In America we throw a lot of economic terms around when describing how our economy works. One of the most used, and I believe one of the most overused, terms is "Free Market". The term is used most often in news reports that try to draw a distinction between the US economy and that of other countries. It is also used in politics as a way to refer to the perception of American exceptionalism and our status as being the largest single country economy in the world. Think news reports that set American free markets against European socialism or Chinese communism where everyone on the news looks serious and nods their heads like they have any idea what they are talking about. Unfortunately, as the laws and regulations in our country have increased over the years, this distinction is becoming more and more muddied when you look at how we actually run our economy and the way the rest of the world runs theirs.
First thing that needs to be addressed is what is meant by the term "Free Market". A free market is one that is run without governmental interference. It is one that is literally free to do what it wants without external restraint. The power of the free market is that prices are set by the market. This means that the aggregate of all people's purchasing and selling decisions dovetails to an equilibrium between consumers' demand for a product and sellers' demand to make as money as they can. This is distinct from a regulated or controlled market where the government interferes with regulations to create a new equilibrium that it believes is more advantageous to its interests.
The advantages of free markets are that the use the power of people's consumer decisions to keep prices low and supplies of goods and services plentiful. Their negatives are that goods and services are not regulated and business practices that create them may not be the most socially responsible means available. Price is the prime mover here so it is the first and primary concern of both the consumer and the producer. Compare this to a regulated market where government intervenes to regulate safety, social responsibility and other relevant areas. The negative repercussions of this intervention in the market are higher prices and a less than plentiful supply of goods and services.
Given these above definitions, it should be pretty clear that our economy is not in fact a "Free Market" but is instead a regulated or controlled market. But how, you ask (assuming you have a Fox News mentality), may we distinguish ourselves from those Socialists in Europe or Communists in China? The answer is that we probably can't. First, because we regulate markets just as much as Europeans do, with the possible exception of the healthcare market. And secondly, because while China does in fact have a Communist Party, it has been deregulating its economy and loosening its control of markets for years to more fully integrate with Western economies. The end result of this has been unprecedented growth and economic expansion in China while we in the West have seen tepid growth and shrinking economic opportunities.
If you need further proof, try to come up with some market in the USA that is untouched by government intervention, regulation or taxing and spending incentives. I'm reasonably certain you will be unable to find one. The difference then between ourselves and the rest of the world is, at best, the degree to which we interfere with the natural functioning of market economies.
Wednesday, October 16, 2013
Tuesday, September 24, 2013
"Life is pain, Highness. Anyone who says differently is selling something."
The above quote is from the iconic movie, "The Princess Bride" which came out in 1987. It's a fabulous movie and if you haven't seen it (I'm not sure how you avoided it up to now, but just in case) you really should. It's a classic. The reason I am quoting this here is that it is a surprisingly penetrating insight into the human condition for a movie that is otherwise a fairly lighthearted comedy. In one pithy statement the hero Wesley shows how hollow the movie's main message about true love conquering all and the hero getting the girl truly is. The implication here is that, even after Wesley has achieved his goals, gotten Buttercup and retired from being the Dread Pirate Roberts, life will not be lived happily ever after. And because it is Wesley saying it early in the movie, it shows he knows this from the very beginning.
As anyone alive knows, life is not easy. You spend the first 5 years of your life desperately trying to learn how to be a big boy or girl, to make your parents proud, only to then be shipped off to school for the next twelve years of your life, whether you want to be there or not. Those twelve years, or more, are often fraught with misery as bullies, school work and the dramas of everyday life weigh you down and crush your spirit. Then, when you graduate, it is either off to work in the real world, or to get even more schooling. All of this effort is merely to prepare you for your next big adventure, which is life in the working world. Life there is no picnic either as more work, the pressures of adult life and family obligations make finding time to do the things that you enjoy a rarity. The reality of life is that you will toil away, day in and day out on things you will likely not enjoy. Then what? Old age and physical decrepitude force you to retire, live off what little you have put away and whatever government handouts are available to you until you die. So when you are young enough to do the things you enjoy, you will instead spend your life laboring on things you don't; and when you are finally old enough to stop, you are likely no longer physically capable of doing those things anyway. Life is pain, Highness.
So, knowing this, it always comes a surprise to me that otherwise rational, moral, law abiding people I know choose to reproduce. Not only does having children add to the burdens of your life, but it also creates a new life upon which the burdens of life can now be placed. Having a child is giving a new life the gift of 65 or more years of hard labor. It appears facially immoral, cruel and heartless. Worse, unlike other human interactions and moral actions, it is not a deal that you make with society or even with another rational, intelligent adult. The child literally has no choice in the matter. It doesn't exist when the decision to create it occurs. It has no say in whether it wants to exist or not (as far as we know. Depending on your religious beliefs, your views on this could differ). The only times we, as a society, view the imposition of hard labor as morally justified is as a punishment for immoral deeds. Here however, there is no immoral deed (again, assuming you don't believe in Karma or some other theory of rebirth based on the quality of your actions in a previous life). It is merely the seemingly arbitrary choice of the parents to have unprotected sex which results in a baby. A baby who gets to learn, over the course of its life, the truth of Wesley's words: "Life is pain".
Thus, it surprises me not at all that, as the world industrializes and men and women are given access to prophylactics and abortion, that the total fertility rate drops, often below the replacement rate. As much as parents tout the gift of life, when given the option, fewer and fewer people choose to give that gift. The reason for this? "Life is pain, Highness. Anyone who says differently is selling something."
As anyone alive knows, life is not easy. You spend the first 5 years of your life desperately trying to learn how to be a big boy or girl, to make your parents proud, only to then be shipped off to school for the next twelve years of your life, whether you want to be there or not. Those twelve years, or more, are often fraught with misery as bullies, school work and the dramas of everyday life weigh you down and crush your spirit. Then, when you graduate, it is either off to work in the real world, or to get even more schooling. All of this effort is merely to prepare you for your next big adventure, which is life in the working world. Life there is no picnic either as more work, the pressures of adult life and family obligations make finding time to do the things that you enjoy a rarity. The reality of life is that you will toil away, day in and day out on things you will likely not enjoy. Then what? Old age and physical decrepitude force you to retire, live off what little you have put away and whatever government handouts are available to you until you die. So when you are young enough to do the things you enjoy, you will instead spend your life laboring on things you don't; and when you are finally old enough to stop, you are likely no longer physically capable of doing those things anyway. Life is pain, Highness.
So, knowing this, it always comes a surprise to me that otherwise rational, moral, law abiding people I know choose to reproduce. Not only does having children add to the burdens of your life, but it also creates a new life upon which the burdens of life can now be placed. Having a child is giving a new life the gift of 65 or more years of hard labor. It appears facially immoral, cruel and heartless. Worse, unlike other human interactions and moral actions, it is not a deal that you make with society or even with another rational, intelligent adult. The child literally has no choice in the matter. It doesn't exist when the decision to create it occurs. It has no say in whether it wants to exist or not (as far as we know. Depending on your religious beliefs, your views on this could differ). The only times we, as a society, view the imposition of hard labor as morally justified is as a punishment for immoral deeds. Here however, there is no immoral deed (again, assuming you don't believe in Karma or some other theory of rebirth based on the quality of your actions in a previous life). It is merely the seemingly arbitrary choice of the parents to have unprotected sex which results in a baby. A baby who gets to learn, over the course of its life, the truth of Wesley's words: "Life is pain".
Thus, it surprises me not at all that, as the world industrializes and men and women are given access to prophylactics and abortion, that the total fertility rate drops, often below the replacement rate. As much as parents tout the gift of life, when given the option, fewer and fewer people choose to give that gift. The reason for this? "Life is pain, Highness. Anyone who says differently is selling something."
Thursday, September 5, 2013
The Problem With Syrian Intervention
The hot issue du jour in international politics is Syrian intervention. If you haven't been paying attention to international politics for the past few years, there is a civil war going on in Syria. This civil war is an off shoot of the Arab Spring movement in the middle east. In countries like Syria and Egypt the populations have been rising up in protest of the ruling hegemony and trying to bring about political change. In countries like Egypt this has been successful, at least as far as regime change is concerned. In Syria, the movement has so far failed to bring about a change in power. Instead the protests have given way to an armed insurgency fighting running battles with government forces. This brings us to this week's G20 meeting and the debate raging about whether the international community should intervene in Syria.
The debate over Syrian intervention came to a head in the G20 due to evidence that chemical weapons were used on the rebel forces and civilians. A few years ago, when the Syrian situation first became a civil war, President Obama made a series of speeches in which he referred to the use of chemical weapons as a "Red Line". What he meant was that the use of these weapons to quell the insurgency would mean dire consequences for the Syrian government. Now that they have been used the President's hand has been forced and he must make good his threat or appear weak internationally. Unfortunately, there is no international consensus over who actually used the weapons. It is known that the Syrian government posses these weapons and has stock piles around the country, but it is also known that the rebels control a large section of the country and may well have secured these weapons for their own uses. It does not take much imagination to see how the rebel cause would be aided by international intervention and the Syrian government's would not be, so there is some debate over who actually released the Sarin gas.
Further complicating the debate is Syrian ties with Russia, a UN Security Council member and Veto holder, and Iran. Russia has long had military and economic ties with Syria and Russia has long had a military base on Syrian soil. Iran and Syria also have military and economic ties. Iran is also currently building up a supply of fissile material that the West thinks is for the purpose of making nuclear weapons, which is a problem because the Iranian government is hostile to Israel, a strong US ally. The end result of this is that Russia and many others are arguing against intervention, while the US and its allies are arguing for intervention.
So, with that scene set, I think it is important for us to discuss why it is the West feels it needs to intervene at all. For starters, the Syrian insurgency has been going on for years and has been largely ignored by the international community. Sure there has been some hand wringing about war crimes and civilian death tolls, but no one has cared enough to actually do anything about it until now. It seems mighty hypocritical to start caring now after 100,000 people or so have died and the country has fallen into ruin. The time for intervention was when the protests first turned violent and civilian lives were first put in danger. The reality here is that, if there were no broader concerns with Iranian nuclear weapons and Obama drawing lines in the sand, we would still be ignoring the situation.
Second, the world has a pretty miserable track record on intervening in foreign conflicts trying to keep peace and solving situations diplomatically. Even military intervention has a high rate of failure over the long run. We have good examples in both Iraq and Afghanistan of how a successful military campaign turns into a quagmire when it comes to nation building (i.e. we were very good at blowing up and conquering these countries, but not very good at building stable democracies afterwards). But the track record goes back further than that. Korea, Vietnam, South America... Even World War One can be argued as an example of how international intervention can lead to some pretty dire consequences (in this case World War Two). So why is it that this time we think Syria will be any different?
Third, we are all just starting to emerge from a global banking and real estate meltdown and most governments are running pretty untenable deficits as a result. These deficits and persistent unemployment mean that the world can little afford to spend billions dropping bombs on a foreign country that has little to no strategic or economic impact on the international community. A much better use of our money would be in providing refugees safe havens with humanitarian aide in neighboring countries. Essentially, cordoning off Syria and letting the government and the insurgency fight it out while allowing civilians to immigrate to other countries to live their lies in relative safety.
Lastly, even if we do bomb Syrian government targets and destroy its chemical weapons stock piles, it's not like that is going to end the fighting. The insurgency and the Syrian government will continue to fight it out until one or the other has been vanquished. Without the threat of putting boots on the ground as peace keepers, the fighting will just continue. And, as we have seen in previous interventions, putting boots on the ground just means we are putting our own people in harms way in a country we don't really care about. Intervention is pretty much a no win situation.
I think, in the end, that we would be a lot better off if we focused more on helping the refugees than bombing the Syrian government. In the long run, I think we would all be better off if we spent less money on foreign conflicts and more money on the home front. We have plenty of problems at home that could use billions of dollars that doesn't involve dropping bombs on people. But Obama was stupid, drew a line in the sand on both Syria and Iran, and now we are forced into yet another foreign conflict because we can't afford to look weak internationally.
The debate over Syrian intervention came to a head in the G20 due to evidence that chemical weapons were used on the rebel forces and civilians. A few years ago, when the Syrian situation first became a civil war, President Obama made a series of speeches in which he referred to the use of chemical weapons as a "Red Line". What he meant was that the use of these weapons to quell the insurgency would mean dire consequences for the Syrian government. Now that they have been used the President's hand has been forced and he must make good his threat or appear weak internationally. Unfortunately, there is no international consensus over who actually used the weapons. It is known that the Syrian government posses these weapons and has stock piles around the country, but it is also known that the rebels control a large section of the country and may well have secured these weapons for their own uses. It does not take much imagination to see how the rebel cause would be aided by international intervention and the Syrian government's would not be, so there is some debate over who actually released the Sarin gas.
Further complicating the debate is Syrian ties with Russia, a UN Security Council member and Veto holder, and Iran. Russia has long had military and economic ties with Syria and Russia has long had a military base on Syrian soil. Iran and Syria also have military and economic ties. Iran is also currently building up a supply of fissile material that the West thinks is for the purpose of making nuclear weapons, which is a problem because the Iranian government is hostile to Israel, a strong US ally. The end result of this is that Russia and many others are arguing against intervention, while the US and its allies are arguing for intervention.
So, with that scene set, I think it is important for us to discuss why it is the West feels it needs to intervene at all. For starters, the Syrian insurgency has been going on for years and has been largely ignored by the international community. Sure there has been some hand wringing about war crimes and civilian death tolls, but no one has cared enough to actually do anything about it until now. It seems mighty hypocritical to start caring now after 100,000 people or so have died and the country has fallen into ruin. The time for intervention was when the protests first turned violent and civilian lives were first put in danger. The reality here is that, if there were no broader concerns with Iranian nuclear weapons and Obama drawing lines in the sand, we would still be ignoring the situation.
Second, the world has a pretty miserable track record on intervening in foreign conflicts trying to keep peace and solving situations diplomatically. Even military intervention has a high rate of failure over the long run. We have good examples in both Iraq and Afghanistan of how a successful military campaign turns into a quagmire when it comes to nation building (i.e. we were very good at blowing up and conquering these countries, but not very good at building stable democracies afterwards). But the track record goes back further than that. Korea, Vietnam, South America... Even World War One can be argued as an example of how international intervention can lead to some pretty dire consequences (in this case World War Two). So why is it that this time we think Syria will be any different?
Third, we are all just starting to emerge from a global banking and real estate meltdown and most governments are running pretty untenable deficits as a result. These deficits and persistent unemployment mean that the world can little afford to spend billions dropping bombs on a foreign country that has little to no strategic or economic impact on the international community. A much better use of our money would be in providing refugees safe havens with humanitarian aide in neighboring countries. Essentially, cordoning off Syria and letting the government and the insurgency fight it out while allowing civilians to immigrate to other countries to live their lies in relative safety.
Lastly, even if we do bomb Syrian government targets and destroy its chemical weapons stock piles, it's not like that is going to end the fighting. The insurgency and the Syrian government will continue to fight it out until one or the other has been vanquished. Without the threat of putting boots on the ground as peace keepers, the fighting will just continue. And, as we have seen in previous interventions, putting boots on the ground just means we are putting our own people in harms way in a country we don't really care about. Intervention is pretty much a no win situation.
I think, in the end, that we would be a lot better off if we focused more on helping the refugees than bombing the Syrian government. In the long run, I think we would all be better off if we spent less money on foreign conflicts and more money on the home front. We have plenty of problems at home that could use billions of dollars that doesn't involve dropping bombs on people. But Obama was stupid, drew a line in the sand on both Syria and Iran, and now we are forced into yet another foreign conflict because we can't afford to look weak internationally.
Friday, August 16, 2013
The Problem With Focus Groups
In business, especially businesses that market things to the general public, it is common practice to hire a panel of random people to review products before they are released to the public as a whole. The purpose of this is to get feed back from would be consumers so that the company can refine their product to make it better and increase future sales before it is released. These panels are typically referred to as focus groups. In theory this is a very good idea. Having the public have a say in what you are selling them, letting them tell you what they want, should make products better and consumers happier. Unfortunately, this doesn't always work out.
A perfect example of this can be seen in the auto industry. Car companies are increasingly worried about the greying of their consumer base. The average car buyer age for most major automotive brands keeps increasing. In order to combat this greying, many of these auto companies are creating youth focused brands or youth focused cars. These companies have been talking to younger adults and trying to create vehicles that meet their needs. Apparently, what their research shows is that young people want cars that can haul their stuff, have lots of tech features, and not be too expensive. The end result are divisions such as Toyota's Scion and cars like the Kia Soul.
Unfortunately, these attempts have completely failed. As cataloged recently by The Wall Street Journal here: http://online.wsj.com/article/SB10001424127887323971204578628233538218960.html , the actual consumers of these vehicles have been seniors and baby boomers. 42% of all sales of these "youth" cars are going to baby boomers while a mere 12% are being sold to their target audience. While sales, regardless of who to, are always a good thing for the company selling them, it is hard to ignore the fact that this is essentially a complete failure in marketing. So the question then follows, why did the focus groups so completely fail?
The first, and most obvious, problem is that the younger generations have been hit hardest by the economic down turn of the last 5 years, with minority youths being the most effected (as measured by unemployment rates). When you are unemployed or under-employed, you tend to not be in the market for new cars. Until the job market actually heats up (and don't be fooled by unemployment rate declines caused by people leaving the workforce, or by people being forced by necessity to take poorly paid part time work, I mean real improvement in full time employment as measured by the labor participation rate) you will not see the percentages of young new car buyers increase.
The second is that companies are remarkably bad at breaking down consumers into functional focus groups. When looking at the car buying public, it is important to note that not everyone wants to buy the same car for the same reasons. A family looking for a people mover is going to be looking for a very different car than a weekend warrior looking for a track day car. Yet we see, especially in youth brands and youth vehicles, a mix of features aimed at appealing to both buyers in the same car. While this may appeal to a company looking for as broad a market for their products as possible, they risk alienating both buyers by making them pay for features that they do not want. The family looking for a people mover likely does not care about sporty rims, customizability or loud exhaust notes. Similarly, the weekend racer will care very little about trunk space, comfortable seating for large numbers of people or how many cup holders the vehicle has.
If car makers want to better tailor a car to the people who might actually buy it, they need to tailor the focus group in a similar manner. Get a bunch of sports car guys together to focus group sports cars, get a bunch of parents together to discuss family transportation, get a bunch of off roading enthusiasts to discuss the next 4x4. Also, understand that you can't pigeon hole people by age. Not all twenty somethings want the same thing in a car. Just because they are young doesn't mean they want the same thing.
Also, this doesn't apply to just the automotive market. Television programming is another area where they try to market one size fit all consumers and have been rewarded with dwindling market share for years. If you keep repackaging the same crap, people are going to stop watching. In an era where almost every popular old show is available online for public consumption, repackaging the same stuff over and over again doesn't work. Why watch another Friends or Seinfeld rip off when you can watch the original? You need to look over the market, find people who watch different types of shows, and cater to their needs. The TV viewer who likes Simpsons, American Dad, Family Guy and Archer will likely not be the same person who obsessively watches The Real Housewives. So trying to make a show that pleases both demographics will likely fail spectacularly.
It is an old adage, but knowing your customers really does help in selling them products. And while focus groups are a wonderful tool for helping to tailor products to consumers, you need to tailor the focus group to actually fit the product you are selling. Because if you do not, the end result will be youth divisions that sell primarily to retirees and TV shows that have no audience.
A perfect example of this can be seen in the auto industry. Car companies are increasingly worried about the greying of their consumer base. The average car buyer age for most major automotive brands keeps increasing. In order to combat this greying, many of these auto companies are creating youth focused brands or youth focused cars. These companies have been talking to younger adults and trying to create vehicles that meet their needs. Apparently, what their research shows is that young people want cars that can haul their stuff, have lots of tech features, and not be too expensive. The end result are divisions such as Toyota's Scion and cars like the Kia Soul.
Unfortunately, these attempts have completely failed. As cataloged recently by The Wall Street Journal here: http://online.wsj.com/article/SB10001424127887323971204578628233538218960.html , the actual consumers of these vehicles have been seniors and baby boomers. 42% of all sales of these "youth" cars are going to baby boomers while a mere 12% are being sold to their target audience. While sales, regardless of who to, are always a good thing for the company selling them, it is hard to ignore the fact that this is essentially a complete failure in marketing. So the question then follows, why did the focus groups so completely fail?
The first, and most obvious, problem is that the younger generations have been hit hardest by the economic down turn of the last 5 years, with minority youths being the most effected (as measured by unemployment rates). When you are unemployed or under-employed, you tend to not be in the market for new cars. Until the job market actually heats up (and don't be fooled by unemployment rate declines caused by people leaving the workforce, or by people being forced by necessity to take poorly paid part time work, I mean real improvement in full time employment as measured by the labor participation rate) you will not see the percentages of young new car buyers increase.
The second is that companies are remarkably bad at breaking down consumers into functional focus groups. When looking at the car buying public, it is important to note that not everyone wants to buy the same car for the same reasons. A family looking for a people mover is going to be looking for a very different car than a weekend warrior looking for a track day car. Yet we see, especially in youth brands and youth vehicles, a mix of features aimed at appealing to both buyers in the same car. While this may appeal to a company looking for as broad a market for their products as possible, they risk alienating both buyers by making them pay for features that they do not want. The family looking for a people mover likely does not care about sporty rims, customizability or loud exhaust notes. Similarly, the weekend racer will care very little about trunk space, comfortable seating for large numbers of people or how many cup holders the vehicle has.
If car makers want to better tailor a car to the people who might actually buy it, they need to tailor the focus group in a similar manner. Get a bunch of sports car guys together to focus group sports cars, get a bunch of parents together to discuss family transportation, get a bunch of off roading enthusiasts to discuss the next 4x4. Also, understand that you can't pigeon hole people by age. Not all twenty somethings want the same thing in a car. Just because they are young doesn't mean they want the same thing.
Also, this doesn't apply to just the automotive market. Television programming is another area where they try to market one size fit all consumers and have been rewarded with dwindling market share for years. If you keep repackaging the same crap, people are going to stop watching. In an era where almost every popular old show is available online for public consumption, repackaging the same stuff over and over again doesn't work. Why watch another Friends or Seinfeld rip off when you can watch the original? You need to look over the market, find people who watch different types of shows, and cater to their needs. The TV viewer who likes Simpsons, American Dad, Family Guy and Archer will likely not be the same person who obsessively watches The Real Housewives. So trying to make a show that pleases both demographics will likely fail spectacularly.
It is an old adage, but knowing your customers really does help in selling them products. And while focus groups are a wonderful tool for helping to tailor products to consumers, you need to tailor the focus group to actually fit the product you are selling. Because if you do not, the end result will be youth divisions that sell primarily to retirees and TV shows that have no audience.
Tuesday, July 30, 2013
Government: Symbiosis to Parasitic
Throughout recorded history, when human kind has come together to form a society, it has also created a government to govern these interactions. The reason for this is obvious. When people get together, crime, disease, and scarcity will plague human interactions and make large gatherings problematic. Governments exist, first and foremost, to protect the populace from malignant external incursions, protect the populace from the deprivations of its own citizens and to create the infrastructure that is required for large quantities of people to live together as healthily as possible. Society benefits from this governing because when humans work together, they accomplish great things. Everyone's lives benefit from human efforts working in concert for the common good.
Need proof? Think of all the wonders of the world. None of them would have been possible without a large governing body overseeing the huge masses of humanity required to create these masterpieces. In order to organize humanity, you need a group of people whose roll it is to oversee them. Someone needs to plan. This general thesis is the argument most people have against a purely libertarian or anarchic state. It is hard to see all the benefits of an organized modern society and not claim that humanity has benefited from the oversight of government.
But now let's look back at those great masterpieces, the wonders of the world. While they were the end result of a great mobilization of humanity made possible by government, they were not created without significant losses of life and other opportunity costs. Take the Great Pyramid of Giza. It was created using slave labor by the Pharaoh. It is not hard to think that Egyptian society of the time would have benefited more if all that effort was put into projects that benefited all of society. So despite that it is now a major tourist attraction and bringing in a huge amount of money to Egypt (well, between civil wars and unrest it does. Once Egypt figures out its government, it will no doubt become a major tourism draw once again) it is hard to argue that the Egyptian populace of the time benefited from its creation. You can say similar things about the Great Wall of China. While it was created with a noble thought in mind, namely keeping the Mongols and other western barbarians out of China (at a time in history when incursions involved murder, rape, theft and arson), it also cost countless human lives to make and failed in its primary purpose. After all, China was eventually conquered by the Mongols and forced to pay tribute to the mongol empire for centuries.
So at what point does a government move from a net positive to a society, to a net negative? This is a complex question and largely depends on what you view the ultimate purpose of government is. I tend to believe that a government that governs least governs best, but I realize there is a large contingent of humanity that wants government to take a more totalitarian roll and run all aspects of human life for the benefit of society. The problem here is that government, while great at organizing people to work for the common good, has historically been very bad at identifying what is in the common good, and terrible at selecting rulers who are actually interested in the common good instead of personal enrichment. Again, think of the Pyramid of Giza and the Great Wall of China.
I write all of the above as a prelude to my next observation. I believe that the US government in particular, though it is certainly not alone (I am looking at you Europe) have transitioned from net positive to net negatives for the societies they govern. Now don't get me wrong, I am not advocating the overthrow of any government. But I would like to see it reformed to better help the populace as a whole.
But lets not get ahead of ourselves. Why do I think government has become a net drag on society? The answers lie in our current economic malaise. We are currently dealing with the 4th or 5th year of a recession that started when the sub-prime real estate market collapsed. This caused property values to decline rapidly. Banks at the time were heavily invested in real estate securities, so this huge decline in value pummeled the stock market and the value of most banks' portfolio of assets. For some financial companies (Lehman Brothers in particular), this drop in value triggered margin calls on their loan agreements which they couldn't pay because their assets were suddenly illiquid and losing value rapidly. The fed then stepped in, bailed out the banks, preventing large scale failures and bank runs. This was government working properly to avoid a disaster.
The problem is that the above disaster was the fault of government in the first place. You see, financial panics caused by real estate collapses are nothing new. The panic in the 1890s, the great depression, and the savings and loan fiascoes all had at least partial roots in real estate crashes. The problem was that after years of economic success, the government relaxed lending standards under the guise of making home ownership more affordable to the less credit worthy, they gutted depression era protections from economic speculation (Glass Steagall), and they allowed easy money policies that further inflated the real estate asset bubble. The result was when property values began to falter due to lack of demand and mortgage rates ticking upwards (from option arms rates resetting), defaults skyrocketed and property values fell. Had better lending standards been in place, had banks not been allowed to speculate on real estate securities (Glass Steagall), and had the government had a less permissive monetary policy, this likely could have been avoided.
When you couple our current economic woes, with what we have been learning about the modern police state we live in. I am referring here to the NSA PRISM program (read more here: http://en.wikipedia.org/wiki/PRISM_%28surveillance_program%29 ) and our multiple costly wars in foreign countries with questionable strategic significance, it is easy to see how our government has become more parasitic than symbiotic (i.e. it is hurting us more than it is helping). To this I would also add the Affordable Care Act, the Dodd Frank Act and Sarbanes Oxley, but these assertions are likely more contentious to some readers and are better dealt with on an individual basis in separate posts. And while the government has been spending time on these projects, our local infrastructure crumbles, our local governments' tax revenues dwindle (further cutting funds to infrastructure) and our local civil institutions whither. In fact the only area of America to not suffer from the depression was the Federal Government and the greater DC metropolitan area. The government continues to raise taxes while providing worse and worse service to its citizens and the only people benefitting are in the government itself.
When an entity lives off another (in this case society) and benefits at the expense of the host, it is a parasite. And without drastic reform to our federal government, future prosperity will be difficult to achieve. It is time we wean ourselves off the teat of big government and start cutting budgets for programs that do more harm than good.
Need proof? Think of all the wonders of the world. None of them would have been possible without a large governing body overseeing the huge masses of humanity required to create these masterpieces. In order to organize humanity, you need a group of people whose roll it is to oversee them. Someone needs to plan. This general thesis is the argument most people have against a purely libertarian or anarchic state. It is hard to see all the benefits of an organized modern society and not claim that humanity has benefited from the oversight of government.
But now let's look back at those great masterpieces, the wonders of the world. While they were the end result of a great mobilization of humanity made possible by government, they were not created without significant losses of life and other opportunity costs. Take the Great Pyramid of Giza. It was created using slave labor by the Pharaoh. It is not hard to think that Egyptian society of the time would have benefited more if all that effort was put into projects that benefited all of society. So despite that it is now a major tourist attraction and bringing in a huge amount of money to Egypt (well, between civil wars and unrest it does. Once Egypt figures out its government, it will no doubt become a major tourism draw once again) it is hard to argue that the Egyptian populace of the time benefited from its creation. You can say similar things about the Great Wall of China. While it was created with a noble thought in mind, namely keeping the Mongols and other western barbarians out of China (at a time in history when incursions involved murder, rape, theft and arson), it also cost countless human lives to make and failed in its primary purpose. After all, China was eventually conquered by the Mongols and forced to pay tribute to the mongol empire for centuries.
So at what point does a government move from a net positive to a society, to a net negative? This is a complex question and largely depends on what you view the ultimate purpose of government is. I tend to believe that a government that governs least governs best, but I realize there is a large contingent of humanity that wants government to take a more totalitarian roll and run all aspects of human life for the benefit of society. The problem here is that government, while great at organizing people to work for the common good, has historically been very bad at identifying what is in the common good, and terrible at selecting rulers who are actually interested in the common good instead of personal enrichment. Again, think of the Pyramid of Giza and the Great Wall of China.
I write all of the above as a prelude to my next observation. I believe that the US government in particular, though it is certainly not alone (I am looking at you Europe) have transitioned from net positive to net negatives for the societies they govern. Now don't get me wrong, I am not advocating the overthrow of any government. But I would like to see it reformed to better help the populace as a whole.
But lets not get ahead of ourselves. Why do I think government has become a net drag on society? The answers lie in our current economic malaise. We are currently dealing with the 4th or 5th year of a recession that started when the sub-prime real estate market collapsed. This caused property values to decline rapidly. Banks at the time were heavily invested in real estate securities, so this huge decline in value pummeled the stock market and the value of most banks' portfolio of assets. For some financial companies (Lehman Brothers in particular), this drop in value triggered margin calls on their loan agreements which they couldn't pay because their assets were suddenly illiquid and losing value rapidly. The fed then stepped in, bailed out the banks, preventing large scale failures and bank runs. This was government working properly to avoid a disaster.
The problem is that the above disaster was the fault of government in the first place. You see, financial panics caused by real estate collapses are nothing new. The panic in the 1890s, the great depression, and the savings and loan fiascoes all had at least partial roots in real estate crashes. The problem was that after years of economic success, the government relaxed lending standards under the guise of making home ownership more affordable to the less credit worthy, they gutted depression era protections from economic speculation (Glass Steagall), and they allowed easy money policies that further inflated the real estate asset bubble. The result was when property values began to falter due to lack of demand and mortgage rates ticking upwards (from option arms rates resetting), defaults skyrocketed and property values fell. Had better lending standards been in place, had banks not been allowed to speculate on real estate securities (Glass Steagall), and had the government had a less permissive monetary policy, this likely could have been avoided.
When you couple our current economic woes, with what we have been learning about the modern police state we live in. I am referring here to the NSA PRISM program (read more here: http://en.wikipedia.org/wiki/PRISM_%28surveillance_program%29 ) and our multiple costly wars in foreign countries with questionable strategic significance, it is easy to see how our government has become more parasitic than symbiotic (i.e. it is hurting us more than it is helping). To this I would also add the Affordable Care Act, the Dodd Frank Act and Sarbanes Oxley, but these assertions are likely more contentious to some readers and are better dealt with on an individual basis in separate posts. And while the government has been spending time on these projects, our local infrastructure crumbles, our local governments' tax revenues dwindle (further cutting funds to infrastructure) and our local civil institutions whither. In fact the only area of America to not suffer from the depression was the Federal Government and the greater DC metropolitan area. The government continues to raise taxes while providing worse and worse service to its citizens and the only people benefitting are in the government itself.
When an entity lives off another (in this case society) and benefits at the expense of the host, it is a parasite. And without drastic reform to our federal government, future prosperity will be difficult to achieve. It is time we wean ourselves off the teat of big government and start cutting budgets for programs that do more harm than good.
Thursday, July 11, 2013
Don't Let the Unemployment Rate Fool You...
Today I want to talk about the unemployment rate and how it is used to pull the wool over your eyes in regards to the effects of the current recession.
As I have discussed in previous posts, the current recession started around 6 years ago when the housing bubble burst, nearly causing a catastrophic meltdown of the financial system. The end result was that US government stepped in and very selectively doled out aid to Wall Street and to specific non-investment, non-bank institutions to help keep our financial house of cards from completely collapsing. Europe, following in our footsteps in both falling into recession and working to cure it, did much the same thing, but on a national level, offering up huge loans for austerity (i.e. cutting the budget to meet certain deficit targets).
Since then, the nation and the world, has been watching unemployment rates with the frenzied fascination of someone waiting for a bomb to be defused. Unfortunately, the unemployment rate is a very misleading measure of the health of the labor economy. The reason? How it's calculated. Most people believe that the official unemployment rate is calculated based on the number of working aged adults not currently employed, but they are wrong. That is actually the labor participation rate (Note: labor participation rate is the rate of employment among working aged adults expressed in percent. But since there are only two option, employed or not, it also reports its opposite, the number not employed). The unemployment rate is based on a survey of 60,000 US families and involves more complex math and fudging. It determines the number of people currently employed in those families, those currently actively seeking work based on a set of narrow criteria, and those that are not in the labor force (who are not counted for purposes of the unemployment rate). It then extrapolates this out to the entire country and then weights the answers (hence my use of the word fudging). But don't take my word for it, read the description of it from the Bureau of Labor Statistics itself. http://www.bls.gov/cps/cps_htgm.htm
So this brings us back to my initial point, how is this used to pull the wool over our eyes. The answer is in the two statistics themselves. While unemployment rates peeked in 2009 and have been steadily decreasing, the labor participation rate is still more or less on the decline. http://data.bls.gov/timeseries/LNS14000000 (unemployment rate) http://data.bls.gov/timeseries/LNS11300000 (labor participation rate). In fact, labor participation rates have been on a fairly continuous decline since the tech bubble burst around the year 2001 (which you can see by adjusting the dates shown in the above link). Why are the two different? Because unemployment only includes those people who fit the narrow definition of actively seeking work. As you stay unemployed, you move from the actively seeking work category into the "discouraged worker" category and cease to be counted. So why do we focus so much on the unemployment rate and not on labor participation? Supposedly we do this because it focuses on those actively seeking work and thus is a more fair measure of the economic activity of the nation. But I think the reality is that the government and the media focus on this rate because it is much more likely to improve over time (as workers get moved into the non-counted discouraged worker category). After all, if you focus on labor participation, then it looks like the real estate bubble was just a plateau in the continued failure of the American economy. Politicians seeking re-election don't like that because it makes them look incompetent and news papers don't like it because doom and gloom doesn't sell papers, get viewers or help them with advertising revenue. So they together hype the rosier picture.
The reality though is something else. We have record low levels of labor participation in this country not seen since before the 80's boom and women entering the work place. And if the last time we saw participation this low was back then, it means that now, with most women of working age working, we are in much more dire financial straits than we were then. I.E. most of those women in the past were not employed and not seeking a job by choice, not because of the terrible economy (and the stagflation of the 70's was a terrible economy). Now we have more people looking, not finding and being moved into the "discouraged worker" camp slowly bringing unemployment rates down. Doesn't sound as nice as when the government or the papers trumpet the unemployment rates' decline does it?
So don't let the unemployment rate fool you, we are still in dire financial straits. Until we see steady improvement in the labor participation rate, it meas most of the unemployment declines came from people "leaving the work force".
As I have discussed in previous posts, the current recession started around 6 years ago when the housing bubble burst, nearly causing a catastrophic meltdown of the financial system. The end result was that US government stepped in and very selectively doled out aid to Wall Street and to specific non-investment, non-bank institutions to help keep our financial house of cards from completely collapsing. Europe, following in our footsteps in both falling into recession and working to cure it, did much the same thing, but on a national level, offering up huge loans for austerity (i.e. cutting the budget to meet certain deficit targets).
Since then, the nation and the world, has been watching unemployment rates with the frenzied fascination of someone waiting for a bomb to be defused. Unfortunately, the unemployment rate is a very misleading measure of the health of the labor economy. The reason? How it's calculated. Most people believe that the official unemployment rate is calculated based on the number of working aged adults not currently employed, but they are wrong. That is actually the labor participation rate (Note: labor participation rate is the rate of employment among working aged adults expressed in percent. But since there are only two option, employed or not, it also reports its opposite, the number not employed). The unemployment rate is based on a survey of 60,000 US families and involves more complex math and fudging. It determines the number of people currently employed in those families, those currently actively seeking work based on a set of narrow criteria, and those that are not in the labor force (who are not counted for purposes of the unemployment rate). It then extrapolates this out to the entire country and then weights the answers (hence my use of the word fudging). But don't take my word for it, read the description of it from the Bureau of Labor Statistics itself. http://www.bls.gov/cps/cps_htgm.htm
So this brings us back to my initial point, how is this used to pull the wool over our eyes. The answer is in the two statistics themselves. While unemployment rates peeked in 2009 and have been steadily decreasing, the labor participation rate is still more or less on the decline. http://data.bls.gov/timeseries/LNS14000000 (unemployment rate) http://data.bls.gov/timeseries/LNS11300000 (labor participation rate). In fact, labor participation rates have been on a fairly continuous decline since the tech bubble burst around the year 2001 (which you can see by adjusting the dates shown in the above link). Why are the two different? Because unemployment only includes those people who fit the narrow definition of actively seeking work. As you stay unemployed, you move from the actively seeking work category into the "discouraged worker" category and cease to be counted. So why do we focus so much on the unemployment rate and not on labor participation? Supposedly we do this because it focuses on those actively seeking work and thus is a more fair measure of the economic activity of the nation. But I think the reality is that the government and the media focus on this rate because it is much more likely to improve over time (as workers get moved into the non-counted discouraged worker category). After all, if you focus on labor participation, then it looks like the real estate bubble was just a plateau in the continued failure of the American economy. Politicians seeking re-election don't like that because it makes them look incompetent and news papers don't like it because doom and gloom doesn't sell papers, get viewers or help them with advertising revenue. So they together hype the rosier picture.
The reality though is something else. We have record low levels of labor participation in this country not seen since before the 80's boom and women entering the work place. And if the last time we saw participation this low was back then, it means that now, with most women of working age working, we are in much more dire financial straits than we were then. I.E. most of those women in the past were not employed and not seeking a job by choice, not because of the terrible economy (and the stagflation of the 70's was a terrible economy). Now we have more people looking, not finding and being moved into the "discouraged worker" camp slowly bringing unemployment rates down. Doesn't sound as nice as when the government or the papers trumpet the unemployment rates' decline does it?
So don't let the unemployment rate fool you, we are still in dire financial straits. Until we see steady improvement in the labor participation rate, it meas most of the unemployment declines came from people "leaving the work force".
Friday, June 21, 2013
The Value of Privacy
In recent weeks we have been re-alerted to a most scandalizing fact, namely that the NSA and other US intelligence agencies have been spying on all internet and cell phone communications on an unprecedented level. I say re-alerted because we were first made aware of this in May of 2006 when USA Today reported on the NSA building a huge database for compiling phone records. There is a long discussion of the aftermath of these revelations here: http://en.wikipedia.org/wiki/NSA_warrantless_surveillance_controversy . But the reality is that this is nothing new. Our government, despite getting its hand slapped previously for warrant-less searches of wireless communications, has expanded the program to include all internet communications as well. Given the strictures of the 4th amendment, many are arguing that this is a clear violation of our constitutional rights. I will not argue with them, at least not on theory. However, it is worth pointing out that the Obama administration and the intelligence community have included such legal safeguards as they think are needed to pass constitutional scrutiny. Likely that argument will not be settled until it is in front of the US Supreme Court. But ignoring the pure legal arguments, it is hard to square our nation's stated values of liberty, freedom of speech and right to privacy with the actions of our government.
On the other side of the coin, I understand where the government is coming from. Since September 11th 2001, we as a nation have been made more alert to the dangers posed by terrorists, both foreign and domestic. The US public has been clamoring for the intelligence community to improve our safety in this new and dangerous world. In intelligence work, data is key, and when most of the world's internet communications come through US hubs, gathering that data was easy and convenient. The belief that if we just had more information that we could prevent the next attack drove the community to use questionable means to increase the amount of data they could analyze. It's easy to sympathize with them, especially with civilian lives on the line.
The problem with this theory is that, in many previous cases of terrorism, we already had the tools we needed to prevent disaster. What we lacked was the competence to interpret that data correctly and prevent the attacks. Take Sept. 11th, the Bush administration had received intelligence about Al Qaeda, Osama Bin Laden and their readiness to attack the USA. Had these warnings been heeded, we may well have avoided the disaster that occurred. http://www.nytimes.com/2012/09/11/opinion/the-bush-white-house-was-deaf-to-9-11-warnings.html . More recently, the intelligence community ignored Russian warnings about the Tsarnaev brothers and how they may be radicalizing. These are the brothers who then perpetuated the Boston Marathon bombings. http://www.politico.com/blogs/under-the-radar/2013/06/fbi-knew-earlier-of-boston-bombing-suspect-166313.html . Two of the largest attacks in recent memory on US soil were both preceded with specific intelligence warnings to the government of the risk of a terrorist attack; intelligence that was ignored. More damningly, this was intelligence gathered through traditional means. If we lacked the competence to interpret this data properly, it is easily imagined that we lack the competence to mine the NSA program properly as well.
So where does this leave us? We have a multi-billion dollar spying program that is manned by the same incompetent people who failed to heed traditional warnings of previous attacks. A spying program that tramples on the world's privacy rights and freedoms which likely will not help us prevent the next attack (if the Boston Marathon bombings are predictive). I can't help but think that our government would have been a lot better off hiring more analysts to mine traditional intelligence than spending billions of dollars on a computer data warehouse. But that is the modern state of our technocratic government. It thinks it is a lot smarter, and a lot more competent, than it actually is. It is now up to the courts to interpret its constitutionality, and the voters to let their representatives know their displeasure.
On the other side of the coin, I understand where the government is coming from. Since September 11th 2001, we as a nation have been made more alert to the dangers posed by terrorists, both foreign and domestic. The US public has been clamoring for the intelligence community to improve our safety in this new and dangerous world. In intelligence work, data is key, and when most of the world's internet communications come through US hubs, gathering that data was easy and convenient. The belief that if we just had more information that we could prevent the next attack drove the community to use questionable means to increase the amount of data they could analyze. It's easy to sympathize with them, especially with civilian lives on the line.
The problem with this theory is that, in many previous cases of terrorism, we already had the tools we needed to prevent disaster. What we lacked was the competence to interpret that data correctly and prevent the attacks. Take Sept. 11th, the Bush administration had received intelligence about Al Qaeda, Osama Bin Laden and their readiness to attack the USA. Had these warnings been heeded, we may well have avoided the disaster that occurred. http://www.nytimes.com/2012/09/11/opinion/the-bush-white-house-was-deaf-to-9-11-warnings.html . More recently, the intelligence community ignored Russian warnings about the Tsarnaev brothers and how they may be radicalizing. These are the brothers who then perpetuated the Boston Marathon bombings. http://www.politico.com/blogs/under-the-radar/2013/06/fbi-knew-earlier-of-boston-bombing-suspect-166313.html . Two of the largest attacks in recent memory on US soil were both preceded with specific intelligence warnings to the government of the risk of a terrorist attack; intelligence that was ignored. More damningly, this was intelligence gathered through traditional means. If we lacked the competence to interpret this data properly, it is easily imagined that we lack the competence to mine the NSA program properly as well.
So where does this leave us? We have a multi-billion dollar spying program that is manned by the same incompetent people who failed to heed traditional warnings of previous attacks. A spying program that tramples on the world's privacy rights and freedoms which likely will not help us prevent the next attack (if the Boston Marathon bombings are predictive). I can't help but think that our government would have been a lot better off hiring more analysts to mine traditional intelligence than spending billions of dollars on a computer data warehouse. But that is the modern state of our technocratic government. It thinks it is a lot smarter, and a lot more competent, than it actually is. It is now up to the courts to interpret its constitutionality, and the voters to let their representatives know their displeasure.
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