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Saturday, December 29, 2012

Most Democrats Should Want to Go Over the Fiscal Cliff

Hey, guys. I'm back. And 2 days before the New Year!

If Congress can't agree to a deal before the New Year arrives, then a few things happen all at once. The Bush tax rates get repealed, the sequestration budget cuts agreed to in 2011 kick in, and the new taxes on investment income from the PPACA (aka Obamacare) go into effect, and the payroll tax cut unwinds. This is known as the "fiscal cliff", a term popularized by Fed chief Bernanke in his frequent testimonies before Congress on the matter.

As President Obama likes to say, elections have consequences and his side won this November. He's seeking concessions on revenue and spending that the House Republicans are unwilling to give. And although it's widely expected that some form of "patch" will get hurried through to the President's desk before midnight on December 31st, it only forestalls the greater ideological clash: determining the size and scope of the government.

After the Republican Revolution gave Republicans control of the House and Senate for the first time 4 decades, President Clinton declared that "the era of Big Government is over" and then beat the Republicans at their own game of budget balancing and welfare reform. But now it seems like there are countervailing winds and Big Government seems, once again, to be back in vogue in the media, Capitol Hill, and the general public sentiment.

Given all of this, it should be revealing that the Democrats don't have any faith in their own economic ideology. The intellectual heart of the Democratic Party, the opinion pages of the New York Times, has frequently argued that the government needs to spend more and more money. And it needs to deficit spend more than ever to make up for the weak demand of the private sector.

If that's the case, then most Democrats should want to go over the fiscal cliff. Because it would raise more revenue for the government. And that means they have more room to deficit spend. Many Democrats are fond of trumpeting (that last one really isn't a Democratic source, but hey...San Francisco) that each dollar spent by the Federal government has a GDP multiplier of somewhere between 1.5-2 dollars.

Keynesian economics state that when demand is low in the private sector, it's up to the government sector to make up for it by spending a lot of money. If the government has more money, it can increase its deficit spending by the same proportion of revenue increases. The only political risks involved to the Democratic Party are electoral losses in the short term if government spending is unable ramp up quickly enough to offset the loss in private sector wealth.

In the long term, it's already been demonstrated that Federal spending never decreases. So Democrats will eventually get what they want, which perhaps explains the White House's intransigent negotiating position. Personally, I think both parties should go over the cliff just to see what happens, both in the short and long term. I wouldn't mind if the Republican Party goes into the political wilderness for a decade and we essentially had 1 party rule according to Democratic ideology.

When you half-ass government policy, it produces mixed results and whoever has the better spin operation lives to muddle through with a slight upper hand for the next election cycle. That is what's killing American dynamism. It's better to take your licks now and thrive later than to just muddle through.

Tuesday, December 11, 2012

An Unexpected Hiatus

I guess you guys have noticed that updates haven't been very forthcoming for the past couple of weeks. I've decided to suspend the blog for about 3 weeks to take a break. Right now I'm pretty busy with some things in my personal life and my willpower to write has been steadily slipping as we enter the holiday season , but once we're back in the New Year, I'll be back.

Until then, buy index funds and never sell. Oh, and fixed income is in a bubble.

Thursday, December 6, 2012

The Importance of Being Burnished

I was at a friend's Thanksgiving party about two weeks ago and one of my friends was talking about when he learned about the importance of being cool, calm, and collected when it comes to getting your point across. He was in college and talking about some issue about the Middle East with a friend. And as he kept talking, he grew louder, more insistent, and seemed on the verge of losing his composure.

He was around a few other friends and by the time they finished talking, everybody thought the other guy had won the "debate". It turns out that the other guy actually agreed with my friend, but he purposely played Devil's Advocate to troll my friend into rage and near-incoherence. It was at that point that my friend realized that it doesn't do him any favors by being louder, more insistent, or passionate than the other guy. It's about projecting an image of confidence and composure.

In the movie Thank You For Smoking (one of the most intelligent movies of the 20 aughts), there's a scene where the main character and his son are talking about debating. You can see the clip below:


It's brilliantly played by both actors and it reveals what debate is really about. Debating isn't about staking out a position in the sand and defending it to your dying breath. It's about establishing an opinion, throwing in some misdirection, and coming to a reasonable conclusion that is palatable to the audience, not the other debater. This is closest approximation of the mythical "happy warrior" that the chattering classes want in a politician: Defend your beliefs and go on the attack. But always do it with a smile and a laugh.

In other words, polish counts. There's a reason why doctors wear lab coats and lawyers wear suits. They're trying to project an image of confident, serene authority in matters of actual importance. It's why consultants are always better dressed than the hiring company's employees. It's harder to take advice from a person who looks sloppier than you. Your mind is subconsciously thinking "why the hell am I listening to this clown?"

On TV and in print, there are two proven ways of getting an audience. The first one is easier and much more degrading. Let's call it the "Glenn Beck method". Be loud and insistent and craft your argument in a way that appeals specifically to a certain demographic. This is throwing red meat to the base. Tell them what they want to hear and then redirect their enthusiasm (and anger) into the "enemy".

The second route is becoming less and less popular. Let's call it the "CNN method". Exude professionalism and knowledge and talk in a calm and measured voice. It's becoming less popular because CNN is declining in ratings. What they missed out on is that cable news isn't about staying informed. It's about being entertained. And a guy in a suit talking at you is much less entertaining than a maniac foaming at the mouth about some issue you care deeply about.

CNN still has a core audience: the world weary liberal. And that particular demographic is the decisive bloc of the Democratic Party. A Democratic column put it best: 
"...MSNBC had apparently called the race for Obama. The entire crowd exploded, a fireworks display of fist pumps and bro hugs, but still our attention stayed on Wolf Blitzer’s fuzz-beard. It may have been over, but we had waited all evening for CNN’s call and CNN’s call was what we wanted."
 Both parties have their useful idiots. On the Democratic side, it's black voters and union officials. The Republicans have the uber religious and white angry males. The useful idiots are there to provide your base of support. They're the people you want to target using the Glenn Beck method. Feed them red meat and keep them in the dark.

But once you have your base, you need the people who can provide the tipping point. And those people aren't low hanging fruit that can be persuaded by people like Glenn Beck. They need CNN. Right now, the Democrats have an electoral advantage because the traditional Republican electorate is shrinking while the traditional Democratic electorate is growing.

Our most recent Presidential election was not a blowout. It was decided by a margin of less than 4% of the electorate. But those margins will only grow if the Republicans keep doing what they do and the Democrats keep doing what they do.

But there is an opening for Republicans. And it revolves around CNN and the people watching CNN. Sooner or later, the Democrats are going to screw up and when that happens, their supporters will start to wonder what went wrong. And blaming opposition intransigence can only go so far.

And that's when you need the man in the suit with the calm and reasonable voice. What the Republicans need to realize (and what the Democrats learned a long time ago) is that statements aren't made in a vacuum anymore. What plays in Peoria isn't only heard in Peoria. It gets heard everywhere, especially if it suits the opposition.

Mitt Romney gave a speech at the NAACP during the campaign season. Privately, many Republicans were thinking "why bother?" But that is precisely what the Republicans need to do now. They need to walk into a hostile crowd armed with nothing but a smile, an argument, and a show of respect. Do it enough times, and they'll come over to your side at a moment when you need them the most.

Wednesday, December 5, 2012

Georgia Tech Wins!

On any other day (although that's not necessarily true, since there are quite a few days in which I don't write anything of substance), you would be reading an intelligently written and thought provoking piece on something related to economics, finance, politics, or culture.

But tonight, the Georgia Tech Yellow Jackets triumphed over the Bad Guys and I am unable to think of anything worth writing of. Check back tomorrow!

Tuesday, December 4, 2012

A Case Study in Short Term Bias

One of my friends smokes. He first got started when he was in an underdeveloped market when he was really bored (no internet access and an extremely unreliable electricity grid will do that to you) and found out that cigarettes cost about 50 cents a pack.

When he came back, he started to cut back on the habit. But he didn't quit completely. He would only smoke in social situations, and only with cigarettes that he bummed off other people. Then he started buying his own cigarettes. Went from 5 cigarettes a day to a half pack. Eventually he graduated to a full pack a day smoker.

The way he first started smoking is what really struck me. He was in a foreign country and was really bored. That just boggled my mind. My friend is not a stupid person. Quite the contrary. He's actually very intelligent. But he has very poor self control and apparently his intelligence does not extend to his own personal affairs. Because he's aware of the deleterious effects of smoking and he still does it.

This is a classic example of short term bias. Because any perfectly self interested person would not smoke. And if they were previously irrational and then suddenly turned self interested, they would strive to quit as fast as possible. Because smoking leads to debilitating and fatal diseases such as emphysema, lung cancer, and heart disease. Any person who cares about their life would simply not smoke.

But those diseases and conditions come later on in life. And there isn't a guarantee that a smoker actually gets them. There are a lucky few who can smoke like a chimney and never have those complications. But the benefits of smoking a cigarette in the present, the buzz, the nicotine, and the stress relief are immediate and guaranteed. So that's why smokers keep on smoking. Because they see an immediate benefit while the negative effects occur in the future.

I read a book called Gang Leader for a Day and it was about this Chicago School economics major who embedded himself in an inner city gang for a few years. And in one of the chapters, the gang leader is talking to the author and they're talking about whether it's smarter to buy drugs from a supplier with a discount now or in the future. The author says something like "well it depends on the difference between the immediate discount and the future discount. The gang leader replies with "no, you take the discount now. Because you don't know whether that dude is gonna be in jail or shot or something".

We're hardwired to think in the short term. While saving for the future or modifying your present behavior for future benefit (proper diet, exercise, studying, etc) are relatively new concepts, they are absolutely essential for success in modern society. But we put it off because it's always more immediately gratifying to view yet another lolcat meme instead of studying for a test that's two days in the future.

There are plenty of people who think the best way to educate our children is to immediately reward them for routine things like doing homework, getting good test grades, and attending class. Giving them an immediate short term benefit while also allowing them to gain the long term skills needed to function in the economy makes a ton of sense. It's sort of like tricking them for their own benefit.

This is what humans are programmed to do. And it's important for policy makers to consider our short sighted nature when they try and pass programs for our ostensible benefit.

Sunday, December 2, 2012

Noise in Preparation

Why is it that when two men fight a duel, one of them inevitably dies? I first encountered a variation of that quote in a fantasy series called A Song of Ice and Fire. Two members of the nobility, one a knight, the other a queen, were discussing matters of warfare. And the answer to that question is the ultimate differential between two civilizations.

In 19th century Japan, Commodore Perry of the US Navy forced open Japan to international trade on the strength of his fleet. When Japan's upper class saw what happened, they were determined to bring Japan into the modern world and were resolved into turning their country into one of the Great Powers of the world. What followed was a period called the Meiji Restoration.

During that period, the Japanese copied anything and everything about Western culture. They recruited Western businessmen, military officers, and political leaders to teach them the ways of the West. Ranging from things like military organization, technology, and even culture, the Japanese completely reinvented their society. Japan even adopted baseball as their national sport. Because their leaders were so unsure of what really made Western society superior to the traditional powers of the East, they wanted to copy everything in Western society. They even shed their traditional kimono for the traditional suit.

And it worked. 40 years later, Japan fought and decisively beat the Russians in the Russo-Japanese war. With their modernized army and strong internal economy, they were able to martial the resources, the weapons, and the men needed to overpower the Russian Empire in Korea and Manchuria. The Western powers took notice and grudgingly accepted Japan as a great power in the prevailing Westphalian system.

The real question is what was the real "secret sauce" that enabled Europe and the United States to completely dominate world affairs? In other words, what were the things that Japan had to emulate in order to become great themselves, and what were the things that they didn't really need to do. For example, it was probably unnecessary to adopt baseball and suits. But the technology, business organizational philosophy (Taylorism, in particular), and military training were probably indispensable in Japan's quest to become a great power.

Whenever two opposing organizations become locked in combat, one will eventually prevail. And then the postmortem begins for both sides (and independent observers). People will attempt to explain why one side won and why one side lost. But hindsight, in these instances, is not 20/20. Take for example the post-election analysis we currently see being churned out by the triumphalist media (who were in the tank for Obama from the very beginning). It's full of truisms, cheap shots, and jeering.

But the problem is that nobody can be proven right or wrong on the issue. You can't rerun the 2012 general election over and over again, change some inputs and variables, and then see the end result. You only get one shot at it. So when one side wins, they tend to believe that everything they did was necessary to push their candidates over the top. When reelection rolls around, the people riffling through their rolodexes are going to call upon the operatives and advisers of successful political campaigns.

It's why people like George Stephanopoulos and James Carville still have gigs on TV. They put Clinton over the top and Clinton was seen as the modern Democratic success story. His success casts an aura of success over the top advisers and operatives who worked on his campaign. So people will naturally think "those guys knew what they were doing and they probably know what's what now". Even if that's not really what happened.

In the book, the knight told the queen that sometimes it's impossible to tell what really causes one person to win a duel over the other. It could be the meal that they ate the night before. Or a wet patch of grass that one of them slips on. Or it could be that one is simply a better fighter than the other. But once the postmortem is conducted, the winners will inevitably conclude that it was mostly their skill and virtue that carried the day, even if it was mostly chance and circumstance.

Thursday, November 29, 2012

Negative Externalities and Health Care

Any case for government regulation of the economy ultimately boils down to dealing with unauthorized and unwelcome liability transfer. For example, a factory that heavily pollutes the air and water spreads liability to the community surrounding it. Because the factory isn't the only party that has risk exposure to the pollution it creates, it is ultimately beneficial for the community to redirect all of that liability that the pollution represents back to the factory in the form of regulation.

This is where the government steps in. It can levy taxes on the factory so it can use that money to mitigate the impact of the factory's pollution. Or it can mandate that the factory somehow limit its pollution to levels deemed safe by a credible party. However, sometimes the government can go too far. It can overtax the factory or regulate its operations to the point of infeasibility. And sometimes it's hard to determine the liabilities involved. What is a "safe" level of air and water pollution?

But that's nothing compared to the kind of regulation that befalls the health sector. Possibly the most politically popular provision of the PPACA (aka Obamacare) is that it forces health insurance companies to extend coverage to the insured's dependents as long as they are under the age of 26. Taken in a political vacuum, there is no compelling reason for the government to mandate this provision. But because people think that they won't have to pay for it, they're happy with it.

The two biggest beneficiaries of that rule are the parents (who want to insure their children/dependents) and the children/dependents themselves. Depending on how the rest of the health insurance sector is regulated, the insurance company can either eat the extra cost, pass it to the insured, or pass it its other customers, or some combination of the above.

The arguments for the provision are mostly self serving and wrongheaded. From an actuarial standpoint, it is actually extremely cheap to insure twentysomethings. They are far more healthy than the average American and therefore demand less services from the health sector. So why are they not getting insurance by themselves? There are two big reasons:
  • Despite the fact that it's theoretically cheaper to insure a person in their early-mid 20s, individual plans are usually more expensive because a company can deduct health benefits for employees from its tax liability. A family (generally) can't due to rules in the tax code.
  • People in their 20s, sensing that they most likely won't need to use health insurance, forgo coverage even though many of them can actually afford it. For this demographic, having an iPhone and a good service plan is more important than health insurance. They might not be entirely wrong.
 The biggest portion of the PPACA is focused on getting 30+ million uninsured people insured. The vast majority of these people are either poor, young, or both. Because most insurance markets don't allow insurance companies to price discriminate based on age, young people are essentially going to be forced to subsidize old people and poor people.

It's also likely that those already insured will also see a deterioration of their own insurance plans either through benefits reduction or by virtue of an overloaded health sector. Come 2014, we'll add 30 million to the insurance rolls but we won't have a commensurate increase in health providers. So what exactly is the net benefit here? Poor people can have subsidized insurance. But the cost is trickier to calculate.

When the PPACA passed, Democrats hailed it as landmark legislation that would help people and tamp down health inflation. I will be very surprised if it does the latter. In the rush to "do something", it is highly possible that the Federal government may have done something for the worse. Sometimes it's possible for a government, so focused on the negative externalities caused by the private sector, to create negative externalities by its regulation.

Wednesday, November 28, 2012

Expected Value and the Futility of the Lottery

Stop wasting your money on lottery tickets. Don't even give me the "but it's fun to imagine what I could do with that money" excuse. There's a reason why economists and mathematicians call lotteries a stupidity tax. Because a rational individual would never play the lottery. In the long run, you are guaranteed to lose money.

Even CNN is reporting on the 500 million+ jackpot for Powerball and it's distressing to think that it got to such a huge amount because a bunch of stupid and poor (the two are not entirely synonymous) people paid for the hope of getting really, really, really, really ridiculously lucky.

Unless the state gaming commission is also terrible at math (there have been instances), lotteries are designed in a way so that every participant has negative expected value. For example, imagine a game in which you flip a fair coin and every time it landed heads, you gained a dollar, but every time it landed tails, you lose two dollars. If you kept playing the game, you would eventually bankrupt yourself.

Lotteries aren't designed to make people rich. They're designed to let morons fund state education programs. It's essentially a transfer payment from poor and stupid people to K12 and college students. The hope of winning it big is just absurd. Serial lottery ticket purchasers would be much better off stashing it in a no-load mutual fund, or even just buying a chocolate bar instead of a ticket. At least a chocolate bar has real, practical utility.

The other argument for buying lottery tickets is that it goes to a good cause (education). If that were the case, just cut a check to the state government.

This is why I'm a libertarian and I believe in small government. Because the government (more specifically, the state governments) is directly manipulating the public into buying tickets with clever phrases like "today could be the day" and other forms of TV, billboard, and radio advertising.

That is the government directly acting against its constituents' best interests. If a company wants to do it, sure. But the government sure as hell shouldn't.

Tuesday, November 27, 2012

An Example How US Regulation Destroys Companies and Hurts Innovation

Intrade has announced that it can't continue to accept US customers as participants within its prediction markets due to legal and regulatory pressure from the CFTC. This comes on the heel of me depositing money to participate on its markets.

The only question I have for people who continue to defend the overzealous regulators in the Federal government is this: what did Intrade do that warrants being shut down? Does its core business skirt the boundaries between gambling, financial dealings, and futures speculation? Yes. Is it in any way harmful to the US, her interests, or her citizens? No.

The political liberals on Intrade are already blaming special interests and corporate greed (as if abandoning half its customer base could be considered a sound business strategy) for Intrade's actions, but the direct cause was the government and its intrusive regulatory policy. Special interests hold sway only when they can convince the government to act on its behalf, therefore the government is the biggest problem.

The business we know as Intrade is gone. US customers and events make up the bulk of the trading volume on the prediction markets and it seems likely that they'll try and expand into sports gambling (for European customers) in order to make up lost revenue and brand value.

This is the exactly the kind of thing when Republican rhetoric criticizes the Federal government for "picking winners and losers" instead of letting the market do it. And this time it'll ruin the livelihoods and hobbies of a small community of Americans and Europeans for the sake of some nebulous concept of economic fairness and prudence.

Intrusive economic regulation costs jobs and money. This is perhaps one of the best examples of that.

Monday, November 26, 2012

Yet Another Example of Media Bias

 Hey, sorry I've been inactive lately. I took the whole week off for Thanksgiving and I just had absolutely no motivation to update this blog. But I'm back now and I'll be cranking it out like I usually do.

We've got yet another TIME columnist who seems to think that it's just the Republicans that prevent government from making good policy decisions.

She makes a very good point highlighting the problem between 2 and 4 year election cycles and the fact that business cycles and policy making have shelf lives that are far longer and how that mismatch creates suboptimal responses from politicians. But she never references the Democratic representatives and twice references Republican legislators when making her argument.

Here are the relevant bits:
But Washington exists on a different planet than Wall Street and that planet has different laws of gravity. The first law is that while finance is global, politics is local. Wall Street looks at Europe and sees what three years of delays and half measures in dealing with the Eurozone budget crisis has wrought — another recession. Surely, the thinking goes, leaders in Washington won’t let that happen here. But a new set of possibly more conservative House Republicans isn’t looking across the Atlantic, but to their home districts, where they’ll be facing the next round of primary elections in two years.
Politicians working on four-year election cycles have little impetus to make those changes fast enough or thoughtfully enough, as the last few years have shown.
Indeed, a new batch of arguably more conservative Republicans in the House has even less impetus than they did before the elections, which took the number of crossover districts down by half.


Read more: http://business.time.com/2012/11/21/the-widening-divide-between-wall-street-and-washington/#ixzz2DIC9W7A8
Politicians working on four-year election cycles have little impetus to make those changes fast enough or thoughtfully enough, as the last few years have shown.
Indeed, a new batch of arguably more conservative Republicans in the House has even less impetus than they did before the elections, which took the number of crossover districts down by half.


Read more: http://business.time.com/2012/11/21/the-widening-divide-between-wall-street-and-washington/#ixzz2DIC9W7A8
Politicians working on four-year election cycles have little impetus to make those changes fast enough or thoughtfully enough, as the last few years have shown. Indeed, a new batch of arguably more conservative Republicans in the House has even less impetus than they did before the elections, which took the number of crossover districts down by half.
 The biggest drivers of Federal spending have been Medicare and Medicaid. And yet it's the Democrats who remain most intent to prevent any meaningful reform to those two programs. If the Republicans are intransigent on the revenue side, the Democrats are equally stubborn if not more so on the spending side.
Politicians working on four-year election cycles have little impetus to make those changes fast enough or thoughtfully enough, as the last few years have shown.
Indeed, a new batch of arguably more conservative Republicans in the House has even less impetus than they did before the elections, which took the number of crossover districts down by half.


Read more: http://business.time.com/2012/11/21/the-widening-divide-between-wall-street-and-washington/#ixzz2DIC9W7A8
But Washington exists on a different planet than Wall Street and that planet has different laws of gravity. The first law is that while finance is global, politics is local. Wall Street looks at Europe and sees what three years of delays and half measures in dealing with the Eurozone budget crisis has wrought — another recession. Surely, the thinking goes, leaders in Washington won’t let that happen here. But a new set of possibly more conservative House Republicans isn’t looking across the Atlantic, but to their home districts, where they’ll be facing the next round of primary elections in two years.

Read more: http://business.time.com/2012/11/21/the-widening-divide-between-wall-street-and-washington/#ixzz2DIBQT5p
But Washington exists on a different planet than Wall Street and that planet has different laws of gravity. The first law is that while finance is global, politics is local. Wall Street looks at Europe and sees what three years of delays and half measures in dealing with the Eurozone budget crisis has wrought — another recession. Surely, the thinking goes, leaders in Washington won’t let that happen here. But a new set of possibly more conservative House Republicans isn’t looking across the Atlantic, but to their home districts, where they’ll be facing the next round of primary elections in two years.

Read more: http://business.time.com/2012/11/21/the-widening-divide-between-wall-street-and-washington/#ixzz2DIBTS7fJ
But Washington exists on a different planet than Wall Street and that planet has different laws of gravity. The first law is that while finance is global, politics is local. Wall Street looks at Europe and sees what three years of delays and half measures in dealing with the Eurozone budget crisis has wrought — another recession. Surely, the thinking goes, leaders in Washington won’t let that happen here. But a new set of possibly more conservative House Republicans isn’t looking across the Atlantic, but to their home districts, where they’ll be facing the next round of primary elections in two years.

Read more: http://business.time.com/2012/11/21/the-widening-divide-between-wall-street-and-washington/#ixzz2DIBTS7fJ
But Washington exists on a different planet than Wall Street and that planet has different laws of gravity. The first law is that while finance is global, politics is local. Wall Street looks at Europe and sees what three years of delays and half measures in dealing with the Eurozone budget crisis has wrought — another recession. Surely, the thinking goes, leaders in Washington won’t let that happen here. But a new set of possibly more conservative House Republicans isn’t looking across the Atlantic, but to their home districts, where they’ll be facing the next round of primary elections in two years.

Read more: http://business.time.com/2012/11/21/the-widening-divide-between-wall-street-and-washington/#ixzz2DIBTS7fJ
But Washington exists on a different planet than Wall Street and that planet has different laws of gravity. The first law is that while finance is global, politics is local. Wall Street looks at Europe and sees what three years of delays and half measures in dealing with the Eurozone budget crisis has wrought — another recession. Surely, the thinking goes, leaders in Washington won’t let that happen here. But a new set of possibly more conservative House Republicans isn’t looking across the Atlantic, but to their home districts, where they’ll be facing the next round of primary elections in two years.

Read more: http://business.time.com/2012/11/21/the-widening-divide-between-wall-street-and-washington/#ixzz2DIBTS7fJ
But Washington exists on a different planet than Wall Street and that planet has different laws of gravity. The first law is that while finance is global, politics is local. Wall Street looks at Europe and sees what three years of delays and half measures in dealing with the Eurozone budget crisis has wrought — another recession. Surely, the thinking goes, leaders in Washington won’t let that happen here. But a new set of possibly more conservative House Republicans isn’t looking across the Atlantic, but to their home districts, where they’ll be facing the next round of primary elections in two years.

Read more: http://business.time.com/2012/11/21/the-widening-divide-between-wall-street-and-washington/#ixzz2DIBTS7fJ
But Washington exists on a different planet than Wall Street and that planet has different laws of gravity. The first law is that while finance is global, politics is local. Wall Street looks at Europe and sees what three years of delays and half measures in dealing with the Eurozone budget crisis has wrought — another recession. Surely, the thinking goes, leaders in Washington won’t let that happen here. But a new set of possibly more conservative House Republicans isn’t looking across the Atlantic, but to their home districts, where they’ll be facing the next round of primary elections in two years.

Read more: http://business.time.com/2012/11/21/the-widening-divide-between-wall-street-and-washington/#ixzz2DIBQT5pY

Wednesday, November 21, 2012

Smashing the Republican Party Apart...and Picking up the Pieces

The last two weeks in the political world have essentially been an extended postmortem of the Romney campaign. There are essentially two voices of thought coming from the "thought leaders" of the Republican Party. The first one is "double down". Romney wasn't a real conservative and his phoniness showed through and turned off voters. The second one is "we gotta change". The Republican brand and ideology has become so toxic to too many slices of the electorate and unless we change the game, we're not gonna win another Presidential election.

I'm firmly in the second camp. Those trying to double down are misguided, to put it generously. The reason why Romney had to be so phony is because the electorate is dumb. If he recited the conservative mantra on things like spending cuts, there's no way he could have been elected. And his paean to the social conservatives sounded fake because it was fake. He didn't care about issues like abortion, contraceptives, gun control, and gay marriage because it's not in his wheelhouse. He unashamedly threw red meat at the base because he needed the base to turn out.

Well the base did turn out. But Romney lost everywhere else. The base of the Republican Party is too insular, small, and the only reason why it's so potent is because they have a disproportionate say in its party's primaries. So first thing is to blunt their power in picking candidates who are absolutely terrible for the general election.

In this election cycle, the Republicans threw away 2 Senate seats by selecting unelectable candidates in the primary. Todd Akin of Missouri and Richard Mourdock of Indiana both won the Republican primary but then went on to lose the general election because they made terrible comments on rape of all issues. This is what boggles me. When it comes to rape, just say the PC friendly thing. Rape is bad. Let's move on.

Instead they have to offer their own interpretations. It was God's will for that woman to get raped. You can't get pregnant in a case of legitimate rape. I mean, it's bad enough that you had those thoughts in the first place. It's downright idiotic to actually say it publicly. It goes to show how absolutely terrible these candidates were for public office.

In order to become more viable, since the white electorate is only going to shrink from here on out, the Republican Party needs to do a better job at courting minorities. They also need to do better among young voters. That means changing stance on immigration. It means eliminating the thinly veiled homophobia that plagues the party. It means softening the rhetoric on things like abortion, rape, and contraception.

In essence, the Republican Party is going to have to marginalize social conservatives. In the 60s and 70s, Nixon built his coalition by picking up the disaffected racists and southerners in the Democratic Party who were cast aside when LBJ pushed for civil rights. That winning coalition endured up to 2006. But now it's time to do the right thing and also court the growing constituencies.

And that means casting aside the social conservatives. And this time, they won't have another major party to pick them up. The sooner the Republicans can marginalize them, the sooner they can win the elections they should win.

Tuesday, November 20, 2012

Magic 8 Ball Says: Try Again Later

My thoughts are really out of place right now. I can't think of anything good to write right now. I'll come back tomorrow with something interesting and fresh. Promise!

Monday, November 19, 2012

Fringe Issues Versus the "Important" Issues

From a personal perspective, I have no fight in gay marriage. And it baffles me that there are some that consider it central to their political ideology. One of my friends is a social conservative and recently told me that the three things that matter most to him when voting for a politician are there views on abortion, gay marriage, and the economy.

The fact that the first two issues he mentioned were abortion and gay marriage were troubling for me. I think I'm gradually moving towards having a pro-life outlook. But when it comes to public policy, it's nowhere close to any of the issues that I consider important on a national level. When it comes to Federal policy, I'm concerned about economic regulation, taxation, and monetary policy.

I consider those issues the most important. But a lot of voters don't. And it's not because of anything sinister or ignorant. The vast majority of Americans consider our economy good enough to warrant spending attention on other matters. And those other matters include things like abortion, gay marriage, drug prohibition, and other fringe issues that, when you look at the big picture, really aren't that important.

But still, how important are my issues? I'm increasingly coming to the opinion that, in terms of monetary policy, having a Republican or Democrat in the White House doesn't make a lick of difference. They'll each appoint some former Ivy League professor with their own theories on monetary policy, but life will still be the same.

Because each Fed chief looks at the raw numbers of unemployment and inflation and tries to strike some happy medium. And Fed chiefs aren't stubbornly ideological. If something isn't working, then discard and do something else. The inflation hawks voted for QE3 because they basically said "we thought there would be a ton of inflation with the previous rounds of QE, and there wasn't".

Although I believe that a President Romney would have been much better for the economy and especially the stock market, from the average voter's viewpoint, neither President wouldn't have mattered much. Because they don't own a lot of stock. So why would they care which President is better for Wall Street?

My issues might be more important, but the effects that any one politician can have on them is probably negligible. This is the tragedy of Federal politics. You have tons of people on one side caring about fringe issues that could actually change and some people on the other caring about important issues that they have no power to control.

Friday, November 16, 2012

Inequality Is Bad, But They Deserve It

Go to any left leaning blog or news outlet and it seems like any explanation they give for the economic problems in this country inevitably boils down to "the rich have too much money". What always gets lost in the shuffle is why there's such a huge gap between the rich and the poor. And that boils down to something pretty simple as well: the only people who save are the rich.

In one of the earlier episodes of The Simpsons, Homer starts up a technology company called Compu-Global-Hyper-Meganet and gets a visit from Bill Gates. Bill Gates offers to "buy out" Homer's company, which Homer readily accepts. The goons that Gates brings with him then proceed to trash Homer's home office while Gates cackles and states "I didn't get rich by writing checks."

And that's the fundamental truth behind every great fortune. There was simply a guy who was saving money. And who used that money to make more money. That's all there is. The St. Louis Fed, via the Bureau of Economic Analysis, shows that the personal savings rate hasn't been over 10% since 1985. That's pathetic.

Not only do people not save, but they spend money in the worst way possible. They do things like financing depreciating assets like cars, furniture, and electronics. So not only are they buying depreciating assets, they're also paying interest to secure the loan to buy those depreciating assets. It's a double whammy. And it gets impossible to build wealth when you spend all of your money on things that rapidly lose their value over time.

Phone companies subsidize smartphones and jack up their service fees because people can't afford to pay 600-800 dollars upfront for a phone, but can afford to put down 200 and pay 100 dollars a month for service. Cereal companies put less cereal in their box and keep the same price in order to mask the price of inflation instead of raising prices because they fear consumers wouldn't buy it otherwise.

When I worked at a movie theater in high school, the manager of the theater said the corporate owners finally decided to buy and use credit card readers because marketing research and sales statistics showed that people spent more money on concessions using credit cards as opposed to cash because they were less able to conceptualize the money in their bank account as opposed to the money in their wallet.

That is the state of the American consumer. And that's absolutely pathetic. This is probably the driving force behind why talking about financial matters is such a big taboo, because people are subconsciously ashamed of how idiotically they're spending their money.

I save a lot of money. Far greater than what the average American saves. I save about 40% of my after tax income per month. And although my portfolio isn't doing too hot (although let's face it, whose is?), it's better than me blowing my money on a new car or a bigger, better tv, or at the bar. Because stocks and bonds last far longer than all of those things. And they make you money.

I can divide my friends into two groups. The ones who I can comfortably talk about personal finance and investments with and the ones whose eyes gloss over whenever I try and bring up the subject ("did you see how the market reacted today?" "dude, come on"). The first group I can count on one hand. The second group is far more numerous. Can you guess which group is going to become the future 1%? There's something wrong with young adults when finance is treated as something boring. Something that boring, pathetic, old adults do with their boring, pathetic, old lives.

With that kind of attitude prevalent among young people and a surprising amount of middle aged people, it's no wonder there's such a huge wealth gap between the rich and the rest of the population. I'll be the first to admit that growing inequality is a huge problem. But the bigger problem is that people don't save their money. And that is entirely within their control. Frankly, the vast majority of working Americans deserve to be poor.

Thursday, November 15, 2012

My Ideal Tax Plan

It's highly likely that some time this year, Congress will come to an agreement on taxes. And it's almost certainly not going to be as efficient as it should be.

The Democrats want to let the Bush tax cuts expire. The Republicans see the writing on the wall but they don't want to raise nominal tax rates. Any likely deal will probably keep the Bush tax rates but limit deductions for high income households to raise the additional revenue that the Democrats want to extract from the rich.

We're going in the right direction, but it's still going to be distorted. The problem is our tax code contains so many ways to reduce your tax liability through credits and deductions and special interest groups will fight to the death to protect their own loopholes. But if we could rewrite the tax code from scratch, I'd like it to look something like this for individuals

Payroll taxes: None. That means FICA gets eliminated.

Ordinary tax rates:

15% on the first 60k
25% on any dollar over 60k

Passive income tax rates (long term capital gains, dividends, and interest):

0% on the first 60k
15% on any dollar over 60k

Deductions: Charitable contributions only

Credits: An earned income tax credit worth up to 6k dollars on the first 25k dollars worth of income. (If you have children, you're entitled to 6k from the Federal government as long as you make less than 25k per year but more than 8k). Any dollar amount you make over 25k gets subtracted from the 6k. For example, if you make 27k per year, then your EITC is only worth 4k. (27-25=2, 6-2=4)

All figures are using 2012 dollars and will be indexed for inflation via the CPI for future years.

You might be wondering why I chose these numbers. And it's very simple: transparency and "fairness".

As surprising as it may sound, if you make over 60k per year, that puts you in the top 20% of full time workers in the US workforce. Over the past year or so, we've heard a lot about the 99% and the 1%, but the fact is the biggest socioeconomic divide is the gulf between the upper middle class and everybody below them.

The greatest upward social mobility in absolute dollar terms exists in the upper middle class. Because it's the college educated entrepreneur that is most likely to become a billionaire. So people who are in the upper middle class should pay each additional dollar at a greater rate than what everybody else pays. The reason why I don't have a higher rate for "millionaires and billionaires" is because I believe that the opportunity for uber-wealth is more or less equal among any given individuals in the upper middle class.

If you're college educated, make a decent amount of money, and have a good idea, you can make a ton of money. Whether it's chance or sheer dint of will that you made it big (and I'm excluding lottery winners, celebrities, and athletes), your fortunate position was fundamentally derived from being educated, not lucky.

And these rates are most likely to be accepted by a majority of Americans. An impressive majority of Americans don't believe a person should give more than 25% of their income to the Federal government. But they're for higher taxes on the rich precisely because they don't think the rich are paying at the top marginal rate because of the ridiculous number of tax loopholes. By limiting deductions only to charitable contributions, it easily disabuses the notion that the rich aren't paying their "fair share".

And by having the top passive income rate at the same rate as the middle class rate, it prevents a "Mitt Romney situation" where a billionaire could have a lower effective tax rate than a middle class family. Because we've eliminated payroll taxes (which are regressive), it becomes impossible for a billionaire to have a lower percentage tax burden than a middle class family unless he gives away a significant amount of his income to charity, in which case the populists in American politics can't attack him for it.

This, I think, represents the "fairest" tax code from any reasonable perspective. And I think, if explained properly, the vast majority of Americans would accept this plan. The best part is that it raises roughly the same amount of revenue, and it still contains a significant provision to prevent families from falling into poverty.

The only real downside is the army of unemployed tax accountants that will result because of this. But hey, sometimes you gotta crack a few eggs to make an omelet.

Wednesday, November 14, 2012

The GOP Must Change on Immigration

A few years ago, the Reason Foundation, a libertarian think tank, graphically illustrated the process for foreigners becoming legal permanent residents and citizens of the United States. You can find it here.

The common refrain found within the Republican Party and the nativist/xenophobic elements of American society is that illegal immigrants should "get in line" to immigrate to the US. What they don't know, or don't care about, is that it's virtually impossible for non-skilled immigrants to apply for permanent residency in the US, and that there is an extremely limited number of non-immigrant work visas available for temporary stays.

In short, there's not enough supply (legal immigrant visas and permanent residency permits) to meet the extraordinary demand for the ability to work and live in the US. The application process for those lucky enough to be eligible for residency takes too long and is prone to frustrating mistakes and maddening delays that you come to expect when dealing with the Federal bureaucracy.

And the Republican rhetoric on immigration policy isn't helping matters. Here are a few gems:

1. We need to secure the border before engaging in comprehensive immigration reform

2. No amnesty for people who break the law

3. Illegal immigrants don't pay taxes and are a drain on the government

The problem with all three of these claims is that it shows absolutely no compassion for people wishing to enter the country. Illegal immigrants didn't come here to mooch off our welfare system. They came to work to support their families and to live in a society where the government is fair, non-corrupt (say what you will about American government, it is far more transparent, competent, and law abiding than your average third world kleptocracy), and stable.

Minimizing or dismissing the hardships that people have to go through to live in this country is callous. Especially when you consider that many native born citizens often show no appreciation for their extremely fortunate circumstances. It is usually the first and second generation that works the hardest and most appreciates productive values like honesty and thrift.

The Republican Party's current stance on immigration is becoming increasingly untenable. Given the fact that many of the most ardent supporters on the issue articulate it in terms that are increasingly xenophobic, hateful, and racist, and it turns off the electorate at large. If the GOP ever wants to win another Presidency, it must change both its style and substance on immigration.

There must be a way to allow illegal immigrants to stay on a legal basis. There must be a way to streamline and increase the legal would-be immigrants in order to keep our population growing and our economy strong. And immigration makes an economy stronger when those immigrants are quickly integrated into the country. Humans are simply another form of capital. The more capital you have, the wealthier you are.

That means some sort of amnesty (most likely a quid pro quo of legal status in exchange for both one-time and recurring penalties). That also means uncapped H-1B visas. It means reducing the wait times and the bureaucracy that stands in the way of people applying for permanent residency. And it means an unlimited guest worker visa program (unlike the capped and expensive H-2A visa). It also means allowing those on student visas to automatically convert to permanent residency upon graduating from an American university.

Immigrants and their immediate descendants have made up almost all of the population growth in the US for the past decade. It has single handedly prevented us from suffering the sort of demographic crises that Western Europe and Japan are currently undergoing. Immigration is good. And we need to recognize the fact that we only have illegal immigration when we restrict the amount of legal immigration.

The faster the GOP can accept this, the shorter the time they spend out of the White House. It's that simple.

Saturday, November 10, 2012

We Interrupt Your Regularly Scheduled Programming...


I'm not gonna do a counterpoints/retrospective on this week's Bill Maher show. I saw the guest list in advance and I figured it's gonna be a circle jerk between Maher, Sullivan, and James "the Ragin' Cajun" Carville with SE Cupp trying to disrupt the dynamic with her irritating laugh.

I plan on watching it later on in the weekend, but I don't think it's gonna be good. If it happens to be, I might do a post on it, but don't expect it to happen.

Friday, November 9, 2012

Strategic Designations Are Unnecessary

Every so often, the pages of the business section will be filled with a story about a foreign company's attempt to buy a domestic asset. That company then fails its acquisition attempt after politicians or a regulatory agency deems that asset as "strategic" and then nixes the deal. The two most prominent examples I can think of is CNOOC's (a state owned oil company of China) attempt to buy Nexen, a Canadian oil company and the Dubai Ports World controversy.

The theory behind strategic assets is that, under normal circumstances, the prices of strategic assets are much lower than what they would be if war broke out. For example, in the Civil War, the price of cotton and wheat skyrocketed in both the Union and the Confederate States because the war disrupted normal trade patterns and reduced the amount of capital stock available for agriculture (a labor intensive task that required able-bodied men who went off to fight in a war instead).

Things like steel factories, heavy industry, oil rigs, nuclear power plants, resource pipelines are all deemed as strategic assets because they become infinitely more valuable in a conflict than in peacetime. So when a foreign company wants to purchase a strategic asset, politicians at home wrap themselves in a flag and demagogue the issue to score political points.

The sale of strategic assets shouldn't be so cumbersome in developed markets. All it does is prevent the peacetime economy from operating at peak efficiency for a misguided sense of insurance in the case of armed conflict. But that misses the broader point in question.

Which is that strategic assets are often appropriated by the national government in wartime regardless of peacetime legality. Again, to go back to the Civil War, the CSA seized the Federal arsenals and coinage deposits in their territory once they seceded. In WWI, the US government seized Merck from the Germans and turned it into an American owned company. And when Argentina suffers an economic crisis, foreign held assets within the country are often seized with little or no reparations offered.

So if CNOOC did buy Nexen and war broke out between Canada and China (for some reason), the Canadian government would just nationalize CNOOC's Canadian holdings anyways. This is the implicit threat for any company doing business overseas. Because strategic assets are often hard to relocate. It's no easy thing for a foreign company to repatriate a steel mill located overseas.*

If the national government wants to regulate companies and assets in a way that makes it easier for the government to take them over in the case of war, there is a legitimate purpose to that regulation and it shouldn't be dismissed as paranoia. But for the government to deny the sale of a strategic asset to a foreign company on some misguided fear of the possibility of going to war, all it does is sours relations between the two countries in question, which makes it more likely that they go to war.

It's generally understood that wartime makes governments and people do things they wouldn't otherwise do. They might be "wrong" and "unjust", but that's for the victors to decide. At least in peacetime we should have the decency to act like it's actually peacetime.

* Stolen from one of Niall Ferguson's books. I think it might have been Colossus.

Thursday, November 8, 2012

This Obsession With the Europeans

There are many people, especially in the Democratic Party, who want to make energy prices more expensive. Steven Chu, Secretary of Energy, once remarked "Somehow, we have to figure out how to boost the price of gasoline to the levels in Europe." He has since recanted that statement, likely at the behest of the White House, which was concerned about the political fallout that resulted.

But this is the private goal of many people in the United States. They want us to live like the Europeans in dense urban areas with extensive public transportation. This is not necessarily a bad thing. But, as a libertarian, I resent other people trying to use the power of the state to force me to live in a manner that pleases them. It is the height of arrogance and condescension, and precisely why I hate both the Democratic and the Republican parties, who each want to use the government to force people to live according to their own ideology. But I digress.

Average gasoline prices in Europe is well over 9 dollars a gallon. The reason for this is taxes. A general Value Added Tax (Eurozone average of 20%) is levied on gasoline in addition to an excise specifically for gasoline, of which the average in Europe is about 3 dollars per gallon. The result is what you currently see in Europe: a heavily urbanized population that has a heavy reliance on public transportation.

If gas prices even went up to 8 dollars a gallon, it would result in a revolutionary change in the automotive culture of the US. People would buy smaller, more fuel efficient cars. They would live closer to where they worked. And they would use more public transportation. Of course, Americans have a much greater aversion to taxes than Europeans, and we have a more prosperous economy. The modern American family can afford to live anywhere from 15-50 miles away from the breadwinners' workplace and own a single family home in the suburbs. That is a luxury enjoyed only by the economic elite in Europe.

That still hasn't discouraged certain elements in American politics from pushing up the price of energy in other areas. The environmental lobby and their allies hates fossil fuel of all stripes. It's not just gasoline, but also coal and natural gas. The latter two generates approximately 70% of all electricity in the United States. Through regulation and taxes, some politicians want to make coal and natural gas economically unfeasible.

I don't like life in Europe. The vast majority of households don't have air conditioning. They pay too much for basic commodities like food and utilities. They live in cramped apartments. They are, in every objective measure, poorer than Americans. And I bet most Americans, given a conscious choice, would reject a European lifestyle. I find it hard to comprehend why so many American "liberals" want us to be more like Europe.

Actually, it's not that hard to understand. They have universal health care. They have lower per capita carbon footprints (because they're poorer). And they are still living in a post-industrial (read: fabulously wealthy) economy. It's this environmental and human rights thing that they have where they look at the US and our crass consumerism and wonder why we place a greater importance on buying frivolous things on Amazon.com than providing health care to poor people or reducing our impact on the environment.

There are many things wrong with our country. But there are many things wrong with any country. There is a great deal of ruin in a nation (Adam Smith). It's always important to keep perspective, because it's so easy to become preoccupied with things that are wrong and terrible. We have to be careful when we use the government as a behavior modification apparatus, both from an ethical and a practical standpoint.

Wednesday, November 7, 2012

The Future of the Republican Party

At the time of this writing, they haven't officially called it for President Obama, but it's become pretty clear that he has won reelection. And it's become clear that the Republican Party is going to be out in the wilderness for another 4 years. They'll pick up seats in the midterms because of lower turnout in 2014, but the writing is on the wall.

The Republican Party can no longer rely on its traditional constituencies. It must make a bigger play for Latino and women voters or it will never win another Presidential election. The two candidates in the general election that best represent the problem for Republicans? Mourdock and Akin. These two Senate candidates are social conservatives who threw away gimme elections in Missouri and Indiana because of their idiotic comments on rape.

Religious southern whites cannot remain the kingmakers of the Republican Party if it wants to win another Presidency. The future of the GOP lies in a state like Texas, where the Republicans have successfully integrated Latinos into the party by not being completely moronic when it comes to immigration. The future of the GOP lies in a state like New Jersey, where Governor Christie focuses on fiscal issues and keeps social issues out of play. Governor Daniels of Indiana hit the nail on the head when he said the Republicans needed to call a truce on social issues.

Because the real issues focus around government spending, taxes, economic regulation, and the financial health of the average American household. And these are issues that will loom ever larger in the public consciousness because these issues will only grow more important as time goes on.

The wedge issues that currently drive Republicans to the polls? Abortion, gay marriage, immigration? The first issue can still be a winner if there is a drastic restructuring of the message. But the position on gay marriage and immigration must be reversed in order to stay viable as a national party. The Latino population is only going to grow. And the white population is only going to shrink more and more as a percentage of the electorate. As the southern states continue to grow in population, their demographics are becoming increasingly Hispanic.

Gay marriage is also another long term loser. Young voters, and more importantly, young women voters, get turned off by the virulent homophobia behind the Republican opposition to gay marriage. The Democratic Party isn't going to embrace a ban on gay marriage and its usefulness as a wedge issue has been gone since 2004. The culture wars are over on this one. And the Democrats won. Accept it and move on, and stop getting sandbagged by the desire to win over social conservatives.

Abortion is a special circumstance and issue. Currently the Democrats have won over large amounts of women because they frame it as a women's rights issue. But women can be won over if the argument shifts over to a human rights issue. The Republicans need to recalibrate their argument on abortion and also better explain the alternative (adoption, foster care). Latinos (who are overwhelmingly Catholic) and blacks (who are extremely religious) both oppose abortion. But they don't vote on the issue. Women do. The Republicans will either need to adopt the Democratic position (safe, legal, hopefully rare but we'll look the other way if otherwise) or develop a new marketing strategy for presenting their argument on abortion.

There is one area where the Republicans can actually beat the Democrats on their own game. And that's prohibition. It's time to legalize marijuana. Fighting the drug war is costly and diverts precious resources away from more pressing issues. Every year, the public comes out more in favor of the decriminalization of pot. It's only a matter of time before one of the major parties does it. The Republicans might as well use their time in the wilderness to own the issue first, take the initial beating in the opinion polls from voters with families, and then use it to split the Democratic Party in the next general election.

For all the Republican talk about weak economies and bad financial positions, this is still the richest country on Earth and the vast majority of Americans live extremely prosperous and comfortable lives (by any historical measure). We're effectively seeing the Europeanization of America and if the Republicans want to blunt the most important detriments of an increasingly European America, they'll need to concede the social issues and immigration.

Tuesday, November 6, 2012

It's Election Day

One thing I've learned about being a Georgia Tech fan is that you have to expect defeats. And you have to expect defeats to come early and often. Of course, you can also expect victories, but it's always the defeats that stick with you. That guide your future actions. Once we get that first job or that first promotion, we immediately start counting down the days where we can get that second job or second promotion. But rejections and defeats always rankle the soul and linger on in the recesses of the mind.

If things go smoothly on Election Day, sometime around 8-9 PM we will know who the President of the United States will be for the next four years. One half of the country will be glad. The other the opposite of glad. And life will go on.

This too shall pass. Whether you are happy or sad. Jubilant or angry. Gladdened or crestfallen. There will always be the next day. The next midterms. The next general election. And there will be the next changing of the guard. Because in American politics, as in life, all things are transient in nature. There are never permanent majorities or reliable constituencies. What is true for one election cycle will not be true for another. Demographics change. Preferences shift. This happens regardless who gets elected. And life will go on.

Regardless of who wins this election, this country still has the same problems it had before the election. This country still has the same blessings it had before. And most importantly to you, you're still in the same situation you were before the election. Because your life isn't determined by the leaders of this country. It's determined by you, your parents, your friends, and the community you live in. The world will still be here after Election Day. And life will go on.

If your side wins on Election Day, congratulations. You and your team played a hell of a game and pulled out a hard earned victory.

On the other hand, if your side loses, don't sweat it, champ. We'll get 'em next time. There's always the next bout. And this time we'll learn from the mistakes we made in the past. Like I said before, defeat always invites introspection. It's the victors who tend to rest on their laurels.

I hate to end this on a quote, but I think it's appropriate. Hey, cliches exist for good reason. It's from The Great Gatsby. And although I think Fitzgerald intended it to pessimistic and sisyphean, it is inherently optimistic and idealistic.
It eluded us then, but that’s no matter — tomorrow we will run faster, stretch out our arms farther.... And one fine morning —  So we beat on, boats against the current, borne back ceaselessly into the past.

Monday, November 5, 2012

Predicting the Outcome: The 2012 Presidential Election

Sure, it's only a day out. And this might not exactly be a surprise....but I'm predicting that President Obama will win reelection. Don't want it to happen, but the writing's on the wall. Besides, I need to pad my average.

Accountability Department:

Predictions Outstanding: 3 (Marissa Meyer, Fisher v Texas, this)

Predictions Vindicated: 0

Predictions Erroneous: 1 (Romney Veepstakes)

Sunday, November 4, 2012

Real Time With Bill Maher: Counterpoints and Retrospective (11/2/12)

Well, we had a pretty energetic and combative (but not aggressively so) show tonight. Lots of points were covered so this post might get pretty lengthy. So let's get to it.

1. Climate change: The interview guest was James Balog, who filmed a documentary showcasing the effects the changing climate has on glaciers. This is something where some cognitive dissonance should trigger, but it doesn't seem to happen. I remember when Maher, a few years ago, would rant about how a few record low temperatures in the northeast didn't disprove global warming. But when Balog comes on and shows glaciers receding in Greenland, all of a sudden this is proof that AGW exists?

Maher likes to say facts are facts, and the facts do agree that global temperatures have risen over the past 100 years. But facts don't mean anything without presenting them in a proper context. The earth is over 4 billion years old. We've had some wild temperature swings. 30 years ago, the faculty lounge was concerned about global cooling and another ice age.

We don't know what the future has in store for us. I've already written about the dangers of relying on models that try and predict what happens next. Climate isn't a thing that we can manipulate easily and quickly. And if our weather prediction models aren't even good 2 weeks out, what makes us think we can predict the climate a century out from now?

2. Hurricane Sandy: Lazio and Hoover, the two conservative/Republican guests on the panel, couldn't properly litigate Sandy without coming off like unsympathetic, unfeeling monsters. But since I'm unconstrained by that....newsflash: FEMA does not validate the existence of government. Nobody is going to protest the government's role in natural disaster relief and recovery.

Also, the response has been better but also a lot easier. Because Hurricane Sandy was a lot less destructive than Katrina, and the government has since learned a lot about the problems with the response to Katrina. A lot of people have attributed Katrina as the high water mark of the Bush Presidency (the aftermath of Katrina was when Bush's approval and credibility approached record lows and destroyed what was left of his political capital), and the succeeding President is not going to forget what happened.

Sandy doesn't vindicate the existence of government. Every program the government performs should be analyzed on its own merits. Because the government isn't like your friends. You don't have to take the bad in with the good. And you can't take or leave the government. Look at what works and what doesn't, and then proceed accordingly.

One last thing. The media coverage and political analysis of Sandy is kinda insane. This was probably the first major natural disaster of the Facebook/Twitter era, and I think the whole thing is getting overblown. I keep getting the feeling like the newspapers and periodicals just realized hurricanes existed and caused losses of human life and property destruction. Look, it was rough, but it's over. And the recovery process is happening in an orderly fashion. Please move on.

3. Youth Voters: The mid-show guest was Matthew Segal, a politically active 27 year old, and it really irks me when people like him try and take on the mantle of some demographic or cause. In his case, it's the youth vote. And the reason I especially don't like people like him is because we share the same demographic. We're roughly 3 years apart (I'm 24), and I don't vote. When they brought up that college student Jeremy, who asked both candidates whether they could get him a job upon graduation, I just thought that was emblematic of "Generation Me".

I hate young people because they're absurdly confident, ignorant, vapid, and conformist, and fake. I'm not trying to channel Holden Caufield here, but I think we're just too smug. We've got the world figured out. We have endless opportunities before us (despite the fact that, realistically, your economic prospects are more or less figured out before the 3rd year of college, if you even attend college), and we're just too damn pleased with ourselves about it.

Oh sure, some people like to point out things like tolerance and acceptance of minorities and gays, and support for things like gay marriage (or marriage equality, which I think is the newest branding of the issue), equal pay for women, and environmental regulation, but this is all just superficial and meaningless.

For "millenials" (how I hate that term), these are all abstract issues that don't affect them. If you ask them things that have an immediate impact on their lives, like student loan subsidies, getting onto their parents' health care insurance until they're 26, they're all for whatever gets them the most benefit for the least amount of effort on their behalf.

We're also unbelievably shortsighted. How many times have you seen a kid in their twenties proclaim that they're "socially liberal fiscally conservative"? They're mostly just socially liberal. Because money is such an abstract and far off concept for them that they won't care about it until they enter the real world, where they have a job and bills to pay. And more and more of us are putting that off, living in and sponging off of our parents while trying to find a menial job so we can afford our mobile phone plan.

Young people don't vote unless it's fashionable to do so. 2008 was one of those years. 2012 not so much. There's nothing in it for us. We can just easily lie about voting and pretend about being politically active to make ourselves look cooler at the next party.

4. Energy Costs Matter: I'm glad that Lazio brought up the issue of the left's former infatuation with nuclear and natural gas. Because they've abandoned it wholesale. And Maher's explanation of Fukushima doesn't cut it. Coverage was overblown and the damage to the reactors didn't lead to anything bad happening.

This is the real reason why the environmental lobby can't get any actual traction. Cheap energy runs the modern economy and nobody is really serious about boosting energy prices for the sake of lower living standards and a "cleaner" environment.

Get solar and wind down to less than 5 cents per kwh in operating costs and you'll see them take off. Before that, you won't. It's really that simple. A rich liberal like Maher doesn't care about energy costs. He can afford to pay 100k for his Tesla roadster and pay 2k per month to heat and cool his mansion in Beverley Hills. Environmentalists are just rich people who already built their cabin in the woods.

5. Margaret Hoover: I really wish Maher or one of the other guests mention that she didn't include "black people" in her litany of people they (the Republican party) needed to reach out to (youths, women, gays, and Hispanics). That would have been a Real Time Real Moment right there!

Also, someone farted when she talked one time. I'm pretty sure it wasn't her, because it's been well established that women don't fart.

Friday, November 2, 2012

The Fairest View on Romney That I've Seen

Normally I don't link to other articles as the main thrust of my post, but the Hawks are opening tonight and I doubt I'll be able to get something else written in time. I will try and put up a Real Time post if I can, but if not, I'll do it in the morning.

Liberal wunderkind (I've seen this appellation for this guy so many times in so many different publications that I'm beginning to view it as a conspiracy) Ezra Klein has written a piece that is perhaps the fairest view of Romney I've seen.

It boils down to this: Romney is a manager who likes data and getting things done. Although I have some disagreement with the ending (I think Romney is far more excited about reforming and taking charge of the executive branch than corralling and bargaining with the legislative branch, it's worth a read for anybody interested in the General Election.

Outperforming Your Baseline

In the United States, parents are the most significant determining factor for how successful any given person will be. For the first 18 years of a person's life, their parents are the gatekeepers for everything. They determine where a child lives, what and how much they eat, where they go to school, when to go to bed, where they vacation, who they hang out with.

What I just described is a measure of capital that a person has access to. Prior to adulthood, the amount of capital a person can leverage is almost completely dependent on who their parents are. This is essentially a modified version of President Obama's "you didn't build that" philosophy. No man is an island. No man makes it on his own.

However, that doesn't mean that getting help from other people is a guarantee of success. There will always be people who outperform or underperform their expectations. The question is what are the expectations for a given person, and how do we know whether they meet that expectation, exceed it, or undershoot it?

We can determine the expectations for a person by finding their baseline. The baseline is determined from their parents. For example, a person born to two college graduates will most likely go to college and graduate with a degree. A person born to a single mother who's a high school dropout will most likely not go to college and probably drop out of high school as well. A person born into a rich family where both parents hold at least a professional degree (MD, MBA, JD, etc) will probably earn a professional degree and make lots of money.

So the expected value (expectation) of a person's adult life is a function of their baseline (what they start with) and effort (how much they put into making themselves successful). In mathematical terms, this is essentially a two variable function:

E (expectation) = f(x, y) where x equals baseline and y equals personal effort

So to be considered a success, you have to outperform your baseline. In the case of a child born to a single, drug addicted mother, if they go to college, graduate, and work as an accountant for the rest of their life, that's a massive success. Likewise, if a child is born to an orthopedic surgeon and a college professor and then turns into an addict who turns tricks for methamphetamine in the back alley of a fast food joint in the city, that's a massive failure.

Effort is something that's a lot harder to quantify. Just about everybody agrees that people have free will. There's a small minority that believes in determinism, which essentially states every action is a reaction to a previous action, turtling all the way down to some unknowable base state. But that's another story.

So let's describe effort as something which requires positive action on behalf of the individual to achieve something meaningful.This doesn't necessarily mean going to school and graduating. Your parents could have forced you to into the best school and gotten you the best tutors to all-but-ensure your graduation from a good high school and entry into a tier 1 public school.

Effort has to be some action you take that your baseline doesn't already provide for you. In the case of the child born to the surgeon and the professor, it would be something like graduating college (parental control drastically decreases once their kids go to college), or for the child born to the drug addicted single mom, it would be graduating high school and attending college.

But there is nothing that requires more independent effort than starting and sustaining a small business. The hours are long. The pay isn't good (many owners reinvest all their profits back into the business). And the stress is monumental. Making payroll, rent, and utilities are things that business owners have to constantly worry about. Most businesses fail within the first 5 years. And many will languish as a small outfit just barely making ends meet. Creating a successful business is no small feat. And it is one of the most grueling individual efforts that a person undertakes.

There are plenty of kids that start at a high baseline and then go on to be another career-track salaried employee. That's not succeeding. That's meeting expectations. Creating and maintaining a successful business is outperforming your baseline any day of the week.

They didn't build the roads and bridges, but let's face it. We all use roads and bridges. We don't all own businesses.

Thursday, November 1, 2012

Politics as Usual

I'm having trouble telling whether this is a serious question or not. Could it be that the writer is exactly on the same page that I am, or is he actually unsure why Chris Christie is praising President Obama for the Federal response to Hurricane Sandy?

Maybe the media intelligentsia is too far into campaign mode to see that hurricanes and the government response to them falls under the category of actual governance. This is not an ideological fight. And when there is an issue where there is absolutely nothing to litigate, politics goes out the window and basic humanity takes over.

Sometimes people expect government to do the "right" thing, but what we forget is that government, like any other organization, is made up of humans. They have feelings, egos, and all sorts of personality traits that need to be managed and maintained. Governor Christie wants help from the Federal government. Getting help from the government is a good thing. Christie would be derelict in not mentioning his gratitude, or next time the Federal response won't be as easily forthcoming.

Governmental response to a natural disaster is a foregone conclusion. The vast majority of people expect the government to help disaster stricken communities. There is no political issue to litigate. There's no zinger to be had or a gotcha moment. This is serious business. Lives and livelihoods are at stake. If there is a political or ideological issue, it should be whether the government response is primarily at the Federal or local level.

But that kind of issue should be addressed after the situation is under control. In combat, there are almost no circumstances in which somebody should question or defy an order from his/her commanding officer. After the unit exits the combat zone, that is the time to bring up issues and concerns.

As Secretary Rumsfeld once said, "you go to war with the army you have, not the army you wish to have". When the marching orders come, you ask "how high?" It's only when we're in a position to rationally and calmly analyze what went right and what went wrong should we concern ourselves with those kinds of questions. Because those kinds of questions don't contribute to the immediate concern.

I've written about this problem before. When it comes to issues like national defense, public safety, the legal system, economic regulation, there is no need for bipartisan consensus or cobbling together a majority. These issues transcend interparty squabbling because these are the things that government is traditionally supposed to provide. Everything else is really icing on the cake.

The real issues are about legislative and executive efficacy, efficiency, and issues on the margins. If you want the government to do something but you can't cobble together an overwhelming majority (80%+), then perhaps the government shouldn't do it. When an issue attracts nearly as much opposition as it does support, perhaps people should be allowed to do their own thing and not have to worry about the government trying to ram something down our throats.

You will always be able to build a consensus around things like providing for a military, policing the streets, having regulators monitor the private sector, etc. When it comes to implementation, it's really squabbling over the margins. And when it comes to actual spending and implementation, there is almost no difference between Republicans and Democrats.

It just seems like there's this huge chasm because politicians love to make everything about government look and sound much more momentous than it actually is. Government should be and is boring, mundane, rote and mostly uneventful.

One "central" issue is over taxes. The Democrats want the Bush tax cuts to expire only for those in the top two tax brackets. The Republicans want to keep them for everybody. The actual difference is worth about 60 billion dollars a year according to most independent estimates. That's less than 2% of what the Federal government spends every fiscal year. See what I mean by no huge difference? It's all about a tiny margin that gets magnified beyond its actual worth.

I propose the following heuristic: if you can't get at least 75% of the people to agree on it, you should err on the side of freedom. Taxes are inherently an issue of freedom: it's about the ability to keep what we earn and to spend it on what we like. If somebody wants to raise taxes on anybody, they should have to cobble together a huge majority.

If we governed according to that principle, politics would be a lot more boring. But when it comes time for real, decisive government action over things that actually matter, things would still get done.

Wednesday, October 31, 2012

Knowledge is Power

In lieu of a real blog post today, I'm going to have to resort to a link dump. Before you click away to another website, let met say that this particular link dump is extremely useful if you're a stat nerd. If you read all those statistics about unemployment, income, taxes, Federal spending, the national debt and wonder what the real numbers are...just check out the following:

1. Major Foreign Holders of US Debt

2. The US Federal Budget, Fiscal Years 1996 - 2013

3. 2011 Personal Wage Income Statistics (Warning: Very eye opening)

4. The IRS compendium of tax statistics

5. Bureau of Labor Statistics employment statistics

6. Federal Reserve Flow of Funds Report

These are the numbers, straight from the Federal government absent any political spin, bias, or prejudice. You can go through the data and draw up your own conclusions. Or you can wait until I write up a new post that goes over one of these areas. Your choice.

Tuesday, October 30, 2012

The Importance of Fiction

Georgia Tech's Athletic Director, Dan Radakovich, resigned yesterday to take up the AD position at Clemson. There were rumors early on in the summer that Radakovich was seriously considering the move even as he denounced the rumors and reaffirmed his enthusiasm for his current job.

When I was reading that story on the AJC, I couldn't help but think of this guy:

http://972mag.com/wp-content/uploads/2010/08/Iraqi-Information-Minister.jpeg

Remember this guy? Mohammed Saeed al-Sahhaf? AKA Baghdad Bob? This dude was the Iraqi Information Minister under Saddam Hussein who broadcasted grossly unrealistic propaganda stating that the American armed forces were weak whereas the Iraqi army was invincible. His last broadcast was on April 8, 2003 stating that the Americans would surrender. The capital city of Baghdad was liberated (or captured, depending on your perspective) by American and British forces 4 days later.

The reason why I brought this up is because to the outside world, Baghdad Bob was comical in the sense that everybody who had access to accurate reports about the war knew that he was lying in the face of incontrovertible proof that Coalition forces were decimating the Iraqi army. But perhaps to the Baghdadi on the street, his word was truth. After all, Iraq had lived under the tyranny of Hussein for over 20 years and their word was law. Who could say otherwise?

And these are not isolated occurrences. Everybody does this. Back in 2008, when the economy was in free fall and General Motors was hemorrhaging cash, its former CEO, Rick Wagoner, famously stated that "bankruptcy is not a viable option". 7 months later, the company filed for Chapter 11 bankruptcy, almost 101 years after the company was founded.

It was clear to any knowledgeable person that GM was headed for some sort of bankruptcy. The company had been losing billions of dollars every quarter and had huge amounts of legacy costs. So why did the company's top management so adamantly deny that they would file for bankruptcy? Because they didn't want to lose public confidence. The thinking was that if the public thought GM would go bankrupt, they'd stop buying their cars and the company would go into bankruptcy even faster than they did.

The name of the game has always been about reassuring the lay public, even as Rome burns all around them. Because most people simply don't follow these issues, many of them can be fooled by public statements of reassurance. Even as the smart money knows it's time to exit, as long as the majority remains unaware of the true extent of the damage, then some purpose will have been served.

You don't need to fool all of the people. Just fooling some can be enough to buy a little more time, even in the face of worsening odds. Greece is currently in the midst of an economic depression, and its leaders are adamantly stating that they will remain in the Euro zone and that a Greek exit (Grexit) simply "isn't an option".

These are the necessary fictions that we tell ourselves and the public. Because everything is fine and dandy until it isn't. And then you're left to fend for yourself.