Take Your Pick

Which seems more plausible to you – (1) or (2)?

[A] liquidity trap resulted when demand for money becomes infinitely elastic (i.e. where the demand curve for money is horizontal) so that further injections of money into the economy will not serve to further lower interest rates. Under the narrow version of Keynesian theory in which this arises, it is specified that monetary policy affects the economy only through its effect on interest rates. Thus, if an economy enters a liquidity trap, further increases in the money stock will fail to further lower interest rates and, therefore, fail to stimulate.
The boom-creating tendency of credit expansion can fail to come only if another factor simultaneously counterbalances its growth. If, for instance, while the banks expand credit, it is expected that the government will completely tax away the businessmen’s “excess” profits or that it will stop the further progress of credit expansion as soon as “pump-priming” will have resulted in rising prices, no boom can develop. The entrepreneurs will abstain from expanding their ventures with the aid of the cheap credits offered by the banks because they cannot expect to increase their gains.


Robert Murphy on Legal Anarchism

Robert Murphy has a good article in today's Mises Daily. He attempts to explain how legal appeals might occur in a stateless society. It is a good effort.

But anarchy is impossible.

In Murphy's world, whenever there are disputes, we could simply present our adversaries to choose from a list of local private-sector judges and make our cases evenly. The problem I have with anarchy is that this assumes everyone wants to comply with the ongoing dispute. What if someone refuses to participate? Well, here's Murphy's answer to that question:
But what if Thad didn't agree to any of the judges on my list? Suppose he recommended instead that we use his brother-in-law, who was actually a car mechanic but, according to Thad, "is a really stand-up guy"? Obviously every reasonable person in the community would see that Thad almost certainly was a thief, and that I was telling the truth. If I went to a reputable judge and presented my case against Thad in his absence, and if the judge agreed with me, then the community would have little sympathy for Thad if I went with professional repo men to retrieve my laptop from Thad's house.
This sounds peaceful enough, except that it is quite a grand euphemism for hiring a gang and stealing back the disputed laptop. Rand often criticized anarchy by reasoning that as soon as there was a legal dispute between what she called "two competing governments," the result was war. In the above quote, however nicely he phrases it, Murphy reiterates her point.

Anarchy would never fall apart as a result of people who can't cooperate with each other. The world is full of people who are happy and willing to cooperate. People are inherently good, or so I believe.

No, the reason anarchy is impossible is because as soon as someone engages in abhorrent behavior, the inevitable result is war. The state exists as a means to prevent this kind of state-of-nature warfare. It surprises me that so many modern "anarcho-capitalists" have forgotten the hard-learned lessons of the Enlightenment.

Mr. Yglesias, Have You No Shame?

I don't want to make this "pick on Matt Yglesias day," but his latest writing on why people arrive at political conclusions is really beyond the pale. Quoting the New York Times, which is quoting a couple of poorly designed psychological studies, Yglesias reasons that "people aren’t making up their minds about political issues based purely on judicious consideration of the evidence."

And by people, he means those outside his sphere of influence. And by "making up their minds," he means "coming to the same conclusion as Matt Yglesias."

I'm really getting tired of this. The pervasive left-wing condescension to all those who disagree is now completely out in the open. To disagree with the left is to reject all reason and science and evidence.

Can anyone really hold that belief in earnest? How can a whole group of leftists political class members have forgotten that political opinions are just that - opinions?

The only explanation can be that these jokers are in their political death throes. We're on the cusp of something big and important. Politics as we know it is about to change drastically, significantly, and permenantly. You heard it here first.


Matt Yglesias hilariously tries to rebuke Charles Murray's recent Washington Post article, but only manages to demonstrate the very obliviousness Murray describes. See if you can spot the error:
For example, what is one to make of this?
Talk to [the New Elite] about sports, and you may get an animated discussion of yoga, pilates, skiing or mountain biking, but they are unlikely to know who Jimmie Johnson is (the really famous Jimmie Johnson, not the former Dallas Cowboys coach), and the acronym MMA means nothing to them.
Of course this paragraph doesn’t make sense to publish unless you assume that a large proportion of Washington Post readers know that “MMA” stands for “mixed martial arts.” And the non-NASCAR Jimmie Johnson isn’t just some former coach, he’s familiar to 100 percent of NFL fans thanks to his ubiquity on Fox’s Sunday broadcasts. And pro football is hardly a pursuit of the narrow elite—it’s the most popular sport in America and one of the relatively few endeavors that, in this era of media fragmentation, united people (or men at a minimum) across race and class lines.


Idiot Savants

Re-posted from a comment to Arnold Kling:
I think both you and Murray are right, to a certain extent.
You are obviously correct that the political class thinks they know more than they really do.
Murray is right that the elites are completely isolated from some of the most basic parts of the human experience. And I really mean that. And I think this explains why they think they know more than they do.
For example, one of the reasons why there is such a huge "buy organic/local" trend is because the people who believe in that garbage have no concept of how little food we really have with respect to the global population. They have never seen or worked on a real, commercial farm in the West or Mid-West, they have never seen pests wither up an entire crop of otherwise beautiful apples or lettuce... etc.
Their opinions are based on the "everything comes from the grocery store" school of epistemology. The people who actually grow food for a living (or mine coal, or drill for oil, or ship/receive, or build houses, or whatever) are baffled that people so rich and educated know so little about where stuff comes from and what that means about public policy.


Landsburg the Accidental Austrian?

Steven Landsburg brings us another wonderful article about rationality, utility, and probability. Over the past week or so, he has been discussing the implications on economic rationality embedded in answers to the following questions:
Question 1: Which would you rather have:

A.A million dollars for certain

B.A lottery ticket that gives you an 89% chance to win a million dollars, a 10% chance to win five million dollars, and a 1% chance to win nothing.

Question 2: Which would you rather have:

A.A lottery ticket that gives you an 11% chance at a million dollars (and an 89% chance of nothing)

B.A lottery ticket that gives you a 10% chance at five million dollars (and a 90% chance of nothing)
Statistical and probability concepts imply that a rational person must answer either A to both questions or B to both questions. However, when people consider these questions, they frequently answer A to one question and B to the other.
To explain the discrepancy, Landsburg provides the following possibilities, ultimately concluding, "I lean toward number 4":
1. Maybe people don’t take surveys seriously. Actual experiments with real money might give more trustworthy results. Unfortunately, it’s difficult to find funding for experiments that involve disbursing millions of dollars (and it’s not at all clear that you’d get the same responses if you cut all the amounts by a factor of, say, a million).

2. Maybe people have no stable preferences. In Savage’s day, this conclusion would have meant throwing in the intellectual towel. If preferences fluctuate randomly, then it seems there’s no hope of modeling or predicting behavior. Today, the emerging field of behavioral economics (with much input from psychology) holds out hope that preferences might fluctuate systematically in ways that can indeed be modeled. Going down this road means throwing out — or at least reworking — a lot of successful economic theories. Maybe that will eventually prove worthwhile, but it comes at a high cost. It also makes it almost impossible to choose economic policies that will make people happier, since what makes them happy at 2:00 might not be the same thing that makes them happy at 2:30.

3. Maybe people value ignorance. I explained here how this might just barely account for the 1A/2B answers. On the other hand, I also explained how some simple experiments with urns and colored balls might show that the paradox survives even when the prospect of ignorance is removed from the equation.

4. Maybe people sometimes make mistakes — even smart people like Jimmie Savage. This really isn’t so surprising or so troubling. Someone (I forget who) once pointed out that great mathematicians make arithmetic mistakes all the time, but we don’t conclude that something must be wrong with the foundations of arithmetic. If this is all that’s going on, it’s both bad news and good news for economists. It’s bad news because those mistakes are a part of human nature that we’re not good at predicting (though once again the behavioral economists might someday ride to the rescue). But it’s good news because it means that we can make ourselves useful by pointing out some of these mistakes and helping people make better decisions. If you’re sure that 1A will make you happier than 1B, then I’m sure that 2A will make you happier than 2B, and I can explain why.
Note, however, that #2 is completely described by Misesian/Rothbardian subjective utility theory and time-preference. Notice how Landsburg acknowledges that "going down this road means throwing out - or at least reworking - a lot of successful economic theories."

It appears to me that Austrian School theories are starting to squeak their way into the mainstream. People are starting to consider the possibility that Austrian School reasoning is workable, but painful because it involves throwing out a lot of commonly accepted theory.

But isn't that what creative destruction is all about?


Some Words About the Credit Economy

There is probably no need for a guy like me to comment on the recent mortgage foreclosure fraud hubbub. It has already been over-analyzed. Adding my thoughts would be duplicitous.

However, this debauchery is the predictable result of the world we live in. Government-guaranteed loans are sure to result in widespread fraud and/or rent-seeking. On this point, I do have a few words to say.

I think is that the whole US economy has learned to run on credit. There are good aspects of this - Most notably, that it flattens out the business cycle. A car company, for example, can sell a steady number of cars regularly if people agree to affordable monthly payments. The alternative is relying on people to pay cash. They'd still sell cars, but a lot less regularly, because it would be entirely dependent on economic conditions.

This is also what happened to the market for personal computers. In the 80s/90s, there was a huge cyclical component to buying PCs because people would only need a new computer once every few years. By the time a company had completely "wow-ed" the consumers into buying the latest PC, they'd go through a huge drought where no one would buy anything, because they got last year's cool PC instead.

ENTER: DELL. Dell specialized in making "custom" computers and selling them to college students for affordable monthly credit payments. ("Dude, you're gettin' a Dell!") Suddenly, it wasn't a market for PCs anymore, it was a credit market.

This business model has spread all across the US economy. As soon as there is sufficient demand for something, it becomes a credit market. If demand increases, then before you know it, it becomes a "necessity." ("You can't be in college without a laptop!") Once that happens, the government is sure to step in and start guaranteeing these loans. Already students can apply their student loans to things like laptops. So once the government steps in, in come the rent-seekers and fraudsters, and the rest is history.


Qatar's Step in the Right Direction

While virtually every nation on Earth seems to be losing its mind with respect to economic policy, Qatar appears to be getting it right.
Qatar is to abolish government controls on medicines prices and open up the market to competition, in order to tackle current drug shortages and high price levels.


Sumner, Krugman, Rational Expectations, the EMH

This morning, Scott Sumner writes:
Here’s what I find so ironic.  Everyone talks about how the profession became obsessed with ratex and the EMH after 1980, but from my perspective most economists still seem stuck in the adaptive expectations era.  If you really believed in ratex and the EMH, wouldn’t you be really, really interested in market forecasts of the policy goal variable?  I would be.  Yet instead of trying to infer market forecasts, they built elaborate structural models to try to forecast the goal variables.  In the 1980s when I tried to peddle my futures targeting approach, no one seemed interested.  I presented papers at the AEA meetings, the NY Fed, the Philly Fed, and everyone just yawned.  So from my perspective we face exactly the opposite problem; the profession doesn’t take ratex and the EMH seriously enough.  If the Fed really believed in ratex and efficient markets, they would have put the pedal to the metal in the infamous September 16, 2008 meeting.  Instead they yawned, and left rates unchanged at 2%.
I agree with this point of view.  Since this whole "crisis of economics" debacle started unfolding in 2008, I have been struck by the degree to which Krugman and his ilk fail to understand what rational expectations and the EMH are all about.

Which is not to say I agree with either. As modelling tools, they obviously fall far short. As theoretical tools, however, it makes little sense to assume - as Krugman and many other modern economists do - that people are inherently irrational.

Now I'm going to toss my own crazy theory into the mix. Could it be that economists formulate their ideas as a way to confirm what they already believe about the market?

Here’s something Robert Lucas said in 1993:
“What troubles me about neo-Keynesians is not so much that they have a definite clear-cut ideology that I dislike, but that they have too little ideology. They’re too good at rationalizing anything…. These guys have enough talent to put a kind of semi-respectable economic rationale on whatever the hell the politicians come up with. I don’t see a neo-Keynesian agenda on policy issues.”
Say what you want about Lucas and others, I think what the above quote demonstrates is that there is a lot empty rationalization in economics. From Lucas’ side, there is an ideology driving his modelling (at least according to that quote). From the “neo-Keynesian” side, there is a handy ability to justify anything with a model.

For what it’s worth, I think the real shortcoming of economics for the last couple of decades has been a virtual absence of theory and an overabundance of models.


Is This a Joke?

Becker and Posner discuss which form of government is more conducive to economic growth: democracy or autocracy. Here's Becker:
Whether on average democracies are more conducive than autocracies to economic growth is far from well established. What is clearer is that democracies produce less variable results: not as many great successes, but also fewer prolonged disasters. Since the bad outcomes tend to produce more damage than the good ones, less variable outcomes would be an attractive feature of democracies compared to autocracies, even if democracies on average did not produce greater economic growth.
 And here's Posner (emphasis mine):
In general, then, the simpler the economy (all-out low-tech war is the limiting case: there is only one demander, and for a limited range of goods and services, thus making supply simple), the more adaptive a dictatorial political system; the more complex the economy, the more adaptive democracy is. A dictatorship is apt to limit information flows and business autonomy, and by doing so to reduce flexibility and innovation, fearing the private sector as a potential power rival to the dictator. At the same time, the dictatorship wants the population to be content, for then it is more easily controlled. The competing aims of limiting private freedoms and producing contentment may lead the dictator to relax control over the economy as increasing complexity makes a command and control economy increasingly inefficient. As that happens and people become wealthier, they also become more self-confident and assertive, creating pressure for self-government and therefore democracy.
Dictatorship will often by optimal for very poor countries. Such countries tend not only to have simple economies but also to lack the cultural and institutional preconditions to democracy. Dictatorship is much less likely to be optimal for advanced economies. This pattern seems to be broadly observed. 
I suppose we should laud Becker and Posner for being so "objective" about autocracy. Get it? They give autocracy a "fair chance," and conclude that autocracy produces better economic results in some cases.

But the discussion itself is disingenuous. It is not the autocracy or the democracy that determined economic success. Rather, it is the absence of government interference in the economy. Becker and Posner make the point that, provided a dictator is willing to do it, he has an easier time gutting the bureaucracy and letting people alone.

But what kind of nonsense is this? Autocracies are singlehandedly responsible for enacting China's barriers to trade in the first place. The kings, rajahs, mercantilists, etc. are now in the unique position of being praised for their ability to remove their own obstacles.

Here's a thought for Becker and Posner to consider: How much more efficient had the autocracies never existed in the first place?

Here's a Thought

I am not one to be concerned with the "military superiority" of the USA. A peaceful nation who desires nothing but free trade with other peaceful nations doesn't need to have the strongest military.

But, as faithful readers know, I have a growing concern about the way we view science and technology in this country. It is only a matter of time before we become a nation of pill-popping, fame-obsessed monkeys with no functional numeracy and only passable literacy. Oh, wait... it's already happened.

File this under the same category:

I just published this on Huffington Post. Maybe some policymakers will consider adding programming to the US public school curriculum....
Just last year, while researching a book on America's digital illiteracy, I met with the Air Force General then in charge of America's cybercommand. He said he had plenty of new recruits ready and able to operate drones or other virtual fighting machines - but no one capable of programming them, or even interested in learning how. He wasn't even getting recruits who were ready to begin basic programming classes. Meanwhile, he explained to me, colleges in Russia, China, and even Iran were churning out an order of magnitude more programmers than universities in the US. It is only a matter of time, he said - a generation at most - until our military loses its digital superiority.


Freedom of Speech: A Tribute to Liu Xiaobo

Liu Xiaobo's being awarded the Nobel Peace Prize has made me realize how many articles exist in the world in defense of liberty - but how few of those articles are intended for a non-American audience. Truly, the world deserves a better defense of liberty. We in America arguably enjoy more rights than our brothers and sisters elsewhere in the world. It is our brothers and sisters who must learn to love liberty as we do. Only a universal love of liberty can defend liberty itself in this modern, globalized world.

So I present the following article, a modest attempt to fill whatever part of that void I can. The fact that this article is blocked by the Chinese government's firewall is an irony not lost on me. I dedicate this article to you, my Chinese friends.

How very lucky we are to feel comfortable sharing “bigger thoughts” with each other, and luckier still that the miracle of technology allows us to share these thoughts freely. I would like to offer another perspective. Of course, my perspective is limited. I have been to China, but have never been outside of North America otherwise. What I know of history, I have only learned here in America.

Given these limits, from what authority can I speak? Some write about the importance of rights, others write about the importance of cultural values. In America, our rights are our cultural values. We Americans are a strange group, a band of wayfarers from across the globe. We hold nothing in common except our government’s Constitution. You can see that we Americans even capitalize the word “Constitution!” Why should this be?

As I said, we Americans are a band of wayfarers. We did not originate from North America; we came here individually, for our own individual reasons. Our system of government did not come from our culture or our rulers from thousands of years ago. Other nations draw from culture and heritage, but we Americans have drawn from philosophy. Unlike all others, ours is a nation founded on philosophy. Even our Civil War was not about slavery, but rather about the Constitution, about philosophy. What a strange culture we are that we went to war three times in less than 100 years on matters of pure philosophy!

As you can see, ours is not a culture of tradition, race, or religion. We, like the Chinese and Bangladeshis, experienced the horrors of British Colonialism. I believe that there are no cultural values except for human values. Humans are the same all over the world, and they hunger for the same things.

Now, there is a man in China who is in prison for presenting controversial views against his government. I cannot comment on that. I know nothing about it. It would not be right. But I can comment on a man who only narrowly escaped imprisonment in my own country for holding fast to his freedom of speech. This is how he spoke publicly about it:

No man thinks more highly than I do of the patriotism, as well as abilities, of the very worthy gentlemen who have just addressed the House. But different men often see the same subject in different lights; and, therefore, I hope it will not be thought disrespectful to those gentlemen if, entertaining as I do opinions of a character very opposite to theirs, I shall speak forth my sentiments freely and without reserve. This is no time for ceremony. The questing before the House is one of awful moment to this country. For my own part, I consider it as nothing less than a question of freedom or slavery; and in proportion to the magnitude of the subject ought to be the freedom of the debate. It is only in this way that we can hope to arrive at truth, and fulfill the great responsibility which we hold to God and our country. Should I keep back my opinions at such a time, through fear of giving offense, I should consider myself as guilty of treason towards my country, and of an act of disloyalty toward the Majesty of Heaven, which I revere above all earthly kings.

Who can deny that this man loved his country and his people, even though both had turned against him? You may never have read this paragraph before, but this public speech is known all over the world: it is the opening paragraph of Patrick Henry’s famous “give me liberty, or give me death” speech.

So we Americans are a strange bunch, because we take our freedoms so seriously. If the question is “why?” then the answer is: Because we always have. It is our culture. It is the way we are in America.

But as I said, I believe that there are no cultural values other than human values, and humans are the same the world over. Some of us were lucky to be born in a country that could overthrow its king at a time when kings did not hold a monopoly over tanks and bombs. However, I do not believe that people today hunger any less for freedom than they did 300 years ago, just because their governments are more powerful. When the US government throws Muslim people (or non-Muslim people) in jail and tortures them without due process of law, it is not because “American culture accepts this,” nor is it because “all governments are imperfect.” When this happens, the US is violating its own Constitution (the 5th, 6th, 7th, and 8th items in the US Bill of Rights, to be specific). We Americans all know this full well. It is not because we accept this violation of human rights that we cannot act. It is because the US government holds a monopoly of force against us. The government holds all the guns. Our only ability to protest is through our freedom of speech and our courage in front of a gun. Patrick Henry knew this when he gave that speech.

I believe it is this way in every country. When the British government acts, it is on its own behalf, not on behalf of British citizens. When the Bangladeshi government acts, it acts on behalf of itself, not on behalf of ordinary Bangladeshi citizens. There is a big difference between the values of a nation and the values of a nation’s government. In America, you will often see stickers on cars that say “I love my country, but I hate my government.” Perhaps this is why some can feel so strongly about freedom of speech, but can still be disillusioned by politics in general. Our nations are not our governments. A citizen is not the same as a President or a prison guard. Citizens serve citizens – governments serve only themselves.

America’s success is not due to savvy government planners, but rather due to our understanding that people are most successful when the planners “let us alone” (laissez-faire). If prosperity is a measure of success, then what can be said about a government that prospers while its citizens starve? In America, we want our government to starve while citizens prosper. This is a true separation of politics and economics. Unfortunately, even in America that separation is disappearing.

So I agree with those who point out imperfections everywhere, but I disagree with them on one point. When it is said, “Freedom of speech does not mean you can say and do anything,” I disagree. A man can be imprisoned or tortured, but so long as he can speak, he can say anything. This is what Thomas Jefferson meant when he wrote: “We hold these truths to be self-evident: That all men… are endowed with certain inalienable rights…[.]

Freedom of speech does not come from a government or culture. Freedom of speech comes from being a human being. It is self-evident: human beings speak; therefore we can speak anything we please. The only way to stop us is to take our lives. But then, you have not taken away our freedom of speech, you have merely terminated our ability to speak further. Governments can turn us into piles of dust that are no longer human – but so long as we are human, we hold the human right to speak and say anything. We hold this right because it is a natural and inalienable part of being a human being.

This, at least, is how we Americans understand our rights. But, as I said, we are a strange culture.


A Bit About Austrian Relevance

The excellent Jonathan Finegold Catalan makes a point about math and the Austrian School (emphasis in the original):
There is a lot of discussion, even within Austrian ranks, on the merit of econometrics, including the use of empirical evidence and mathematics.  I am not sure what the debate is about, because Austrian methodology is not really opposed to the use of statistics or mathematical formula,depending on the intentions of their use.
Catalan rightly points out that the Austrian School doesn't oppose math, but rather the tendency of modern economists to replace economic theory with mathematical derivation. This is an important stipulation.

It got me thinking about the relevance of the Austrian School in general. There is no question that we are outside the mainstream of economics - the question is simply why? Catalan suggests we need a new thinker to write another treatise on par with Human Action, or Man, Economy, and the State.

On the contrary, I think the last thing Austrian economists should do is engage in more navel-gazing and introspection. I think it's incumbent on Austrian School economists to engage modern theories point-by-point. We need to participate in ongoing discussions, rather than sitting back and lamenting that the whole universe has it wrong.

I think we also need to spend some time away from macroeconomics. This is the bread-and-butter of the Austrian School, but it is also the arena in which the Establishment has the most arguments against us. Far better to delve into rich microeconomic discussions and tackle new theories from outside the Austrian School. Perhaps Austrian economists should also think about endorsing theories posited by non-Austrians that are entirely Austrian in nature (Caplan? Kling? etc...)

Participation is how we will start to be taken more seriously.


How Long Until These Words Are Understood

In honor of the neighbor of mine who went on a 7-hour marijuana bender last night, I'd like to put forth some food for thought.
In this crusade, let us not forget who we are. Drug abuse is a repudiation of everything America is. The destructiveness and human wreckage mock our heritage. Think for a moment how special it is to be an American. Can we doubt that only a divine providence placed this land, this island of freedom, here as a refuge for all those people on the world who yearn to breathe free? 

The revolution out of which our liberty was conceived signaled an historical call to an entire world seeking hope. Each new arrival of immigrants rode the crest of that hope. They came, millions seeking a safe harbor from the oppression of cruel regimes. They came, to escape starvation and disease. They came, those surviving the Holocaust and the Soviet gulags. They came, the boat people, chancing death for even a glimmer of hope that they could have a new life. They all came to taste the air redolent and rich with the freedom that is ours. What an insult it will be to what we are and whence we came if we do not rise up together in defiance against this cancer of drugs.

How long until we understand these words? Let us not forget who we are. Drug abuse is a repudiation of everything that America is.

Now, the specific question of the "legalization" of drug abuse is entirely political. Those who favor legalization believe it would alleviate some of the serious problems attached to the drug trade. Those who oppose it, believe that making drugs illegal is a good way to combat their effects on our society. Clearly, there are good intentions on both sides.

In general, I opt not to tackle that question. What is important to me is promoting a society that ideologically opposes drug consumption, regardless of the politics. When people understand that to blot out your rationality is to blot out yourself and to kill yourself piece by piece, when people finally realize that America is a nation founded on philosophy, individual value, achievement, and excellence, then perhaps they will take a little time to reflect on these words, and realize how right he was when he spoke them.

What is America, to you? How does your behavior reflect on that?


Quote of the Day

"It is only our decision not to do drugs that keeps our species alive. Monkeys prefer drugs over food."
-- Anonymous


This is a pretty interesting article on the price of gold:

The first half of the article largely gets it wrong (I believe). It isn't until the second half that he makes two really good points:
  1. A lot of gold's increase is being driven by the economic expansion of "emerging markets." As countries become better developed, their central banks require more gold reserves for currency stability, and that increases demand and therefore price. That's his point. I'd take that a bit further and suggest that this also presents reduced demand for the US dollar, and increases the probability that the world could return to commodity-backed currency in the future.
  2. Gold is sensitive to interest rate futures. I am still kind of cautious on gold, because I think if I invested in it now and the U.S. decided to pursue saner economic policies, I'd lose my gold investment in the short-run. Sadly, I am a short-run investor at this stage in my life, thanks to upcoming financial commitments.
I retain some belief that non-gold commodities may present the better investment opportunity. I still think copper is a really sound investment, because its price is basically a dual price (or that's how I see it, anyway). Half of its price is a "precious metals price," and the other half is a "raw goods" price. So if the dollar tanks, then copper's precious metals price component should increase; but on the other hand, if the dollar stays strong and the economy stabilizes, then manufacturing will increase and the "raw goods" component of the price will increase.

So I'm basically talking myself into copper at this point.

HT: Greg Mankiw


Caplan Does Socrates

Bryan Caplan presents an entertaining ficticious dialogue between Socrates and Glaucon, regarding immigration. Please read it, it is fantastic.

I intended to post a comment lauding Prof. Caplan, but browsing through the comments I noticed so many objections to what is basically Econ 101 stuff. It is really too bad. Economics is becoming a lost discipline.

At any rate, I have three brief items to add:
  1. Even if immigration reduces the nominal wage rate, the corresponding reduction in prices gained by efficiency and a larger labor force bring the real wage rate up (we can now buy more with our lower salaries). Every laborer is also a consumer.
  2. Those who have the most to gain from abolishing minimum wages are teenagers and students. While many low-wage workers are poor and/or immigrants, the majority are part-time students saving for their future. That we would punish our children with minimum wages is unconscionable.
  3. Anti-immigration policy (including anti-illegal-immigration policy) is basically institutionalized racism. Pretending otherwise is untenable.


Optimism and Human Relationships

Our belief in the gooness of other human beings ultimately determines the success of our relationship to others. To see what I mean, I have to lay out a few basic assumptions, with which you are naturally free to disagree. :)

1. Humans are naturally good, i.e. Locke's state of nature is a more accurate vision than Hobbes'.

I won't spend too much time on this. Suffice it to say, I consider the fact that human beings are willing to cooperate at all to be positive proof that cooperation is our nature. The more advanced our society becomes, the better we get at cooperating with larger (even global) groups.

2. If something is physically possible for a human being to accomplish, then any particular human being can accomplish it if he/she does all that is required.

This one might seem a little tautological to you, but it's important. What I'm talking about is this: If you have two functional legs and a lifetime ahead of you, you can be an Olympic runner, if you put in the work. Not just you, but anyone with two functional legs.

A corollary to this is that the same holds true for personality traits. You are not stuck to your ways simply because you are a Gemini, or a Green Personality Type, or an eSTj or whatever else. Just because someone has observed something that you tend toward doesn't mean that you don't have any control over it. If you have been a pathological liar, you can make the decision to become a truth-teller any time you please. Because we are all capable of telling the truth, even a pathological liar can become a truth-teller if he is willing to actually follow-through.

3. Negative reinforcement is far less effective than positive reinforcement.

If someone behaves a certain way, and you constantly point it out, how could you ever reasonably expect them to decide to change their behavior? Undoubtedly, they will simply begin think, "Well, what's the use? If everyone thinks I'm a jerk, then why try?" Or whatever. Either the other person will start playing their negative role, or you yourself will filter out those actions that are contrary to the behavioral expectation you have set up for yoruself.

On the other hand, if you constantly and consistently reward a naughty child for any good turn he does, reward a stubborn person's occasional flexibility, reward a greedy person's rare generocity, etc., you will soon start seeing a behavioral change.

The reason for this is obvious. People enjoy doing things that benefit them. So if being good benefits them more than doing otherwise, they will learn to act in accordance with good over not-so-good.

Put it all together, and what have you got?

Really what all this comes down to is that people are good, people can change, and people will cease to do bad things if you reward their good behavior with good behavior of your own. Sounds pretty simple, but there is some philosophical optimism involved here. Why?

Well, in order to make this work, you have to have some optimisim that people who have done something bad in the past won't just keep being bad in the future, no matter what. You have to believe that being nice to people and recognizing their good deeds will make your relationship better. You have to believe that people aren't just jerks through-and-through, unless society beats it out of them.

There is optimism involved every step of the way. In order to maintain good human relationships, you have to believe that they're good relationships! You have to build that belief into your forward-looking expectations.

If you do, you'll be happy. Guaranteed.