Curt Doolittle

Theme: Incentives

  • A Hobby Can’t Be A Market Failure

    On economics help, we get to see a how political failure is cast as market failure.

    Agriculture often appears to be one of the most difficult industries, frequently leading to some form of market failure. In the EU, agriculture is the most heavily subsidised industry, yet despite the cost of the subsidy, it fails to address issues relating to agriculture.

    Then the author compounds the error by stating that the volatility of weather creates a volatility in prices:

    The problem of volatile prices is that: 1. A sharp drop in price leads to a fall in revenue for farmers. Farmers could easily go out of business if their is a glut in supply because prices can plummet below cost. 2. Cobweb Theory. The cobweb theory suggests prices can become stuck in a cycle of ever-increasing volatility. E.g. if prices fall like in the above example. Many farmers will go out of business. Next year supply will fall. This causes price to increase. However, this higher price acts as incentive for greater supply. Therefore, next year supply increases and prices plummet again!. 3. Consumers can be faced with rapid increase in food prices which reduces their disposable income.

    To which I replied: Fascinating. Fascinating that you would consider any of these properties a market failure. 1) Farming has declined as an employer of people since 1900 to the point where it is now little more than a subsidized hobby industry that we support for purely aesthetic reasons. For that reason alone, it cannot experience ‘market failure’. It’s a commoditized industry. Farming is an industrial occupation for conglomerates. Everyone else in the business is in it out of love or habit not profit. 2) The US western expansion was created in an era of farming, and the land settled by farmers (and ranchers). The era of industrial expansion was created to support the expansion of farming. Now that farming has become mechanized and industrialized, people are leaving the breadbasket for the commercial and technological centers – that’s why those parts of the country are being depopulated. 3) It is impossible for farming to experience ‘market failure’. It is only possible for people to cling to an unproductive means of production, and to fail to develop alternative careers. The problem is political failure. Not market failure. Markets can’t fail. They can be insufficient to solve certain problems of capital concentration that only governments can accomplish. The political failure of attempting to persist farming is a failure because the market is telling us that farming is no longer valuable as an occupation. The political system is failing because it cannot develop alternatives to farming fast enough. It’s a problem of political failure not market failure. And it’s human failure. The romantic and luddite desire for antiquated means of production.

  • don’t trust the government. That’s why Keynesian policy wont work. And Monetaris

    http://www.capitalismv3.com/2012/02/10/monetarists-picked-the-wrong-allies-in-keynesians/People don’t trust the government. That’s why Keynesian policy wont work. And Monetarists blew their chance when they allied with the Keynesians rather than the neo-classicals and austrians. You can compromise with a competitor. But the citizenry won’t compromise on a government that they don’t trust.

    Source date (UTC): 2012-02-11 09:09:00 UTC

  • EDUCATION DOESN’T TEACH YOU ANYTHING – IT’S JUST SIGNALING THAT YOU’RE DISCIPLIN

    EDUCATION DOESN’T TEACH YOU ANYTHING – IT’S JUST SIGNALING THAT YOU’RE DISCIPLINED. http://www.capitalismv3.com/2012/02/10/bryan-caplans-current-work-on-the-limited-benefits-of-education/

    Source date (UTC): 2012-02-10 13:35:58 UTC

    Original post: https://twitter.com/i/web/status/167965031609270272

  • Monetarists Picked The Wrong Ally in Keynesians

    Scott, Well, I’m in the middle of the Monetarist-Neoclassical-Austrian spectrum and I agree with the Monetarists and objects to the Keynesians. The unstated argument here is that: 1) The American people do not trust their government. All spending is suspect. And they would rather suffer in order to starve the beast than gain relief by feeding it. This isn’t going to change any time soon. Demographics guarantee it. Tilting at windmills is a waste of time. 2) The monetarists failed to make their case with the public. If the monetarists DID make their case with the public by stating that they would in no way expand the government, the public would have endorsed it. I blame this failure entirely on the monetarist public intellectuals who allied with the Keynesians instead of the Neo-classicals (improve industry) and Austrians (improve human capital) with whom most Americans are more sentimentally aligned – puritan ethics prevail.. 3) The public is justifiably angry at the financial sector as well as the government. Galbraith, myself, and to some abstract degree Arnold Kling, recommended that bypassing the financial sector entirely and paying down consumer debts was a radical idea, but would have won the hearts and minds of the citizenry, as well as avoiding worldwide price recalculation within the Patterns of Sustainable Specialization and Trade, which is the result of the shock to people’s ability to forecast and plan. (I dont think anyone appreciates the value of Kling’s arguments as adding another tool to the neoclassical inventory.) This was a better solution than the Keynesian OR Monetarist solutions. And it would have astronomically cheaper. Keynesian spending only works if people trust the government and people only trust the government in small culturally and ethnically homogenous nation states. Monetarists SHOULD be politically neutral, but by allying with Keynesians they become untenable with the public. By allying with Neo-classicals and Austrians Monetarists can become politically neutral, and the public will accept their recommendations. The importance of this concept is significant – not only for monetarists, but for the country as a whole. Perhaps for the world.

  • EDUCATION DOESN”T TEACH YOU ANYTHING – IT”S JUST SIGNALING THAT YOU”RE DISCIPLIN

    http://www.capitalismv3.com/2012/02/10/bryan-caplans-current-work-on-the-limited-benefits-of-education/NO, EDUCATION DOESN”T TEACH YOU ANYTHING – IT”S JUST SIGNALING THAT YOU”RE DISCIPLINED.

    Source date (UTC): 2012-02-10 08:34:00 UTC

  • Bryan Caplan’s Current Work On The Limited Benefits Of Education

    Bryan Caplan writes

    1. The vast majority of research on the [returns on higher] education – including IVs, RTCs, etc. – does not empirically distinguish between human capital and signaling. The better papers explicitly admit this. 2. Students spend a lot of time learning subjects irrelevant to almost all occupations (except, of course, teaching those very same irrelevant subjects). 3. Teachers often claim that they’re “teaching their students how to think,” but this goes against a hundred years of educational psychology’s Transfer of Learning literature. 4. When education researchers measure actual learning, it’s modest on average, and often zero. And yet employers still pay a big premium to e.g. college students who’ve learned little or nothing. The same goes for the return to college quality. It doesn’t seem to improve learning, but it substantially improves income. 5. There is a growing empirical literature using the El-SD (employer learning – statistical discrimination) approach to measure the effect of signaling. It usually finds moderate signaling, at least for non-college grads. It looks like you have to finish college to quickly get employers to reward you for measurable pre-existing skills. 6. The sheepskin literature finds large effects of merely finishing degrees. They eventually fade out, but it takes 15-25 years. This isn’t iron-clad evidence for signaling (what would be?), but it’s strongly supportive. My book will also argue that ability bias is a much bigger problem than the David Card consensus will admit, and that the positive externalities of education are overrated. So the social return to education turns out to be quite low. In terms of policy implications, I’m going to argue for large cuts in government spending on education, and a lot more vocational education on the German model.

    We are not paid for our knowledge. We are paid for the rate at which we assimilate and adapt to information and circumstances. We are paid to quickly and inexpensively solve problems in dynamic economy. Universities successfully filter for those people able to assimilate and adapt to information and circumstances. People who pass the filter are more likely to adapt to the shock of entering the work force and quickly learn the nuances of both organizations and business processes. Since IQ is largely an expression of the RATE someone is capable of learning, the data should show that universities essentially sort by IQ. And it appears to show just that. I am not convinced (and I think you’ve come to the same conclusion) that people learn anything of value in university other than work discipline. (Sowell has been saying this for years.) It also appears that people eventually sort by IQ in the work force regardless of their education. So, it would seem that an education is a means of temporarily increasing your earning capacity at the median, and a way of shortening your access to income at the top. But at the bottom higher education’s a waste of time, and a burdensome debt. Americans try to educate everyone to join the upper middle class, and it’s a waste of effort and produces an incompetent working class. instead, we should, as the Germans do, focus on creating a superior working class, because the upper 20% will succeed as long as we don’t impede them too much. As you’ve stated elsewhere, and as the economic evidence shows, the German model is a superior education system, and perhaps the Finnish model is the best primary school system. For certain, boys should start school later than girls. and should be physically active despite the risk of ‘being boys’.

  • but we all KNOW that healthcare costs are the long term problem with the US budg

    http://www.multiplier-effect.org/?p=3351Yes, but we all KNOW that healthcare costs are the long term problem with the US budget.

    We also know WHY healthcare costs are the problem:

    1) extending the last year of life.

    2) experimental procedures.

    We also know why it’s a difficult problem to fix healthcare costs:

    3) Because there is no market system by which doctors can choose to deny coverage for experimental procedures and extending the last year of life. Because it is expressly against medical ethics. Because it is profitable for businesses to deliver services. Because it is bad for business to reject a customer, who will just go elsewhere for the service.

    4) Because there is no market system for controlling extension of the last year of life and experimental procedures, we must create a non-market system (a bureaucratic system) or “DEATH PANELS” to deny coverage for experimental procedures and extending the last year of life, in order to contain costs.

    We also know why bureaucratization of experimental procedures is dangerous:

    5) Because experimental work is expensive, research and development conducted by trial and error – most of which fails to produce beneficial results.

    We also know why conservatives (republicans) dislike the bureaucratic method:

    6) Because it is impossible to work harder, apply more discipline, and use one’s own initiative and resources, in order to secure access to the best doctors, facilities, and experimental treatments.

    And it’s disingenuous to argue that this is a financial problem. It is in fact, a series of moral hazards – in the broadest sense of the term.

    (The technical, mixed-economy solution, would be to transfer the costs that were rejected by the Death Panels for experimental procedures and extension of life to those poor people in need of health care. I’m not advocating that. I’m just suggesting that it’s the only known solution that avoids perverse incentives for all parties, while maintaining a closed healthcare ecosystem.)

    We already solve the problem of transfers by subsidizing insurance companies for automobile drivers. There is no reason that we cannot sponsor (insure) non-profit, insurance companies that specialize in coverage for the underclasses, and make use of the visa/mc network to manage payments for services. We insure banks. Why can’t we insure insurance companies as a proxy for serving the disadvantaged?

    Source date (UTC): 2012-01-20 14:35:00 UTC

  • APPLE GIVE DIVIDENDS? ARE YOU NUTS? 🙂

    http://modeledbehavior.com/2012/01/06/open-letter-to-apple-shareholder/WHAT? APPLE GIVE DIVIDENDS? ARE YOU NUTS? 🙂

    Source date (UTC): 2012-01-06 18:05:00 UTC

  • Defining ‘Rich’. It’s Easy: Whomever Can Exit Participation In The Market

    On Economix at the NYT, Bruce Bartlett writes that it’s difficult to count who’s ‘rich’.

    The first thing to know is that there is no formal definition of who is rich, middle class or poor. Of course, there is an official definition for the poverty rate, but that figure is just a back of the envelope calculation that has simply been increased by the inflation rate since the 1960s. There are many other ways of calculating the poverty rate that could either raise the poverty threshold or reduce it. Another problem is that one’s social class is a function of both income and wealth. There are many among the elderly who have little income but may have fairly substantial wealth by, for example, owning a home free and clear. At the other end, there are those with high incomes who are, nevertheless, deeply in debt, perhaps even having a negative net worth.

    It is certainly possible to calculate who is ‘rich’. The goal of every individual is to exit the market. Whether that individual studies hard to get a good (protected) job in big company, or works for the government which by definition is extra-market (and protected), or seeks a (protected) union job, or whether that person does none of that rent-seeking, and instead, exits the market through saving or investment. “Rich” means ‘exiting the market’. To exit the market one needs roughly on hundred times the median income, or about 4.5-5M today. It used to be that a million dollars meant something meaningful, but it doesn’t. You can easily burn through it if you’re the kind of person that can make it in the first place. Rich is a balance sheet calculation, not an income calculation. If a person’s balance sheet exceeds about one hundred times the median income (which is by definition, the 1%) then realistically, it doesn’t matter how much of their income you tax. I suspect that the various means of calculating maximum utility taxation is closer to 60 or 65% based upon what I can find. But if you tax the income of a small business person who is trying to exit the market, then we certainly have the right to wipe out social security, wipe out pension programs, fire federal workers and wipe out their savings. Because unless those assets are counted, the definition of ‘rich’ is asymmetrically used to punish people who participate in the market.

  • Defining ‘Rich’. It’s Easy: Whomever Can Exit Participation In The Market

    On Economix at the NYT, Bruce Bartlett writes that it’s difficult to count who’s ‘rich’.

    The first thing to know is that there is no formal definition of who is rich, middle class or poor. Of course, there is an official definition for the poverty rate, but that figure is just a back of the envelope calculation that has simply been increased by the inflation rate since the 1960s. There are many other ways of calculating the poverty rate that could either raise the poverty threshold or reduce it. Another problem is that one’s social class is a function of both income and wealth. There are many among the elderly who have little income but may have fairly substantial wealth by, for example, owning a home free and clear. At the other end, there are those with high incomes who are, nevertheless, deeply in debt, perhaps even having a negative net worth.

    It is certainly possible to calculate who is ‘rich’. The goal of every individual is to exit the market. Whether that individual studies hard to get a good (protected) job in big company, or works for the government which by definition is extra-market (and protected), or seeks a (protected) union job, or whether that person does none of that rent-seeking, and instead, exits the market through saving or investment. “Rich” means ‘exiting the market’. To exit the market one needs roughly on hundred times the median income, or about 4.5-5M today. It used to be that a million dollars meant something meaningful, but it doesn’t. You can easily burn through it if you’re the kind of person that can make it in the first place. Rich is a balance sheet calculation, not an income calculation. If a person’s balance sheet exceeds about one hundred times the median income (which is by definition, the 1%) then realistically, it doesn’t matter how much of their income you tax. I suspect that the various means of calculating maximum utility taxation is closer to 60 or 65% based upon what I can find. But if you tax the income of a small business person who is trying to exit the market, then we certainly have the right to wipe out social security, wipe out pension programs, fire federal workers and wipe out their savings. Because unless those assets are counted, the definition of ‘rich’ is asymmetrically used to punish people who participate in the market.