Thursday, December 30, 2010

(You Should Be) Obsessed With The Deficit

Once a week--sometimes twice a week if I'm feeling frisky--I stop by the Sajak Pavillion and pay a visit to my allergy doctor for a scheduled dose of magic serum that will hopefully increase my tolerance to grass pollens and cats before 2012.  Each visit involves a shot in both arms, followed by a 20 minute waiting period, after which I present my arms for inspection much like a dog presents itself after rolling over in the hopes of earning a treat.  Since there isn't any cell phone reception, the situation requires some reading (only of magazines--don't worry!).  Having exhausted the office's supply of Automotive Weekly magazines, and determining which version of the Porsche 911 I would like (this one), I found myself in some uncharted territory via a November issue of Time magazine.  Enter Joe Klein.

Time, apparently, wanted 2 columnists to write about the same topic, which was the economy.  I think the idea might have been to have 2 opposing viewpoints, which didn't come close to happening.  Anyway, I couldn't let this article go by without comment.

In his article, Klein spends the first however many paragraphs dismissing the sincerity of the most recent promises to reduce the deficit, then announces what he considers to be the "larger problem", which is that people are "spending so much time and effort bloviating about long-term deficits and so little trying to untangle the immediate economic mess that we're in".

"In the long run we are all dead", the famous Keynes quote, does well to describe the problem that Klein ignores.  Politicians focusing on short term problems to gain next-term election have gotten us where we are! What the shit, Joe??!!

In the interest of time (I have to take my little cousins to a place called 'Pump It Up' soon), let's skip down to the last paragraph of the article, so Joe and I can have a nice chat.

Again, I'm not opposed to long-term deficit reduction, so long as it's equitable. 

Remember, this is not the 'larger problem'.  Jobs are fickle--they will come back, as long as government policies don't prohibit them.  If we spend another 3 stimuluses to gain an extra 50,000 jobs, the deficit is even more of a problem.  K?

But I do wonder why these righteous burghers are leading the charge on this particular issue and are so obviously AWOL on a more pressing problem: finding a way to encourage productive investment that creates jobs while discouraging the financial speculation that creates bailouts. 

[looking up the word 'burgher'...right...ok...apparently it means a complacent member of the middle class.]

OK!  So the logic here is that encouraging productive investment is what we need, and the secondary logic is that financial speculation creates bailouts.

Rich people invest money productively. They buy stuff then hire people to run the stuff they buy. This creates jobs, which is our short-term concern in this little exercise. Rich people get more money through lower taxes, which can only be accomplished by lowering deficits.

Also, financial speculation does not cause bailouts.  Politicians' pens cause bailouts.  On a more analytical level, pressure placed on financial institutions by government agency directives leads to irresponsible financial behavior.  Speculation, which by the way is way too vague of a term to possibly have meaning in Mr. Klein's argument, is good because (1) it conveys pricing information to the market, (2) it provides liquidity to markets, (3) it decreases the likelihood of non-competitive pricing by suppliers, (4) it encourages the sustainable level of consumption, and (5) it reduces risks borne by manufacturers by allowing them to pre-sell at a fixed price.

If that last paragraph didn't seem relevant, don't worry; the topic of speculation wasn't relevant in Joe's original article either.

For starters, there needs to be a stiff sin tax on speculation. 

A sin tax! Could Joe be any more anti-free market? Also, how would you determine what "speculation" is? 73

 "Attention, any investment that has a risk of losing more than 10% is sinful and will cost you a tax of $500,000."

At the very least, the resplendent Olympians should work to put their squalid McMansion in order


 — by launching a public-service campaign against excessive executive compensation and devoting their considerable energies to encouraging our smartest young people to go into careers that produce jobs, not deals — before they're allowed to lecture former assembly-line workers about the sacrifices they have to make in order to balance the budget.

[Economic & Business Theory: Explode].  

The Joe Klein Business Interview:

[Joe Klein]: Are you a smart young person?

[College Graduate]: I'm pretty smart--maybe not the smartest.

[JK]: Ok well if you're not the smartest, you can go into a career where they only focus on deals.

[CG]: Huh? Umm, ok, so like...every career?

[JK]: No! The best careers are for the smartest people...the careers that produce jobs.

[CG]: Like I said, I'm not the smartest, but I'm pretty sure that when you make a deal, you need to hire more people to fulfill whatever promises you made in the deal, and that creates jobs.  Am I wrong?

[JK]: I knew it--you are a financial speculator!

Thursday, December 23, 2010

The Invisible Hand Still Reaches For The Hot Girl

From my experience sending out political emails, I understand the value of a catchy subject line, or in this case a catchy post title.  I could have used a title like "laissez-faire economics", which is sort of what this post is about, but then you would have ignored it and signed on to facebook, and now here you are!

Everyone's heard of Adam Smith's famous 'invisible hand', a metaphor for the theory that society's best allocation of resources will be achieved by everyone pursuing their own individual self-interest in a marketplace.  Why then, are firms necessary?  If individuals can go to the market to get everything they need, why do they become involved with firms?  If you think about it, firms are organized in the exact way--centralized, planned, authoritarian--that is rejected by the invisible hand.  It's a question that The Economist takes on.  The answer, they argue, is due to the high transaction costs associated with going to market, as well as the collective expertise that can be achieved by a company of people.

It's the same reason you join any group--to be more successful than you could be on your own.  If you are a great baker but aren't good at accounting, you might want to become part of a bakery so that you can focus on baking and they can keep track of how many people buy your snickerdoodles.  If you are a commercial airline pilot, you need to become part of a firm so they can buy the plane you fly, attract the customers that need you to fly them somewhere, and negotiate with the government to make sure you don't fly in restricted airspace.

I'm reminded of a scene in The Beautiful Mind, the movie about the Nobel-Prize winning economist John Nash.  In the movie, Nash comes to his breakthrough idea when a group of young women walk into the bar, with one of the women being the most attractive:

For the purposes of our little discussion here, let's call this super-hot woman "Hillary Clinton".  The invisible hand would predict that all the guys would hit on Hillary.  But Nash reasons that if everyone tries to impress Hillary, only 1 guy could potentially attract her, leaving the loser guys with no girlfriend.  And the loser guys would not be able to hit on Hillary's friends, because Hillary's friends are offended that they weren't the original target of the guys' affection.  So in Adam Smith's scenario one guy wins and the others lose.  Nash reasons that the best outcome is for all the guys to go after Hillary's friends--and not Hillary at all!  At least then, all the guys would have a girlfriend, even know nobody would be dating a supermodel.  "Adam Smith was wrong", the Nash character announces to his confused friends as he passes by all the Hillarys in the bar to go back and develop his theory.

In both the example of the firm and the 'non-cooperative games' to which Nash's theory is referred, Adam Smith's theory shows some weakness.  As an undergraduate economics student, I was forced to tattoo Adam Smith's name on my left bicep as a show of appreciation for the so-called father of economics.  "How could he be wrong?", I wondered, a foray into philosophy that was surely a result of a hangover and daydreaming during a class I really didn't care about.  I asked this guy, who was my faculty mentor, and remains the smartest person I think I've ever met.  The brilliant power of Adam Smith, he advised, was that despite a couple scratches on the fender, the Smith-mobile is still driving in the fast lane.  (We're using a car metaphor now--try and keep up!).  Despite the odd theory or exception now and then, it still remains mostly true that the best outcome is achieved by everybody doing what's best for them in a market free of coercion.

Taking the position that we are free-market experts, economists from the Chicago School argue that humans are 'economic robots'--that every decision they make is the result of the analysis of all available data related to the transaction.  This of course is not possible--most people can't know if a cotton shirt at Target is cheaper than one at Walmart--but you will try!  Maybe you ask your friends that shop at both places; maybe you know that milk is cheaper at one place than the other and you assume that all prices at that place are cheaper; maybe you're rich and you hire a private shopper to investigate and get you the best price.  In any case, the Chicago school model still might be the best model to use because it just might be the best predictor of what you're going to do.

Free-Market advocates don't have to worry--there is still room on your right bicep for Hillary's initials tattooed inside a heart.

Monday, December 20, 2010

County's First Speed Cameras Will Make People Drive Slower

Newly installed speed cameras on the B/W Parkway will be the county's first examples of the devices, although my extensive dealings in P.G. County have familiarized me with their implementation.  (I try to stay out of Montgomery County, where the use and consequently the avoidance of speed cameras have been perfected.)

So, do speed cameras really work?  Yes!  Of course they freekin' work.  There is a speed camera on one particular road I take to work every day, and when I'm on that part of the road, I'm very careful not to exceed the speed limit.  And I know that this speed camera is in a good spot, because I lost control of my Isuzu Rodeo one rainy day 7 years ago on that exact portion of the road, probably because I was going too fast.

The next question is are they safe.  My pre-research hypothesis was that while the cameras might be successful at reducing speed, they might likely cause more accidents because paranoid drivers like myself would be staring at the speedometer instead of the road.  In fact, a criticism like this stands on strong ground for red light cameras, which have been showed to be a revenue-generator at the expense of driver safety.  To my moderate surprise, speed cameras have been found to decrease not only speeding but also accidents and fatalities.

So, the only downside apparently to speed cameras is that people want to go places fast and now will have to  budget like an extra 200 seconds in their morning for when they have to decrease their speed from 73 mph to 65 mph on 295.  After all, the cameras don't give tickets unless you're a certain amount over the limit.  This is not something that the government should care about, unless they are particularly concerned that the increasing scope of 'big brother' will anger voters and cause them to not get re-elected, which isn't really that good of an argument anyway considering public safety in involved.

But, motorists do have a valid gripe here.  Speed limits are somewhat arbitrary.  I imagine that speed limits are set by politicians who follow the recommendations of traffic engineers who take into account how much the road curves, how wide it is, if kids are playing nearby, and if people usually drink coffee in the car and therefore can only have 1 hand on the wheel.  But do the limits know what time of day it is?  Do they know the weather conditions?  Do they know if you have a vehicle that handles well like my beautiful Ferrari does?  (Note: I do not have a Ferrari).  No, the limits don't know squat--they just sit there posted on signs telling you what you can't do.  How rude.  In fact, you can get a speeding ticket if you are going under the speed limit, if the officer determines that you are driving too fast for the conditions.  If discretion can be applied to determine when a safe speed is less than the posted limit, why can't I put the cruise control on my 7-Series to 71 mph when leaving work from the restaurant at midnight?  (Note: I do not own a BMW 7 series and I also do not work at a restaurant.)

Anyway, it strikes me that speed cameras are one of the most effective ways of reducing speeding and improving safety.

Monday, December 13, 2010

Theft of City Money Goes Unpunished

According to a recent press release, the theft of eleventy billion Annapa-bucks has been fully investigated, with the governing authorities "declining to press charges".

(Elevnty billion Annapa-bucks equal $150,000.  This is an homage to a family in my neighborhood--we'll call them the Smith family to protect their identity--that created 'Smith-bucks' that they gave to their kids when the kids did something good.  The problem came in the currency conversion; Smith bucks were redeemable at a 1 to 1 ratio with real bucks, and the Smith's had to devalue their currency or risk their kids bankrupting the family at a recent Disney vacation.)
Mayor Joshua J. Cohen announces that the Annapolis Police Department has concluded its investigation into the theft of more than $150,000 in checks and cash from the Finance Department. During the course of the investigation, a City employee was identified as a person of interest; however, the Anne Arundel County State’s Attorney’s Office declined to file criminal charges. The person of interest is no longer employed by the City.
I have some sympathy for the city.  You can't always account for every Tom / Dick / Harry that tries to rip you off.  I once had an employee leave a pan of chicken in the oven and run off with a check for $17,000.  He crossed out the company's name and wrote his own name, forged my signature, and made it approximately 45 minutes before the check was cancelled and he was fired.  I'm also currently in the process of installing security cameras, much like the increased measures the city took in response to this matter.

Sometimes it takes a problem to lead you to a better solution.  Much like myself, the city's fortunate this wasn't a bigger disaster.

Saturday, December 4, 2010

10 Random Rules About Life, For People That Are Confused About Stuff

1.  If you choose to cross the street where there isn't a crosswalk, you give up the right-of-way.  A car probably still won't hit you, because they don't want you to fly up and crack their windshield, but you should be aware of oncoming cars and speed up the pace of your walk if the cars have to slow down because of you.  Walking slowly across non-crosswalked portions of roads is frowned upon in the same fashion as is going out in public without wearing pants.

2. If you ride on an elevator with someone, you are not obligated to talk to them, but you should be prepared to make eye contact and smile so they know you aren't creepy.

3. If you have a headache, just take the advil.  Trying to 'tough it out' is not appropriate.

4. There is heavy traffic every day.  Don't be a jackass; leave a little bit earlier for work.

5. Once you have done a task in more than 1 country, you are permitted to describe your execution of that task as "global".  Example: I went to Cancun for spring break; therefore, I am a global traveler.

6. Don't ever say "I'll do this, but I don't want to." If you do something it means you want to do it.  Or you don't want to deal with the consequences of not doing whatever your thing was.  This makes sense, trust me.

7. Bank of America should be avoided at all costs.  If I ever become 'big money' (a.k.a. 'Kate middleton money' or 'find an oil field money'), I swear I will start a bank and you can do your transacting with me.  Every time you make a deposit, we send you a cookie, and when you call customer service it rings my cell phone.  Limit 100 customers.

8. Paying $20 extra to fly economy plus is worth the extra leg room.  Don't be afraid to upgrade!

9. Having multiple vices is a sign of mental stability. Before entering into a relationship that requires you to trust someone, make sure their life involves one of the following things: cussing, alcohol consumption, caffeine addiction, eating too much red meat, driving a car that gets less than 18 mpg, or watching meaningless television. Vices to be avoided include drug abuse, laziness, womanizing, and most actions that would be considered a crime.

10. Don't make fun of people for using technology that you don't know how to use.  Texting, listening to music from a playing-card sized device, etc. are all things that improve the way the work works.  Facebook addiction satisfies an acceptable vice, as described in rule #9.  We like to use gadgets to do stuff, and we don't make fun of you for mailing paper letters or listening to Barry Manilow on 8-track, so back off.