Tuesday, June 01, 2010

Quotes of the day

... it is almost impossible to make capitalism work without altruism. If people are not civic-minded you will not get free markets. This is because individual producers are much better off if protected from competition. Businesses generally do not support capitalism in their own industry. To get a free market system you need people willing to put aside their special interests and support open and transparent economic governance.--Scott Sumner

Back at the beginning of the 20th century, only 15 percent of American families had a flush toilet. Not quite one-fourth had running water. Only three percent had electricity and one percent had central heating. Only one American family in a hundred owned an automobile.

By 1970, the vast majority of those American families who were living in poverty had flush toilets, running water and electricity. By the end of the twentieth century, more Americans were connected to the Internet than were connected to a water pipe or a sewage line at the beginning of the century.

More families have air-conditioning today than had electricity then. Today, more than half of all families with incomes below the official poverty line own a car or truck and have a microwave. This didn't come about because of the politicians, bureaucrats, activists or others in "public service" that you are supposed to admire. No nation ever protested its way from poverty to prosperity or got there through rhetoric or bureaucracies. It was Thomas Edison who brought us electricity, not the Sierra Club. It was the Wright brothers who got us off the ground, not the Federal Aviation Administration. It was Henry Ford who ended the isolation of millions of Americans by making the automobile affordable, not Ralph Nader. Those who have helped the poor the most have not been those who have gone around loudly expressing "compassion" for the poor, but those who found ways to make industry more productive and distribution more efficient, so that the poor of today can afford things that the affluent of yesterday could only dream about.--Thomas Sowell

According to uninformed Congresspersons (is there any other kind?), incompetent CEOs, conspiracy-theory-spinning web sites and their equally loopy readers, the hedge funds of America are a latent evil within a corrupt system—the heart of darkness at the end of the long, sad journey into the country’s financial soul. Yet it was the hedge funds that forwarded the Disney goods to the Feds in the first place.--Jeff Matthews

Mr. Obama himself, when running for president, made much of Bush administration distraction and detachment during Katrina. Now the Republican Party will, understandably, go to town on Mr. Obama's having gone before this week only once to the gulf, and the fund-raiser in San Francisco that seemed to take precedence, and the EPA chief who decided to cancel a New York fund-raiser only after the press reported that she planned to attend. But Republicans should beware, and even mute their mischief. We're in the middle of an actual disaster. When they win back the presidency, they'll probably get the big California earthquake. And they'll probably blow it. Because, ironically enough, of a hard core of truth within their own philosophy: When you ask a government far away in Washington to handle everything, it will handle nothing well.--Peggy Noonan

Never before have I seen a CBO Director so bluntly refute the policy claims of a President and his Budget Director.--Keith Hennessey

In fact, many Western nations are, in any objective sense, insolvent. Hence last week’s column, on the EU’s decision to toss a trillion dollars into the great sucking maw of Greece’s public-sector kleptocracy. It no longer matters whether you’re intellectually in favor of European-style social democracy: simply as a practical matter, it’s unaffordable. How did the Western world reach this point? Well, as my correspondent put it, we assumed that we were rich enough that we could afford to be stupid. In any advanced society, there will be a certain number of dysfunctional citizens either unable or unwilling to do what is necessary to support themselves and their dependents. What to do about such people? Ignore the problem? Attempt to fix it? The former nags at the liberal guilt complex, while the latter is way too much like hard work: the modern progressive has no urge to emulate those Victorian social reformers who tramped the streets of English provincial cities looking for fallen women to rescue. All he wants to do is ensure that the fallen women don’t fall anywhere near him. So the easiest “solution” to the problem is to throw public money at it. ... For the more ideologically committed, there’s always the awareness-raising rock concert: it’s something to do with Bono and debt forgiveness, whatever that means, but let’s face it, going to the park for eight hours of celebrity caterwauling beats having to wrap your head around Afro-Marxist economics. The modern welfare state operates on the same principle: since the Second World War, the hard-working middle classes have transferred historically unprecedented amounts of money to the unproductive sector in order not to have to think about it. But so what? We were rich enough that we could afford to be stupid. ... When William Beveridge laid out his blueprint for the modern British welfare state in 1942, his goal was the “abolition of want.” Sir William and his colleagues on both sides of the Atlantic succeeded beyond their wildest dreams: to be “poor” in the 21st-century West is not to be hungry and emaciated but to be obese, with your kids suffering from childhood diabetes. When Michelle Obama turned up to serve food at a soup kitchen, its poverty-stricken clientele snapped pictures of her with their cellphones. In one-sixth of British households, not a single family member works. They are not so much without employment as without need of it. At a certain level, your hard-working bourgeois understands that the bulk of his contribution to the treasury is entirely wasted. It’s one of the basic rules of life: if you reward bad behaviour, you get more of it.--Mark Steyn

Both Europe’s short-term and long-term economic futures do not look bright. The need to bail out Greece, and possibly also Spain, Portugal, and Italy is the immediate problem, but the fundamental problems go much deeper. Relatively rapid economic growth will cure many budgetary imbalances since the challenge is not the size of government debt per se, but its size relative to GDP. A faster growing economy can tolerate sizable growth in government spending as long as the growth rate of its debt is no faster than the rate of growth of GDP. Unfortunately, large government spending and rigid economies, the European approach, tend to both increase the growth rate of government debt, and at the same time lower the growth rate of GDP. As a result, the prospects for rapid growth in most European economies, and for getting government debt under control, are dim unless major reforms are introduced into their welfare state, labor markets, regulatory framework, and other government policies. Europe needs high income and other tax rates in order to finance its system of early retirements and generous pension benefits, especially among its large numbers of government employees, its liberal unemployment benefits, easy access to welfare payments to support unmarried mothers, the care of children, and many other government subsidies. ... High tax rates reduce both the level of income at any moment and the rate of growth of income over time. ... The substantial increase in life expectancy is an enormous benefit of modern medicine and of greater knowledge about healthy personal care. However, longer expected lifetimes have greatly raised pension and health burdens in most European countries since their retirement ages have not increased in proportion to the growth in years lived of older persons. ... States of the US also have a common currency, and also face state-specific shocks since they specialize somewhat in different commodities and services. However, the difficulties states face in adjusting to their economic shocks are reduced by the much greater flexibility of US than European labor markets, and the willingness of many unemployed Americans to move to states that are doing well. ... Apropos of comparisons between US and Europe, the US faces many of the same problems as Europe, but generally they are in a more muted form. The US has more flexible labor markets, lower marginal tax rates, fewer invasive regulations, a smaller welfare state, higher birth rates, greater immigration, more rapid incorporation of immigrants into the general economy, greater encouragement to starting new businesses, greater competition, and many other economic advantages. Nevertheless, the US has large fiscal deficits, and large health care and retirement obligations that will be growing rapidly over time. To manage effectively a growing federal government debt, it is essential that the growth in entitlements be reduced, in part by raising the age of retirement and of access to Medicare. It is also crucial that government policies encourage more rapid economic growth of the American economy. Unfortunately, this is not true of many policies proposed or implemented during the past 18 months.--Gary Becker

It may be useful, even if you are an economic bull, to go back to that spasm in the summer of 1998 when the Asian crisis came back to bite risk assets in the derriere (taking LTCM along for the ride). The S&P 500 was down 20% back then, not 11% as has been the carnage to date this time around. Credit (Baa) spreads widened 120bps, double the 60bp move-out thus far. Oil prices slid 30% back then; putting the recent 20% dive into some perspective. The big difference is that back in 1998, the unemployment rate was 4%, not 10%, and jobless claims were 300k, not 460k. Moreover, the median age of the boomer was 42, not 55, and wasn’t in the hole on his/her net worth by an average of $100,000 from two years earlier and sitting on real estate values that had deflated 30% from the peak.--David Rosenberg

At the margin, do you think that we need more decisions made by government experts and fewer decisions left to decentralized markets? If you consider an issue important (health care, energy, or whatever) and you think that the answer at the margin is more government experts, then you are on the statist side of the battle. If you think that the answer at the margin is more decentralized markets, then you are on the free enterprise side of the battle. It is very hard to resolve the issue empirically. That is because very little empirical analysis focuses on the margins. The empirical arguments that Sumner describes all involve very crude averages. Does the level of government spending represent a good proxy for the marginal propensity to have government experts displace markets in making decisions? I don't know. I am not saying that no one should bother trying to measure the intrusiveness of government, but I think it's hard to expect broad aggregate measures to resolve fundamental disputes. I believe that greater concentration of power in the hands of government experts is wrong for two reasons. First, other things equal, it diminishes the liberty and dignity of the typical individual. Second, I believe that experts systematically over-estimate the value of what they know and under-estimate the value of what they do not know.--Arnold Kling

I look at the world in a very different way. It's partly a matter of being old, but I look at the subway networks in cities, for instance. They also have the N-squared law. If you have a subway network with N routes, its value to the passenger is N squared. That's fine. But once you get to a certain number of routes, like 20 or so, there's very rapid growth, followed by saturation. This will also happen with chips. To some extent, it already has. It's true that the price per megaflop is going down according to Moore's Law, but what you can do with the processing power isn't increasing at the same rate. I remember doing a study on the cost of nuclear power in the 1950s, when people thought it would be very cheap. We studied what the economic effect would be if the cost of electricity were zero. The answer is, "Not much." It costs far more to use electricity than it does to make it. There's about a 5 percent drop in the GNP if electricity is free. So cheap energy is all it takes. The same is true of computing power. ... You can't possibly get a good technology going without an enormous number of failures. It's a universal rule. If you look at bicycles, there were thousands of weird models built and tried before they found the one that really worked. You could never design a bicycle theoretically. Even now, after we've been building them for 100 years, it's very difficult to understand just why a bicycle works - it's even difficult to formulate it as a mathematical problem. But just by trial and error, we found out how to do it, and the error was essential. The same is true of airplanes. There was an attempt at a theory of airplanes, but it was completely misleading. The Wright brothers, in fact, did much better without it. That's what nature did. And it's almost always true in technology. That's why computers never really took off until they built them small ... because it's cheaper and faster, and you can make many more. Speed is the most important thing - to be able to try something out on a small scale quickly. --Freeman Dyson

The best case was that Israel royally pissed off their one ally in the region by illegally boarding Turkish-flagged ship, forcing Turkey to abandon its basically friendly stance. Of course, at the same time, they would have stopped the alarming flow of bandages and metal pipes into Gaza. Yet it's hard to see how this was ever going to be a win. This morning a bunch of people are trying to defend Israel by saying that the protesters attacked first. No, they didn't. Boarding someone's ship in international waters is an attack. To put it another way, how many of the people mounting this defense would criticize Israeli sailors if they attacked a bunch of armed Palestinians who were airdropping, one by one, onto their ship, after firing tear gas grenades in to soften them up?--Megan McArdle

Their argument was that the quality of China's schools was, even more so than in the United States, dependent on the quality of China's teachers. Competing in the new Chinese economy doesn't mean learning about as much as the average person in your town, as it does in much of America. Instead, it means learning way more than the previous few generations, as the 20th Century saw a razing of China's human capital.--Ezra Klein

Shifting somebody from the bottom fifth to the top fifth of the school popularity distribution (in other words, turning a social reject into a star) would be predicted to yield him a 10 percent wage advantage. This work emphasizes the critical importance of the early development of social skills alongside cognitive and productive skills as a basis for economic success in adult life.--Institute for Social and Economics Research

Your average bank decision-maker thought that lending to people with little income, to buy houses, was not that risky. Why this was so is interesting and complex, but I don't think it was as calculated as merely, 'well, I'll get rich lending the money, but won't lose much when it all goes downhill', because your average bank executive, at say Washington Mutual, Wachovia, or KeyCorp, just lost most of their retirement savings, and they won't be getting a do-over.--Eric Falkenstein

[New York City] drivers had to be encouraged to travel at different times of the day. So [Charles Komanoff] devised a new plan, one that charged both drivers and transit riders different rates at different times. It would charge $3 to cars entering the [central business district] on weekday nights, $6 for most of the day, and $9 during rush hour. The subway fare also varies, but is always less than the $2.25 it is today: $1 at night, rising to $1.50 as day breaks, and peaking at $2 during weekday rush hours. Buses are always free, because the time saved when passengers aren’t fumbling for change more than makes up for the lost fare revenue. Komanoff’s plan also imposes a 33 percent surcharge on every taxi ride, 10 percent of which would go to the cab driver and the rest to the city.--Felix Salmon

No comments:

Post a Comment