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Loving Mark Forster's Final Version [Feb. 4th, 2015|11:43 am]
engelhardtlm1
So, a while ago - right around the beginning of the new year - I adopted Mark Forster's "Final Version" (FV) as a means of organizing my task lists. And I have to say, I'm LOVING it.

I'm not going to bother posting the method here - Forster's description is better than anything I could come up with, so go read it.

What I want to post, though, is the things I've been using it for.

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All to say, I highly recommend FV.
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My State of the Union Response 2015 [Jan. 21st, 2015|01:53 pm]
engelhardtlm1
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So, rather than going line-by-line as I occasionally do, I'm just going to hit some of the "high points" (or, perhaps, "low points") - just things that stood out to me. Which mean I'm going to be ignoring probably over 90% of the speech.

First, I will mention that I didn't actually watch the speech - I'm working off a transcript, but I trust NPR to faithfully report Pres Obama's words.

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So, I'll leave it there. As is typically true, the devil is in the details - and the details never make it into the State of the Union address.
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Thoughts on Pres Obama and Immigration [Nov. 24th, 2014|02:10 pm]
engelhardtlm1
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A handful of thoughts about Pres. Obama and Immigration:

I am in favor of basically "open" immigration. The economic impacts are generally positive (not that no one is harmed - but the benefit outweighs the cost in terms of impacts on overall well-being). As such, I like seeing moves in that direction.

However, I'm also a firm believer in the idea that, in our system, Constitutional procedure is what protects liberty. Violating procedure is a problem. In general, I don't like executive orders for that reason.

This pushes the move toward a "doing the right thing in the wrong way" direction - being something I typically don't favor.

But, then I started thinking along broader lines:

The Constitution is, at heart, a classically conservative document. (Which is NOT the same as politically conservative nowadays.) Checks and balances are there precisely to keep the status quo, except in cases where there is very broad agreement that the status quo should change, and should change in a specific way. At the same time, at heart, checks and balances are there so that the branches can, to some degree, subvert each other in the protection of liberty.

So, here are some complications:

(1) I don't find in the Constitution anywhere the Congress is expressly given the right to restrict immigration. It DOES have the right to regulate NATURALIZATION (that is, citizenship) - but that is a different thing than simply your geographical location (which is what a non-naturalized immigrant is - a non-citizen that resides in the borders of the nation). As such, from a strict Constitutionalist perspective, any federal regulation of immigration is dodgy. (Sure, we can get it from the Commerce clause - but we can get ANYTHING from the Commerce clause, the way that it's read nowadays.)

(2) I DO find a Presidential power called "pardon". This, in effect, gives the President the power to say "Yeah, I know what the law says, but, forget that, I'm not letting you be punished for this thing." In that regard, the executive order was, in effect, a pre-emptive pardon - which I don't find problematic.

WIth the pardon in place, the President basically DOES have the power to say they aren't going to enforce certain laws.

One argument that I've seen put forward that bothers me: the idea that there are 4 million people on a waiting list - and others have now been allowed to "jump the line", in effect. If that's what bothers you - why aren't you complaining about the fact that there's a 4 million person waiting list? I agree that that is a problem - we should let them in without this absurd waiting process. So, you should be upset not that Pres Obama is letting others to (in some sense) jump line - you should be upset that he isn't ALSO letting these 4 million on the waiting list in faster.
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Thoughts on Voting [Nov. 5th, 2014|03:19 pm]
engelhardtlm1
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So, yesterday, another election came and went here in the US. I honestly have very few thoughts about the outcome of the election at the moment. I'm much more interested in voting itself. So, here are a variety of voting-related topics.

(1) On "Rights to Complain"

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(2) On "I don't care how you vote, just vote"

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(3) On "your vote makes a difference".

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(4) On "spoiler" candidates and different voting systems

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Very long, didn't want to read? Summary:

(1) "If you didn't vote, then you don't have a right to complain" makes no logical sense.
(2) "I don't care how you vote, just vote" probably makes no logical sense.
(3) Your vote probably doesn't make a difference (in terms of determining the outcome of the election, that is).
(4) Consider alternative voting systems like "Instant-runoff voting" and "Majority Judgment". They are likely to simultaneously make 3rd parties happy AND limit the "spoiler" candidate problem - maybe making major parties happy, too.

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Fun with Statistics: Reading Edition [Sep. 9th, 2014|01:53 pm]
engelhardtlm1
So, I ran across this on Facebook:

http://www.robertbrewer.org/disciple/surprising-book-facts-infographic/

I'm going to focus on one of the key points here: the relationship between poverty and poor literacy. To do that, let's make a table:
In Poverty Not In Poverty Total
Low literacy
High literacy
Total

Now, let's plug in what we know:

(1) About 15% of Americans live in poverty (check official statistics)
(2) 46% of adults (I'll assume American adults...) have "low literacy" (that is, in the bottom 2 levels)
(3) 61% of adults with low literacy live in poverty. (Translation: 46% x 61% = 28% of Americans live in poverty AND have low literacy.)

Filling things in:

In Poverty Not In Poverty Total
Low literacy 28% 18% 46%
High literacy -13% 67% 54%
Total 15% 85% 100%

So, we can conclude:

(1) Assuming you're not in poverty, there's about a 75% chance you have "high" literacy (that is, outside the lower two levels).
(2) If you are in poverty, there's a negative chance (that's LESS than zero) that you have "high" literacy.
(3) At least one of these statistics is screwy, because a negative percentage in this context makes absolutely NO sense.

So, odds are that, somewhere, something got garbled. So, I'm going to share some statistics taht come from the original source: http://nces.ed.gov/pubs93/93275.pdf

(2') 21% (or so) of adults have "low literacy" (that is, in the BOTTOM level of literacy)
(3') 41% (or so) of adults with "low literacy" (that is, in the bottom level) live in poverty.

Putting these in, with the new meaning of "low" being "LOWEST"


In Poverty Not In Poverty Total
Low literacy 8% 13% 21%
High literacy 7% 72% 79%
Total 15% 85% 100%

Now, THIS looks more sensible, but it's STILL not accurate.

Why not? Because I'm mixing definitions of poverty from two sources. Official poverty statistics are based on the official poverty line, but the NALS report on literacy has a very different definition of "poor". By official statistics, 15% of Americans are "poor". But, the NALS's data suggests that about 25-30% of Americans are "poor" or "near poor". So, going with 28% poor, and using the bottom two levels for "low" literacy, we'd end up with:


In Poverty Not In Poverty Total
Low literacy 28% 18% 46%
High literacy 0% 54% 54%
Total 28% 72% 100%

So, basically, everyone in poverty has "low" literacy, while only about 25% of those outside poverty have "low" literacy. (This claim is technically contradicted by the report... though not by much.)

Naturally, causation is horrible to untangle in cases like this (do rich people read? or are reading people rich?), but the statistical exercise teaches some important lessons:

(1) Meanings are slippery. Just assuming "poverty" always means the same thing can lead to putting things together in misleading ways.
(2) Some "gatherers" of statistics are terrible presenters... The NALS report is interesting, but doesn't present some other ways of slicing the data that would also be interesting.
(3) Statistical literacy is an important skill. (This is why my "top 2 courses every college student should take" includes "Statistics" - the other is "Logic".)
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Noah Smith on Austrian "brain worms" [Jul. 8th, 2014|01:17 pm]
engelhardtlm1
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Last week, Noah Smith (who teaches Finance at Stony Brook University, and runs the blog Noahpinion) has this piece on Austrian economist published on Bloomberg. I've been spending the last 12 hours or so deciding whether or not I needed to respond to it. On the one hand, it is clearly poorly informed about Austrian economics. On the other hand, it's pretty obviously almost 90% an ad hominem and I have other things to do than say "Am not!" to someone calling me names. But, obviously, I finally decided it was worth a response for two reasons: (1) it's bothering me - so I need to respond for my own psychological well-being. (2) This is a case that follows my rules of internet attack - "always aim up".* So, here we go.

Noah's title is a reference to Star Trek II: The Wrath of Khan - arguably the best of the Star Trek movies (I have a particular fondness for Star Trek IV, myself...). In this movie, perennial villain Khan has revealed that he has a "brain worm" that, when it burrows into a person's brain, makes them highly susceptible to suggestion. So, people end up basically mind controlled. The analogy to Austrian economics is fairly obvious - Noah is suggesting that the "Austrian worldview" is basically a brain worm that leads people into absurd beliefs that are out of touch with reality. Its key beliefs seem to be:

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On the whole, I'm convinced that Noah Smith is not interested in engaging with actual Austrian economists (like Pete Boettke, Joe Salerno, Robert Murphy, gosh - even me), but is just arguing against the largely uninformed, libertarian Austrian fanboys that often surround the Mises Institute and mises.org. On that I agree that the fanboys often do Austrian economics a disservice by being overly vocal on issues they know very little about. But, the fact that a commenter on a blog or Twitter says things that are wrong and identifies themselves (or their ideas) as "Austrian" hardly disproves anything about Austrian economics.

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Thoughts on "Laborless Production" [Apr. 24th, 2014|04:18 pm]
engelhardtlm1
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So, a discussion got started on Twitter - which is not a good platform for long, extended discussions. And my thoughts on this particular topic are long and extended. So, I came here to LJ, where the platform is MUCH more suited to such things.

So, here are some thoughts on "laborless production" - that is, an economic system in which everything is automated and workers are unnecessary.

First thought: such a system shall never exist. There are a number of arguments for why this is probably true.

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Second thought: if it happens, the transition to a laborless economy wouldn't be as bad as many people think.

The why...Collapse )

In the end, then, I'm not worried about laborless production. First, it's exceptionally unlikely we will ever get there - so much so that I don't think we ever will. Second, if we do get there, I think the process - while probably not seemless (errors, after all, are common in transition periods) - is likely to be reasonably smooth. We already have the elements in place to handle most of the transition - because people ALREADY transition from "laborer" to "non-laborer" on a regular basis. We just need to be ready to see those systems have a lot more use than they currently do. On a personal level, we need to focus on increasing our wealth-to-income ratios. Put another way: we all need to save. Put away 10% of your income from each paycheck - more if you can manage it. If possible, automate that. You can't cut your spending by 10%? Fine. Then save 100% of your raises. After a few years (probably 5 or so, for most people), you'll be saving 10% of your income. Learn about investing so that you don't take stupid risks - or don't learn about investing, and put money into a deferred fixed annuity that looks good to you, and pay someone else to take the risks.

The best part? This advice is good even if we don't end up with a laborless economy.
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The Marginal Efficiency of Capital [Apr. 10th, 2014|11:00 am]
engelhardtlm1
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In a recent article in the QJAE (pdf), Edward W. Fuller explains the differences between the Austrian "Net Present Value" (NPV) approach to ranking investment projects and the Keynesian "Marginal Efficiency of Capital" approach. The difference basically goes like this: The NPV criterion suggests that we should calculate the "present value" of a particular investment by discounting its future cash flows using the going interest rate. The "net present value" takes the present value and subtracts off the current costs of starting the project. Investments are ranked according to their NPV. The MEC criterion suggests that you should use the same information to calculate, effectively, a "rate of return" on the investment, and use that to rank investment projects.

While I found the comparison interesting, I think the article ran into a number of somewhat troubling inconsistencies. Most importantly: the article was inconsistent regarding the Austrian view of imputation.

Here's the Austrian story as I understand it: The present value tells you what the resources needed to start a project are "worth" - so, it's what entrepreneurs should be willing to pay to start the project. As long as the market is at all competitive, the value of the resources will rise to the present value. What does that mean? The NPV of any project can be, at most, zero. If we take PV - cost of starting the project, we'll get exactly zero, since the prices of the resources will be bid up to the PV. So, when we rank investment projects, we're really just comparing zero NPV projects with projects that would use the same resources but have a sub-zero NPV. Since the resource prices are bid up to reflect the most valuable project, this all follows. So, what matters in the Austrian view isn't the NPV - it's the PV itself. It's the PV that determines which project "wins" the resources needed to complete it. Is this a big difference? Maybe not - but it is more than just semantics.

What makes this particularly disturbing is that the article itself criticizes Keynes (I'd say rightly) for acting like the cost of starting the project is fixed, rather than being the result of a competitive bidding process. Then, the article goes on to adopt the same assumption under the "Austrian NPV" view.

One point that the article makes is that the MEC and NPV criteria can lead to different rankings of investment projects. This is true, IF the startup costs are fixed. But, they aren't. Startup costs are the result of a competitive market bidding process. If we suppose that the startup costs rise to reflect the full present value of the most valuable project, then the MEC criterion would give the same result as the NPV criterion, I suspect. Here's my proof: for the most valuable project, the going interest rate will be the MEC (since the interest rate is used to discount the future payoffs, and the NPV is zero. Technically, the MEC is calculated as the interest rate that results in a zero NPV.). For any less valuable project, the NPV is negative. To increase the NPV, the interest rate must be lower. So, the MEC for any unpursued project will be less than for the pursued projects.

This technical problem hints at a larger conceptual problem with the Keynesian system. The Austrian system is built on an economic foundation of scarcity - that's precisely why prices adjust to reflect the present value of a project. The Keynesian system is built on an economic foundation of abundance (or "idle resources"), which is why prices don't adjust - there are just so many of them that there is no "competitive bidding" that goes on. This leaves unanswered the question of where prices come from (Keynes suggests that there's a lot of historical dependence on that account). So, the real, fundamental problem with Keynes remains: his price theory is largely absent. He basically just assumes that prices don't change, gives a few possibilities for why that might be, and then moves on. While it may be true that prices don't change to reflect every little wobble in supply and demand, that doesn't mean we should just assume that they don't move.

Yet, that assumption is in Keynes, and disturbingly, ported into the Austrian NPV criterion as used by Fuller.
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QE and ultra-low interest rates: Distributional effects and risks [Apr. 9th, 2014|11:03 am]
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I recently finished reading this paper about quantitative easing's distributional effects. The paper contains a lot of potentially interesting data, but suffers from a handful of weaknesses.

The interesting stuff: The paper pretty clearly demonstrates that the main beneficiaries of ultra-low interest rates are governments, though corporations also gain significantly. Effects on households are mixed - generally, young households with more debt benefit while older households with more savings are hurt. They find that the effects on stock and bond values are more muted than one might think.

The paper suffers really from one big weakness: it focuses only on interest income and, to a lesser extent, financial asset valuation effects from low interest rates. It totally ignores any Cantillon effects that lead to relative price differences, which could be attributed to monetary injections. Just to give an example of where Cantillon effects may have mattered, we can look at a disaggregation of the Consumer Price Index into product categories. This will give us a good idea of which prices are rising quickly, while others are rising slowly.

A quick look suggests that the following broad categories have seen very rapid increases in prices since the beginning of the first round of Quantitative easing (beginning in November 2008) (>30% over that time): Motor fuel, energy commodities, tobacco and smoking products, fuel oil and other fuels, hospital and related services, and educational books and supplies. Meanwhile, a handful of categories have seen decreases in their relative prices of over 10% in that time: information technology, window and floor coverings and other linens, other recreational goods, other household equipment and furnishings.

How much of these relative differences can be chalked up to QE? That's hard to say - but it is clear that not all industries are gaining equally, and ignoring relative price changes means we miss part of the story.
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How Frequent are Small Price Changes? [Mar. 31st, 2014|02:10 pm]
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