Showing posts from September, 2008

Banks and libertarianism

I would argue the following. If banks have negative economic externalities, such as causing boom and bust cycles, and such as causing large-scale economic disruption when failing; then you cannot consistently believe in libertarian principles, while also being in favor of banks. I have described previously how banks are inherently volatile and prone to collapse based on rumors alone - unless their depositors are insured with a system, such as the Federal Reserve, which can print money freely. On the other hand, if banks and bank-like institutions are protected like this, then they require regulation to avoid moral hazard leading to exploitation of the money printing facility. The stability of banks thus inherently goes hand in hand, not only with big government, but big government with the ability to print money freely. I suppose that, to libertarians, this should be anathema. There is no greater power in the world than to have hundreds of millions rely on your currency, while y

Monetary supply: The role of borrowing in economic growth

Note: This article is concerned with a less important issue than my previous post. The question of monetary supply becomes simple if we first recognize the fundamental issue of whether, in the first place, we need banks. In my previous article, Without banks: A proposal for a prosperous and stable economy , I discussed the role of banks in the money supply. I described how an economy with institutions that lend long and borrow short is inherently volatile and exposed to risk. I proposed that this volatility and risk could be avoided by phasing out the institutions that lend long and borrow short - eventually banning this business model altogether; requiring that all loans be covered by credit explicitly provided for the duration of the loan. Towards the end of that article, I added a monetary proposal: shifting to a fixed, or predictable, volume of currency. Central banks, with their ability to print limitless amount of money, currently exist for two purposes. One purpose is reaso

Without banks: A proposal for a prosperous and stable economy

After reading Nouriel Roubini's The Shadow Banking System is Unravelling , I wonder if there's any real place, in an economy that wants to be robust, for institutions that lend long and borrow short. The most obvious such institutions are deposit-taking banks, but as Roubini explains, many other organizations work like that, including broker-dealers, hedge funds, private equity groups, structured investment vehicles and conduits, money market funds and non-bank mortgage lenders. The problem with institutions that borrow short and lend long is that they are inherently volatile. They subject the economy to wild rides, while spreading a systemic risk of failure. In normal operation, even if the amount of actual currency issued by a central bank is held constant, these short borrowers - long lenders cause a varying supply of money. When you deposit $100 at the bank, you think and act as though you still have $100, but in fact, your bank has gone right out and loaned $90 or more

The Silver Rule

I recently realized, while reading up on Confucius , that all my life I've been led by the Silver Rule: Adept Kung asked: "Is there any one word that could guide a person throughout life?" The Master replied: "How about 'shu' [reciprocity]: never impose on others what you would not choose for yourself?" [Analects XV.24, tr. David Hinton] The Wikipedia article states that this is equal to the Golden Rule, just stated in negative form. I find this not to be the case. I rejected the Golden Rule when I was little. My father mentioned it to me several times in an attempt to teach me about life. I just found it dumb, but in a confusing way. I didn't know exactly why. Here's what the Golden Rule says: Matthew 7:12: "So in everything, do to others what you would have them do to you [...]" Luke 6:31: "Just as you want others to do for you, do the same for them." Note that this form of the statement arises primarily out of the

Qualifications of writers at The Economist

The Economist is pretty much the only magazine I find worth reading - all the other magazines I've picked up many times, from Business Week to Newsweek to TIME, are utter crap. However, I have now realized why contributors to The Economist are never signed. I used to naively think that it was because of some professional or integrity related principle. Perhaps that editors have as much input in any article as the authors do. Perhaps that the magazine is more important than the authors. Nope. The reason could have something to do with that The Economist attempts to be a serious, considered publication that has weight. Apparently, though, the individual authors don't have such weight . Don't get me wrong. Megan McArdle seems like an intelligent, above-average and intellectually well-versed person with lots of opinions I agree with - except, perhaps, on what best to do with the hard-core homeless people. She wants to take good care of them. But her bio basically states

The cost of supporting the hard-core homeless

This is just outrageous. According to this, people who use homeless shelters are of three kinds: One or two nights only. These people get on their feet and never come back. About 80% of people. People who come periodically and stay for several weeks at a time. Mostly druggies. Hard-core homeless, keep coming back all the time. About 2,500 of them. Well, it turns out that the cost of that humble cot those hard-core homeless sleep in every night is about $66 dollars per night. So each one of those 2,500 hard-core homeless causes New York City damage to the tune of $24,000 a year - just for the cot alone. But it gets worse. Boston Health Care for the Homeless Program, a leading service group for the homeless in Boston, recently tracked the medical expenses of a hundred and nineteen chronically homeless people. In the course of five years, thirty-three people died and seven more were sent to nursing homes, and the group still accounted for 18,834 emergency-room visits--at a minimum cost

Too big to exist

Senator Bernie Sanders recently remarked this in his comments on the crisis: This country can no longer afford companies that are too big to fail. If a company is so large that its failure would cause systemic harm to our economy, if it is too big to fail, then it is too big to exist. If it is too big to fail, it is too big to exist. We need, as a Congress, to assess which companies fall in this category. Bank of America is certainly one of them. Those companies need to be broken apart. We cannot have companies so huge that if they go under they take the world economy with them. I most certainly agree. There is a tendency these days for companies to grow beyond any economically substantiable limit. Corporations grow for the entirely wrong reasons. First and foremost, it is necessary to understand that corporations don't grow because this makes them economically more efficient. Hugeness does not equal efficiency. A huge corporation is, in effect, a small centrally commanded econom

Forest fires and risky interdependencies

I have recently proposed the idea (in a comment to this article ) that government interventions in the economy are a bit like rangers stopping forest fires. In the short run, it seems as though the intervention works to protect the ecosystem, lives, and property. In the long run, the absence of regular small forest fires leads to a proliferation of undergrowth, which causes an eventual big fire that's so strong, it cannot be contained, and it proceeds to destroy everything. Forest rangers have since learned that controlling undergrowth is key to long-term safety, so they will allow small fires to burn, and will even start fires on their own, so as to prevent a spread of undergrowth that might provide fuel for future fires. In the economy, leveraging and other rewarding but risky interdependencies are similar to forest undergrowth. The more such risky interdependencies there are in the economy, the greater the risk of a failure becoming a catastrophe. Such systemic risk cannot b

American income growth over past 25 years

It has become an oft-repeated statement that American middle class household income stayed flat over the past quarter century, and that income gains have been accruing only to the wealthy. That statement has turned out to be false: New Evidence on Taxes and Income (Arthur B. Laffer, Stephen Moore) The new Census Bureau data on income and poverty reveal that many of the economic trends in this country are a lot more favorable than America's detractors seems to think. In 2007, overall real median family income increased to $50,233, up $600 from 2006. The real median income for intact families -- mother and father in the home -- rose to $78,000, an all-time high. [...] Income gains over the last 30 years have been systematically understated due to several factors. These include: Fall in people per household. [...] Earned income tax credit effect. [...] Income mobility. [...] Thanks to Rok Spruk for linking to this.

Debt: let the cataclysm come

In the past few decades running up to the current financial crisis, the United States were increasingly a country of debt. Debt, debt, debt. If you weren't taking on debt, you were being stupid. It was so easy to borrow money, it was so cheap, most businesses were considered stupid not to rely on debt for financing. It was cheap to borrow in the U.S. because the whole world was putting their savings into the United States , so there was too much money chasing too few investment opportunities. Year after year after year, decade after decade, this opium of cheap money persisted, to the point that the largest financial companies in the U.S. became so dependent on borrowing, they could not survive without. Then came a realization that ridiculously large amounts of money have been malinvested. This was caused by subprime mortgage. Then, in a matter of several months, the ability to borrow disappeared. Now, every single damn business whose viability has come to depend on borrowing i

Saudi Arabian judge okays killing satellite broadcasters

This is how insane Saudi Arabia is: The most senior judge in Saudi Arabia has said it is permissible to kill the owners of satellite TV channels which broadcast immoral programmes. [...] The judge made the comments on a state radio programme. He was speaking in response to a listener who asked his opinion on the airing of programmes featuring scantily-dressed women during the Muslim holy month of Ramadan. Consider that, in their country, such attitudes can be considered normal. This is a country where pretty much all citizens live not from productive work, but from oil. These days, a barrel brings over $100. It takes $2 to extract it out of the ground. Most of the difference goes to Saudis and their likes. As a result of the whole country being financed by oil, they have the luxury of maintaining a "school" system which consists entirely of learning Qur'an, indoctrinating citizens with all sorts of dysfunctional, extremist religious abominations. The only reason

The ridiculous plot of Stargate Atlantis

My wife likes to watch Stargate Atlantis, and she also used to like Stargate SG-1. If you didn't watch the original Stargate, the movie, the fundamental concept is interesting. Stargates are devices built by ancient aliens that permit almost instantaneous travel between planets. This much makes sense, and is a good speculative basis that provided a solid foundation for the film, and could be extended into a good series of stories. The Stargate SG-1 series bastardized this idea in a number of ways. To an extent, one can excuse issues such as that most planets have Earth-like atmosphere and gravity, and that inhabitants are or resemble humans. Such planets make sense if the ancient race chose to place stargates on planets where they could live, and the story has a reasonable explanation why humans are spread across the galaxy. Also to an extent, one can excuse the fact that half the planets look like Canada. It's a TV show. They have to make 20 or so episodes every year. They

Evidence-Based Medicine

Robin Hanson and Free Exchange have recently focused attention on this amusing paper satirizing Evidence-Based Medicine - the über-strict drug licensing approach that has been a major factor in the exorbitant cost of bringing new drugs to market. A couple of snippets from the paper: Smith GCS, Pell JP. (2003). Parachute use to prevent death and major trauma related to gravitational challenge: systematic review of randomised controlled trials. BMJ, 327(7429), 1459-1461. [...] Results We were unable to identify any randomised controlled trials of parachute intervention. Conclusions As with many interventions intended to prevent ill health, the effectiveness of parachutes has not been subjected to rigorous evaluation by using randomised controlled trials. Advocates of evidence based medicine have criticised the adoption of interventions evaluated by using only observational data. We think that everyone might benefit if the most radical protagonists of evidence based medicine or

Google strikes blow to Microsoft with new browser

Microsoft can now officially feel yet more threatened: Google has released a beta version of Chrome, its new browser. A harbinger of things to be is this text from their "Why?" page: [...] We also built V8, a more powerful JavaScript engine, to power the next generation of web applications that aren't even possible in today's browsers. This is just the beginning - Google Chrome is far from done. [...] Microsoft has two vast revenue streams: Windows, and Office. Google already has web-based competition for Office, but online applications are still severely hampered by the capabilities of today's browsers. For now, this has tilted the playing field in favor of traditional applications that install on the user's machine, providing superior functionality. But if Google's browser gets widespread adoption, it appears certain to lead the way into support for more advanced browser features which will allow online web applications to become more capable of compe

Planned public transportation in Santiago

Felix Salmon publishes a post relating to Santiago's failed attempt to convert a free-er, competition-based public transportation system into a more "planned" and highly regulated one. He relates an email exchange he had with Austan Goolsbee, now Barack Obama's economics advisor, where Mr. Goolsbee argued: Are you under the impression that replacing competing companies with a few giant firms and then removing all incentives to the drivers is a good idea? It is a recipe for monopolization. Prices will rise and delays will get worse. And, indeed : Almost overnight, the new "planned" system cut mass transit ridership, increased congestion everywhere in the city, and tripled average commute times from forty minutes to two hours. As President Michelle Bachelet later said in a speech, "It is not common for a president to stand before the nation and say 'Things haven't gone well.... But that is exactly what I want to say in the case of Transantiago...