first blush: by collecting a fee, labels and artists would be compensated for their music and people would not have to worry about being sued. The recording industry and their artists are (arguably - more on this below) losing a lot of money to illegally shared music. This is no different from shoplifting. Retailers cover their shoplifting costs by raising the prices for everyone, so one can see the motivation here.

But this is a seriously flawed idea for a number of reasons. There is a great writeup of why it is a bad idea, but I'll weigh in with my argument.

The biggest problem with this model is that it rewards bad behavior on two levels. At the consumer level, it provides an actual disincentive to legal purchasing of music. After all, if I have to pay the fee, then why should I pay for music a second time? In fact, this model proposes to punish the very people who are the paying customers that the labels and artists should want to encourage while rewarding the very pirates who they have been vilifying and suing. There is only one word to describe this: "stupid."

But the perverse consequences are not limited to consumers: a music tax (and let's be clear, it is in fact a tax) would also reward record labels and musicians who are unskilled and who very rightly deserve to fail in the marketplace by providing them with a revenue stream that is disconnected to whatever value (artistic or otherwise) they provide. I'm hearing the word "stupid" pop into my head again, but this time with a new adjective: "insidious." This is because not only does this proposal reward entities that should rightly fail, but it's actually using independent 3rd party organizations (ISPs, college campuses, etc.) to collect these rewards.

There is a way to avoid this problem, of course. If one wants to ensure that only musicians (and their labels) whose music is being consumed get the rewards, then one simply needs to monitor what is being shared/played and assess fees based on that. But one need only think about this for a moment to realize that the privacy violations and bureaucracy requirements for such a system would make even the North Koreans blush.

All around, this proposal has good intentions but completely misses the mark in solving the "problem." Which brings me to my final point, the source of my quotes around "problem." Namely, I think the RIAA, labels, and many musicians (but not all!) are confusing "problem" with "opportunity." Let me be very clear on one point: illegal sharing of copyrighted material is theft, pure and simple. One can try to prosecute it, which has been the RIAA's favorite tactics to date (and which has not worked very well). One can try to turn illegal into quasi-legal, as this proposal tries to do. But I'd propose that the best solution is to make the illegal legal. That is, give the music away.

Obviously, this is a risky strategy, and it is something that individual musicians and labels must decide whether or not to do, rather than an industry-wide edict of some point. But it could be the most rational strategy for making money. There is a great post on this here, but my argument is quite simple: you can make more money by providing huge distribution for your music and treating it as a marketing tool to get people to attend concerts, buy merchandise, etc., than you can by limiting access to the music itself. This is a model that was not possible in the days of vinyl or CDs because of the costs of producing and distributing plastic. But today digital distribution has driven these costs to zero, so it is for the first time possible to switch from the music being the product to the music being the promotional tool.

This is not just a theoretical argument. Many bands have demonstrated that it can work. Heck, even pre-digital bands like the Grateful Dead got it: they invited their fans to record their concerts and freely trade tapes of the concerts. The net result was an almost cult-like following, and the Grateful Dead was for many years one of the top grossing acts in the country. Phish followed the same model in the 90s and was also incredibly successful, giving their music away.

Is this a threat to the traditional recording label business model? Sure it is. And it frankly shifts even more power to the musicians. The market can adapt by trying to prop-up an inefficient dying model (as the music tax proposal attempts to do), or it can adapt by switching over time to one that better serves musicians and their fans. It's clear to me which is the right model.

The death of newspapers

2008-12-15T11:09:00.000-08:00

With the bankruptcy filing of the Tribune company last week I'm hearing a lot of talk about the "death of newspapers" again. The newspaper business has of course been declining for years now, but I think this particular phrase muddies the issue.

In particular, I think we frequently confuse the three things that comprise "the newspaper business":

Professional journalism (as opposed, for example, to the largely amateur blogosphere) with a set of fairly widely understood principles regarding objectivity, sources, etc.
A business model built around advertising, the two biggest components of which are ads placed by businesses to attract consumers, and consumer-to-consumer ads (the classifieds).
A distribution model based on paper, ink, and gasoline.

I think that of these, only the first (professional journalism) is core. It is the only true value that a newspaper company brings to its readers. The advertising-based business model is simply a means to monetize that value, and paper is nothing more than a distribution mechanism. Either of these can (and indeed must!) change for newspapers to survive. But any newspaper company that hopes to survive must recognize that they are not in the "news-paper" business, but rather that they are in the news business.

I suspect that one might argue that I am mistaken, that newspapers are in the advertising business, and one might even go so far as to say that the news is a way of aggregating eyeballs for advertisers. This argument is a valid way to describe how newspapers made money once upon a time, but it is problematic for two reasons.

The first problem is that it puts advertising ahead of news as a core competency. But at the end of the day, newspapers attract readers primarily on the quality of the news (and to a lesser extent the classifieds, which I will come to shortly); they can still be a newspaper if they can monetize the news in alternative ways from advertising, but if they were to jettison the news in favor of other formats to attract eyeballs and advertisers, they would in all but the rarest cases fail because they would be competing with more pure-play advertising platforms and would be in an area outside of their competency.

But the second problem is a larger one: the very reason newspapers were able to make money - particularly in classifieds - is that they were a place of concentrated eyeballs. Once upon a time, huge portions of the population read newspapers regularly, and only had one or two major newspapers from which to choose. Advertising in a newspaper was a sure-fire way to reach a huge population, a one-stop shop. No more. TV and radio, of course, disaggregated a chunk of this a long time ago, but the Internet has disaggregated most of the rest. People get their news from a wide variety of sources, many national. Where people once relied on local broadcasters and local newspapers for all of their news, they now can get much of this from national news providers. This reduces the value to advertisers greatly. And squeezing from the other side are services like Craigslist, which I believe are the biggest threat to the classified advertising model, and which are frankly far more efficient and less expensive than the traditional advertising model.

The net of these trends is that I believe that the traditional advertising model for newspapers is essentially dead, and at the very least cannot support nearly the current number of newspapers. There is a lot of consolidation which must occur, and more companies will need to go out of business.

Ideally, these companies would be able to identify more sustainable business models to support the delivery of news; sadly, this has proven difficult: readers have not been anxious to pay for subscriptions, and few papers have found alternative advertising models that work as well as the old models once did. If I had a brilliant insight for new business models, I'd offer it here. (No, wait - I'd go off and make a mint by implementing it.)

As for the paper-based distribution mechanism, this is simply not core to a newspaper. Some news organizations are reducing or eliminating their print operations in favor of going on-line. My personal prediction is that paper will not go away until there exists low cost, high-resolution durable (i.e., capable of withstanding spilled coffee) screens that people can read at the breakfast table or on the train. (The New York Times on my iPhone actually is starting to come close to this. It's surprisingly legible, well formatted for the screen, and I can read it in all of the traditional newspaper-reading places.) Nevertheless, my point here is that paper and ink are nothing more than a slow and expensive delivery mechanism, and one which will become increasingly irrelevant; nobody should mourn this shrinkage, least of all the smart newspaper companies because printing and delivering all of that paper is a huge expense, and that expense is going down. This actually creates an opportunity to become something that it never really has been previously: a pure-play news delivery business, free to try a wide variety of models for making money. The lowering of capital costs (printing presses, delivery trucks, etc.) should enable many more niche publications to provide more variety of news at lower cost. Yes, it means employing fewer people in the industry as a whole, but there is today a lot of redundancy in this business due to its antiquated models. Just look at a press conference during the presidential race: you'd see dozens of reporters, yet there were not dozens of significantly different stories written.

But none of this means that newspapers as such are dead. Or, more importantly, that professional journalism is dying (another claim I hear all too frequently). It is certainly transforming, and yes, it is also shrinking in the process. But through all of this, I believe that the average person has more professionally reported news available to them now than at any other time in history. That doesn't seem like death to me.

Bailout for homeowners?

2008-11-02T13:36:00.000-08:00

A lot of politicians are talking about a bailout for homeowners to match the bailout that is currently underway for the financial sector. This makes me very nervous.

I understand the motivations behind this, particularly when big businesses get a hand out but the little guy who is working hard (and may be losing his job in this recession) doesn't; there's something unseemly and unfair about the asymmetry.

But there are two key differences between the financial sector and struggling homeowners. The first (and most important) is the collateral damage: when the credit market freezes, the entire economy suffers. (See my previous post on "too big to fail.") The economy can tolerate a single institution failing - which is why Lehman and Bear Stearns were allowed to fail . But when this spreads to the industry as a whole, help is required; this is the goal of the rescue package.

And this gets to the other key difference: there are many homeowners who are in homes that they simply cannot afford or never should have bought in the first place. I hate to say this because it is a coldhearted unsympathetic thing to say, but foreclosure is not only the right outcome for these homeowners, it is a necessary precondition for the housing market and banking sectors in particular and the economy in general to recover. Keeping these people in homes that they cannot afford does no favors to anybody. The homeowners will be perpetually on the brink, the banks will continue to hold high-risk high-defaulting mortgages, and we will have done nothing to correct the overall system.

I need to clarify that I do not believe foreclosure is the right thing for all homeowners that is falling behind or underwater. There are legitimate scenarios where I believe that relief for homeowners can be justified, including:

Victims of truly fraudulent or predatory lending.
Owners who actually put down 20% and had a good record of payments but are struggling due to the economic downturn.
Owners who have faced dramatic revisions to ARM rates, far beyond what a "reasonable" person could have expected.

Note that I say relief "can" be justified for these scenarios, not that it "is" justified. My point here is not to advocate for government relief, but rather to say that foreclosure for these sorts of scenarios strikes me as a very undesirable outcome, and if foreclosures can be mitigated through reasonable measures, that seems like a good thing.

In these scenarios, I happen to believe that the best relief is not a government bailout, but rather for the banks which hold the mortgages to renegotiate the terms to something more affordable. The bank should be motivated to do so because losing some money is certainly preferrable to writing off an entire loan, and because selling a foreclosed house in this market is clearly a money loser, and the homeowner is obviously motivated to do this because it keeps them in their house. The government - especially via its bailout - has the opportunity to prod banks here, without mandating specific actions.

On the other hand, it is the homeowners that are only in homes due to overly lax and aggressive lending standards - such as folks who never provided a down payment or who never had the income they claimed to have, and who are not able to reliably make their payments - who I'm afraid simply need to go back to square one. When they are creditworthy to appropriate standards of risk, by all means they should be given loans to buy a house, but not until then.

The problem with solutions such as Obama's proposed blanket ban on foreclosures, though, is that it is indiscriminate: it helps out some truly deserving people, but it also helps forestall foreclosure in many cases where - I'm sorry to say - a very necessary part of the nation's economic healing.

"Too big to fail"

2008-10-31T08:17:00.000-07:00

We've heard this phrase a few times, most recently with Fannie Mae, Freddie Mac, and AIG: it is "Too big to fail." I heard it yesterday on a financial show talking about how important the banking sector is to the economy - the commentator said that if a shoe factory fails, it fails and someone else will make shoes, but if the banking sector fails (as the credit freeze demonstrates) then it creates a lot of collateral damage.

I don't have a problem with logic that declares something "too big to fail" as such, but it occurs to me that anytime we use this phrase, there are two implications which we cannot ignore.

The first is that if something is too big too fail, that it must be regulated. I'm not a fan of excessive regulation, and I believe in markets, but markets only work because the risk of failure keeps investors and businesses prudent. I.e., excessive speculation and risk taking are curbed by the possibility of losses. Take away the possibility of failure, and you are creating incentives for reckless behavior - writing bad insurance policies, loaning to people who are not creditworthy, etc. So if we are going to label an entity as being too big to fail, we must compensate for this by replacing the market-based constraints on risk taking with formal regulatory constraints. Otherwise, nothing will prevent the conditions that led to the near-failure in the first place.

The second implication is that if something is too big to fail, then there has been a marketplace breakdown that has concentrated too much market share in that entity. One of the great things about a marketplace is that their distributed nature make them resilient to individual failures - in fact, those failures are a necessary and integral part of the functioning of a marketplace. Risk taking is rewarded when wisely taken; innovation necessarily involves risks. And failure checks excessive risk taking and weeds out bad ideas and weak execution. Without failure, there can be no innovation, no learning. A marketplace that does not have enough diversity of players to suffer a periodic failure of one or more of those players is therefore not a functioning one.

A concentrated market may not rise to the level of illegal monopoly, but I would argue that it's effects can be just as bad. Therefore, per my regulatory argument above, we have a choice in these situations. We can fix the marketplace by finding mechanisms to create the distributed failure-tolerant environment I describe above that is an integral aspect of a functioning market. Or we can decide for one reason or another that we are OK with the market concentration and instead choose to replace the risk of failure with a regulatory regime.

What is not a viable option, though, is to choose not to choose. If something is too big to fail, we cannot rescue it and then do nothing to either fix the market concentration or regulate it. Otherwise, we are simply inviting more of the same problems.

Income Gap

2008-10-31T07:55:00.000-07:00

There was a story in this morning's paper about Obama's and McCain's plans to reduce the income gap in this country. In particular, it referred to the income gap as a "problem." That word choice struck me as the problem.

In particular: is the income gap a "problem?" And if so, is it something that is a proper goal of government to fix?

I would assert that the income gap is decidedly not a problem per se. After all, if it is a problem, then eliminating it would be a good thing. But if we think about a world where there is no income gap, it is a world where everyone - by definition - earns the same amount; anything else means that there is some sort of gap. Even ignoring the socialist/communist overtones of that "utopia," it clearly flies in the face of the obvious fact that different people with different skills bring different values to the table. There is a reason that some people are paid more in some jobs than others are paid, and that's simply not a problem. And there is certainly something very disturbing about the notion that upside for innovation, entrepreneurship, or investment should be capped.

No, I think the right way to look at the income gap is that it is a symptom, an indicator of something else, which may or may not itself be a problem.

For example, I'd argue that the greater concentration of wealth in society over the past 10 years or so is indicative of a failure to invest in opportunities for broad-based wealth generation at the lower levels. When the wealthiest Americans are seeing 10% growth in earnings while the average earnings for the rest are small or stagnant, the problem is not that the wealthy are making money; it's that the rest aren't.

Is this something for government to fix? To some degree, yes: government is responsible for education, for ensuring a proper regulatory environment for jobs and growth, etc. If this leads to increased economic growth and opportunities, that's terrific. But here's the thing: that may or may not narrow the income gap, and that's OK. The most important things are total growth and that the opportunities for growth are fairly distributed; it is NOT a goal that the growth itself be evenly distributed. If the richest Americans are grow (say) 10% over some period of time while the rest of America is grows 8%, then we should be thrilled at the overall growth rather than worrying about the fact that the rich outperformed the poor.

I should also note that the financial crisis is undoubtedly affecting the richest Americans more than average Americans if only because the richest Americans have the highest percentage of their wealth in stocks and real-estate. So I predict that in the current 1-3 year period, the income gap will actually decrease. Nobody is feeling sorry for the rich because of this (nor should they), but if one is going to complain about the rich getting ahead of the rest during good times, one should in fairness acknowledge the hit when bad times arrive.

Colorado Initiative 48

2008-10-30T17:09:00.001-07:00

Voters in Colorado next week will be voting on Initiative 48, which defines a person as beginning at the moment of conception.

I think this is terrific to get this on the ballot. Not because of the merits of the question, but because I think that this question is precisely the elephant in the room in the abortion debate (see my previous commentary on this issue). The abortion debate will continue to consist of people talking past each other so long as either side refuses to recognize that this very question is the core of the debate: nobody advocates murder or infanticide, not even the most ardent pro-choice advocate. The pro-choice argument boils down to an argument about triage (in the case of the life of the mother/incest/rape), or a personal choice unencumbered by "murder" issues precisely because the fetus is, in the mind of a pro-choice advocate, not yet a person.

So this initiative finally puts the key issue front and center. We define a moment of personhood, and from that all else will follow.

Now, of course, I think this is a case of "be careful what you ask for, you just might get it." If one defines a person - with all of the legal implications that entails - as beginning at the moment of conception, then I think there will be a raft of unintended consequences. Of course, the abortion question does indeed get somewhat settled (to the degree that it follows from the definition, even if many people do not believe it to be a wise decision), which I presume is the motivation for Initiative 48. But conferring upon a fertilized egg all of the rights of a person also necessarily means that the embryo must be protected: miscarriages, some forms of birth control, in-vitro fertilization, etc. could all very likely generate criminal scenarios where none exists today (and for which there is no controversy today).

For these reasons (and those of my earlier post), I do not believe that this is a good amendment. The definition of when personhood begins is essentially arbitrary. Frankly, I'd ask why conception as the point is a matter of religious faith for so many people when I'm not aware that any holy text address this point specifically.

Personally, I think that it's a "person" from a moral point of view sometime in the middle of the gestation (and that's about as specific as I know how to be), and from a legal point of view at birth. But I cannot defend that opinion as "fact"; it's essentially a judgment call, and a matter of consensus.

At least this ballot measure will decide what that consensus is - or what it is not.

A tale of two monuments

2008-10-18T16:45:00.001-07:00

OK, so this isn't terribly political, but it involves Washington DC so I figure it's fair game.

I happened to be in DC this past week on business, and had some time to wander around the National Mall. It's been years since I was last able to do anything tourist-like in Washington, and therefore had not previously made it to the Vietnam memorial or the World War II memorial.

I'm not enough of an architectural critic or a monument person to offer intelligent commentary on the architecture or the symbolism or other lofty things deserving of pithy impenetrable drivel, so I won't except to say that they're both very compelling monuments.

I also thought it very touching that gifts of beer, cigarettes, and gum were left for fallen soldiers at various points along the Vietnam memorial's wall. And I think this highlights what was for me the key noteworthy difference between the memorials: the WWII memorial seems to me to be for the country, while the Vietnam memorial seems to be for Vietnam veterans and survivors. I know no Vietnam veterans or families who lost members in that conflict. As a result, by focusing so heavily on the names of the fallen, I felt no connection to it - like this monument wasn't meant for me.

I know no World War II veterans either (and certainly nobody who fell in the war), yet because this memorial focused on the group struggle - highlighting the contributions of the states and territories, the gold stars that symbolized fallen soldiers without naming them - I actually felt a much greater connection to this war which is so much further in our history. This was a memorial about the nation's sacrifice, rather than individual sacrifices.

Book Report: Hot, Flat, and Crowded

2008-10-13T09:39:00.000-07:00

I just finished Thomas Friedman's Hot, Flat, and Crowded. I've read earlier books of his, including the Lexus and the Olive Tree and The World is Flat, so I already knew much of what to expect. I believe that Friedman has a very clear-headed approach to the problems that we face and a great way of explaining the phenomena that affect us all. Here he talks about the convergence of overpopulation, global warming, and energy, which he claims (and I agree) are the biggest long-term challenges the world currently faces.

The short summary for me is that he was basically preaching to the choir - I'm already a true believer in most of the points that he makes, he just makes them far more coherently than I am able to do. I will quibble a bit with his view of the role of government: while he's definitely a free-market advocate, he believes in a somewhat more government-directed and unified approach to solving our long-term energy needs than makes me comfortable, but I think he's got the right ideas.

This was much more of a policy book and a "frame the problem" book than Earth: The Sequel was. What I liked about Earth: The Sequel was that it almost read as an investor's guide or business school case study of clean energy; it was much less about policy (beyond the assumed axiom that a price on carbon is a must-have) and more about solutions than Hot Flat and Crowded.

I think both books, frankly, should be required reading for all politicians.

Where is Bush?

2008-10-09T19:47:00.000-07:00

Paulson and Bernanke are all over the news - that's no surprise. But where is President Bush?

I understand that a legitimate argument could be made that in a free market system it's not proper to look to the president to solve things. I'm a pretty free-market kind of guy myself, but I think this falls flat for at least three reasons:

His deputies are clearly improvising as fast an furuiously as they can, they certainly view it as their problem to solve.
He's the leader of the country - he should be showing leadership here. Either policy leadership if he feels it's his role (which he must, per Paulson/Bernanke's fast and furious actions), or else morale leadership a la FDR.
The lack of regulatory oversight with respect to mortgage lending standards and disclosure, investment bank leverage, accounting rules, etc., seems to me to be the single biggest factor leading to our current mess, and that regulation is the responsibility of the executive branch, which he runs. (Greed isn't the problem per se - runaway greed and competitive pressure to do stupid things is. But that's the subject for another post.) This was deliberate laxness on the part of the administration due to it's anti-regulatory bias. I understand not wanting burdensome regulation, but clearly there is a balance between two much and two little regulation, and it's pretty clear that for the past few years we've erred on the side of too little.

But no, he's been invisible. I can't see any grounds to give him any credit for any positive action here. Economies have cycles; I can't blame him for the fact that we're having a down cycle. But I think he deserves a lot of blame for allowing the conditions that allowed it to get this bad this fast.

Book Report: Earth: The Sequel

2008-09-18T09:53:00.000-07:00

I just finished reading Earth: The Sequel. Global warming has not been at the top of my worry agenda, but energy has been for a while (and I figure if we solve energy then global warming will take care of itself). The climate change crowd has been arguing loudly for a cap-and-trade system to reduce greenhouse gas emissions, while the global warming deniers and other folks (primarily on the conservative side of the spectrum) worry that a cap-and-trade system would be way too much cost to the economy without any clear benefit. I've largely stayed out of that particular debate because there's so much unprovable speculation on each side. Reading this book provided concrete evidence and persuasive arguments for what I've suspected at a gut level for a long time: the argument about cap-and-trade misses the point.

In particular, there is so much opportunity for clean, affordable, renewable sources of energy and efficiency that have barely been tapped because cheap oil was so hard to compete with. But with expensive oil (it's currently down below $100/barrel, but I don't expect that to last), tapping these sources become not only feasible but downright profitable. And with a cap-and-trade system, the simple addition into the economic equation of a price for carbon provides a very tangible economic incentive to make the switch.

Cap-and-trade provides a great opportunity to lower emissions (makes the environmentalists happy), make a ton of money (makes the free-market types happy, despite their current claims to the contrary), and have a meaningful reduction in our dependence on oil, foreign or domestic (should make everyone except Exxon happy). Win-win-win opportunities like this are rare, it would be a shame to squander this.

Bush has not seen things this way, but both McCain and Obama do. I'm optimistic.

"Beyond Oil"

2008-09-06T14:40:00.001-07:00

I just spent two days over the past week at a conference hosted on the Microsoft campus called "Beyond Oil". Its purpose was to discuss how we can successfully wean our transportation system from oil in the coming decades in a manner that is cost effective, sustainable (from both a fuel-source perspective as well as from an environmental perspective), and which enables the economy to grow. This is an area that I have been thinking a lot about (including my recent post on the need to electrify the transportation system, a point that was reiterated a lot at the conference).

This wasn’t a greenie conference, it wasn’t an alarmist liberal “global warming is going to kill us all”, nobody was talking about people sacrificing and conserving (though a lot of people talked about efficiency); it was all about how we can sustainably support our (global) growing economy and energy needs. There were more entrepreneurs starting companies and deploying technology than any other group. There were a number of people who focus on policy, as well as a number of politicians from both sides of the aisle, including Washington Governor Christine Gregoire, former senator Slade Gorton, and former CIA director James Woolsey (who talked about the national security implications of shifting trillions of dollars a year to folks like Chavez, Ahmadinijad, and the Saudis). There were academics, researchers, utilities, and mass transit operators. And thankfully, the discussions were all remarkably non-political and non-partisan. (Heck, both Obama and McCain got credit for actually recognizing the issues here and for both having reasonable approaches.)

What got me most excited was all of the talk about plug-in hybrid electric vehicles ("PHEV"), which are just like regular hybrids except that they have bigger batteries which you can plug into a wall socket to charge. I shouldn't say "talk," because there were a number of converted PHEVs on display, ranging from small cars to pickup trucks and even a converted PHEV school bus! The huge advantage of these vehicles is that on a full charge you can go 30-40 miles before the gasoline engine kicks in (at which point you behave like a regular hybrid). Given that most people drive less than 20 miles each way to/from work for most of their driving, a PHEV enables people to do most of their driving entirely on electricity (especially if they can also plug in at work). This can result in real mileage of 150-200mpg. And when you divide the cost of the battery pack by it's expected lifetime miles and add in electricity at $0.10-0.15/kWh, the cost to go a mile on electricity is only about 5-7 cents per mile. At $4/gallon, a 25mpg car costs 16 cents per mile, and that's not even factoring in the cost of the engine. The technology works well for larger cars as well as smaller (although larger cars obviously require a larger battery pack and more charge), which represents an easy way to dramatically improve mileage. There are a number of PHEV conversion kits available for existing hybrids, and the first mass-produced PHEVs should be hitting the streets in the next two years, led by the Chevy Volt.

One other nice thing about PHEVs is that they are mostly charged at night, which is when electric utilities normally have the lightest loads, so there is actually enough spare capacity in today's existing grid to handle substantial PHEV fleet penetration. Adding to this advantage is the fact that we are deploying more and more wind farms nationwide, and the wind tends to blow the most at night when demand is weakest; PHEVs, thus, provide a nice storage mechanism for wind (or other intermittant renewable) power that might otherwise go unused.

I learned a ton over the two days, and came away with a feeling that, while we obviously have major challenges ahead of us, there is a tremendous amount of opportunity here to innovate, make money, and move towards diversified fuel sources for our transportation needs.

I had 3 other observations as a result of the conference:

It was pointed out numerous times that oil has a monopoly as a fuel for transportation today, and that electrification is key. I obviously agree with this (per my earlier post), but I want to reiterate that the critical benefit of electrification is that it is fuel neutral. Liquid-fuel engines are very sensitive to variations in the formulation of their fuel - you can greatly damage an airplane engine that runs on aviation gasoline by putting automotive gasoline in it, for example, even though the two fuels are virtually the same. But an electric engine, while sensitive to getting the right amount of voltage and current, does not care how the electricity was generated. You can create the electricity by burning coal, splitting atoms, or having gerbils run in cages; it simply doesn't matter. And that, in the long term, is the key reason that I believe electricity to be critical.
Emerging economies such as China and India, who are still developing their infrastructures, are surely looking at how to leapfrog an oil-based infrastructure. Think about what happened with telecommunications in developing countries: most of the 3rd world bypassed land-line telephones and went straight to cellular networks. It is my belief (and worry) that countries like India and China will do a similar leap-frog with transportation, and deploy an electrical infrastructure in their countries before we do in ours. I say "worry" not because I think this would be a bad thing for them; on the contrary, it would be wonderful, and I believe they are quite capable of doing it. I say "worry" because I worry that the United States will be a follower, not a leader. The leading wind companies today are in Denmark. The leading solar companies are Chinese. Given what a huge part of the world economy transportation and transportation infrastructure is, it would be a shame for the US to be anything other than a leader in electrified transportation, but I worry that this is in fact the direction we are headed.
The whole debate about off-shore drilling completely misses the point. We are going to end up drilling, there's no way for us to avoid it (although frankly, I'd rather wait to do it until after we've finished draining the Saudi/Venezualan/Iranian oil...). So score one for the republicans. But anyone who thinks that drilling will solve anything - especially prices at the pump - is delusional. Demand is growing so fast and the pace of new discoveries is so slow that any incremental supply provided by coastal or ANWR oil will simply help to meet that demand, not provide any of the supply cushion that would be necessary for prices to actually fall. President Bush has said we are addicted to oil. He's right. But the answer to addiction is not to find lower cost drugs or to get more drugs. It's to figure out how to diversify so that you don't have a single critical-source dependency.

Merit pay for teachers

2008-09-04T14:39:00.000-07:00

I was listening to a discussion on the radio yesterday about the pros and cons of merit pay for teachers. I think that much of the conversation missed the point, which is precisely the sort of thing that motivates me to post here.

The usual debate about merit pay seems to typically include the following arguments.

In favor of merit pay:

Not all teachers are the same; we should be paying teachers more if they are more effective, and paying less (and removing from the system) teachers who are not effective.
We want to attract good teachers by showing that they can advance and earn more money by being more effective.
We want to provide incentives for teachers to go the extra mile with their students by having rewards for it. Absent this, the motivated teacher and the teacher who does the bare minimum get paid the same, which is a strong dis-incentive to put in the extra effort.

...and against:

There is no strictly objective/unbiased way to measure teacher effectiveness.
Using test scores (or improvement in test scores) has a variety of negative unintended consequences, including teacher cheating, teaching to the test (and all of its related issues, which I won't go into here), and attracting teachers to the best students at the expense of the needy students (if overall test scores are the metric) or to the needy students at the expense of the best students (if test score improvement is the metric).
Classes have wide variances in student achievement, readiness to learn, socio-economic status, behavioral issues, learning disabilities, etc.
Merit pay hurts morale and teamwork among teachers because they are aware of differences in pay and because they are competing for a larger share of a fixed budget in what is essentially a zero-sum game (i.e., one teacher's merit pay increase decreases the remaining pool for other teachers, thus it comes out of those other teachers' pockets.)
No principal can spend enough time in each classroom to truly see how well the teachers are actually doing.
Merit pay "just doesn't work" for teaching: teaching is somehow different from other professions. (On caller on the radio show compared them to physicians and made the point that we don't have merit pay for physicians for similar reasons.)

I have been thinking about this a lot over the past few days, and I simply cannot persuade myself that the "against" arguments - though more numerous - outweigh the "for" arguments. In particular, while I think the "against" arguments raise good and important issues - not to be brushed aside - I think none are insurmountable, nor are they sufficient to dissuade me that merit pay is a good idea.

The biggest objection boils down to the lack of strictly objective/unbiased mechanisms for evaluating teacher performance without having the unintended consequences (mentioned above) of things like test scores. This objection is completely accurate, but I think it misses the point. It is letting the perfect be the enemy of the good. There isn't a workplace in the world that evaluates employee performance, where employees are professionals who must exercise professional judgment (i.e., not simply assembling widgets on an assembly line) that is strictly objective, and yet almost every such professional environment evaluates employee performance successfully, if imperfectly. If you go into any such environment - including schools - and ask employees to identify the stars and the dead weight, and you will inevitably find extreme consistency in the answers you get. This is one reason that many workplaces employ 360-degree feedback as part of the evaluation process. If the employees themselves can do this with such a high degree of consistency, then clearly evaluation is possible, even if it is imperfect.

In fact, I believe that an imperfect, subjective evaluation is superior to a strict "objective" evaluation because with no flexibility, no room for subjectivity, there is also no room to recognize outstanding performance or innovation that is outside of the bounds of what the "objective" metric measures. Stated another way: principals are professionals. We as parents make a big deal about good principals vs. bad principals, we are clearly evaluating them, and we are expecting them to make a difference in their schools and to use their judgment in doing so. One of the most critical aspects of a principal's professional judgment is to decide how the teachers in their school are doing. So we are explicitly paying a principal to evaluate teachers - why would we want to then make that evaluation meaningless by refusing to let that evaluation feed back into financial rewards?

I should also note that evaluations - including peer evaluations like this - are used quite successfully in many private sector workplaces without negatively affecting teamwork or morale, so I see no reason to suspect that it would suffer that fate in schools.

The argument against the use of test scores also misses the point for similar reasons. If classroom test scores (or improvement in scores) were the only metrics, then indeed it would be gamed by teachers and schools would suffer the unintended consequences described above. But this is where evaluation requires less mechanical (yikes - this means potentially imperfect and, gasp, subjective!) evaluation metrics. Goals should be set against situations. The goals for a teacher in a gifted students class absolutely should be different than the goals for a teacher in an inner-city classroom of troubled students who are reading 3 grades below grade level. It is crazy to suggest that simple test scores work as a metric for both environments, but they can and should be part of the picture. The former will - among other goals - be looking for a modest improvement in already good test scores, while the latter is doing great if they can improve scores to something closer to expectations.

And let me quickly dispense with the notion that merit pay "just doesn't work for teachers". First of all, this is an assertion without evidence to suggest why teachers are different, and why that unidentified difference is incompatible with pay-for-performance. And the analogy with professionals such as physicians fails because they do have merit pay: the good physicians get lots of referrals (or positions at hospitals etc.), and their business grows. The bad physicians get lawsuits.

Now just because I believe that merit pay makes sense does not mean that any merit pay plan makes sense. I believe that there are 2 ingredients to successful merit pay:

The objection above that principals do not spend enough time in classrooms is a true danger: to successfully have merit pay, a school must ensure that there is enough time for principals (and other teachers, parents, and even students) to observe and evaluate (and give feedback on) teacher performance. And it is critical to calibrate goals for each teacher based on that teacher's situation. We don't want to penalize teachers for taking harder challenges, nor reward teachers who take on "easy" classes. Test scores are certainly a piece of this, but must not be the only factor in evaluations.
Money must actually be available for superior teachers. My personal opinion on this is that it is a mistake to modify salary based on performance, primarily due to the long-term impact that a "good" evaluation year or a "bad" evaluation year can have on a teacher's subsequent pay. Rather, there should be an annual bonus pool, and evaluations should lead to bonus drawn from that pool. Each year's performance would determine that year's bonus; at the start of the next year, all teachers would be back at the same starting point, with an equal chance at that year's bonus. But whether done by salary or by bonus, school districts cannot implement merit pay without actually funding it.

I believe that if these two issues are successfully addressed, then teachers have nothing to fear and even much to gain from merit pay.

The presidential tickets

2008-09-04T10:00:00.001-07:00

I watched Sarah Palin's speech last night. I agree with her on some issues, disagree on others, but overall I thought she gave a great speech, is clearly comfortable in her skin, and knows what she stands for.

I think this is going to be an interesting race. We have an interesting matchup. None of the candidates is scary (assuming you ignore the blogosphere's various scare-tactic rumors). Palin is inexperienced, Obama is inexperienced. McCain is experienced, Biden is experienced (although I confess I find Biden to be singularly uninspiring.) 3 senators, who are notoriously bad at executive skills, and one governor, which is historically the best job to have prior to being president. Palin seems to have a bit of a history of holding grudges against those who cross her politically, which I believe to be one of the big problems with the current Bush administration, and that gives me a little pause, especially since her politics are a lot more right-wing than I am generally comfortable with.

I think Obama is the best "leader" of the bunch, in terms of sheer charisma, followed by Palin. I trust McCain more on foreign policy, frankly. He's stuck to his guns on Iraq, and whether or not you think the war was a mistake, the fact is that security has been improving and that's a good thing we should be building on.

I confess that I have not yet made up my mind for whom I'm going to vote. Usually it's a no-brainer for me - in most elections, the prospect of one candidate's presidency is so frightening that I vote for the other candidate. But in this one nobody scares me at that level. It's about policy and philosophy, and with both sides there are policies where I say "right on" and policies where I shake my head in bewilderment as to what on earth they're thinking.

Which is how it should be. I have to make a real choice based on real issues. I'm looking forward to it.

Conscientious Objection Proposal

2008-08-22T19:45:00.000-07:00

I've posted before about the collision between conscience and one's job, specifically about the rights of pharmacists to refuse to fill "objectionable" prescriptions. My commentary was primarily about a Washington State controversy with regards to pharmacists (which has since been resolved with the ruling that a pharmacist may refuse to fill a prescription if they can find a coworker who is willing to do so; otherwise, they must fill it). Now, however, there is a proposal to codify the conscience objection at a national level and more broadly than just physicians.

I won't rehash the arguments I made in my original post (though I still believe them to be valid), but I will add a few additional observations.

First, there is a distinction between what you choose to do as an individual, and what your employer chooses to offer. My McDonalds analogy in my earlier post is an example of this; I heard an even better anology on the radio today, saying that if you volunteer for the military, you can't say you object to the war in Iraq but not to the war in Afghanistan. If you object to the war, you have the option to not sign up for the military. But once you sign up, you don't get to decide in which aspects you will and will not participate.

Specifically, it is the employer's policy that prevails. If you are self-employed, super - you can make whatever decisions you like about what services you will and will not offer. But if you are employed, then by definition policies around services are the decision of the employer, not the employee. If you cannot abide by their policy, then there is no reason to offer job protection for you. Freedom of speech and freedom of religion are guaranteed by the government, but only apply as far as the government goes; private organizations (among other exceptions) have always had wide latitude to impose constraints on expression and practices that happen while people are on the job. This point was implicit in my original post, but I think it is worth making explicit the key underlying principle to my analogy.

The second observation is that we have long recognized limits on the practice of religion, the most notable of which is that one's freedom to practice religion stops at the point that it infringes on another's similar freedom. Doctors, pharmacists, etc., are there to service their customers; it is one thing for a doctor or pharmacist to express their objections to a particular practice or methodology, but if it is a service that their employer offers and expects of that particular employee, then the decision simply is not theirs to make. It is the patient's and solely the patient's decision. The employer can, of course, decide what services are on its menu, but it is untenable to require that all employers allow individual employees to make up their own individual deviations.

Finally, a key point that is missing in the Bush proposal seems to be any definition of what is and is not a valid objection of conscience. To pick a provocative example, Christian Identity is a splinter sect of Christianity with many racist adherants. If they were to interpret their faith to require different standards of care for black patients compared to white patients, would employers have to accomodate that? In my reading of the proposed rule, they would. I believe (hope?) that such accomodation would be abhorrant to all rational people, but as I understand the policy, it would allow for arbitrary declarations of moral objection. It would have to, actually: the basis of the proposed rule is explicitly grounded in a person's moral principles, and the first amendment pretty much requires that government (and courts) stay out of questions of validity of one religious view vs. another. Given that, it seems to me that anybody could claim any arbitrary objection that they wanted, and there would be no mechanism for challenging that.

That is clearly broken.

Electrification of transportation

2008-08-18T13:30:00.000-07:00

I've been meaning for a while to write a post describing my belief that the long-term replacement for gasoline/diesel in transportation (particularly automobiles) can ultimately only be electricity. (Trains, of course, are already largely electric.) The core of my argument is not environmental or efficiency or cost, but rather fungibility. Specifically: electricity can be made from a wide variety of sources, and that mix can shift fluidly without any retrofit required. You don't need to do anything to your television when your electric utility adds wind power, or fires up a coal-based power plant when there isn't enough water behind the dam. Your TV just knows that it's getting juice and is indifferent to how it is produced.

Andy Grove (former CEO of Intel) has just written an excellent article making this very point in great detail. He's approaching it from a policy point of view and figuring out how to make it happen, whereas I'm simply making a long-term prediction about where I believe the technology will go, but we're both coming at it from essentially the same observation that the fungibility is key. I encourage you to click the link and read it.

I'll also add that electric engines have several advantages over internal combustion engines (ICE). They can offer greater torque (great for acceleration - this is why the fine folks at Tesla Motors realized that an all-electric car makes a very nice sports car) over a wide range of RPMs. They are more efficient - often well north of 50%, whereas a very efficient ICE is doing well if it's getting above 20%. And they are generally quite reliable, having relatively few parts compared to an ICE. These advantages, however, have historically been insufficient to overcome electric engines Achiles heel: carrying enough electrical energy to go long distances, and quick recharge times. But with the progress currently being made in battery technology and ultracapacitors, I believe that this hurdle will eventually be crossed.

See? I told you the airlines hate their customers

2008-08-08T18:09:00.001-07:00

Ryannair is apparently canceling bookings made by customers on 3rd-party sites. Smart, real smart.

I have no sympathy for airlines with financial problems if this the kind of nonsense in which they engage.

OK, I'm no lawyer...

2008-07-31T14:31:00.000-07:00

...but it appears that my earlier commentary about executive privilege was correct. My assertion was that executive privilege may or may not apply, but that's something you assert in response to specific questions rather than as an excuse for not showing up. Today, a judge said pretty much the same thing.

Oil Speculation

2008-07-22T09:29:00.000-07:00

Everybody is complaining about oil prices. Congress, of course, feels it is their job to do something about it (why leads to inane proposals such as the gas tax holiday that I have written about before).

Republicans, predictably, are demanding more drilling, which doesn't really do anything about prices in the near term, and almost certainly won't do anything in the long term: by the time that oil reaches the market in 8-10 years, demand will have grown to the point where that capacity won't affect the supply/demand balance, it will simply help meet the overall appetite. It's also not really a solution to the extent that it only extends our dependency on oil overall. (My personal opinion is that we should use all of the oil from the Middle East and Africa and save our own oil for last. But I digress...) But at least the Republican proposal is somewhat rational in that it recognizes that prices are basically set by supply/demand and attempts to affect the supply side.

The Democrats, on the other hand, are blaming rampant speculation for the run-up in oil prices. They're almost certainly right about this. But the problem is that they want to do something about it, to "solve" the problem. And on this point, they miss the point altogether.

Speculation is not a "problem to solve." It is healthy, and necessary to the functioning of markets. Yes, it leads to bubbles (and I believe oil prices are in a bubble right now), but when the bubble pops it is the speculators who get punished. "Speculation" is nothing more than investment with a dirty-sounding name. But without risk takers who are betting on the price, the markets would be less liquid and less likely to arrive at the "right" price over time. Speculation is fundamental to almost all investments - holding any share of stock for the long term is a form of speculation, and we never refer to that as being a bad thing.

I have no problem with keeping oil commodity trading open and appropriately regulated, but I haven't heard of any true problems with these markets in this regard. But the Democrat's response here seems to be that because a (basically) functioning market is producing prices that we don't like, that something must be wrong with it and done to "fix" it. Remember how well price controls worked for the problem of inflation? The idea of reigning in bogeyman "speculators" has me more scared than the price of oil itself.

China

2008-07-22T09:23:00.000-07:00

I've posted previously on my thoughts about the Chinese government. Watching their conduct recently with respect to Zimbabwe and the indictment of Sudan's president just confirms for me: the Chinese regime operates on its own short-term interests alone; ethics and morality simply are not a factor in their behavior.

Their desire for the principle of absolute unquestioned sovereignty (so that they themselves do not get questioned) is such that I firmly believe that if the Nazis were to come to power today and had a supply of a vital commodity such as oil or iron ore or similar, that the Chinese would happily manufacture and trade Zyklon-B in exchange.

Supreme Court ruling on Gitmo Detainees

2008-06-18T09:53:00.000-07:00

A few days ago the Supreme Court ruled that detainees in Guantanamo Bay have the right to challenge their detentions in US civilian courts.

I am not wild about this decision because I believe that it will result in some frivolous legal proceedings, and could result in the release of true terrorists. Nevertheless, I believe it is the correct decision for a variety of reasons (all with the usual caveats that I'm not a lawyer):

We have two legal frameworks under which our government operates: criminal and military. We’ve survived 230 years with these two, and have never had any real problem with putting people under one jurisdiction or the other. I do not see why this system suddenly needs to break down. The detainees are either prisoners of war (whether they are subject to Geneva convention protection is debatable), or they are criminals. Bush is trying to have it both ways: treating this as a military war in every single respect but for one, namely what we call the enemies that we capture. If it walks like a duck and quacks like a duck…
Many people have made the argument that because the detainees are not US citizens that they do not have constitutional rights. This is a bad argument: the rights guaranteed in the constitution have never been limited to citizens. Rather, those rights are limitations on what our government can do, how it can treat people, so it applies to official acts of the government even extra-territorially. Again, that’s a criminal statement which is probably void if in a military context, but Bush seems to be arguing against the latter despite all evidence to the contrary. The fact that terrorists don’t wear uniforms and target civilians may exempt them from Geneva conventions, but it doesn’t make their actions any less “military,” especially if that’s what we respond with.
Consider the case if the decision had gone the other way. Suppose I firebomb a house. I’m guilty of arson (and probably a few other crimes), but I’m afforded various legal protections before I can be sent to jail for that. If the decision had gone the other way, then if Bush decided that my act was not mere arson but “terrorism”, then according to their logic, they could declare me an unlawful combatant or terrorist and lock me up indefinitely. And there’s nothing I could do about it. This isn't just a hypothetical, this is exactly what they did with Jose Padilla, who was a US citizen detained on American soil. The fact that the president is an honorable person who wouldn’t frivolously do this is immaterial – it’s not a power that our constitution grants, and the framers of our constitution were deliberately (and justifiably) wary of granting unchecked powers to any position and simply trusting that it wouldn't be abused.
Another argument in favor of holding the detainees is the historical precedent of holding prisoners of war without any rights to challenge their holding until the end of hostilities. The problem here is that while it is a war in just about every sense of the word, it also is not at all a war because there is no central unified enemy: we’re fighting a bunch of independent ideologues. Yes, some band together to form one group or another (Al Queda, the Taliban, Hamas, Hizbullah, Al Queda in Iraq), but that’s the point: even if you get rid of Bin Laden, Al Queda doesn’t go away or cease hostilities. To the degree that individuals or small autonomous groups are acting on their own, there is no peace treaty, the very notion of “end of hostilities” makes no sense. So we should admit what this is: we're holding people that we suspect are dangerous. This may seem to contradict my earlier assertion that this is truly military, but it actually supports the idea that these guys are either prisoners of war or criminals, or even some blend of the two, but just because they don't fall neatly into one or the other doesn't mean that they fall in some in-between world that is neither.
One of the core principles of America is that we do not punish innocent people. While we can be sure that many Gitmo inmates are in fact bad, bad, bad, we also know of quite a number of people who were basically innocent of terrorism, who were in the wrong place at the wrong time or who committed the “terrorism” of driving a car for Bin Laden (for example). As a nation we should find the idea of delaying indefinitely a determination of guilt or innocence abhorrent and reprehensible.
I’m sure the detainees are dangerous. So are murderers. And we occasionally have to release a murderer because they’ve served their time or because we couldn’t prove their guilt. And our society has accepted this imperfection as the price of being a just society. But most of the time, if we’re worried about that criminal, we’re able to demonstrate to the court that they are indeed a continued threat and are able to keep them detained. Why do we think we wouldn’t be able to do that if someone challenged their detention? In other words, if we think that giving them Habeas Corpus somehow will lead to a lot of them being freed, then it seems to me that we’re holding them on far flimsier evidence than we should be. Conversely, if we really have good reason to think they’re as dangerous as we’ve been saying they are, then heck – “bring it on.” Let them challenge their detentions, show the judge (secretly, if necessary) why we think they’re baddies, and watch how quickly the courts affirm that they are indeed a threat and can remain locked up. Frankly, I don't have a problem with military commissions (including the less protective rules of evidence) as opposed to civilian courts because I don't think these are ordinary criminals, nor do I think that ordinary jurisdiction applies. But we do need to have some sort of legal process here.

In short, I think that the biggest problem with the way that we are holding these detainees is that we are making it up as we go along. (Indeed, the Seattle Times had a story on just this topic today.) Our nation is built upon a framework of laws and checks and balances precisely to avoid this sort of legal improvisation. There have indeed been times when we have had to work outside of that framework, but in the past presidents have explicitly suspended habeas corpus; our current president has decided not to do this, and this to me means that he is trying to have it both ways.

A self-fulfilling prophecy in reverse?

2008-06-08T16:12:00.000-07:00

So Hillary Clinton has finally conceded (sort of) that Obama won the nomination. And in doing so, she has proven that her failure to be nominated was the right decision.

Allow me to explain, and to first disclaim that I didn't particularly care which of these candidates won the nomination.

It's been obvious to most observers for a while now that Obama's lead was mathematically insurmountable. And yet she stayed in the race well past that point, and despite it's essentially irrefutable logic. I think this showed a disturbing inability to recognize reality and deal with it, instead clinging to an alternate reality despite any inconvenient (yet obvious) evidence to the contrary.

Pretty much all Democrats/liberals (and even most conservatives at this point) point out that Bush's single biggest flaw as a president has been that he has wrapped himself in a bubble and has refused to acknowledge even the most obvious data that is contrary to his world view.

So regardless of whether or not her winning or losing was the right decision by the Democratic primary process, in delaying her recognition of the obvious she has demonstrated quite convincingly (to me, anyway) that she suffers from precisely the same character flaw that Democrats have been railing against (directly or indirectly) in Bush for his entire term.

And thus she has proven that if she were to be elected, she would likely be just like him, only with a different political lens. I.e., she's campaigning on the message that we need to replace Bush, yet she has proven herself to suffer his worst flaw! And thus, in selecting someone else, the Democratic party has created a reverse self-fulfilling prophecy!

More on Airline fees and a-la-carte pricing.

2008-06-08T15:12:00.000-07:00

I've posted in the past about airline fees and my recommendations, and lo and behold American Airlines is now taking my advice...sort of.

I think I simply forgot about the fact that *how* you go about this matters as much as going about it. And American Airlines is doing it all wrong, and in the process showing that they hate their customers.

The problem is not that American is charging for checking the first bag. The problem is that they are treating this as a penalty, as a surcharge, as punishment.

Consider two scenarios:

Scenario A: American (or any other airline) announces that they are going "A la carte." Their message to their customers is simple: we're going to keep your cost as low as possible by only charging your for what you need. Our fares (which include fuel, for crying out loud!), are as low as we can make them; you can add to that the services that you want. Each service that you add, whether it is meal service, baggage service, or a cancel/change waiver, is a separate service that we will stand behind independently. Don't like the food you bought? Get your money back. Paid for your golf clubs but they were delayed? We'll rent you a set until we get your clubs to you. If you pay for it, we'll make sure it's right.

Scenario B: American says that you can buy a "low fare" for your flight, but at every turn, whenever you try to do something that a reasonable person might want to do or expect to be included, you have to pay a fee, about which you likely did not know in advance. And even if you pay the fee (for example to check a bag), you get no additional service guarantees with it, you simply take your chances (and you won't get a refund). In fact, you may suffer fees even if you do everything to avoid it, for example if you find that there is insufficient overhead space for your legitimate carry-on bag and are forced to check it. You probably would have been willing to pay more for a ticket that could be changed, but you were never offered any such option because you were simply shown "lowest fares" on the airline website or on travel agency sites such as Expedia or Travelocity, all of which are oriented towards the lowest sticker price possible.

Now I admit that my scenarios are hardly unbiased portraits, but that's because I am biased. Scenario A is McDonalds, where nobody complains about the fact that adding fries to a burger costs more than the burger alone. (And, of course, "value meals" are hardly precluded in this scenario.) Scenario B, which nickels-and-dimes customers is...well, the airlines.

Any legitimate company that seeks to provide value to their customers and make money in the process would naturally implement scenario A; companies that are out to make money however possible but don't give a damn about their customers in the process gravitate towards B as a "revenue optimization" model.

Airlines today are in a really tough spot, and I sympathize with them for that, but unfortunately most of them today are viewing their solution through a Scenario B lens. This is shortsighted on their part, and demonstrates that they simply do not understand their business and what it means to make money by providing value to customers.

Southwest Airlines comes the closest to implementing Scenario A. Southwest Airlines is the only US airline that has consistently made money over the nearly 100 year history of commercial aviation. Am I the only one who thinks that this might not be a coincidence?

Gas Tax Holiday

2008-05-07T09:10:00.000-07:00

Hillary Clinton, among a few others, has been proposing the idea of a "gas tax holiday" for the summer due to the high price of gasoline. I will add my voice to the chorus that believes that this is a gimmick at best and a bad idea at worst.

First of all, it won't meaningfully lower the price of gas; the amount of tax on a gasoline is less than the amount prices have been varying of their own accord in the matter of weeks.

More fundamentally, it is a gimmick because the entire premise of the proposal is that governments are responsible for the price of gas and that the price of gas is somehow broken.

While it is of course true that in many countries government has a strong hand in the price of gas, that is only minimally true here. The gas tax is pretty low, and prices are largely determined by the markets. (Verifying that these markets are functioning properly is of course a valid responsibility of the government, but inevitably investigations into manipulation of these markets fails to find anything askew.)

And I'd argue that there is nothing inappropriate about the price of gas. I don't like it, but that doesn't mean that it's inappropriate. It's a commodity with finite supplies, diminishing new finds, and exponentially growing demand. So why should any rational person expect the long term trend on these prices to be anything but up? The price of a barrel of oil is up more than fourfold over the past few years, yet gas is only up 2-3x; that suggests to me that the price of gas is actually pretty reasonable.

I'm thinking that oil is above its "intrinsic" price right now because of speculation, fears of supply disruption, and (of course) the falling dollar; I'm not a sophisticated enough investor to know what the "right" price should be, but it's not $20 a barrel any more, and it will trend upward over time. But markets are far more efficient at finding the right price than any government attempts to guide it.

The market adjusts for the high price of gas in other ways as well: SUV sales are plummeting, hybrid sales are soaring, and alternative energy investments that do not make sense when oil is at $60 a barrel make a lot of sense at $90, $100, or higher. So the economy will almost certainly do exactly what it did during the energy crisis of the 1970s: it will get a heckuva lot more efficient, and the amount of energy required per unit of GDP produced will fall. And this helps keep us competitive and insulates us from the inevitable subsequent increases down the road.

Even if we were to ignore all of this and take for granted that high gas prices are a problem to solve, I also suspect that this "gas tax holiday" would actually exacerbate prices. After all, if it actually were to achieve its stated goal of lowering prices in a meaningful way, the law of supply and demand implies that consumption would go up. If consumption goes up, the price - especially given continued tight supplies and refining bottlenecks - will go right back up. So to be effective, the tax holiday must not lower prices by a meaningful amount. Which means that the tax holiday can only be meaningful if it fails to be meaningful. Brilliant.

So we have a solution proposed that would actually fail to solve our problem, but it turns out that the problem is not actually a problem. "Bad solutions to problems that don't exist" is probably the most distinctive hallmark of bad ideas.

As a postscript, I think it's particularly amusing that Hillary is using the term "elite" as a dismissive insult in reference to the fact that economists are nearly unanimous that the gas tax holiday idea is silly. I understand that politics is politics, but I'd at least hope politicians wouldn't be so naked about their political positioning.

Intellectual property and dumb business models

2008-05-01T09:11:00.000-07:00

My wife and I attended a charity auction a few weeks ago, and they had a photographer there capturing the well-dressed couples. We posed for a picture, and a few days ago went online to view them. Liking them, we decided to order some, and we requested to purchase the images electronically, since we mostly view images on the computer these days rather than on a wall.

No dice. The photographer will sell us low resolution digital images for the price of a print, or a print, but will not part with the high resolution images that we want. His reasoning is that if he sells us the high-resolution images, we can go to Costco (or use our own photo printer) to make our own prints.

While he's absolutely correct about this, he is showing the same short-sightedness that the recording industry has displayed with regard to copyright protection. In the same way that the recording industry incorrectly views its business as selling CDs rather than as selling music, this photographer views his business as selling prints, not selling images. So instead of selling to customers what they want to buy, he restricts them from that very thing.

If he were smart, he would offer two options: sell the print or low-resolution digital image for the $20 or so he would charge. Or, for something more - say, $25 or $30 - sell the high-resolution image, including a license to reproduce for personal use.

In other words, his copyright has value. He's currently using the copyright in a restrictive capacity, when he could instead be monetizing the value he holds in it. If he sold a version of the digital images with a license to reproduce, he'd continue to hold his copyright to the work, but he'd be making money from the value of the copyright. And most importantly, he'd be selling to his customers what they want to buy.

A few short years ago, this was not practical - photographers were in fact in the print business. Besides the fact that digital images were not possible or desired, photographers typically had high expenses as they had to print out every picture even though they would only sell a fraction of those prints. Today, however, these costs have dropped to zero as the only images they need to print are the ones that they sell. This particular photographer is using an antiquated model; he is using 21st technology to take the pictures, he should bring his business into the 21st century as well.

Bush's greenhouse gas proposal

2008-04-29T10:47:00.000-07:00

A friend pointed me to this Wall Street Journal opinion that defends Bush's recent proposal to stop the growth in greenhouse gas (GHG) emissions by 2025. The gist of the article is that anything more is unrealistic, that all of the goals being touted by environmentalists are unachievable.

While the Journal is absolutely right, something about this opinion bothered me, and after thinking about it overnight, I've realized what it is.

There are 3 key questions, I think, about global warming:
a) Is it real? (The main scientific question, best answered by scientists from data, not politicians or pundits)
b) IF it’s real, is it bad? (Combination of scientific/policy question)
c) IF it’s real AND it’s bad, what can or should we do about it? (Strictly policy)

There’s all sorts of room for debate on all of these questions - more on c than b, more on b than a, but room indeed on all 3. But I think the debate on these questions is actually somewhat beside the point.

The fact that Bush is putting out any sort of greenhouse gas goal means that he must be saying “yes” to (a) and (b); otherwise the only explanation is that it’s completely cynical ploy on his part to try to appear to be doing something without actually doing anything. After all, if he says “no” to either (a) or (b) then there’s no point in making any proposal to limit GHGs at all.

So if we give him the benefit of the doubt on this, then his proposal must logically be his answer for (c). In which case he is rightfully assailed for not doing anything meaningful. I.e., it’s doing something that we know will be pointless rather than doing something that we know will be difficult.

He didn’t claim that more aggressive cuts are unnecessary or futile, or that other approaches (e.g., GHG sequestration) make more sense, either of which could potentially be valid scientifically justifiable arguments. He simply said it would be too hard (and the WSJ agrees). He is almost certainly correct on this, but to me it’s akin to Kennedy challenging the nation to have a design for an unmanned ship that could go into lunar orbit by 2020. Maybe we can’t hit something more aggressive, but we won’t know if we don’t try.

We have a president who for 7 years has steadfastly refused to do anything about global warming. For reasons that are inexplicable to me, he has decided with less than a year left in office to put forth a proposal that global warming activists hate, and that global warming deniers hate as well (because it's sheer existence is an acknowledgment that global warming is real).

My friend (a self-described conservative) who pointed me to the WSJ article, thinks that my "cynical ploy" explanation above is accurate. I don't know if it is or isn't, but I can't see what he hopes to gain with this proposal, but I think it would have actually been far more honest for him to simply say “whether or not it's real, there’s nothing we can do about it so why bother.”

One more reason to hate Digital Rights Management (DRM)

2008-04-23T08:45:00.001-07:00

This news from Microsoft yesterday: they're shutting down their PlaysForSure servers. What does this mean? It means that if you bought music from the MSN Music store, then whatever machines are currently authorized to play those songs are the only machines that will ever be able to play those songs. Of course, computers become obsolete approximately 3 hours after you purchase them, so this means that in the near future when you've replaced your computers, you will no longer be able to play the songs you spent good money to purchase.

So let's see: you try to do the right thing by buying music, and the industry screws you over for it.

I'm an honest consumer. I try to do the right thing. I buy my music (all of it, these days, from Amazon, where it has no DRM). But enforcement of anti-piracy technology like DRM is an injustice to the very people that the industry should be wooing.

Further erosion of freedom in the name of "security"

2008-04-22T09:06:00.001-07:00

A few years ago I flew a small airplane into Avey airport in Washington state, which has the interesting property of straddling the US-Canadian border. I flew in from the south, landing to the north, and thus crossed the border halfway through my landing roll. There is a street adjacent to the airfield, with a border station on it. I taxied back to the midpoint of the runway where there is an area to park, shut down the airplane and climbed out. A border patrol agent was crossing the street from the crossing, so I waved him down and asked him what formalities were needed.

Border Patrol Agent: Did you fly from the US?
Me: Yes
BPA: Are you landing anywhere outside of the US?
Me: Other than rolling down the runway, no.
BPA: When you take off, are you going back to the US?
Me: Yes
BPA: Then I can't even talk to you. [I presume he meant in an official capacity, rather than on a personal level]

And off I went. What a great experience, and it reminded me of one of the great freedoms we enjoy in the United States: the right to be left alone. Absent a warrant or reasonable suspicion of wrongdoing, the government cannot stop you, question you, ask for papers, or otherwise make you justify anything you are doing. It's something we largely take for granted. In many other countries, one must endure random roadblocks, identity paper checks, and other arbitrary intrusions at the whim of the government, but not here.

Then this morning I saw a story in the newspaper about checks that the border patrol is now conducting spot checks on ferries in the San Juan Islands. The San Juans are up near the Canadian border, and conduct international runs from Canada to the US, so on those runs it is entirely appropriate for the border patrol to do more or less whatever border enforcement it deems necessary.

But what is insidious about the new spot checks is that they are being conducted on routes which are entirely domestic - in other words, where there is no border being crossed and where the Border Patrol has no jurisdiction. The CBP even acknowledges as much: they acknowledge that they cannot do anything when a person refuses to answer their questions, but I suppose that enough people are either not aware of their rights or too timid to stand up to people in uniform, and as a result the net effect is that they get cooperation. Nevertheless, these people are detained for a period of time, and license plate numbers are run, which amounts in my opinion to illegal domestic surveillance and illegal detention.

This is, of course, being done in the name of "national security" and "anti-terrorism." Ahh, the evils that can be justified by those words. We should never let our fears lead us into abdicating our rights, for if we do then we have proven that we don't deserve those rights. It is a slippery slope.

Adding insult to injury, this program is leading not to the arrest of terrorists, which would at least mitigate (although not excuse!) this encroachment on our freedom, but rather to the arrest of illegal aliens. I have no problem with arresting illegal aliens, they are breaking the law and do not deserve sanctuary for having done so. But to trample our civil rights in the name of security as a ruse for over aggressive enforcement of immigration rules should shock every American.

Cuba

2008-04-04T09:19:00.000-07:00

While I have no love for the Cuban regime, I have also long thought that the US policy towards the island has been, well, stupid. It was an absolutely reasonable strategy to try after the revolution, and perhaps for another 10 years, but after 20, 30, 40 years, it should have been clear that it simply wasn't working. It seems to me that we've dogmatically held on to our policy of isolating Cuba not because it achieves our objectives (it hasn't met any that I can tell), but because it gives the illusion of doing something useful. In other words, I think it's more about satisfying Miami voters and feeling good about not supporting the regime than it is about actually making life better for the Cuban people.

But an interesting thing is happening in Cuba right now: the government is opening up a bit, removing many of the arbitrary and cruel restrictions it has kept on its people with regard to consumer electronics.

So now that ordinary Cubans who happen to have enough money to buy a DVD player (which, I suppose, includes no "ordinary" Cubans), all is well with Cuba, right? Well, no, of course not, not even close. Cuba is still ruled by an oppressive abusive dictatorship, and there is still no political freedom and the economy is still a disaster.

But the opening up on consumer electronics - however minor - is highly significant for two reasons. The first reason is that I have never seen a government open up just a little; small freedoms inevitably are followed by bigger freedoms - trickles become floods. Two examples I offer here are China and East Germany.

The second reason I think it is significant is that after 50 years of an ineffectual policy towards Cuba, the ball is suddenly in our court - there is suddenly a change on the island. It's not due to our policies, but it's a change nevertheless. How will our policy towards Cuba change in response? Will it change, to encourage further liberalization? Or will we continue to cling to the blind dogmatic policies of the past?

Paper or Plastic?

2008-04-03T14:46:00.001-07:00

Seattle is proposing the first-in-the-nation attack on bags at grocery stores: a $0.20 fee for using paper OR plastic rather than bringing your own bag to the store.

I'm normally quite a skeptic of government trying to mandate well-intentioned outcomes, and question whether government (rather than the market) should be the arbiter of the best way to determine things like this. But I also believe that sometimes it is only the government can make a negative externality explicit, and I think that this sort of policy is the right way to achieve it. The fee is optional (you don't have to pay it if you just bring your own bag), and they're providing bags for the poor to avoid the unintended consequence of taxing the people who can least afford it.

Governments should not mandate free-choice behavior like this. But setting up incentives that make doing the "right" thing a natural choice? Bring it on!

Why $100+/Barrel Oil is Good

2008-04-03T14:25:00.001-07:00

A lot of people are complaining about the high price of oil lately. Frankly, I don't have a ton of sympathy. Oil has been quite cheap - artificially so, in my opinion - for a long time; for once it feels like it is finally priced at something that captures it's true cost. It shouldn't surprise anybody that oil is expensive. After all, it is a finite resource in a world of increasing demand and all the "easy" sources have been drained so each incremental barrel is more difficult to find and extract. I can't say whether or not $102 (today's closing price) per barrel is the "right" price (although markets tend to be pretty good at finding the"right" price), but it's probably in the right ballpark and I don't see it going down anytime soon.

Our entire economy is dependent on oil, so how can expensive oil possibly be a good thing? As a country, we've been moaning for a long time about our "addiction to foreign oil" and talking about things like "energy independence." And usually when politicians say it, they are frustrated about their inability to do anything about it. Well, of course they're frustrated: economies respond to market forces, not government dictates. We haven't weaned ourself from foreign oil because it's been so cheap compared to other energy sources. The only way a government can alter our course is to alter that dynamic, typically through things like tax policy, which is often quite dangerous to political careers (even if it is the right thing to do). And besides, no rational government wants to harm it's domestic industries by raising its costs above that of its rivals.

But the great thing about $100 oil is that it is a market-imposed price, and it affects all players equally. This results in two very good things. First, America gets more efficient with its energy use. This is why energy per dollar of GDP has dropped rather dramatically in the late 70's/80's. (This obviously has benefits for greenhouse gas emissions as well). The second good thing is that it makes alternative sources of energy far more economically viable. Entrepreneurs are naturally reluctant to enter a market that is artificially sustained by government policies, since such policies are subject to change on short notice. But a market that is defined more organically - as the current one is - and which is not poised to change (as a finite resource with increasing demand, it is hard to see oil prices dropping dramatically for any sustained period of time) will attract entrepreneurs and innovators who see a more sustainable positive environment.

In other words, $100 oil could be the best thing that ever happened to our dependence on foreign oil: it could be the very thing that helps us to kick the habit.

Another great post about the death of the traditional music biz.

2008-03-31T10:28:00.000-07:00

Jeff Price mirrors other blogs in writing about how the old model for the music business is dead. It's too bad that the major labels haven't figured this out yet.

Predictably Irrational

2008-03-30T15:28:00.000-07:00

On a friend's recommendation, I just read Predictably Irrational. I know that this is intended to be a political blog and this is not a political book, but I think it's still a fascinating exploration into why we do things that we do - especially since so much of what we humans do is fundamentally not rational.

It's a quick read, I highly recommend it.

Tibet, China, and the Olympics

2008-03-30T09:52:00.000-07:00

The Chinese government isn't entirely bad. After all, over the past two decades they've orchestrated what is perhaps the greatest economic rise in history, lifting more people out of poverty more quickly than ever before. And it has certainly opened up quite a bit over this period as well. Both of these trends should be applauded and supported.

But unfortunately, not only do the ends not justify the means, but I believe that the overall tally of evils that the Chinese government commits greatly outweighs the benefits it provides. The environment in China is toxic. The government is corrupt, authoritarian, abusive of the peoples' basic freedoms, utterly indifferent to the evils of other countries when it suits their needs (more on this below), and it behaves like an immature paranoid petulant child on the world stage whenever there is any issue that affects its pride.

The upcoming Beijing Olympics I think epitomize this latter point. The Chinese government has made the Olympics a centerpiece of national pride more than any other host nation that I can recall. Good for them, and I actually wish them well for a great event.

But it is in this context that I watch what has been going on in Tibet. I think the government has exposed its Achilles heel. It is determined to show a new, open face to the world for the Olympics. And it is determined to orchestrate the Olympics to go flawlessly - and without a whiff of anything embarrassing.

Therein, I believe, lies the dilemma for the Chinese government, which I believe activists for the myriad causes that have complaints about the Chinese government would be wise to exploit. If they protest in any sort of visible way, China must either respond or not. If it responds with openness (as it has promised), then it "suffers" the embarrassment of the world seeing the protest. (Of course, any legitimate government should have no fear of visible dissent, but this is one reason why I believe that the government behaves like an immature child.) And if it responds with a clampdown - as it has done in Tibet over the past few weeks - it reveals its true colors as a brutal regime whose claim to legitimacy is so tenuous that it cannot suffer dissent. Either case would be a PR nightmare for the government, and thus a win for the activists. All they need to do is lie low and avoid being rounded up until the event.

One more thing about why I think the Chinese government needs to "grow up." The Chinese government demands to be treated with the respect on the world stage that is given to other major powers and is exceptionally thin skinned when it feels that respect is not forthcoming. But among other things, maturity means understanding that respect is something that must be earned. For example, China has had ample opportunity with North Korea and Sudan to demonstrate that it is worthy of great-nation status, and has all but abrogated any responsibility - despite it's unique position to do so - to help to reduce the unmitigated evil that these two countries inflict upon their populations; quite the contrary, it has been the primary support propping them up. In another example, China tries to have it both ways on the environment: demanding to be treated as a developing nation with regard to carbon emissions, even after surpassing the US. Mark Twain once said "Patriotism is supporting your country all the time, and your government when it deserves it." The same is true for respect. I cannot respect a government that fails to earn that respect.

I've been to China. It is a wonderful country, it has tremendous potential to be a true leader on the world stage. And the government does deserve a lot of credit for the progress the country has made. But it is not enough - more change is needed if it is to truly become the great nation it aspires to be. The Chinese government has made the Olympics a defining moment for the country. I wonder if it will be all for show, or if it will truly become a defining moment.

Fee for your thought?

2008-03-20T14:28:00.000-07:00

I've got fees on my mind lately. The news that United Airlines is going to start charging $50 to check two bags certainly struck me as indicative of the whole problem.

It's really this: calling something a "fee" is only legitimate in two circumstances. The first is when it is passing through a charge from a 3rd party. The Sept. 11 security fees on airline tickets, or the service charge to buy a ticket from Expedia or Travelocity would fall in this category. The second is when the fee is charged for a discrete or incremental (and presumably optional) service. Examples here include a corkage fee for bringing your own bottle of wine to a restaurant, or a surcharge for 2nd-day delivery of a package.

Sadly, though, we're seeing a proliferation of all sorts of "fees" that meet neither of these criteria and which are, in my opinion, downright fraudulent and deceptive.

My favorite example of abusive "fees" charged to customers is the "fuel surcharge" that we're seeing applied not only to airline tickets, but also to many other everyday services. Don't get me wrong - with the high cost of fuel, businesses that are fuel dependent need to recover their costs, and there is absolutely nothing wrong with raising prices to do so. But companies are simply t insulting their customers by pretending that this is some "fee". It isn't - it's simply raising prices, but it's fraudulent because it let's the company pretend that they're not actually raising prices (after all, the advertised airfare is unchanged) when, of course, they are. Fuel is critical to the act of flying an airplane. It isn't as though passengers can opt out of using the fuel to get to their destination. The fuel for a flight is part and parcel of the cost of operating the flight. When you are spending $500 on an airline ticket, $200 (or probably more) is going to fuel costs anyhow; what is it about the $20 covered by the "fuel surcharge" that makes it different? Why not simply call this a $300 fare with a $200 fuel surcharge? Calling out a fuel surcharge is like buying bread with a separate "wheat surcharge." If it's an integral part of the cost of the product or service, then there is no excuse for arbitrarily excluding parts of that cost because they make the resulting price inconveniently high. It is an act of deception.

My other favorite example in this vein is the increasing number of hotels that tack on exorbitant "resort fees" for each night of a stay. I would have no problem with this if the fee were tied to usage of "resort facilities" (however defined), but I have yet to see a hotel that actually let you opt out of services as a way to bypass the fee. Wheat in bread.

Which brings me back to the United Airlines baggage policy. As a customer, I'm not wild about the policy, but I can see why they do it, and at least it's honest: you don't have to pay the fee if you don't use the incremental service to which it's tied. Interestingly, United justified the fee by saying that all passengers pay for baggage service in their ticket prices today, but only one in four passengers check two bags, so now they can pay for the incremental cost. This justification would work if they were actually going to call out baggage services as a discrete fee, separate from ticket prices altogether, but they aren't actually doing that.

I actually think that airlines, hotels, and others would be very well served by doing two things: first, break everything out into true a-la-carte pricing. For an airline, this would mean publishing a base fare. Want a better seat? $20 more. Refundable or changeable? $100. Want to check a bag? $25 per bag. Want early boarding? $5. Peanuts and soda? $5. Lobster? $100. Let people create the right options for what they want.

And then create simple packages (discounted, of course, relative to the a-la carte sum total) to provide an incentive for these upgrades. "First class" means you get all of the above options, but anybody who doesn't want all of "first class" could pick and choose what they did want. Maybe there aren't any more first class seats on the airplane, but how hard would it be to load a few more first class meals and extra wine for the folks in coach that are willing to pay for it? This turns a cost-center into a profit center.

Hotels could do the same thing, and for many hotels that have a mix of business customers (who may not make much use of the "resort amenities") and leisure customers that may make sense. But I 'd suggest that hotels would have more luck going entirely in the packaged model: eliminate the damned resort fee and internet access fees and all of that, raise the base room rates by the right amount to cover these costs (and then some), and make it all inclusive, straightforward pricing. Personally, I hate splurging for a hotel that charges $450 a night and find that they want another $16/day for Internet access. As irrational as it sounds, I'd rather spend $500 a night and have it all included, with no nickel and diming. But at least the Internet access is legitimate to break out if the hotel decides to do so - if I don't like the cost, I can choose to forego it (and often do). It's the "resort fee", which I have no way of avoiding, that I find so insulting and disrespectful.

Successful businesses show their customers they care. Hmmm....I guess I shouldn't be surprised to see airlines embracing bogus "fees", should I?

An open letter for the recording industry

2008-03-20T09:06:00.001-07:00

A friend of mine pointed me to this blog post, talking about how the music biz has changed and what the industry should do to address it. Very well said, in my opinion.

Bill Gates on Immigration, Education

2008-03-13T09:14:00.000-07:00

Yesterday Bill Gates testified to Congress about the need to both improve our nation's math and science education, and to increase the number of workers who can come here on H1-B visas. I wholeheartedly agree with this position. Improving our math and science education is not a particularly controversial point, so I won't belabor it. But I think it is worth reiterating the need to increase the H1-B visa cap.

For a long time, our nation enjoyed a near monopoly on producing qualified engineers and scientists, but this lead is rapidly eroding as other countries (especially China and India) have started producing world-class technically trained people. The laughably small 65,000 cap on the H1-B visas means that the US is effectively cut off from this pool of talent. While this may appear to help US workers compete with foreigners who supposedly are willing to work for lower wages, the actual result is that American companies have to work with the best homegrown talent (often leaving many roles unfilled), as opposed to being able to work with the best talent period. So we end up deliberately weighing our companies down with two handicaps: insufficient staffing, and sub-optimal staffing (sub-optimal not because the American talent isn't good, but rather sub-optimal because the pool of talent is artificially restricted).

This is not to say that we don't have top-notch homegrown talent; we absolutely do. And despite its many documented problems, our educational system does still produce some of the best and brightest. But it doesn't produce nearly enough for what our industry needs. Gates pointed out - quite correctly, IMO - that allowing more H1-B visas would not throw Americans out of work, and would not depress wages. For one thing, even if the cap were doubled, the number of visas would still be far too small to impact the market. And since the tech job market is still seeing labor shortages and wage inflation, increasing supply to meet that demand will help these companies achieve more, which will lead to more growth.

Companies faced with H1-B restrictions do the only logical thing: they outsource. So instead of hiring a talented engineer from, say, India, to work in California at California wages, we are instead paying that engineer Indian wages to work in India, thus helping to build up the competitiveness of the Indian economy and of Indian companies. While I applaud growth of foreign economies and companies (even though they're competitive, it's in our interests for other countries to be prosperous!), it is pretty clear to me that these arbitrary restrictions on the movement of the best labor is a US-taxpayer subsidy for these foreign corporations at the expense of domestic corporations. This hardly seems to be in our best interests to do.

I'll add one more point from a social perspective, since immigration is a hot topic these days. Many of the most active voices favoring greater restrictions on immigration claim that immigrants are a drain on society, live on welfare, increase crime, etc. They're largely talking about poor and illegal immigrants, and these claims may or may not be true, but we should be very clear about the kinds of people that come in on H1-B visas: these are people we WANT in this country. They are highly educated, highly skilled, highly paid workers. They will educate their kids here (producing the next generation of skilled American workers), they pay taxes and in general are a huge net positive to the economy and to society as a whole.

Personally, I think we should remove numerical caps on H1-B visas altogether and instead restrict them only to the candidate's meeting a bar of likely economic potential. Let the our companies have access to the best talent in the world, wherever that may come from, and have them bring those people here. We're the United States, why should we be afraid of competition?

I'm ditching iTunes

2008-02-24T11:44:00.000-08:00

I've complained here several times in the past about DRM on purchased downloaded music. When Apple release iTunes Plus several months ago, which offered higher-quality recordings of songs and no DRM, I applauded the move and bought a number of songs to show my support. While I'm still happy with iTunes Plus, the selection is too weak, there's no way to specifically browse iTunes Plus songs, and the songs are still in the Apple proprietary AAC format.

Since then, Amazon launched it's MP3 download service, and I have to say I love it. Most songs are $0.89, the rest $0.99 (and albums can bring the per-song cost below that). All songs are MP3, with no DRM, so I don't have to worry about accidentally downloading something that won't play. Amazon automatically inserts the files into my iTunes library, so it seamlessly makes its way onto my iPod. And it is a far better experience to use than iTunes. I find myself buying several songs a week, as I hear them on the radio or remember a song I like - at less than a dollar a track, it's a perfect impulse purchase. And since it doesn't have DRM, I'm not locked in to anybody's proprietary platform - not Apple's, not Microsoft's, not Amazon's. I actually am comfortable that I'll still be able to play these tracks in 20 years.

So I decided to make a clean break. I burned all of my DRM-protected AAC songs to a CD, and then re-ripped them back into my iTunes library as un-protected MP3. (This appears to be kosher to do, since burning to a CD is allowed, and ripping CDs is allowed). I've also converted my iTunes Plus AAC songs to MP3 as well. My entire library is now 100% un-protected MP3. I can listen to songs on my iPod, or any computer in the house, or through my XBox.

I've paid for the songs and don't share them - isn't that precisely what the record companies want their customers to do? So why should I suffer the strait-jacket of DRM? I will never again willingly or knowingly buy a DRM-protected song.

A goofy law

2008-02-24T11:27:00.000-08:00

I assume that I'm no different from many people in that I maintain both a savings account and a checking account. Both pay pitiful interest right now, but the savings account is a bit less pitiful than the checking account, so we keep the bulk of our cash in the savings account and transfer money to checking to cover the checks we write. This obviously maximizes what little interest we get.

Last night, I discovered, that my bank had assessed a $10 "excess activity fee" for too many transfers over the past month. Huh? Upon a bit more research, I discovered that the bank is not just trying to hit me with a gotcha fee (although it sure feels like a gotcha because there was no warning when I did the transfers that I might incur this fee) - they're actually required to do this by the government! Yep, it's something called "Regulation D" that requires that they limit the number of electronic transfers I perform each month to 6. In fact, if I ever exceed the monthly limit a 3rd time, they have to close my account! So I now have one strike against me for the "crime" of trying to cover my checks.

The rationale for this actually does make a bit of sense. A bank needs to keep cash on hand to cover checks in a checking account, but they get a break on the reserves required for savings accounts because of these limits. I think the theory is that if the money is not fully accessible to customers, then the bank doesn't need to keep it on hand - i.e., they can lend it out and make money with it. Hence the need to actually draw a formal distinction between checking and savings accounts: it lets the bank more optimally figure out its required reserves, and maximize the amount of money available for lending.

While this may have made sense in the 1930s (when I believe these regulations were adopted), it has become a silly fiction today. There are two huge loopholes here. The first is that the limit only applies to telephone or internet exchanges. If I were to drag myself to an ATM or to a bank office, I can do a thousand transfers a day with no penalty. The second loophole, of course, is that there is no limit on the amount I can transfer at a time, so I can still write checks for a lot more than is in my checking account and do a big transfer to cover them, meaning that the checking account balance is actually a poor proxy for the amount of cash they need to keep in reserve.

It's the first loophole, though, that annoys me. The only difference I can see between an in-person or ATM transfer and an Internet or telephone transfer is convenience, so it seems to me that the regulations have the net effect of simply punishing convenience. What possible reason is there for that?

These regulations should be re-evaluated and reworked to address the risks and issues in the modern world. I'm not proposing looser regulations around monetary reserves, but it isn't the 1930s anymore, and the 1930s style solutions appear to be showing their age.