Argentina

Argentina has announced that they will be jailing hoarders, as bread prices skyrocket. They need 6 million tons of wheat, they produced nearly 10 million, and yet they still have a shortage.

Note also that the real inflation rate is more than twice the officially admitted rate--although saying the true inflation rate can also get you jailed.

Fortunately, That Could Never Happen Here.

Economics of Love

According to the National Review, anyway.

Friedman’s libertarianism was based on an economics of love: for real human beings leading real human lives with real human needs and real human challenges. He loved freedom not only because it allowed IBM to pursue maximum profit but because it allowed for human flourishing at all levels. Economic growth is important to everybody, but it is most important to the poor. While Friedman’s contributions to academic economics are well appreciated and his opposition to government shenanigans is celebrated, what is seldom remarked upon is that the constant and eternal theme of his popular work was helping the poor and the marginalized.

Money Can Buy Happiness

...if you know how to spend it. Summary of points from Coding Horror:

• After a certain point, more money does not automatically mean more happiness. That point, according to the study referenced, is about US$75,000.
• Buy experiences rather than things
• Help others instead of yourself
• Buy many small pleasures instead of only a few big ones
• Commit; spend less on extended warranties and options to return purchases.
• Anticipation is good; save up for a purchase rather than using credit.
• Think about how much you'll actually use and enjoy what you're considering purchasing.
• Beware of comparison shopping; that tells you whether A is better than B, but not whether you'll enjoy A at all.
• Follow the herd; if something makes a lot of other people happy, it's likely to make you happy also. (But be aware the herd gets a lot of stuff which they think will make them happy, then it doesn't.)

Economics

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

F A Hayek

Real Rate of Inflation

I was looking around today to see what the real rate of inflation is--not that I don't trust the Government to tell the absolute truth, you understand, but just to check.

Quick introduction at World Net Daily. Longer one at ShadowStats.

Chart at ShadowStats. What the government says now is that it's about 3.5%. If you calculate it the way they did in 1990, the result is about 7%; if you use the 1980 formula, it's 12%.

Gnomes of Zurich part 2

As mentioned a couple of years ago, a lot of the world's capital is controlled by surprisingly few investors. Now a new article lists the top companies and explains why so much money flows through so few connections. It's not a plot by the Illuminati. Well, it's not necessarily a plot. Fnord.

Economic Bad Luck part 2

The President has been blaming our economic woes on "a string of bad luck". Not to say that external shocks don't have an impact, but if the main factor in our economy is luck rather than policy, then it will be hard to Mr. Obama to argue that he deserves to stay in office.
And if the main effect on the economy is policy rather than luck, then it will be hard for Mr. Obama to argue that he deserves to stay in office.

Economic Policy

"All bad economic policy is undertaken by people who are very bright, just not quite as bright as they need to be. Take Keynes, for example. Pretty smart guy, got a lot right, but missed a couple of important details and screwed the whole world for the next hundred years."
--Josh

US Debt

Here's a visualization of the US debt, at Kleptocracy Education. Hat tip: Barbra.

Why the Political Class Needs a Greek Bailout

An interesting discussion at Armed and Dangerous. Snippets:

[R]aising taxes won’t help. The amount of private wealth available to be taxed is insufficient, even if taxation could be raised to 100% without suppressing all economic activity. In practice, raising taxes leads to increases in spending which more than consume the increased revenue (by a ratio of 1.17:1 in the U.S. since the 1940s).

Cutting military or any other form of discretionary spending won’t work either. If you zero all that stuff out, public pensions and other entitlement commitments still require revenues larger than the taxable private economy can generate.

and

Our political class, like the aristocrats of the French ancien regime, believes in nothing so firmly as its own indispensability.Après moi le déluge; but when the bond-investor flight happens – and it is now a matter of when, not if – the teetering Ponzi scheme that funds their self-importance will collapse.

George Mason econ

Josh has occasionally made mention of his plan to become President for Life of a small third world country. Well someone else from the GMU Economics department is showing that it can be done. Abdiweli Ali, a professor at Niagara University with a PhD in Economics from George Mason, has been appointed Prime Minister of Somalia. Josh, of course, is wondering when he can follow Dr Ali's footsteps; everyone else is wondering how Dr Ali can make Somalia more libertarian.

The real GDP

If you measure GDP by income instead of spending, the economy isn't as good as we thought. The downturn happened about the time the Dems got control of Congress, but I'm sure that's a coincidence.

Coase

Got up way too early and went to church. Thought I was going to help with the sound set up, except it turned out to be an acoustic set up, which took about ten minutes. So in my remaining ninety minutes before service started, I read 'The Problem of Social Cost',* by Ronald Coase. Key passage:

It is clear that the government has powers which might enable it to get some things done at a lower cost than could a private organization. [...] But the government administrative machine is not itself costless. It can, in fact, on occasion be extremely costly. Furthermore, there is no reason to suppose that the [...] regulations, made by a fallible administration subject to political pressures and operating without any competitive check, will necessarily always be those which increase the efficiency with which the economic system operates. [...]

All solutions have costs, and there is no reason to suppose that government regulation is called for simply because the problem is not well handled by the market or the firm.

One would think this was obvious, but the paper has several remarks about economists who say, in effect, "There's a problem, therefore we need more government."

Coase won the 1991 Nobel Prize for Economics.

Koch Industries

An article in the Wall Street Journal by Charles Koch, talking about crony capitalism and bloated government.

Finance

The mutual funds in my 401k went up 12.9% for the past year; the real benefit is that my my employer matches 50% of what I contribute, so my actual increase is 69.35%.

And I finished our taxes today, except for a couple of minor deductions. We'll be getting more in refund than we paid in, due to mortgage deduction, education credits, and so forth and so on.

Economic Misconceptions

What percentage of people would you expect are getting paid the minimum wage (of those who have jobs, that is)? How much has income, adjusted for inflation, gone up in the past sixty years? What's the average net profit as a percentage of sales? See Marginal Revolution

Crisis Economics

From National Affairs, a discussion of the effects of government spending vs tax cuts

Pork doesn't help?

An article at the Harvard Business School newsletter says "Research at Harvard Business School began with the premise that as a state's congressional delegation grew in stature and power in Washington, D.C., local businesses would benefit from the increased federal spending sure to come their way. It turned out quite the opposite." hat tip: Marginal Revolution.

US becoming Argentina?

Rich Rahn argues that current US policies could lead to our going down the same path that Argentina did between 1982 to 2002, including massive foreign debt, currency crises, and unemployment over 25%. Rahn points out similarities between the US and Argentine situations but doesn't (in this article) examine those same factors in other countries, and whether they necessarily lead to downfall in other countries or are just coincidence. So I'm not convinced just yet, but I think it's a possibility to keep in mind.

In the next couple of weeks I'll review a book by someone who was in Argentina during the collapse.

Sway

One of my goals for 2010 is to read more non-fiction, and the first book was Sway: The Irresistible Pull of Irrational Behavior. Economics normally assumes that people are rationally self-interested; this book is a series of anecdotes showing that they're not.

In one experiment, the experimenters put a subject in a room with other people, showed them all three lines, and asked them whether line A, B or C was the longest. If all the other people in the room pick A (having been secretly instructed to do so), the subject will probably also pick A even if the right answer is obviously C. However, as long as at least one other person picks another answer--even if that person is blind and picks B--that dramatically improves the chance that the subject will be willing to go against the group and pick the right answer. There were several real-life examples from boardrooms and cockpits showing the same thing--in order to avoid groupthink blinding people, you need to have someone who's willing to challenge the consensus. (The authors also uncritically cite France arguing against the US in the debate about whether to invade Iraq; from my point of view, that shows that when you pick a devil's advocate, you should choose who is willing to argue with you but has your best interest in mind, instead of someone who's been bribed by your enemy).

In another experiment, the experimenter auctions a $20 bill, with one dollar bids and the condition that the top two bidders both pay their bid amount but only the high bidder gets the $20. Typically people get it the bidding up to around $16 and then realize "if I'm second, I lose my $16 and I get nothing, so I need to keep bidding"; a few minutes later the bid is at $20 and they're thinking "My bid was $19, if I quit now I lose that; whereas if I bid $21, I end up only losing a dollar", so they keep bidding it up--with a record bid of $204. Again, the authors present several real life examples showing how people will keep trying to avoid a loss and end up losing a fortune--the term is "pouring good money after bad" or "chasing a loss". You need to emotionally detach yourself from the past so you can see the situation you're in right now, and therefore see whether you should cut your losses.

As a third experiment, instructors were told that some trainees (chosen randomly by the experimenters) were highly rated and had good leadership potential. At the end of the course, those trainees had significantly higher scores even though there was no difference between them and the other trainees. In another example, an drink improved people's performance more when it was high-priced than it did when it was cheap or free. People tend to live up to expectations.

I have to say that I don't think the book was well organized or particularly deep. I'd like to have seen more discussion about other types of cognitive biases, and more discussion of "this is what you can do to avoid them". However, the book was an entertaining light read and it's always good to get a reminder to be rational. I'd recommend picking this up at the library.