The Brother’s Keeper Bill

October 30, 2011

Bryan Caplan on the EconLog blog writes:

Suppose someone proposed a “Brother’s Keeper Bill.” According to this BKB, people earning at least double the poverty line would be financially obliged to give 20% of their income to any sibling earning less than the poverty line.

Caplan doubts that many people would support this bill and provides several potential responses that fall into the following nine types: 1) atomic individualist, 2) libertarian, 3) moral hazard, 4) donor incentive, 5) work ethic, 6) meritocratic, 7) Puritanical, 8) evasive, and 9) debt.

You wouldn’t want to pay 20% to your brother who you know so why would you pay 20% to a total stranger? The answer is that you are not paying “a” stranger, you are entering into an agreement with a very large group of strangers. It is the same idea behind car/home insurance but applied to income.

The issue with Caplan’s argument is that it equates Responsibility-for-an-Individual with Obligations-to-a-Collective.

I think it is perfectly valid to question whether it is the role of government to provide income insurance but “The Brother’s Keeper Bill” is a sophism.

Nurturing Tiger Moms

February 2, 2011

Bryan Caplan discusses Tiger Mother Amy Chua and I’m completely on-board until he says the following:

But hasn’t all the musical practice indelibly shaped Chua’s children’s characters?  Highly unlikely.  Behavioral genetics finds roughly zero effect of parents on personality.

I think this is a misinterpretation of The Nurture Assumption. The theory states that a large part of a child’s personality is environmental, that is, “nurture” but that this influence is mostly from peers rather than parents or teachers. What I think Caplan forgets is that parents can have an impact on children by indirectly influencing who their peers will be.

For instance, parents can influence their children’s personalities indirectly by the neighbourhood they choose to live in. If I remember correctly, Judith Rich Harris claims that the age of the parent(s) and whether a child is raised by a single parent has zero impact on child personality once you correct for the neighbourhood influence.

In her WSJ article, Chua says the following:

Here are some things my daughters, Sophia and Louisa, were never allowed to do:

• attend a sleepover

• have a playdate

• be in a school play

• complain about not being in a school play

• watch TV or play computer games

• choose their own extracurricular activities

• get any grade less than an A

• not be the No. 1 student in every subject except gym and drama

• play any instrument other than the piano or violin

• not play the piano or violin.

How many of these rules do you think will significantly affect the relationship these children have with their peers? I’m guessing it is non-zero and possibly as important as neighbourhood/school choice.

Kitchen Stagnation

January 31, 2011

Paul Krugman and Tyler Cowen argue that the pace of innovation in the kitchen has stagnated over the last 50 years or so.

The same can be said for one of my favorite technologies, the canoe. The modern day canoe is based on the Aboriginal birchbark canoe. The original design is hundreds of years old and remains unchanged though the materials used in the construction of the modern canoe have changed over time. The birchbark was first replaced by canvas in the 19th century followed by modern composites like fiberglass and Kevlar about 50 years ago. There have been no significant improvements in canoe technology since then.

Is the lack of canoe innovation a sign that we are doomed to technological stagnation?

For me, the canoe is an example of a perfected technology. Within its problem space, it is done. It is complete. It represents the fruits of a long and arduous process, the engineering end-game. It makes me happy. It is the high bar for anything I create.

I admit that kitchen appliances do not give me the same sense of engineering perfection or completeness that the canoe does. They do, however, represent another common engineering measure, that of being “good enough”. It is a waste of time and money to try to improve a technology that is “good enough”. Perhaps that is the definition. A technology is “good enough” when additional engineering resources applied to the problem space result in negligible technological improvement.

One would think that economists preoccupied with the allocation of resources would have a special place in their heart for technology that is either “done” or “good enough” rather than seeing it as a harbinger of middle-class decline.

Rogers Cable has the following to say about the CRTC LPIF (Local Programming Improvement Fund):

New Fee on your Bill
Beginning September 1, 2009, customers will see a new line on their invoice called CRTC LPIF Fee, and a corresponding charge of 1.5% of their recurring TV monthly service fee. Rogers Cable does NOT benefit from the LPIF fees collected. These fees are directly remitted to the CRTC’s Local Programming Improvement Fund, for the use solely by broadcasters like CTV and Global serving markets with less than 1 million people.

The CRTC has the following to say about cable companies passing on the LPIF fee to customers:

Several cable and satellite companies want to increase their customers’ rates by 1.5%. Can the CRTC prevent this?

In Public Notice 2008-100 (paragraph 357), the CRTC indicated that in light of the performance2 level of the cable and satellite sector and the benefits accruing to broadcasting distribution undertakings (BDUs) as a result of other changes being made to the regulatory framework, the Commission saw no justification for BDUs to pass along any increased costs relating to the LPIF to their subscribers.

This is an example of a non-intuitive economic principle. You can not tax companies. You can only force companies to collect tax from customers on behalf of the government. Not only do you have hidden taxes but you also have hidden tax collection.

Actually, Rogers is making it a little less hidden but the principle still holds. Consumers always pay one way or another.

Slice of the Kidney Pie

August 29, 2009

Will Wilkinson and Bryan Caplan are debating why people oppose organ markets. Caplan believes that all (or effectively all) people that understand the economics behind organ markets support it over, I’m assuming, the current heavily altruistic system. Wilkinson attempts to summarize the moral argument against organ markets as follows:

Human beings have a certain dignity that is central to the value of human life. That dignity ought to be respected, preserved, and protected. Allowing the sale of human body parts diminishes the dignity of those involved in the transaction and erodes respect for the dignity of human beings generally. Therefore, markets in body parts ought to be legally prohibited.

Read the rest of this entry »

Voting Signals and GTD

June 14, 2009

Robin Hanson over at the Overcoming Bias blog has a post about What Voting Signals. He links to a NY Times article that describes a change in Switzerland in which every “…eligible Swiss citizen began to automatically receive a ballot in the mail, which could then be completed and returned by mail.” The result of this natural experiment was that the voting rate unexpectedly declined.

Read the rest of this entry »

Tom Slee over at Whimsley writes about Online Monoculture and the End of the Niche:

Online merchants such as Amazon, iTunes and Netflix may stock more items than your local book, CD, or video store, but they are no friend to “niche culture”. Internet sharing mechanisms such as YouTube and Google PageRank, which distil the clicks of millions of people into recommendations, may also be promoting an online monoculture. Even word of mouth recommendations such as blogging links may exert a homogenizing pressure and lead to an online culture that is less democratic and less equitable, than offline culture.

I am going to talk about a song called Waters of March. The first version of this song I heard was by a band named Smoke City. The Portuguese title of the original song  by Antonio Carlos Jobim is “Águas de Março” and the Smoke City version is partially in Portuguese and partially in English. 

This song is simply wonderful, which many if not most Brazilians already know, and the Smoke City rendition is unique and opens the song up to an English speaking audience. OK, too much talk about a song…. 

Go Listen to the Smoke City rendition of Águas de Março (Waters of March) at YouTube.

If you want a bit more, try the SeaLab version or the banjo version. 

So the point of my post is this, internet search and recommendation engines are not about being democratic or equitable they are about discovering greatness. In the case of the Waters of March song or the band Smoke City the recommendation engines fail miserably. The Wikipedia entry for Waters of March does not mention the Smoke City album Flying Away. The Flying Away album entry on Amazon in no way helps you find out about the original  Antonio Carlos Jobim song. Flying Away gained a cult following mostly because a the song Underwater Love appeared in a Levi Jeans commercial. iTunes is the worst with their we-know-what-best-for-you walled garden.

But people find this music despite the lack of links, recommendations, and availability of music to download. In fact, I think the truth is that people will go out of their way to share things that are truly great. The Internet with its links gives us a way to share. The recommendation engines and other tools are in their infancy but they will get better. People are ultimately the best recommendation engines and they will find ways to overcome the barriers of language and countries and bad software.

Disgusting Ultimatums

March 2, 2009

CBC radio’s Quirks and Quarks show had a segment on the disgust response. One of the experiments demonstrates that people playing the ultimatum game show the facial disgust response when they receive a low offer that they ultimately reject. From a press release:

“Morality is often pointed to as the pinnacle of human evolution and development,” says lead author Hanah Chapman, a graduate student in the Department of Psychology.  “However, disgust is an ancient and rather primitive emotion which played a key evolutionary role in survival.  Our research shows the involvement of disgust in morality, suggesting that moral judgment may depend as much on simple emotional processes as on complex thought.” The research is being published in Science on February 27, 2009. 

This is why I found the research on chimps playing the ultimatum game with raisins so fascinating. Chimps play the way rational economists play (they accept any amount) while humans reject unfair offers on moral grounds. 

This adds to the work of Dan Kelly who believes the human moral system has co-opted the disgust system.

In my proposed Gift Card Stimulus thought experiment, I already suggested that tax payers, both individuals and businesses, receive gift cards worth 1/3 of income taxes paid in 2007. This works more like a tax break except that the twelve month spend-it-or-lose-it rule ensures that the money is spent rather than stashed away. This helps address the one big advantage governments have over individuals/businesses, governments can spend like nobody’s business (no pun intended). The disadvantage  is that governments do not have the money to spend on long term infrastructure (e.g. transportation, health, communication, energy). 

So why not allow government organizations to submit project proposals, with costs attached, and allow the Gift Card Stimulus to be allocated to the project of the Gift Card holder’s choice. Would you choose to give to bridge maintenance rather than purchase a new 50 inch TV?

So what else can you spend it on? I think you need to start off with “everything”, that is, any product or service that you can normally purchase. You might want to disallow some but I’m not exactly sure if its worth the effort. Food, gasoline, and utilities are things people will spend money on anyway so you may want to exclude them though it does seem kind of mean to do so. So lets say anything that you normally pay sales tax on is allowed plus government projects.

Remember, you will have to pay back the stimulus in tax eventually (say over 5 years). Those that don’t spend their Gift Cards don’t have to pay anything back.

It makes it feel more real though doesn’t it? Your money that you will have to pay back. Your choice that you will want to make a difference. Your skin in the game and not someone else making all the decisions on your behalf. 

Actually it is a bit depressing. Maybe that is another advantage of government spending. President Obama is far more optimistic about spending your money in a way that helps the economy than I think you or I would be spending our share ourselves. Maybe ignorance is bliss.

Hugo Chavez has sent in troops to nationalize rice processing companies in Venezuela:

“This government is here to protect the people, not the bourgeoisie or the rich,” said Mr. Chavez, ordering military authorities to “take control of and intervene in all of these businesses that process rice in Venezuela.”

I’m guessing that there are employees from various industries that Chavez has nationalized that would jump at the opportunity to immigrate to the United States. The U.S. Census Bureau reports that there were approximately 19 million vacant homes in the fourth quarter of 2008. Why not open the doors to immigration for skilled individuals that have the means and are willing to put down 20% towards a new home?

It would certainly help the housing industry since there is no way housing prices can recover with so much excess inventory. The question is whether that type of immigration hurts or harms an economy in recession. I suspect it helps. I also suspect that the Lou Dobbs types would be dead against it.

In the United States, the total receipts for fiscal year 2007 was $2.4 trillion. The $800 billion stimulus bill, therefore, is approximately 1/3 of the total receipts for 2007.

1/3 is a nice number to work with. This $800 billion debt will eventually have to be paid back so let us say that all individuals and corporations will receive gift cards worth 1/3 of the amount of tax they paid for 2007. It is not a perfectly fair system but it is pretty close in my opinion.

So these are the rules we have so far:

  1. all individuals and corporations that paid federal tax for 2007 will receive a gift card
  2. the amount of each gift card will be 1/3 of the federal tax paid in 2007 by the individual/corporation
  3. each gift card will expire twelve months after it is issued
  4. not using the gift card is perfectly OK, just let it expire

Unlike a tax cut, the gift card stimulus must be spent and it arrives immediately as one big lump sum.

Gift Card Stimulus

February 10, 2009

Here is a thought experiment. Imagine we are in a recession and the powers that be decide to spend 800 Billion to stimulate the economy. The 800 Billion will be in the form of Gift Cards that must be redeemed within 12 months. You have been named Gift Card Czar.

The remaining decisions you must make as Gift Card Czar are:

  1. What stores/companies/organizations will be allowed to participate.
  2. Who will get to spend the Gift Cards.

Can you structure the Gift Card Stimulus to help the economy?

Financial Crisis

September 27, 2008

Failures fascinate me, they always have. The current financial crisis is no exception. There is no shortage of opinion on the cause of this crisis. Housing, mortgages, financial institutes, and government regulation are all involved but I see little clarity or consensus on what caused the failure and what interventions might help alleviate the crisis.

I have wondered in the past what is different between the Canadian and U.S. systems. Recently a report claimed that Canada may be heading for an American-like meltdown. Although Canada’s economy is very much tied to the U.S. economy, the fundamental components of the meltdown are different, in my opinion.

I have heard the crisis referred to as a “perfect storm”. In my mind, the perfect storm analogy refers to a well understood system in which independent variables simultaneously reach a state that produce maximum nastiness. Watch the variables and you can predict when it is time to pray.

The U.S. financial crisis is not like a perfect storm. It is a classic nonlinear system in which we don’t understand the critical variables nor their expected behavior when these variables change. Here is my guess at what the critical variables are/were in this crisis:

  1. Government policy/agencies that promote home ownership
  2. Shift to mortgage-backed securities
  3. Foreign investors (e.g. sovereign wealth funds) looking for safe U.S. money market investments
  4. Lowest interest rate in history during 2001-2004
  5. An oversupply of housing

Compared to Canada, the U.S. has many more incentives for people to buy homes. Fannie Mae and Freddie Mac with an implied government insurance policy, tax deductible mortgage interest, and laws that required lending to traditionally high-risk individuals.

Mortgage-backed securities for years were hailed as a major innovation in the financial industry (Canada lagged in this department). Risk was measured by 3rd party rating agencies and shifted in bulk to all the owners of the securities. The incentives in this system encouraged deceit and sometimes fraud by both lenders and borrowers. 

The incredible growth of China and other nations produced central banks and sovereign wealth funds that were flush with cash. There was a great deal of demand for safe money market financial instruments and mortgage-backed securities looked attractive compared to treasury bills at historic lows. Only the U.S. economy is large enough to meet the safety requirements these institutions demanded.

Some blame Alan Greenspan for this mess because he did not investigate the early signs of this crisis and because the historically low interest rate. This interest rate was set low to bolster the economy after 9/11 fueled the mortgage meltdown. Low interest rates together with government incentives for home ownership made buying a home seem “free”. Low interest rates made traditional money market products unattractive and a race was on to offer new alternatives (i.e. mortgage-backed securities). 

Finally, an over-supply of housing made sure that the housing bubble would eventually pop rather than deflate. 

Was there greed? Sure, pockets of it but it was not a key driver like it was for the Internet stock bubble. Fraud, again, pockets of it but certainly many orders of magnitude less than with Enron. Over enthusiastic investors? I find it hard to believe that anyone thought that mortgages were anything other than a safety play (but I certainly could be wrong). Regulators asleep at the wheel? Considering how complex this crisis is, I find it hard to believe that anyone could have prevented the crisis with prescient regulation. I doubt anyone can create new regulations now that would do less harm than good moving forward. 

So will the 700 Billion plan fix things? I dunno. It makes for good theater though doesn’t it. Who says government doesn’t support the arts.