Tuesday, June 30, 2009

Monday, June 29, 2009

Markets in education

City Journal reviews The Beautiful Tree, A Personal Journey Into How the World' Poorest People Are Educating Themselves:
But while on a sightseeing excursion to the city’s teeming slums, Tooley observed something peculiar: private schools were just as prevalent in these struggling areas as in the nicer neighborhoods. Everywhere he spotted hand-painted signs advertising locally run educational enterprises.
When he related his Hyderabad discovery at the World Bank office in Delhi, for example, one staffer “launched into a tirade”: such private schools, she said, were ramshackle and shoddy; they ripped off the poor by charging money for worthless instruction; their owners were motivated solely by profits; and their teachers were unqualified, unskilled, and ineffective.
The data Tooley unearthed are fascinating. Not only do networks of private schools for the poor exist across the developing world—networks that emerged without any government- or NGO-sponsored help—but their students learn far more than do those of government- and NGO-funded public schools.
Milton Friedman would love this book.

Sunday, June 28, 2009

The battle over CRA

Over at businessinsider.com, John Carney writes:
The CRA led directly to lending practices that included extremely low to nonexistent down payments, outrageous loan to value ratios and other "innovations" that later became some of the best predictors of defaults and foreclosures.
The comments are interesting, as a variety of people either misrepresent his position (CRA was the source of all problems) or deny that it had anything to do with the meltdown. The reasonable position, it seems to me, is that it was one stream of many that combined to produce the river of disaster we experienced.

(A number of years ago at a financially-struggling college that I know something about, the president kept telling the faculty that retention was all important and that they needed to keep that in mind. When asked if that meant lowering standards, he would vigorously deny that he wanted standards lowered, but never provided any meaningful guidance as to what it was the faculty should be doing. Pretty much all the faculty accepted that what he really wanted was lower standards but he could not say that. The Fed's denial that CRA was intended to lower lending standards seems to be pretty similar to the college-retention situation.)

Saturday, June 27, 2009

Why are politicians creeps?

Mark Steyn's explanation of why politicians are creeps:
The more the citizenry expect from the state, the more our political class will depend on ever more swollen Gulf Emir–sized retinues of staffers hovering at the elbow to steer you from one corner of the fishbowl to another 24/7. “Why are politicians so weird?” a reader asked me after the Sanford press conference. But the majority of people willing to live like this will, almost by definition, be deeply weird. So big government more or less guarantees rule by creeps and misfits.

Global warming?

According to an article in the Winnipeg Free Press, spring has been late in the Canadian arctic this year:
It is the winter that refuses to go away in northern Manitoba and most of the eastern Arctic.

Prolonged cold snowy conditions in the Hudson Bay area are expected to obliterate the breeding season for migratory birds and most other species of wildlife this year.

There are two explanations for why we have this unusual spring. One is the global warming theory of greenhouse gasses, explained in the article:
According to NOAA scientists, although the Arctic is warming, more frequent annual oscillations in temperature are likely to occur, often resulting in late springs.

"Such major oscillations are part of a bumpy ride toward global warming," said Thomas Karl of the National Climate Center. "For awhile at least this will be the shape of things to come."

The other is a solar output theory, which notes that solar activity is not only at a low point in its cycle, but this cyclical low is unusually low. One of the problems is that the global warming theories seem to be non-falsifiable--they can be used to explain any and every event. That makes them non-scientific.

The Obama administration is betting big on the greenhouse theory even though there is increased skepticism about it among scientists. Time will tell if that is a good bet.

(It is remarkable how little attention the late arctic spring has gotten in the press. Shouldn't this be a bigger story? Thousands of adolescent geese will freeze to death this fall because they will not be big enough to fly south. Maybe the animal rights people should be mounting rescue efforts.)

Friday, June 26, 2009

Someone beat me to it

I have thought for several years it would be fun to do a blog that summarizes news from the 1930s day by day, but I do not have the time to do it, at least not now. Someone else does.

Tuesday, June 23, 2009

Laffer, Blinder, and Perry on the danger of inflation

Laffers says yes, Perry and Blinder no in the continuing series of excellent posts at Carpe Diem.

Two Samuelsons

In the Washington Post Robert Samuelson ponders the future of the welfare state:
The U.S. welfare state is weakening; insecurity is rising. The sensible thing would be to decide which forms of public welfare are needed to protect the vulnerable and to begin paring others. Our inaction poses another dreary parallel with GM. It was obvious a quarter-century ago that GM the auto company could not support GM the welfare state. But the union wouldn't surrender benefits, and the company acquiesced. Inertia prevailed, and the reckoning came.

The same cycle, repeated on a national scale with sums many multiples higher, would be correspondingly more fearsome.
On Econlog David Henderson defends the legacy of Milton Friedman from snark from Paul Samuelson:
The young interviewer, Conor Clarke, owes a huge debt to Milton Friedman, who did more for him and for every healthy American male under age 54 than Samuelson ever did. I'm referring, of course, to Friedman's "nutty libertarian" crusade against the draft.
The original interview is here.

Saturday, June 20, 2009

It was the economy, stupid.

James Pethokoukis in his Reuter's blog on Obama and the recession:
Obama took a tremendous economic and political gamble last January. The new president had the option of putting forward a stimulus plan that would attempt to reverse or significantly dampen America’s terrible economic downturn ASAP. The quickest and most effective approach would have been a big cut in payroll taxes.

Instead, Obama chose to listen to Rahm “Never let a crisis go to waste” Emanuel and put forward an $800 billion plan that advanced his healthcare, energy and education policy goals — but pretty much neglected the economy in 2009. Team Obama had to fully understand this.

The gamble appears to have failed miserably, both economically and politically.
There was a lot of rhetoric about how serious the economic problems were, but in retrospect, it seems to have been mostly rhetoric. The focus of the Obama administration has not been on getting out of the recession as quickly as possible. They have had other priorities. It will be interesting to see how it plays out.

Update: Arnold Kling argues that the "Obama Administration appears to me to be pursuing many goals, poorly." In a year and a half we will see if their failure to prioritize costs them.

Tuesday, June 16, 2009

Stigma beats dogma

Over at phibetacons.nationalreview.com, a post on stigma beats dogma:
In the battle of ideas, stigma always beats dogma. In other words, through stigmatization, one can defeat a set of ideas or principles without ever "winning" an argument on the merits.
Isn't this what political correctness is all about?

Wednesday, June 10, 2009

The future of the Republican party

They seem to have died down now, but for a while there was a bumper crop of articles speculating on the future of the Republican Party, and how it should reposition itself if it wanted to prosper in the future. Many of these articles were written by people who rarely if ever vote Republican. It was an interesting and revealing phenomenon.

There has rarely been as much euphoria over the results of an election as there were with the victory of Barack Obama. Progressives were quite confident that his election would usher in a new age for American. If you really believe that, you do have to wonder what the future holds for the party that stood in the way of that new age. Further, if the progressives are correct, there is no need for the Republican Party and it should fade into oblivion. Clearly many of those writing articles about the future of the Republicans came from that perspective.

On the other hand, many of those on the right are convinced that the Obama Administration will be a disaster. The problems in foreign affairs will not be solved with clever rhetoric--American power has not been a problem for the world but a blessing, and renouncing that power will result in more wars rather than fewer. The economy suffers not from a lack of government involvement, but rather from too much government involvement. Talking about more regulation and more taxes and more government control of the economy will depress economic activity, not stimulate it. Excessive monetary growth will cause inflation a year or two later. From the point of view of those on the right, the Republicans need only to regain their conservative positions, some of which were lost during the centrist Bush Administration, and wait for the inevitable collapse of Obama.

The Obama Administration is the closest thing to an economic experiment that we have seen in some time. It has embraced Keynesianism and rejected the supply-side view of economics. If it results in bringing peace and prosperity, it deserves to remain in power and the Republicans should become a minor political force. However, if it ushers in an age of inflation and slow growth plus world-wide instability, it deserves to be repudiated and the Democrats should become a minor political force. Neither of these may happen--the results may be somewhere in between. We do, however, live in interesting times.

Laffer on inflation

Writing in The Wall Street Journal, Arthur Laffer joins the list of economists who are worried about inflation in the future.
Alas, I doubt very much that the Fed will do what is necessary to guard against future inflation and higher interest rates. If the Fed were to reduce the monetary base by $1 trillion, it would need to sell a net $1 trillion in bonds. This would put the Fed in direct competition with Treasury's planned issuance of about $2 trillion worth of bonds over the coming 12 months. Failed auctions would become the norm and bond prices would tumble, reflecting a massive oversupply of government bonds.
If we do not see any inflation in the next two years, monetarists will be challenged to explain why. On the other hand, they will look pretty good if we do see it. It is as if the Fed was conducting an experiment to test economic theories. Plus the Obama administration is conducting another experiment about supply-side economics.

Tuesday, June 9, 2009

Jobs created or saved

William McGurn writes in The Wall Street Journal about the notion of jobs created or saved, quoting Greg Mankiw:
"The expression 'create or save,' which has been used regularly by the President and his economic team, is an act of political genius," writes Mr. Mankiw. "You can measure how many jobs are created between two points in time. But there is no way to measure how many jobs are saved. Even if things get much, much worse, the President can say that there would have been 4 million fewer jobs without the stimulus."

Sunday, June 7, 2009

Brand names as signaling

Mazda destroys 4703 new cars, worth about $100 million, to protect its brand name.
Mazda saw no easy way to guard against these outcomes. So it decided to destroy approximately $100 million worth of factory-new automobiles. "We couldn't run the risk of damaging the brand name that Mazda worked so hard over the years to develop," says Jeremy Barnes, the company's corporate-affairs director for North America.

(It is a bit old, but still a good example for why brand names matter.)

Saturday, June 6, 2009

Long-term treasuries

Long-term Treasury bonds have been falling in value as their interest rates have risen, from less than 3% at the beginning of the year to more than 4.5% on Friday. Much of that rise has occurred in the last two months, and has resulted in large losses in some bond funds:
What's stunning about the portfolio declines is the swift plunge in Treasury prices within a short period of time despite the Federal Reserve's buyback purchases intended to hold down interest rates. Benchmark 10-year Treasury yields have surged to levels not seen in more than six months, resulting in meaningful losses for many portfolios.

The 10-year T-note and 30-year Treasury bond are down 8.58 percent and 24 percent, respectively, in terms of price for the year to date.
As a result, the yield curve is very steep. People are still getting almost nothing at the short end, but are demanding much larger returns at the high end. The most interesting question in all of this is, are people expecting an outbreak of inflation as a result of a U.S. government budget that is out of control?

Source of most data is here.

Thursday, June 4, 2009

The press and the president

From Vanity Fair:
These people in this White House are in greater control of the media than any administration before them.

The only thing is, they mustn’t let on that they know it.

Wednesday, June 3, 2009

In praise of Jimmy Carter

Holman Jenkins has words of praise for President Jimmy Carter in his Wall Street Journal column:
In Mr. Carter's day, bankruptcies were scything through the railroad sector, hurtling toward a rendezvous with nationalization. Conrail, an amalgam of failed Northeastern lines, had already been taken over and analysts foresaw a $300 billion bill (in today's dollars) in the likely prospect that Washington would soon have to operate the rest of the nation's freight railroads.
Rail executives and economists had been arguing since the 1920s, when competition from trucks and planes began to emerge, that comprehensive federal regulation had only distorted the industry's pricing, driven away investment, and made competitive adaptation impossible.
It still took some doing on Mr. Carter's part. When the bill stalled, a hundred phone calls went from the White House to congressmen, including 10 by Mr. Carter in a single evening. The bill essentially no longer required railroads to provide services at a loss to please certain constituencies. It meant going up against farmers, labor, utilities, mining interests, and even some railroads....

Tuesday, June 2, 2009

Barbados vs Jamaica

From Newmark's Door.

It's not just Nevada

It's not just Nevada that has legalized prostitution. So does Rhode Island. Found via marginalrevolution.com

Over the line

Playboy recently had a web piece about ten conservative women that they would like to hatef**k. It lasted a few hours before it was taken down after generating a considerable reaction. Some sites, including Politico, showed a cluelessness that was quite remarkable.

Monday, June 1, 2009

Not my alma mater

Found on the SCSU Scholars blog, a note that a team from a town I lived in for several years, Little Falls, MN, won a national economics competition, an impressive achievement. However, I never went to the high school there--I left home to go elsewhere.


This afternoon I stumbled on a set of speakers on CSPAN discussing the future of progressivism (though under the title of the future of conservatism). What struck me was the their position was non-falsifiable. They had great faith in the ability of government to serve the people provided that the right people control government. The right people are the progressives and the wrong people are the conservatives. The present triumph of progressives opens up the possibility of a long reign of progressive rule that can only be stopped by mistakes of the progressives. Hence, if the policies of the Obama administration are disastrous resulting in electoral reversal, it will not be that the progressive policies were flawed. It will be that the people who implemented them were not good enough. True progressives will continue to advocate these policies, arguing that they will work next time provided that better people are carrying them out.

Everyone holds beliefs that are non-falsifiable. However, we should be able to recognize that that these beliefs are not scientific, but rather non-scientific and religious. It does strike me as a bit strange that the progressives seek to discredit conservative policies on empirical grounds (i.e., the present recession shows the failure of laissez-faire policies), but are unwilling to submit, a priori, their policies to similar empirical tests.


Last week the President took his wife on to a Broadway play, flying three planes from Washington to New York, taking a helicopter to Manhattan, and then shutting down traffic as he traveled by car to the theater. It was the kind of outing that even a very rich person would find it difficult to match.

Many of the Left are deeply concerned by the inequality that a market society generates. They seem to be unconcerned by the inequality that democracy, or any other form of government, generates. However, the inequality generated by the political system is greater than the inequality generated by the market. Bill Gates can do a lot of things that I cannot do. But what can he do that the President cannot do? Or senators and congressmen? A rich person can live luxuriously with a huge house, a private jet plane, and a big yacht. Those with political power can live luxuriously not because they personally own things but because they control publicly-owned resources, as the Obamas' trip to New York demonstrates. The rich can give away vast sums of money, but the amounts of money that those with political power can dispense is far greater. Those with political power can do most of the things that those with great wealth can do, and they can also do a variety of things that no amount of wealth allows. No rich person can tax others, or sentence them to jail or to death, or decree what behavior is permissible and what behavior is impermissible. Wealth requires the voluntary cooperation of others to be effective, whereas political power can rely on force and coercion.

Proposals to limit the inequality of the market almost always increase the role of political power, and thus increase the inequality due to the political structure. I do not understand why those who are so concerned with income or wealth inequality are not equally concerned about the inequality of power that is inherent in the political structure. (I also do not understand why they are not concerned about the inequality due to health, family, and natural ability, which also can dwarf income or wealth inequality.) Maybe it is because the political-caused inequality is not easily measured, whereas measuring and comparing different levels of income and wealth is easy.