Author Archive for Steve Landsburg
Nothing makes my job easier than a journalist who writes about something interesting and gets it 100% wrong.
Thanks, then, to Elizabeth Lesly Stevens for her column in yesterday’s Bay Citizen. Stevens wants to tax the “idle rich”, her Exhibit A being Robert Kendrick, heir to the $84 million Schlage Lock Company fortune. According to Ms. Stevens, Mr. Kendrick appears to do pretty much nothing but park and re-park his four cars all day long. Taxing people like Mr. Kendrick, she says, has to be part of any solution to America’s fiscal crisis.
Here’s what Ms. Stevens misses: Assuming the facts are as she states them, it is quite literally impossible to raise revenue by taxing the likes of Mr. Kendrick. We could argue about whether it’s desirable, but because it’s impossible, the discussion is moot.
Paul Krugman, getting less serious by the minute, on the budget deal:
It’s worth noting that this follows just a few months after another big concession, in which [Obama] gave in to Republican demands for tax cuts. The net effect of these two sets of concessions is, of course, a substantial increase in the deficit.
Well, no, actually. The net effect of these concessions is a (small but not insignificant) cut in spending coupled with a (somewhat larger) set of tax cuts.
To sum that up by saying that the “net effect” is an increase in the deficit is like saying that if a woman gives birth to twins and then murders her husband, the “net effect” is to increase the population. We’re entitled to care about more than just the bottom line.
Paul Krugman on the Ryan budget proposal:
And then there’s the much-ballyhooed proposal to abolish Medicare and replace it with vouchers that can be used to buy private health insurance….
…The House plan assumes that we can cut health-care spending as a percentage of G.D.P. despite an aging population and rising health care costs.
The only way that can happen is if those vouchers are worth much less than the cost of health insurance.
Well, this is just plain illiterate. In fact, the only way that can happen is if the voucher system affects people’s health care choices. Which is, you know, the whole point.
This is really very cool. In several ways.
First: For the past year or so, there has been a remarkable website called Math Overflow where research mathematicians gather to swap ideas, to ask for help when they get stuck, and to offer help when they can. Frequent contributors include the Fields Medalists (a Fields Medal is roughly the mathematical equivalent of a Nobel Prize) Terry Tao, Tim Gowers, Bill Thurston and Richard Borcherds. Others who have popped up from time to time include Vaughan Jones (yet another Fields Medalist), John Tate, whose thesis reshaped modern number theory, and Peter Shor, the pioneering figure in quantum computation. And every day, one runs across dozens of other folks who nearly any top math department would be proud to have (and in many cases are proud to have) on their faculties. If you already know a lot of math, you can get a hell of an advanced education browsing this site.
A lot of people think of janitors as a group that’s not particularly well paid. Those people might be surprised to learn that in the last five years alone, American janitors earned over $250 billion! That’s billion! With a B!
Despite that enormous income, janitors pay no taxes whatsoever — or at least no taxes whatsoever over and above the taxes that are paid by you, me and other ordinary Americans. And shockingly, it appears that the U.S. Congress would rather cut spending than institute a new tax on janitorial income.
If the above strikes you as insane, congratulations. You are smarter than the intended audience of Senator Bernie Sanders, who observes in his new book “The Speech” that General Electric’s shareholders collectively earned a staggering $26 billion over the past five years, and paid absolutely no tax on that amount.
Of course $26 billion is only a tenth of what janitors earned over the same time period, but I guess it does look mighty big if you don’t bother dividing by the number of shareholders. Without having all the numbers in front of me, my best guess is that we’re talking maybe a few hundred bucks per shareholder, though of course (as with janitors) some earn more and others earn less.
And as for the shareholders paying absolutely no tax, perhaps they didn’t, as long as you don’t count taxes on dividends, capital gains and wages. To wit:
I’m pleased to announce that as of today, April 1, I’ll be joining the Obama Adminstration’s economic team. My first assignment is to produce an estimate of the number of lives saved or created by the Libya operation.
(A hat tip for the inspiration to my colleague Mark Bils, who really should have his own blog.)
John Thompson spent 18 years in prison, 14 of them on death row, for a crime that it seems very likely he did not commit. Prosecutors were aware that blood found at the crime scene was not Mr. Thompson’s, but they failed to turn this evidence over to the defense attorneys.
Does Mr. Thompson deserve compensation? A jury thought so, to the tune of $14 million. But five Supreme Court justices disagree, so Thompson gets nothing.
That’s because, according to the majority, it was only a single rogue prosecutor who misbehaved, so it would be wrong to punish the whole district attorney’s office. The dissenting minority argued that in fact there was a pattern of lax training in that office, so the jury award should stand.
But if an innocent man spends 18 years in prison, why should his compensation depend on the nature of the misconduct that sent him there — or even on whether there was any misconduct in the first place?
Look. We’ve pretty much all agreed that we want to have a justice system. Since all justice systems make mistakes, that means we’ve pretty much all agreed that we’re prepared to tolerate a certain number of mistakes. The question, though, is: Who should bear the costs of those mistakes? Should the costs fall entirely on an unlucky few like John Thompson who just happen to have been in the wrong place at the wrong time, or should they be spread more evenly among the populace that is perfectly happy to share in the benefits of the justice system?
I didn’t think anyone would get it. I was completely stumped myself until I got help from my friends. But Neil got it.
In his words, “We have onomatopoeaic words for the sounds made by all of the animals on the right.”
Or, as I prefer to think of it, the animals on the right all have vocabularies (consisting, in most cases, of a single word) while those on the left do not.
A donkey brays, and when it brays it says hee-haw. The donkey makes it to the right of the line not by virtue of braying, but by saying hee-haw. Thus the elephant, which trumpets, but thereby merely makes a noise (as opposed to saying a word) is consigned to the left.
Lions, tigers, and jaguars all roar, but to the best of my recollection from extensive reading (mostly at about age 5), lions and tigers, when roaring, actually say the word “roar”, while a jaguar merely roars incoherently. Chickens say “cheep”. Hens say “buck-buck-buck” (the act of saying this is called “clucking”). Roosters can crow in either of two dialects: Some say “rrr-rr-rrr-rr-rrrrr” while others (who my five-year-old self considered unbecomingly pretentious) say “cock-a-doodle-doo”. Pretentious they may be, but as a scientist, I am here to record the facts, not to judge them.
It was said of me in graduate school that “He’s never happy unless he’s making a list”.
My compulsion to make lists has abated over the years, but it lasted long enough that I still find occasional relics lying around.
Recently I ran across the list reproduced below, dating, apparently from my zoology phase, when I was making lists that classified animals according to various criteria. But I was completely unable to recall what criterion had governed this particular list. What rule places the giraffe on the left and the dog on the right?
Today is the birthday of the magnificent Emmy Noether, known as the “mother of modern algebra”, and one of my mathematical heroes. She is one of the few mathematicians in history who fundamentally changed what mathematics is about.
It was Emmy (I use her first name in order to distinguish her from her mathematician father Max) who first fully recognized the power of abstraction, which became the driving force of 20th century mathematics. She demonstrated time and again that it can be easier to solve a general problem than a specific one, and therefore the best way to attack a specific problem is often to generalize. Do you want to prove a fact about polynomial functions? First notice that polynomial functions can be added together, and they can be multiplied, and they obey certain laws along the way (like associativity and commutativity). Now prove a theorem that applies to anything that can be added and multiplied subject to those laws. Do it right, and you’ll replace intricate calculations with simple logical deductions. What was hard becomes easy. You get your result for free, and a whole lot of other results as a bonus.
Or, if you that doesn’t quite work, figure out what additional properties you’re using about polynomials, beyond associativity and commutativity, and prove a theorem about everything that has those properties.
To get a sense of how revolutionary this was, consider the Hilbert Basis Theorem, one of the foundational results of modern algebra. Have a look at Hilbert’s original proof — though you might not want to work through every detail in the 62 pages of equations and formulas. By contrast, Noether’s proof of a more general, more powerful and more useful version occupies all of one paragraph on Wikipedia.
Senator Jay Rockefeller adds his voice to the chorus calling for the U.S. to deplete the strategic petroleum reserve in order to bring down oil prices.
Put aside the question of whether we should want to bring down oil prices. Put aside the question of whether this is a good use of the strategic reserve. Let’s just ask whether this idea would even work.
Simple economics certainly suggests that the answer is no. Oil, after all, is an exhaustible resource. This means that every barrel sold today is a barrel that can’t be sold tomorrow. Therefore profit-maximizing oil suppliers, of whom there are many, must constantly be asking themselves whether they’d prefer to sell another barrel now or leave it in the ground to sell later. And the key inputs to that decision are the current price and the expected future price.
If the government starts depleting the oil reserve now (with, presumably, the intent to replenish it in the future), they bid down current prices and bid up expected future prices — creating an incentive for all the other suppliers to sell less now and more in the future — pushing current prices right back up again. For a non-exhaustible resource, this would partially offset the government’s action, but for an exhaustible resource (like, for example, oil) there should be a 100% offset, at least on a naive application of Hotelling’s Rule.
Sorry to have been uncharacteristically absent all week; I’ve been busy in a good way, though I hope and expect to get back to more regular blogging before long. In the meantime, to keep you busy, let me give you a pointer to a marvelous essay I’ve long been a fan of, and just happened to get reminded of today: Scott Aaronson’s take on the old riddle of who can name the biggest number. Have fun with this, and I’ll see you soon.
Gerald Seib, in the Wall Street Journal, reports that “There is a cancer eating away at the budget from within, one that steadily drains American wealth, sends much of it overseas and only gets worse over time.”
This is economic illiteracy in spades. The fact is that every single dollar of interest we pay on the national debt comes right back to the pockets of American taxpayers. If you don’t understand that, then you’re not thinking clearly about the national debt.
Suppose the government owes $100 and pays $3 a year in interest. The alternative to paying that interest is to raise current taxes by $100 and pay down the debt. If you do that, taxpayers are going to have $100 less in assets, and will therefore earn less interest on their savings. That costs them (roughly) the same $3 a year.
In other words, the damage was done back when the government spent that $100 in the first place. (Of course, if the $100 was spent wisely, the damage might have been worth doing. Or not.) Once that $100 has been spent, the taxpayers are out $3 a year forever regardless of whether the debt is ever paid off.
Paul Krugman’s latest gets my vote for his most incoherent column ever. As I understand his argument, it goes like this:
- Computers are good at routine tasks.
- Therefore the rewards to performing routine tasks are falling. This is true at all skill levels.
- Therefore education does not always make people more productive. It makes people more productive only when it trains them to do tasks that are not better done by computers.
- Therefore we need stronger labor unions and universal health care.
Say what?. The basic thesis — that there’s no point in learning to do something difficult if a computer can do it better, and that this is significantly affecting the returns to certain kinds of education — is an interesting one. The moral, of course, is that you can’t imitate your way to prosperity. If we want to be rich, we have to innovate.
So to encourage innovation, you want to strengthen the unions? To encourage innovation, you want to reduce the relative reward to innovation, by insuring that everyone gets the same health care regardless of their social contributions?
Now, you might suppose that Krugman was thinking something along the following lines: Large swaths of American workers are being rendered unproductive by computers. Somehow or another, we have to support those people even though they’re not producing much. Unions and universal health care will keep them afloat.
But that can’t be what Krugman was thinking. I’m sure of this, because I happen to know that Krugman has a Ph.D. in economics. Therefore he must surely be aware that you can’t divorce incomes from productivity. Sure, you can redistribute, but you can’t redistribute more than what gets produced. If the problem is that our old skills are no longer productive, then our incomes must fall unless and until we acquire different — and less computer-replaceable — skills.
A couple of followups on yesterday’s post about Wisconsin:
1) Several commenters have pointed out that the conflict in Wisconsin is not (directly) about wages, benefits or working conditions, but rather about collective bargaining. This seems to me to be a distinction without a difference; nobody would care about collective bargaining unless they expected it to affect wages, benefits, and/or working conditions. The point stands that workers who are very upset about losing their collective bargaining rights must expect to use those rights to achieve above-market compensation.
2) Jim from Wisconsin made a comment, and I made a reply, that I think bear highlighting here. Jim from Wisconsin said:
Futhermore, isn’t the idea in private business that if you want the best and the brightest, you pay them well? Don’t we want our Government programs run effectively and efficiently? Seems to work in the private sector, so why can’t this apply to public sector as well?
To which I replied:
The problem with this is that every “best and brightest” who is hired by the public sector is unavailable to the private sector, so it’s not at all clear that we WANT the best and brightest in the public sector. To take an extreme case, I don’t want the best Silicon Valley engineers tempted to work as high school teachers; I’d rather have them pushing the limits of technology. From the point of view of economic efficiency, this is the one and only reason why public sector employees ought NOT be overpaid. (It’s also a reason why private sector employees ought not be overpaid, but there’s generally less threat of that happening because of the private-sector profit motive.) It’s the one and only reason not to overpay public employees — but it is a good and sufficient reason.
Are public sector workers overcompensated? A month ago, I’d have said “probably”. Today I think we’ve found the smoking gun.
Here’s what I knew a month ago: Public-sector quit rates are roughly one-third of their private-sector counterparts. The obvious explanation is that public-sector jobs are generally too cushy to walk away from. It seems to me that it would be hard to account for that factor of three in any other way, though you can see some reasonable attempts in the comments here. (To be clear: I think that some of the factors in these comments can reasonably account for part of the difference in quit rates. I find it implausible that those factors are collectively substantial enough to account for a factor of three.)
A month ago, that was the best evidence on the table. Today, thanks to the protestors in Wisconsin, we’ve got something like proof positive.
In 1999, the journalist James K. Glassman co-authored a book called Dow 36,000. The eponymous prediction did not pan out. A couple of days ago, Glassman popped up in the Wall Street Journal, trying to explain where he went wrong. “The world changed”, explains Glassman. The relative economic standing of the U.S. is declining. Plus terrorists and economic instability made the world a riskier place.
But there’s a better explanation. Glassman’s story never made sense in the first place, for reasons Paul Krugman explained when the book first came out.
Glassman has a substantial history of confusion about how financial markets work. Ten years before he wrote Dow 36,000, he was explaining in The New Republic that stocks are better investments than real estate:
WordPress (which provides the software that drives this blog) provides me with a button that says “delete all spam”. I keep pushing the button, but I’ve noticed that there’s still spam on the Internet. Do I just have to push harder, or what?
An extremely distinguished committee of economists has selected the top 20 articles published in the last 100 years in the American Economic Review, widely recognized as one of the top journals of the profession. All 20 are publicly available, via links from the committee’s report.
The 20 choices are uniformly excellent, and taken together they give a good sampling of the ideas that have changed the way economists think. Of course, many equally influential articles were disqualified by virtue of appearing in journals other than the AER. (The first few that come to mind are Lucas on Expectations and the Neutrality of Money, Coase on The Problem of Social Cost, and Lucas again on The Mechanics of Economic Development).
Some of these are pretty technical. One that’s not is Hayek’s 1945 classic on The Use of Knowledge in Society, which is both one of the clearest and most profound essays in the history of economics. In fact, its clarity tends to mask its profundity; once you’ve read it, you feel sure you must have understood this stuff all along.
Scott Sumner argues that when it comes to policy, the key division is often not left-versus-right or Democrat-versus-Republican, but idealistic intellectuals versus corrupt politicians. He lists six great public policy failures, where idealistic intellectuals, regardless of ideology, largely agree that reform is urgent, while practicing politicians, regardless of ideology, largely defend the status quo:
- The huge rise in occupational licensing.
- The huge rise in people incarcerated in the war on drugs, and also the scandalous reluctance of doctors to prescribe adequate pain medication (also due to the war on drugs.)
- The need for more legal immigration.
- The need to replace taxes on capital with progressive consumption taxes.
- Local zoning rules that prevent dense development.
- Tax exemptions for mortgage interest and health insurance.
When I was young, the pricing of stock options and other derivatives seemed like an obscure black art. Then one day Don Brown showed me a simple example that made everything crystal clear. Today I’ll share an even simpler version of Don’s example.
Imagine a stock that sells for $10 today. A year from now it will be worth either $20 or $5. (Yes, I know that real-world stocks have a wider range of possible future prices. That’s why I called this a simple example.) What would you pay for an option that allows you to buy the stock next year at today’s $10 price?
You might think you’d need a whole lot more information to answer that question. You might expect, for example, that the answer depends on the probability that the stock price will go up to $20 rather than down to $5. You might expect the answer to depend on how much traders are willing to pay for a given dollop of risk-avoidance.
But the amazing fact is that none of that matters. The only extra bit of information you need is the interest rate.
I swear to God I am not making this up. The New York Times ran an editorial yesterday arguing that the EPA’s proposals to regulate carbon dioxide emissions cannot reasonably be characterized as the borderline-illegal efforts of a rogue agency, because those proposals originated during the Bush administration.
Or something like that. At least they’re saying that House Republicans cannot without hypocrisy so criticize the EPA, presumably because all Republicans are required by the Times hypocrisy police to endorse all policies of all past Republican administrations. I wonder if the Times plans to level the same charges against the 26 House Republicans who voted last week against the extension of the Patriot Act.
Oh. Guess not.
This morning, I set my laptop computer and my Kindle down, one on top of the other, on what I thought was a sturdy tabletop, where they stayed for a minute or so before crashing to the floor. The Kindle is totaled, and the laptop hard drive is definitely wonky.
So I called Amazon, which will deliver me a replacement Kindle by this morning (approximately 20 hours after my call) at a heavily discounted price, even though my warranty was expired, and I called Dell (where I do have a warranty) to confirm that the hard drive was the probable locus of my laptop problems. Dell thought it surely was, and offered to have a technician on my doorstep this morning, but I preferred to pop in one of the three clones that I update once a week or so and keep in three separate locations. My computer’s working fine, and I’m using it to read my Kindle books while I wait for the new Kindle to arrive (which will probably be before you read this).
Sometimes the modern world works really really well.
Along with Mike Rizzo at the Unbroken Window, I am ambivalent about the Florida district court ruling thats strikes down Obamacare (by first striking down the mandate for individuals to be insured). Yes, Obamacare is bad policy; yes, it’s arguably unconstitutional. But as bad and unconstitutional policies go, it’s relatively benign. I (like Rizzo) am uncomfortable with a judiciary that can reject Obamacare while accepting agricultural subsidies, affirmative action, the Americans with Disabilities Act, and laws that dictate the size of your showerhead.
In fact, unlike, say, agricultural subsidies, the mandate for individuals to buy health insurance is at least a defensible response to a genuine problem — in fact, it’s a defensible response to two genuine problems.
First, as long as people are uninsured, they are going to show up at emergency rooms demanding care, and they are going to get it. Arguably, the best policy is to turn those people away unless they’re able and willing to cover the costs of their own care, but we all know that’s never going to happen. Given that we’re going to make medical care available to everyone, there’s at least an argument for making everyone pay for it.
Second, there really are good arguments for insuring people regardless of (at least some) pre-existing conditions; most of us would have insured against those conditions before we were born if we’d had the opportunity, and the inability of pre-born souls to sign insurance contracts can be seen as a form of market failure that bears correcting. But if you don’t allow discrimination on the basis of pre-existing conditions, then you’ve pretty much got to have an individual mandate; otherwise everyone waits till they get sick to buy insurance and the whole system breaks down.
Now the Obamacare system is very far from my preferred approach to these problems, but at least it’s a plausible response to a real set of problems, and hence arguably amounts to a system of taxes designed to provide for the general welfare of the United States, as allowed under Article I, Section 8 of the Constitution. That’s a lot more than you can say about, say, mandatory wheelchair ramps, the cost of which often far exceeds what you’d have to pay the wheelchair-bound to compensate for their absence. It’s a lot more than you can say about the Post Office, or the Commerce Department, or the Occupational Safety and Health Administration.
Here is a test post for Tom.
Some people claim (perhaps rightly, perhaps wrongly, perhaps absurdly — I lean toward the latter) that gay people, on average, are less successful as parents. In a video that’s begun to go viral, University of Iowa engineering student Zach Wahls attempts to refute this notion without offering a shred of evidence beyond a single cherry-picked case (his own) to prove that children of gay parents sometimes turn out just fine (except, perhaps, for their ability to reason):
The other side might just as well (i.e. just as pointlessly) argue that Mr. Wahls’s penchant for irrelevance proves the inefficacy of gay parenting.
What’s particularly disturbing to me is all the chatter about how eloquent this kid is, as if eloquence in the service of intellectual misdirection were somehow something to be admired. Odds are, this pernicious message was reinforced by the college writing courses that I complained about in Chapter 23 of The Big Questions.
