Low Hanging Mirages

Consider what the effects of this kind of regulation are:

Antonios Avgerinos, 59, a retired army pharmacist, always wanted his own pharmacy here. And why not? Greek law ensures that pharmacists get a 35 percent profit on all drugs sold, even over-the-counter medications.

But Greek law also limits just about everything else about pharmacies. They must be at least 820 feet apart and have a likely market of no fewer than 1,500 residents. To break into the business, an aspiring pharmacist generally has to buy a license from a retiring one. That often costs upward of $400,000.

The goverment, through its extensive regulation of pharmacies, has created an asset that is traded between retiring pharmacists and aspiring ones. There is no good reason why this needs to be the case and this is a fantastic example of free lunch deregulation, right?

Well, as soon as you deregulate these pharmacies, you destroy $400,000 of paper wealth for every pharmacist in the country. The macroeconomics of that are probably tolerable, but the politics are absolutely toxic. No politician wants to tangle with a highly educated group of cornered wolverines fighting for their nest eggs.

Among other strategies, they can probably point to dozens of other equally ridiculous regulations that should be struck down first. Until they wise up and realize that by teaming up with these other interest groups they can create an invinciple coalition against reform.

And what if all of these incumbent interests borrowed money to pay for their licenses? That means that reform will also wipe out the debt they owe, which means the banks lose out. Those banks can hardly afford that, can they! Suddenly fixing a ridiculous regulation has morphed into economic self-annihilation.

Now consider how this story plays out in other countries. Here in the US a lot of wealth has been chenneled into rising house prices, probably for stagnationist reasons, and now you have a similar situation for housing reform. Can’t tell everyone you’re going to destroy 10-15% of their GROSS wealth, particularly if that equals 115% of their net wealth. And then there’s the banks.

I posted on the politics of the anti-loose-money coalition, basically saying that it’s not demographics because the policy responses to 2008 and 1931 were the same while the demographics were far far different.

Well, Steve Waldman was gracious enough to comment, mostly citing cultural and intellecutal advances since the 30s. I’m skeptical and responded by pointing out one huge similarity between the monetary mistakes of today and the 1930s: DEBT.

That graph isn’t an awesome one because in a big bad crisis both the numerator and denominator are changing in erratic ways, relative to history. And deflation really complicates the analysis. I’m not gonig to parse the data myself today, though, so I’ll go on and just make my point.

Which is that too much debt is toxic for lots of reasons, most particularly because it chains policymakers to the status quo. You can’t loosen up monetary policy because you destroy too much wealth and perhaps spur a banking crisis.

You can’t raise rates either: consider China, where interest rates are probably too low. Their growth model has been a debt-fueled investment boom (see Michael Pettis for more on this) which, Japan has taught us, usually ends with too much debt and too much useless crap. But if you have too much debt, raising interest rates is suicide at roll-over.

I’m trying to tie together a common story through all this, which is that there are often problems in an economy and sometimes these problems get really bad. Debt makes it really really difficult to get out of these problems and once the market realizes this, NGDP forecasts drop. Then you have a Krugman-Sumner recession, which I think of as simply an expression of our straightjacket.

If we had control of the economy, we’d get out, but if we had control we’d never have gotten in in the first place.

Progress

This story about hazing at US fraternities is pretty shocking:

“I was a member of a fraternity that asked pledges, in order to become a brother, to: swim in a kiddie pool of vomit, urine, fecal matter, semen and rotten food products; eat omelets made of vomit; chug cups of vinegar, which in one case caused a pledge to vomit blood; drink beer poured down fellow pledges’ ass cracks… among other abuses,”

I went to a school that outlawed its fraternities almost a hundred years ago and had a common orientation week that sought (with some success) to accomplish some of the same things that more dramatic hazing does:

Hazing supposedly serves a deliberate purpose, of building solidarity. Psychologist Robert Cialdini uses the framework of consistency and commitment to explain the phenomenon of hazing, and the vigor and zeal to which practitioners of hazing persist in and defend these activities even when they are made illegal.[20] Cialdini cites a 1959 study in which the researchers observed that “persons who go through a great deal of trouble or pain to attain something tend to value it more highly than persons who attain the same thing with a minimum of effort.”

There is a trend in our society of becoming less tolerant towards deliberate infliction of pain. I’d argue that building solidarity is a good thing to a point, but that benefit is almost comically overshadowed by the costs of this kind of hazing.

In case your immediate reaction is to scoff at this liberal claptrap, think of this trend in the context of Gladiatorial games and crucifixion. Blunting our impulse for violence has made the world a better place.

“Yeah, but only up to a point!”  you might respond. Sure, but that point is decided by generations to come. Who can predict how our grandchildren will react to stories of hazing?

At my alma mater, they tried to get by this by promoting some interfaculty rivalry. It’s silly to think back on this but defining my identity as a Commerce student necessarily put me in opposition to the Engineers. And for a time a part of me really bought into it. Not because it made sense but because I wanted to buy into it.

The search for solidarity as an unpleasant impulse in a pluralistic society, even when it isn’t pursued with violence. Think of this quote from Tyler Cowen:

Brink Lindsey said… that [voters] choose on the basis of the people they sympathize with. To which Tyler Cowen replied, “People vote on the basis of who they sympathize against.”

In the politics of affiliation, you can vehemently denounce 49% of the population if it stirs a feeling of solidarity among the other 51%.

Good Jobs

Here is David Pogue on the everlasting Foxconn saga. He is writing on the side of “our definition of sweat shops is a bit weird in the context of China”. Here is a salient quote:

The second enlightening twist, for me, was a note sent to me from a young man, born in China and now attending an American university.

My aunt worked several years in what Americans call “sweat shops.” It was hard work. Long hours, “small” wage, “poor” working conditions. Do you know what my aunt did before she worked in one of these factories? She was a prostitute.

And the article goes on with lots of interesting anecdotes. It’s good for my bias and all, so I post it here.

But the thing that intrigues me is a contradiction (hypocrisy?) in the way many in our culture look at manufacturing. We revere it, of course, but why? These don’t look like the kind of jobs that I want my kids to have.

It didn’t look like a sweatshop, frankly. The assembly-line work was certainly mind-numbingly repetitive — one woman files the burrs off the iPad’s Apple-logo hole 6,000 times a day — but that’s the nature of assembly-line work. Meanwhile, this factory was clean and modern.

More tellingly, the broadcast showed 3,000 young Chinese workers lining up at the gates for Foxconn’s Monday morning recruiting session.

Now, these workers know about the 2010 Foxconn suicides. They know that the starting salary is $2 an hour (plus benefits, and no payroll taxes). They know they’ll have 12-hour shifts, with two hourlong breaks. They know that workers sleep in a tiny dorm (six or eight to a room) for $17 a month.

And yet here they are, lining up to work! Apparently, even those conditions, so abhorrent to us, are actually better than these workers’ alternatives: backbreaking rural farm work that doesn’t prepare them to move up the work force food chain.

Isn’t a rich society one that is free from such toil? I still don’t really ‘get’ the manufacturing fetish.

Fix The Future. Get Outta Your Bubble

From what I can tell, that’s about the upshot of Charles Murray’s book that’s set the blogosphere alight this past week.

I haven’t read the book and probably won’t with the likes of this and this and this review giving me the gist.

And the gist is that the ‘upper class’ are richer, better educated, more likely to go to church, more likely to stay married and more likely to raise kids that will themselves be even more educated, rich, churchgoing and married than themselves. Fine.

But there are two extra bits that Murray (and everyone else) is focusing on. First, the churchgoing part above is a clue to this cutting straight past the labels ‘Republican’ or ‘Democrat’. Second, and most importantly for Murray: these people are self-segregating.

Most of the commentary discusses the geography of this trend, which is apparently stark. The ‘elite’ don’t venture out of their bubble and so the non-‘elite’ don’t get to see what being ‘elite’ is all about. This is meant to ice their and their kids’ chances of moving up.

Therefore, says Murray, the elite have a duty to get themselves out there more.

My parents always worried about what kind of kids my sister and I hung out with. They figured our peers would influence our habits much more than they could.

Charles Murray agrees then turns to them and asks: “but who are YOU hanging out with?”

Full disclosure: Murray would probably say that you, dear reader, and I are both in this elite. As are our parents and everyone we know, basically.

It’s About Saving Political Keister, Not Astronaut Lives

This story has been making the rounds:

Starting with near zero space capability in 1961, the National Aeronautics and Space Administration (NASA) put men on our companion world in eight years. Yet despite vastly superior technology and hundreds of billions of dollars in subsequent spending, the agency has been unable to send anyone else farther than low Earth orbit ever since.

Why? Because we insist that our astronauts be as safe as possible.

Keeping astronauts safe merits significant expenditure. But how much? There is a potentially unlimited set of testing procedures, precursor missions, technological improvements, and other protective measures that could be implemented before allowing human beings to once again try flying to other worlds. Were we to adopt all of them, we would wind up with a human spaceflight program of infinite cost and zero accomplishment. In recent years, the trend has moved in precisely that direction, with NASA’s manned spaceflight effort spending more and more to accomplish less and less.

That’s about the gist of it, though the article goes on and on (I skipped most of it) about how much money programs spend on safety while not getting much scientific bang for the buck.

The author is looking at this from a rather more utilitarian ethic than politicians use when setting budgets and objectives for NASA. Here’s how they decide what to focus on.

They just look at this picture:

Then ask themselves, “another one of those on my watch?”

“Nuh-uh”

Engineers and geeks all over the world cry foul and plead, with articles like the one above, for sanity to return, for society to take a bit of risk for a bit of reward.

“Sorry, what was that about reward?” our intrepid politico glances up from his latest pork-ridden bill. Ok, here’s our chance for the big pitch. Take it away, poindexter…

[a bunch of complicated talk about long-dated options on future prosperity]

“Meh, get in line”

Canelo?

This is jr. Middleweight Mexican boxing sensation Saul ‘Canelo’ Alvarez:

That’s right, that guy’s Mexican. A very Northern  European-looking Mexican, isn’t he.

I grew up in a town with a prominent minority of light-skinned, light-haired Mexican people. I have no evidence that Canelo Alvarez is of the same tribe, but the likeness is vivid.

These were a branch of Mennonites (who speak a strange hybrid language*) that originally fled the borderland between the Netherlands and Germany to Russia when they were going to be forced to enter the draft. They redoubled their exodus when Revolutionary Russia’s political climate threatened some of the privileges they negotiated (in exchange for populating farmland) and took off again.

Some, like those that run this awesome awesome restaurant, wound up in colonies in Bolivia. Many went to the Canadian prairie. Many went to Mexico.

And many of those that went to Central/South America wound up moving to my home town in Canada. Always looking for farm work, always looking to be left alone.

They dress a bit funny (yes, they brought and kept this fashion sense with them into Canada)

I mostly went to school in another town so I didn’t have any of these kids in my classes at first. By the time I went to high school back in town I was 16 and many/most of my Mennonite contemporaries had dropped out to, presumably, start on the farms their families moved there to work.

Of those that were left, some were later-generation products whose families had assimilated. The others, though, had more in common with the other small minorities (SE Asians, Middle-Easterners, other Central Americans – a very diverse town of 25,000, Leamington) than they did with the local kids, physical appearances aside (and this is a powerful lesson: race and  discrimination have nothing to do with skin color).

Now, given that Mexicans are huge boxing fans, maybe Canelo IS a mennonite?

So I asked the patrons of the restaurant I linked to above whether they had heard of him. Blank stares. Hm. You sure?  (holding my hands up like an idiot, mimicking a boxer) Boxing? Nope.

So is Canelo a Mexican Mennonite? I doubt it, I suppose, much as I’d relish the coincidence with my past. When you’re a people that keeps apart (and farmers always have this inclination, in my experience) you aren’t about to send your kids to the boxing camps.

* I remember this language from my childhood. I never spoke it, but noticed all these strange-looking people speaking it. My dad mentioned that it was called ‘low German’, which to my young ears meant ‘low-class German’. Not even close. It turns out that ‘low German’ is ‘low’ in the sense of literally lower altitude, as in the ‘Low Countries’ (Netherlands) and this language is from the area between Holland and Germany. During my last trip back home (for Thanksgiving) my more mature and worldly ear overheard a bit of conversation in Low German and I definitely picked up on the German part but also a serious whiff of something that wasn’t German, English, Russian or Polish (and definitely not any Latin-based language). It almos sounded Swedish. Turns out what I was hearing was the Flemish influence.

Sovereignty Shall Reassert

I tend to numbly flick through any Euro analysis that chances across my screen, but yesterday I stopped and actually read a James Hamilton post and thought about it for a sec. It’s a good discussion.

The paths are simple: break the Euro or everyone climb into bed with each other and start making out (my metaphor for fiscal integration). Well, I think this isn’t going to work.

Think of this as a voter: would you vote for a head of state that raises taxes to give BILLIONS of dollars to Greece?

Now think of the flipside. Will Greek voters be all happy-clappy that a bunch of Germans are going to tell them how to run the show? Meh, the Germans aren’t so bad, right? Well, Germany ain’t above rigging itself a good deal at others’ expense.

Let me mess with your xenophobia a bit and ask this: would you accept a bailout from China or Russia if they would assert some fiscal control over your government for the next 20 years?

Yeah f#$!ing right.

The conventional view right now is that nothing is going to happen until the Germans wake up and realize shit is being fed through the fan. Tyler pushes back and so do I, but harder.

This sucker is going down.

Occupy Wall St.

OWS represents four things to me:

  1. An expression of discontent protected by constitutional rights
  2. A convenient cover for run-of-the-mill hooligans, crackpots and anarcho-douchebags to abuse local business or yank the mic and step up on their soapbox  as suits their fantasies.
  3. A political movement that, yes, like the Tea Party, represents the polarization of political discourse when confronted with intractable economic problems. In other words, a pointless endeavor.
  4. An occasional fantastic inconvenience for me personally since I live and work in the area. I HATED OWS for inspiring the NYPD to crank up security in the area (costing god knows how much money) and forcing me to constantly reroute my commute.

Berlusconi

Sounds like he’s stepping down. Ah, Berlusconi

I’m going to miss him. He’s the villain everyone loves to hate. He’s like the European George W. Bush.

He controls the media!

He gets up to all sorts of shenanigans!

What amuses me about him is that he’s such a punching bag. He’s one of those politicians that the (admit it, left-leaning) press awards the disparaging moniker “election-winner” as though that’s some quality distinct from any other a politician can have.

He obviously has SOME kind of appeal to Italians or they wouldn’t put him in office time after time. Can you chalk it up to him having a ridiculous stranglehold on the media? Some of it, sure. But maybe he’s also what Italians want in a Prime Minister, relative to the rest of the field.

Look, I’m not saying he ain’t a bad dude. Dodging criminal prosecution because you’re the Prime Minister until the Statute of Limitations expires is pretty despicable, but of the society as much the man. Are people saying he rigged elections to achieve this? I don’t think so, which means he did something that’s pretty tough to do (get friggen elected multiple times) to pull it off.

Anyway, the vast majority of public figures are bad dudes. Maybe he’s in the 75th percentile or something, sure, but much more than that?

Most people are happy to talk past one another on this kind of thing. I marvel at how cognitively costly it is to engage in real empathy or admit a mistake (I mean this of myself as much as anyone else). Real understanding of a disagreeing party’s position, therefore, is elusive simply because people won’t shoulder that burden.

We foreigners may never know why on earth the Italians elected such a douche bag. But maybe they’ll be nice enough to put another one in office so we can still have someone to look down on.

There Is No Middle

The Economist laments:

Imagine a presidential candidate next year who spelled out the need for deep future cuts in spending on entitlements and defence, as well as the need to raise some revenue (largely by getting rid of deductions); who explained that the pain would be applied only after the recovery was solidly in place; who avoided class or culture wars; who discussed school reform without fear of the Democrats’ paymasters in the teachers’ unions. Better still, imagine a new centrist block in Congress, which might give that candidate (or for that matter a President Obama or Romney) something to work with in 2013.

The political system is too open to so cleanly flip the bird to enfranchised minorities like teachers unions, farmers and everyone within earshot of the Medicare dinner bell.

THE problem today is that we aren’t as wealthy as we thought we were (and elect politicians whose job it is to preserve that illusion). There is a lot of debt that needs to go bad, which means gigantic capital losses. And that capital doesn’t ‘belong’ to bankers, folks.

It belongs to you. It’s your savings. It’s your pension. It’s your home equity.

It’s all well and good to idolize (in hindsight) historical figures that make good decisions in tough circumstances, but we quickly forget the ones that flub their moment of truth. There’s a reason the’re called “tough” decisions. It’s because you’re picking losers.

No politician in his right mind is going to tell voters: I’m going to destroy some of your wealth and keep destroying more until the system starts working again. I’ll let you know when I’m done.  Gosh, I hope I figure it out in time to stop before I go too far. Yes, I’m doing this when unemployment is 9%.

But that’s what has to happen. The most painless way is to do it with a burst of inflation. The most painful way is austerity. But it has to happen.

It’s no surprise WW2 happened after the last such episode.