I have a guilty pleasure....infomercials. Here are 3 of my favorites and a compilation that was accompanied on the Woot blog with the following, hilarious description:
From dogs who stink up your couch to ketchup that dribbles all over your new tie, infomercials have chronicled a litany of "problems" most of us didn't know we had. In tribute to the actors who bring such overwrought panache to their roles as incompetent shlemiels, a YouTube auteur assembled clips from over 50 infomercials depicting all the awful things that can happen when you're not properly equipped. Now, where did I put that Adjust-A-Slice?
Magic Bullet
Better Marriage Blanket
Slap Chop
The compilation
Saturday, May 15, 2010
Friday, May 14, 2010
Information, Coordination, Calculation, and Libertarianism I
I have recently found a really great blog (by a former classmate of mine from grad school) called Facts and other stubborn things. Daniel posts really well thought out pieces on a variety of topics and his posts are well informed and very insightful. Check it out...link to the right------->
He has recently written quite a lot about libertarianism, the Socialist Calculation Debate (SCD), which is linked to on the right hand side of this blog, and its ramifications today. I started this when he had only 2 posts on this but he has been posting things faster than I can respond. So I will respond to each...apologies if my comments are addressed in later posts.
1. http://factsandotherstubbornthings.blogspot.com/2010/05/calculation-problems-vs-incentive.html
First, I'd just like to say that I was fortunate to read the Socialist Calculation Debate in depth with noted Austrian economist Howard Baetjer as an undergraduate in comparative economic systems. It was truly one of the cornerstone moments in my intellectual development and the impetus for a profound chnage in my political and overall world view.
I'd like to address some issues and perhaps clarify some points. Quotes from Daniel are in italics.
the "socialist calculation problem" has never really interested me that much. It just strikes me as so obvious...[the debate came after] my primary influence (Keynes) had made his impression on the discipline, and wrapped itself up before I was even born and with all the modern economists that I admire coming down against Lange and Lerner. Moreover, none of the economists in the interim that I admire - Phelps, Friedman, Hicks, Modigliani, Minsky, Coase, Williamson - really succumbed to the Lange-Lerner infatuation with socialism. I can certainly understand why someone who grew up during the Cold War could maintain an interest in this skirmish even into the twenty-first century, but it doesn't hold any particular interest for me, because it seems so eminently obvious and conclusively decided.
On a cursory reading the SCD is a fairly obvious critique ex post. Socialism clearly failed and history has shown that the failure of the Soviet Union was in a large part due to the problems in central planning of an economy. But I believe that to call it a calculation problem leads one away from the central point of Hayek's essays from 1945 and 1948. In my reading, I find that what is important is not that socialism failed, not that calculation could not be made, per se, not that resources could not be allocated properly, but that market derived prices are so important. The information in market prices is awesome and they are a wonderful example of spontaneous order. The most important, relevant point is that interference in the markets' ability to freely set prices, unencumbered, has to be the very highest priority.
I think Hayek's essays after the war had two points of relevance and he and Keynes were not just two great economists passing in the night as it were. First, historically, Hayek's writings must have been influenced by Keynes at this time. Hayek and Keynes' close relationship, particularly during the war (I love the mental picture of the two of them arguing economics while on fire duty together on the roof of Kings College at Cambridge), must have influenced Hayek's writings at this time. Second, I would argue that while although no one would call Keynes a socialist, he did take an approach that diverged from the classical liberals who dominated economics prior to the Great Depression and placed a heavier emphasis on reliance on government intervention. In some way perhaps, Hayek's essays served to try to influence Keynes to place the priority of market prices higher rather than sacrificing some of their robustness in the pursuit of full employment.
I agree wholeheartedly with Daniel that the framing of the efficient allocation argument has degenerated into a senseless disagreement because of confusion from both sides about calculation and incentives (if I am reading your term incentive problems correctly). Hayek was not writing about incentives in the SCD. The calculation problem exists even in the presence of the so-called benevolent dictator.
I do think that a large portion of the population does believe that government can allocate resources better than individuals. Not economists in general, but this is a widespread belief among a wide swath of the population; even the concept of scarce resources is difficult for many educated, thoughtful people.
Daniel asks 2 questions:
First, is a "market failure" a genuine market failure or is it, as Boettke says, an opportunity for arbitrage? If it's just an opportunity for arbitrage then "market failure" is a misnomer. If it is a genuine market failure, we then of course have to ask ourselves what the best solution is. In some cases a public solution will be appropriate, and in some cases a private solution will be appropriate.
Unlike Boettke, I differentiate between market failures and information problems. They are overlapping sets, but do not share all elements. Strictly speaking, I think the term market failure is misused as many problems are attributed to market failures, but no market is without distortions. I have no reason to believe that a truly free market won't arbitrage away market failures, but show me a free market. Information problems are another story. Information problems is one area in which I split with the Austrians. There is overwhelming evidence that information problems exist, even in the most transparent environments and, as the amount of information has exploded exponentially in the recent past, there is no way to sort through it all. At its most basic level, both buyers and sellers have the incentive to work in their own best interest, but it is much easier to hide information from each other now or mislead and both sides are usually at fault.
The second question is: [D]oes the admitted fallibility of the state preclude a public solution or doesn't it[?]
Given that the state is fallible, we should not expect a solution, simply a Pareto improvement at best. I would also suggest that any "solution" is an intervention subject to the risk of the Theory of the Second Best. I also invoke Bastiat here: "There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen." These ideas can be applied easily to the example of the carbon emissions Daniel gives. A negative externality exists, the lack of a market (because of no property rights) creates a public bad. This is not a market failure and not an area (sorry anarcho-capitalists) that property rights will fix (true for many externalities). What Daniel suggests is directly in line with my thinking about Pareto improvement. However, where we differ is how to deal with it. I am not entirely convinced that a small tax is better than doing nothing. A tax costs overall welfare, a tax on carbon emitters has enforcement costs, and a broadly applied tax has free rider problems. I would be in favor of tax cuts for carbon emitters and shift the burden of proof of reduction of carbon emissions to the companies if they want to take advantage of the tax cuts, vastly reducing enforcement costs.
More to come
He has recently written quite a lot about libertarianism, the Socialist Calculation Debate (SCD), which is linked to on the right hand side of this blog, and its ramifications today. I started this when he had only 2 posts on this but he has been posting things faster than I can respond. So I will respond to each...apologies if my comments are addressed in later posts.
1. http://factsandotherstubbornthings.blogspot.com/2010/05/calculation-problems-vs-incentive.html
First, I'd just like to say that I was fortunate to read the Socialist Calculation Debate in depth with noted Austrian economist Howard Baetjer as an undergraduate in comparative economic systems. It was truly one of the cornerstone moments in my intellectual development and the impetus for a profound chnage in my political and overall world view.
I'd like to address some issues and perhaps clarify some points. Quotes from Daniel are in italics.
the "socialist calculation problem" has never really interested me that much. It just strikes me as so obvious...[the debate came after] my primary influence (Keynes) had made his impression on the discipline, and wrapped itself up before I was even born and with all the modern economists that I admire coming down against Lange and Lerner. Moreover, none of the economists in the interim that I admire - Phelps, Friedman, Hicks, Modigliani, Minsky, Coase, Williamson - really succumbed to the Lange-Lerner infatuation with socialism. I can certainly understand why someone who grew up during the Cold War could maintain an interest in this skirmish even into the twenty-first century, but it doesn't hold any particular interest for me, because it seems so eminently obvious and conclusively decided.
On a cursory reading the SCD is a fairly obvious critique ex post. Socialism clearly failed and history has shown that the failure of the Soviet Union was in a large part due to the problems in central planning of an economy. But I believe that to call it a calculation problem leads one away from the central point of Hayek's essays from 1945 and 1948. In my reading, I find that what is important is not that socialism failed, not that calculation could not be made, per se, not that resources could not be allocated properly, but that market derived prices are so important. The information in market prices is awesome and they are a wonderful example of spontaneous order. The most important, relevant point is that interference in the markets' ability to freely set prices, unencumbered, has to be the very highest priority.
I think Hayek's essays after the war had two points of relevance and he and Keynes were not just two great economists passing in the night as it were. First, historically, Hayek's writings must have been influenced by Keynes at this time. Hayek and Keynes' close relationship, particularly during the war (I love the mental picture of the two of them arguing economics while on fire duty together on the roof of Kings College at Cambridge), must have influenced Hayek's writings at this time. Second, I would argue that while although no one would call Keynes a socialist, he did take an approach that diverged from the classical liberals who dominated economics prior to the Great Depression and placed a heavier emphasis on reliance on government intervention. In some way perhaps, Hayek's essays served to try to influence Keynes to place the priority of market prices higher rather than sacrificing some of their robustness in the pursuit of full employment.
I agree wholeheartedly with Daniel that the framing of the efficient allocation argument has degenerated into a senseless disagreement because of confusion from both sides about calculation and incentives (if I am reading your term incentive problems correctly). Hayek was not writing about incentives in the SCD. The calculation problem exists even in the presence of the so-called benevolent dictator.
I do think that a large portion of the population does believe that government can allocate resources better than individuals. Not economists in general, but this is a widespread belief among a wide swath of the population; even the concept of scarce resources is difficult for many educated, thoughtful people.
Daniel asks 2 questions:
First, is a "market failure" a genuine market failure or is it, as Boettke says, an opportunity for arbitrage? If it's just an opportunity for arbitrage then "market failure" is a misnomer. If it is a genuine market failure, we then of course have to ask ourselves what the best solution is. In some cases a public solution will be appropriate, and in some cases a private solution will be appropriate.
Unlike Boettke, I differentiate between market failures and information problems. They are overlapping sets, but do not share all elements. Strictly speaking, I think the term market failure is misused as many problems are attributed to market failures, but no market is without distortions. I have no reason to believe that a truly free market won't arbitrage away market failures, but show me a free market. Information problems are another story. Information problems is one area in which I split with the Austrians. There is overwhelming evidence that information problems exist, even in the most transparent environments and, as the amount of information has exploded exponentially in the recent past, there is no way to sort through it all. At its most basic level, both buyers and sellers have the incentive to work in their own best interest, but it is much easier to hide information from each other now or mislead and both sides are usually at fault.
The second question is: [D]oes the admitted fallibility of the state preclude a public solution or doesn't it[?]
Given that the state is fallible, we should not expect a solution, simply a Pareto improvement at best. I would also suggest that any "solution" is an intervention subject to the risk of the Theory of the Second Best. I also invoke Bastiat here: "There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen." These ideas can be applied easily to the example of the carbon emissions Daniel gives. A negative externality exists, the lack of a market (because of no property rights) creates a public bad. This is not a market failure and not an area (sorry anarcho-capitalists) that property rights will fix (true for many externalities). What Daniel suggests is directly in line with my thinking about Pareto improvement. However, where we differ is how to deal with it. I am not entirely convinced that a small tax is better than doing nothing. A tax costs overall welfare, a tax on carbon emitters has enforcement costs, and a broadly applied tax has free rider problems. I would be in favor of tax cuts for carbon emitters and shift the burden of proof of reduction of carbon emissions to the companies if they want to take advantage of the tax cuts, vastly reducing enforcement costs.
More to come
Thursday, May 13, 2010
Gloomy outlook from John Judis
An article on some of the reasons why the US isn't out of the woods wrt the crisis.
H/T: Coordination Problem
H/T: Coordination Problem
Facebook privacy
A subject that keeps coming up...but this author takes the wrong approach. Don't like it? Delete your account. What could be more harmful to Facebook than it losing its market share and weakening its expected IPO?
Not to say it's not happening.
Not to say it's not happening.
"How government support and less competition is fueling Wall Street’s revival"
A good article on the banking sector response to the bailouts.
A good piece on the Greek crisis
Here is a link to a pdf that summaries the Greek crisis in a neat, concise way.
Wednesday, May 12, 2010
Tyler Cowen Article
A great article on Tyler Cowen...one of the most interesting economists and true renaissance man.
Paper on economic enlightenment
Daniel Kuehn over at Facts and other stubborn things has a good piece on this paper from Econ Journal Watch.
Negative equity in the US housing market
If you want to know why the real estate market is frozen...
http://calculatedriskimages.blogspot.com/2010/05/negative-equity-by-state-q1-2010.html
http://calculatedriskimages.blogspot.com/2010/05/negative-equity-by-state-q1-2010.html
Taking a new tack
This blog is going to be less opinion and more of a venue to post interesting things and some ramblings about sports. Sorry, but I am now in a position where I can't be controversial.
Friday, September 18, 2009
MR Fri, Jan 6 2006
So I have an enormous collection of blog posts that I have saved over the years that I wanted to comment on. I am going to try to go through them whenever possible. Here is the first from Marginal Revolution, one of my all time favorites.
Tyler Cowen writes:
What does a recipe maximize?
By Tyler Cowen on Food and Drink
Brad DeLong's daring but unsound cinnamon gambit led me to wonder what a recipe is intended to do. I see at least two possibilities:
1. A food recipe is designed to put you on the highest indifference curve possible, taking into account market prices and constraints.
2. A food recipe is designed to taste as good as possible, ignoring market prices and constraints. Bring on the caviar.
Cookbooks by famous chefs are more likely to fall into #2. The chef makes money not just from the cookbook but also from TV appearances, endorsements, and other ancillary products and activities. You might resent having spent so much on the saffron, but if it tasted good you will praise and value the chef. Few people will visit the restaurant of a man who shows you how to find cheaper potatoes.
Knowing this, how should you adjust recipes? It depends on the quality/price gradient. You could cut back on the most expensive ingredients, cut back on all ingredients, or perhaps add more spices and buy a quality of meat lower than suggested. At the very least you should cut back on your labor input and take shortcuts. This is in fact what most home cooks do, relative to the recipes they use. You don't really peel all those boiled almonds, do you? Don't feel guilty, just ponder the first-order conditions, smile, and gulp it down.
If you have a not-very-clearly-branded cookbook, you might be better off following the instructions to the letter. They are hoping to make money from happy book buying cooks, not ancillary food products. If the recipe is old enough, it is hard to predict the direction in which relative prices have changed, but at the very least wages have probably gone up. So you are back to making adjustments and taking some extra shortcuts to stay on your highest possible indifference curve.
If the recipe is from a supermarket, cut back on the high-margin items. Use more canned goods and less expensive cheese, relative to what is suggested. (Hey, what about blog recipes?)
Lunchtime Pho with Alex contributed to these ideas; I enjoyed the food but I believe the restaurant followed #1. I spent $6.45. Comments are open.
In my opinion, I am not sure that the two possibilities Tyler suggests are the only possibilities for recipes in cookbooks. However, a chef is certainly constrained by market prices, but I don't believe that putting the customer on the highest indifference curve possible is enough. Chefs are driven in part by ego, and the idea of someone achieving satisfaction derived from perceived value is inconsequential to the chef. I offer a third restaurant applicable option: A recipe is intended to taste as good as possible given market constraints.
Tyler Cowen writes:
What does a recipe maximize?
By Tyler Cowen on Food and Drink
Brad DeLong's daring but unsound cinnamon gambit led me to wonder what a recipe is intended to do. I see at least two possibilities:
1. A food recipe is designed to put you on the highest indifference curve possible, taking into account market prices and constraints.
2. A food recipe is designed to taste as good as possible, ignoring market prices and constraints. Bring on the caviar.
Cookbooks by famous chefs are more likely to fall into #2. The chef makes money not just from the cookbook but also from TV appearances, endorsements, and other ancillary products and activities. You might resent having spent so much on the saffron, but if it tasted good you will praise and value the chef. Few people will visit the restaurant of a man who shows you how to find cheaper potatoes.
Knowing this, how should you adjust recipes? It depends on the quality/price gradient. You could cut back on the most expensive ingredients, cut back on all ingredients, or perhaps add more spices and buy a quality of meat lower than suggested. At the very least you should cut back on your labor input and take shortcuts. This is in fact what most home cooks do, relative to the recipes they use. You don't really peel all those boiled almonds, do you? Don't feel guilty, just ponder the first-order conditions, smile, and gulp it down.
If you have a not-very-clearly-branded cookbook, you might be better off following the instructions to the letter. They are hoping to make money from happy book buying cooks, not ancillary food products. If the recipe is old enough, it is hard to predict the direction in which relative prices have changed, but at the very least wages have probably gone up. So you are back to making adjustments and taking some extra shortcuts to stay on your highest possible indifference curve.
If the recipe is from a supermarket, cut back on the high-margin items. Use more canned goods and less expensive cheese, relative to what is suggested. (Hey, what about blog recipes?)
Lunchtime Pho with Alex contributed to these ideas; I enjoyed the food but I believe the restaurant followed #1. I spent $6.45. Comments are open.
In my opinion, I am not sure that the two possibilities Tyler suggests are the only possibilities for recipes in cookbooks. However, a chef is certainly constrained by market prices, but I don't believe that putting the customer on the highest indifference curve possible is enough. Chefs are driven in part by ego, and the idea of someone achieving satisfaction derived from perceived value is inconsequential to the chef. I offer a third restaurant applicable option: A recipe is intended to taste as good as possible given market constraints.
Wednesday, September 09, 2009
What is it you are asking for??
A progressive friend of mine posted this on his Facebook today:
This is insanity. Mr. Friedman can't get what he wants in the political arena, so he starts longing for an autocracy of the "enlightened"? No. We should never sacrifice our freedom for expediency. A country populated by free people, even unseated from its seat as the reigning world superpower, is superior in every way to a country populated by prisoners of an autocratic state. This op-ed piece stinks of elitism with a seeping undertone of fascism.
Accompanied by this article. I'm no fan of Friedman, but I am a fan of consistency. The problem for me is that it is precisely freedom that lends itself to expediency. The problem is that progressives talk about freedom but don't really want it. Freedom to fail, freedom to make bad decisions...freedom is not something we can pick and choose from. Either we have it or we don't.
My friend also criticizes the "autocracy of the enlightened". Isn't that what progressives want? "You're too stupid to understand this mortgage." "You are a victim of predatory lending because you don't have an education in finance." "You couldn't possibly understand this health care insurance rider." "You don't have the foresight to plan for your retirement." "You don't have time to compare prices on your utilities." "Let government do all this for you."
Do you want freedom or not???
This is insanity. Mr. Friedman can't get what he wants in the political arena, so he starts longing for an autocracy of the "enlightened"? No. We should never sacrifice our freedom for expediency. A country populated by free people, even unseated from its seat as the reigning world superpower, is superior in every way to a country populated by prisoners of an autocratic state. This op-ed piece stinks of elitism with a seeping undertone of fascism.
Accompanied by this article. I'm no fan of Friedman, but I am a fan of consistency. The problem for me is that it is precisely freedom that lends itself to expediency. The problem is that progressives talk about freedom but don't really want it. Freedom to fail, freedom to make bad decisions...freedom is not something we can pick and choose from. Either we have it or we don't.
My friend also criticizes the "autocracy of the enlightened". Isn't that what progressives want? "You're too stupid to understand this mortgage." "You are a victim of predatory lending because you don't have an education in finance." "You couldn't possibly understand this health care insurance rider." "You don't have the foresight to plan for your retirement." "You don't have time to compare prices on your utilities." "Let government do all this for you."
Do you want freedom or not???
Friday, September 04, 2009
Healthcare debate
So people are getting heated up about the whole healthcare debate. The sad thing is how much bad information there is out there and how each side is using scare tactics and lies to prove their points. Recently, a Facebook status line went up that said, "
Today, I watched this video:
What a terrible argument! First, using the post office as an example of well run government institutions is a bad idea. Second, the problem with insurance companies are not their profits. It is the government endorsed monopolies that drive costs up. If the market structure were more competitive there would be less money for political campaigns, not to mention the oversight that is this is the case, then it means that government run health insurance would still be subject to political pressures from the rich and corporations such as drug companies. Third, the idea that only the rich can invest is just nonsense. Anyone with a 401k is probably invested in some insurance companies. That's why retirement savings for many plummeted when AIG went down. Fourth, any economist will tell you that if the market were more competitive, that just denying claims would not result in higher profits and that given a choice, people would switch from one provider to another, making denying claims less profitable. Fifth, even the writers of this didn't believe it when they said that the government would spend a higher percentage of tax revenues on healthcare rather than administrative costs. "Probably much more." Ever hear of government waste? Sixth, the Medicare argument is a terrible one to make. There is some debate, but you have to look beyond just the dollars in and dollars out or you are missing the picture. Seventh, the problem with comparison to private free market insurance is that we don't have that now and any comparison of our current state to free market insurance is simply incorrect. Also, police, fire and water treatment are run by localities and states, not at the federal level. So a blanket statement about how well they are run is comparing apples and oranges. Eighth, people do buy fire insurance. This is a horrible straw man argument that only can serve to inspire panic, and, money from your paycheck DOES go to pay the fire company!!! Again, people, this is NOT free!!! I mean it is so funny how the narrator even says, "free for everyone, paid for by our tax dollars." How can you miss this disconnect?!?!
So anyway, one of my main problems is the fact that all of these seem to suggest, if not outright state, that these things are free. Nothing is free!! There is a cost to providing all government services but no one wants to talk about just how that will happen. Medicare and Medicaid are so expensive they are nearly bankrupting the states and the federal government! I would guess that no one who is advocating for this universal healthcare would like to be on Medicaid. Guess what people...Medicaid denys your claims too!!
The first step in heath care reform has to be to lower costs. One of the most effective ways to do this is by throwing a little antitrust legislation at the insurance companies. Let's start with that and go from there.
no one should die because they cannot afford health care, and no one should go broke because they get sick. If you agree, please post this as your status for the rest of today.
This piece of propaganda is so full of misinformation. First, every hospital is required to care for anyone regardless of ability to pay. Therefore, how can you say people die because they cannot afford healthcare? Secondly, if you cannot afford heathcare we have systems to pay for you: Medicaid and Medicare. If you are still dying, then there must be a problem with Medicaid and/or Medicare. Finally, preventing people from going broke if they get sick is a appeal to emotion that is fraught with problems. If I get sick, should I be paid my full salary? It is not the cost of care alone, it is these costs plus the lost wages. So who is going to pay my salary when I get sick? If we did that we would bankrupt every company in the US.Today, I watched this video:
What a terrible argument! First, using the post office as an example of well run government institutions is a bad idea. Second, the problem with insurance companies are not their profits. It is the government endorsed monopolies that drive costs up. If the market structure were more competitive there would be less money for political campaigns, not to mention the oversight that is this is the case, then it means that government run health insurance would still be subject to political pressures from the rich and corporations such as drug companies. Third, the idea that only the rich can invest is just nonsense. Anyone with a 401k is probably invested in some insurance companies. That's why retirement savings for many plummeted when AIG went down. Fourth, any economist will tell you that if the market were more competitive, that just denying claims would not result in higher profits and that given a choice, people would switch from one provider to another, making denying claims less profitable. Fifth, even the writers of this didn't believe it when they said that the government would spend a higher percentage of tax revenues on healthcare rather than administrative costs. "Probably much more." Ever hear of government waste? Sixth, the Medicare argument is a terrible one to make. There is some debate, but you have to look beyond just the dollars in and dollars out or you are missing the picture. Seventh, the problem with comparison to private free market insurance is that we don't have that now and any comparison of our current state to free market insurance is simply incorrect. Also, police, fire and water treatment are run by localities and states, not at the federal level. So a blanket statement about how well they are run is comparing apples and oranges. Eighth, people do buy fire insurance. This is a horrible straw man argument that only can serve to inspire panic, and, money from your paycheck DOES go to pay the fire company!!! Again, people, this is NOT free!!! I mean it is so funny how the narrator even says, "free for everyone, paid for by our tax dollars." How can you miss this disconnect?!?!
So anyway, one of my main problems is the fact that all of these seem to suggest, if not outright state, that these things are free. Nothing is free!! There is a cost to providing all government services but no one wants to talk about just how that will happen. Medicare and Medicaid are so expensive they are nearly bankrupting the states and the federal government! I would guess that no one who is advocating for this universal healthcare would like to be on Medicaid. Guess what people...Medicaid denys your claims too!!
The first step in heath care reform has to be to lower costs. One of the most effective ways to do this is by throwing a little antitrust legislation at the insurance companies. Let's start with that and go from there.
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