Friday, May 29, 2009

Line of the Day

Where that becomes troublesome, however, is the moment when government comes to be seen as the sole source of security. What we, the public, need to understand is that the best guarantor of security is not government. It's economic growth. While we want to believe otherwise, the cold fact is that government can't guarantee economic permanency. Nobody, and nothing, can.

Wednesday, May 27, 2009

I'll be your first taker

From the NY Times:
Mr. CLINTON: When anybody asks me [whether the fact that the Clinton administration did nothing to stop the 1990s stock bubble is the main reason to be skeptical it would have done much to stop the housing bubble], ... I look at them and ask them, “Do you think this would have happened if we had been there? Look me in the face and say yes.” I haven’t found any takers yet.
I was youngish during his presidency and, in retrospect, I think he did a decent job (solely on the basis that he miraculously managed to balance the budget (how absurd does that prospect sound nowadays!!!)). But I'd be willing to look him in the face and say "YES!". If anything, Clinton exacerbated the problem with his housing initiatives and he would have been equally influenced by big banks, economic advisors, and rating agencies. Ex post it's always easy to prevent things. In fact, if Clinton thought the Bush policies were THAT bad, he should have either publicly sounded the alarm, or put down a big bet that would make millions/billions and then given that money away to the poor that he so desperately wants to help. I'm not trying to bash Clinton here, but I certainly don't think he would have done jack-poop to prevent this from happening.

Tuesday, May 12, 2009

Line of the Day

From Charles Platt (HT: Russ@CafeHayek):

If you want people to be wealthier, they have to create additional wealth.

And more:

To my mind, the real scandal is not that a large corporation doesn't pay people more. The scandal is that so many people have so little economic value.

I'm up in the Mountains of New Mexico for a few more days. Regular blogging will resume shortly.

Wednesday, May 6, 2009

A example of trade

People often complain that the "rich are getting richer". And yes, this is in fact true. It is very true. (Remember to focus on longer trends. In the last 1 year, the rich have probably gotten quite a bit poorer (as have the rest of us); however, in the last 100 years, the rich have gotten quite a bit richer.) Unfortunately, many people stop their thought process at this simple observation. There seems to be an assumption that "the rich have gotten richer AT THE EXPENSE of the poor". This is quite false. Remember, the economic pie is not baked a fixed size. When I get a bigger piece of the pie, you do not necessary get a smaller piece. Alex Tabarrok explained this quite eloquently in his TED speech. I'm paraphrasing, but Tabarrok recounts a story by Thomas Jefferson talking about having a candle that is lit. And when others come to us needing light, they can dip their candle into ours and they gain light and we are not darkened. Tabarrok has an addendum, though. He says, when others light their candle at ours, there's twice as much light available for everyone (end paraphrasing). So you see, the pie actually gets bigger.

But how can that be? We have the same amount of "stuff" on earth. God didn't come down yesterday and give us an addition 1 billion pounds of ore or gold or air or water because He noticed we were short. Yet somehow, we have more than we did previously. Way more. Way way more! It actually very beautiful how that economic pie gets bigger. First, an abstract example, then a concrete one:

1) You have an Xbox and I have a cure for diabetes. You are happiness neutral. I am happiness neutral. If we were to set up an equation for our economic pie, it would read: 1 Xbox + 1 cure for diabetes + happiness neutrality (0). Let's add to this scenario. I love playing video games, but have no money. You have diabetes but have no money. So, we trade. The new equation would still contain only 1 Xbox and only 1 cure for diabetes, but the happiness coefficient would grow. Not only is there more happiness, but the Xbox now inherently is worth more and (more importantly) so is the diabetes cure. The two of us have rearranged our resources to better fulfill our needs. To each of us, our slice gets bigger.

2) A concrete example: Just last month, my roommate and I were looking to clear up some room in our apartment. We decided to sell his cabinet. Our bottom price was 'come pick it up and you can have it for free'. We didn't advertise this price. We advertised $50. A buyer contacted us, offering the $50. When he came to pick up the cabinet, he had three $20 bills. I had no change. I told him that $40 was fine, don't worry about the difference. As we loaded the cabinet into his car, in a moment of honesty he bluntly said, "ya know, this is a nice cabinet, I would have gladly paid $60 or even $75 for it." Again, let's look at the math. My roommate and I would have gladly given the cabinet away for free. So, we netted an extra $40 utility. This buyer would have gladly paid $75 for the cabinet. His extra netted utility was $35. Both parties were completely justified in thinking the other a sucker. But through this trade, $75 of utility was created (our $40 + his $35).

Watch the Tabarrok TED talk. It's really cool. Remember, when trade isn't coercive and both parties are voluntarily taking part in the exchange, the economic pie gets larger.

Link Edition from New Mexico

I'm back in New Mexico for a few weeks getting doctor work done and working for my dad at his apple ranch. So the blogging will continue to be a little light until I return to the East Coast on May 20th. I'll mostly be passing along links with little if any commentary. Sorry about that. Here's a few to keep you busy:

Have fun.