Monday, December 22, 2008

The Societal Gains of Mass Production

The above graph is an idealized model of the relative gains to production efficiency and relative losses from destruction of traditional lifestyle that accompanies the adoption of varying degrees of mass production of goods.

No society will be at either extreme of this graph. At the left end, there is the society where nothing is mass produced. However, there are always things which are better left done in a uniform or assembly line fashion. Many of these are component goods such as paper; others may require high degrees of quality assurance, such as condoms. At the right end we find a society where all good are produced in factories. Not even so much as dinner in the evening is done by hand. Perhaps in this world all food is cooked and eaten in massive cafeterias with giant industrial ducting sucking air toward a depressingly high ceiling. This, and other meditations, indicate that the marginal loss is least when the first unit of a respective type is introduced, and greatest when the last unit of the other type is removed.

The gains from mass producing any commodity come in the form of efficiency of labor, commonly called productivity. Productivity is good because it means less labor is used to produce a given quantity of goods, meaning that either less work is required in total and therefore more leisure is available to the populace, or more total goods can be produced at a given level of employment, or some combination of the two. Therefore, the society that is more productive will generally have lower levels of employment and greater availability of goods.

The losses from mass producing any given commodity come in the driving of traditional craftsmen (truly craftspersons, but I just don't want to make my writing opaque by using awkward, gender ambiguous language) out of the market. Craftsmen produce goods that are artistically diverse, and therefore create a rich cultural tradition, whereas mass produced goods are by definition homogeneous. Furthermore, a rich cultural tradition provides a context in which individuals are able to express themselves, either through Petit Bourgeoisie or non-commercial expression. Therefore, having a high level of traditional craftsmanship implies that a society will offer artistically diverse products and greater opportunities for individual creativity.

Total consumption bundles are only composed of goods and services. Of the total goods consumed, each good is either mass produced or the work of a craftsman. To a certain degree, movement along the distribution will lead to changes in total goods consumed, with more being consumed as one moves toward complete manufacturing of goods. Now I postulate a bliss point, which is a saturation point where individuals do not desire more goods. Since the consumption curve (not pictured) is smooth, a diminishing marginal propensity to consume as the availability of goods increases is the only means of achieving a bliss point. Assume now that the means of production, affluence and availability of goods are sufficient for the bliss point to fall in the spectrum of mass production pictured. Following along the lines of a typical Keynesian employment argument we see that as new manufacturing jobs are added, demand for goods will not expand sufficiently to maintain a steady level of employment. Therefore, employment levels will go down as expanding mass production increases average productivity, or to put it nicely, more people will enjoy more leisure time (work is not water, after all). If the reader is not satisfied with my argument in this paragraph, a much more detailed argument of a similar character has been made by Karl Marx.

A higher level of total good consumption is generally correlated to higher levels of benefits like adequate nutrition, shelter, and information availability; harms such as environmental destruction and anomie; and indeterminates including personal effects, luxury items, and consumer individuality.

Following my argument two paragraphs ago, we may expect lower employment to accompany high levels of mass production. A lower level of employment is generally correlated to higher levels of leisure time. Though generally accepted, the idea that a person should work at least 40 hours a week can be meaningfully challenged. Work is not inherently virtuous. Leisure has benefits like greater time for childraising, education, and relaxation; harms such as unemployment and criminal mischief; and indeterminates including controversial labor distributions.

Because the production levels of hand crafted goods are low, the diminishing marginal propensity to consume will not significantly affect craftsmen. Craftsmanship, however, does require individual skill. In addition to knowledge of the craft, it also involves business savvy, interpersonal finesse, creativity, and risk taking. Not all individuals will possess such skills, but the degree to which they can be learned is probably high. Communities will not be free from exceptions to this rule of merit, such as rivalries, oppression of individuality, and the like. However, subcultural differences make the negative behavior of other cultures stick out while the negative behavior common to our circles goes unnoticed. Specifically, I reject as completely baseless the belief that poverty and a lack of industrialization have any causative effect on the formation of such negative behaviors in societies. Therefore, a society that features more crafts will be one that rewards excellence, and because of the assumption of learnability, cultivates artisan traditions in order to make such excellence teachable.

A higher level of artisan traditions is generally correlated to benefits like cultural or artistic diversity, and consumer choice; harms such as supply surpluses and shortages, lack of information collection, and lack of documentation; and indeterminates including informal assessments of quality and loss of national identity.

A higher level of rewards for excellence in individuals is generally correlated to benefits like community participation, greater internalization of ethical principles, and higher self esteem; it has no definite harms but does have indeterminates including hypersensitivity to social injustice, overabundance of schools of thought, easy identification of the mediocre, and docility.

It is clear from this graph that craftsmen play an important role in a society. Furthermore, there is cause to believe that in the regulatory environment favored by classical liberalism, mass production is unfairly favored competitively against craftsmanship. It is worth observing here that the regulatory environment is not totally separable from the definitions of concepts in classical economics. Liberalism of markets is both a political and economic stance, and it is synonymous with both the state of regulation that it favors and the economic models that justify it.

An analysis of the effects of the respective approaches reveals that in the case of mass production, classical liberalism gives the results of mass production first to the Capitalist. He is first to recieve adequate shelter, nutrition, education, relaxation time, and even time to properly raise a child. His control of information is best seen in the proliferation of advertising, specifically through the power of corporations to define our very goals in life. The harms of mass production do not affect the Capitalist until the very last. It is the masses that suffer from environmental destruction, anomie, unemployment, and crime.

It is the opposite that is true for the craftsman. As the number of craftsmen in a society increases, few of the benefits accrue directly to the craftsmen. While a certain critical mass of craftsmen may be necessary to build an artisan tradition, this is not generally the case. Certainly, the increases in self-esteem are felt by the craftsman, first and foremost. However, the remainder of the effect that is created is felt by the society as a whole. The fabric of the society itself is woven from the perception by the individuals that the role they are playing is important to the society and therefore allows them a certain degree of control. When the harms associated with traditional craftsmanship are felt, they are felt by the craftsmen themselves, who go out of business when supply is imbalanced, and suffer first for their own lack of documentation.

The interplay between these two is therefore one where a natural subsidy exists for mass production. As each new large-scale business is founded, the entrepreneur never reimburses the remaining craftspeople for the work they have done in producing a stable society that has a docile consumer base of ethical workers, marketable artisan imagery, rich natural resources, low crime, and a healthy community that will attract the necessary skilled foreign workers. As mass production drives the craftspeople out, the social decline is gradual, but very difficult to reverse. Methods and traditions are lost to extinction. It helps least of all that laws and customs that did not evolve with mass production in mind provide security to the capitalist once his act of injustice has come to light.

Any historical example of this process will show how wrong it is to equate the best interest of the individual with that of the society through any simple set of relations. To do so presupposes a set of conditions where interrelations feature symmetric negotiating power. On the contrary, human interrelations are asymmetric, with a symmetry only in the statistical aggregate. The individual who stumbles upon the power to force his costs onto others will on occasion do so, and even if his act is inadvertent, evolutionary effects dictate that eventually such individuals will dominate over others. The only check on this effect, and probably the reason there is justice at all in this world, is that humans have evolved to have an innate sense of fairness. However, our innate ideas are relics of an evolutionary past that predates anything resembling modern industry. It is utter madness to believe that our innate ideas, specifically our concept of fairness, do not have a profound effect on economic markets. We must therefore be weary that new technologies such as mass production do not mislead the heuristic reasoning that creates the average person's concept of justice.

It is also possible that the destruction of traditional methods will almost always precipitate an environmental disaster. In times without modern technology, a community that made such a choice would simply perish with it. Today, we have the power to destroy everything.

So, I guess that is as good an argument as any for a resurgence of crafts movements. I am not advocating the complete abandonment of mass production. Rather, we should recognize that there are positive externalities to be rewarded for crafts, and negative externalities to be taxed with regard to mass production.

Friday, December 5, 2008

CPI / Nominal Gas Prices

Illustration of Logarithmic Correlation between CPI and Nominal Gas Prices


Purple is my rough, non-mathy estimate of the price curve.

This makes sense to me, because gas prices really have outpaced inflation. Furthermore, as prices rise, substitutes become attractive so there is a natural decrease in the slope of the line. Note that current prices are a bit wierd, having bumped way to the left. However, just as there appear to be supply shocks that reduce the gas supply, so also are there temporary gas gluts. I don't anticipate these being reflected in the CPI because the CPI is incredibly smooth (it takes a long time to change your way of life).

To answer a question I was wondering about: Gas prices have clearly outpaced inflation during what could be considered a "bubble" that started in 2000. The cost of gas outpaced other goods by a considerable margin.

Data comes from the US dept. of Labor CPI data and DOE gasoline price data.

Monday, November 24, 2008

Incubating Youth Metamorphosis

The American Prospect recently ran an article about tapping into Obama's Youth Movement. It was a series of 2-3 paragraph snippets by different political type people.

I'd like to share my own response on the issue. Naturally I'm probably going to come across as a bit bitchy because I don't think it is Obama that got me involved in this election. Mostly, it was me that got me involved in the election. So, here's what I have to say:

Liken the present, and all the problems that the present day entails to a grain of sand. Now imagine that grain of sand at the edge of the Ocean. That Ocean is the future. The future cannot be integrated into the present - rather the present is always steadily drifting into the future.

Similarly, it is not the youth movement that needs to be absorbed into the greater sphere of democratic or liberal politics. Rather, it is the connections, the resources, the wisdom, and the experience of older Americans that should be absorbed into the youth movement. Young leadership is the way of the future. Supporting young leaders in positions of creative independence ensures that the convictions they currently hold will develop into a rich and enchanting ideology, capable of guiding us in the future. Current leaders should focus on their legacy. That is - after all - the mark of greatness...

One thing I admired about Obama's campaign were his efforts to make politics fun. Although much of it was transparent marketing - such as the flurry of emails with donate links - some of it was mildly revolutionary. Obama had a feature where people could organize parties to watch debates or speeches he was giving on television. This is a wonderful tool but it need not be limited to television, and it is more than just another way to entice volunteering, voting, and donations. It need not be constrained to a small aspect of the campaign.

Instead of scrounging for donations, the Democrats of the future should boldly offer services for every dollar given. Dollars and volunteering should aggregate together. Memberships should put holders into social groups that are organized by level of involvement, by geographic region, and by interest. Even so, the Democratic party should boldly reach out to those who disagree, and stress the power of reason by disavowing all clannish mentalities. Limited edition and special gifts should be readily available and marketed. Every single event or issue can have its own mascot drawn by local artists and feature local performances, creating a rich and interesting current history. Rather than being dependent on advertising content and the media, Democrats should be hosting advertising, earning referral bonuses, and generating press. A transformation of social mores must begin, where we once again invite strangers into our homes, where we don't judge people by how they vote (excluding elected officials of course), and where each and every member is a free and equal part of the party as a whole.

Democrats should work to get all people of a liberal persuasion networking. There are so many lonely, politically minded, young men and women out there who would willingly dedicate themselves to political causes just for the chance to meet people. Party leaders should create free lectures, roundtable discussions, content-oriented contests, small scholarships and anything else that can bring young people together to make friends. This strategy is a patient one, in line with Obama's managerial philosophy. If implemented, such an approach will build untold party loyalty and create a new generation of sterling political leaders.

Wednesday, November 12, 2008

Housing and Stock value: My analysis

Though it is possible to use very tricky and controversial theories in addressing what has been going on in the US economy for the past year or so, I have yet to see a thorough, straightforward analysis that is based on simple, orthodox thinking in real estate, finance, and economics. The general debate revolves around crackpot theories dealing with big oil, lack of available cash, and points of policy such as tax incentives or various regulatory schemes having been repealed. I'm sensing a trend toward scapegoating: Lenders, Builders, Wall Street Execs, and now Unions. Each of these ideas may have a grain of truth to it, but the proponents of the theories do not seem to have a grasp of the relative magnitude of their pet issue. There is also very little thought being directed toward integrating the pieces into the whole.

It is certainly true that the crisis is not the result of a single cause, but rather several events, trends, and policies appear to be interacting. If only a single thing were to go awry, even a major one, it would be easy to fix. It would also, rather than "dragging everything down with it", tend to be counterbalanced by the vibrancy of other parts of the economy, and immediately reverse from ruin, trending toward a stable level. An orthodox, straightforward, simple analysis should provide some good guidelines for estimating the magnitude of each smaller crisis, and how the total situation can be modeled. With a little luck, the model may even be predictive in the short term, providing a general trend for happenings in the next year or so. This analysis can also serve as a meter to which alternatives can be compared.

I'm going to start with a reference to the great depression. I'll outline what I believe caused it, and then I'll start comparing our situation in the great depression to what we face today.

The great depression began with the stock market crash of 1929. The market dropped, at first precipitously, losing 40% of its value between September and October of 1929, then sinking more slowly before reaching its minimum in 1932, having just over 10% of its 1929 peak value. The cause seems to be two things. First, there was a large downturn in factory production earlier that year. In a well known relationship, this brought down the sale, and building, of new homes. Secondly, the stock market itself was filled with leveraged investments that had the quality of magnifying any upturns or downturns according to what was effectively a geometric series.

It is also worth noting that other elements of the economy were weak during that time. Agriculture was an industry of poverty with mounting ecological problems (such as the dust bowl) and persistent surpluses. Britain chose to return in 1925 to the Gold standard at a level that is generally agreed was too high relative to the value of the dollar. This decision, made by Winston Churchill during his time as Chancellor of the Exchequer, was criticized by Keynes, who - prophetically - foretold that it would cause a world depression. The speculative frenzy of the 1920s was also financed largely by debt, leaving banks vulnerable. New wealth created in the United States during the decades prior to the great depression was concentrated in the pockets of the rich, a condition that some argue causes instability. New technologies, such as automobiles, proliferated. People began to live in cities more and in farms and villages less, bringing new challenges for urban planning. These conditions, together, probably all had some effect on the depression that followed, mostly by undermining whatever self-corrective forces normally exist in the market.

In our modern situation, we have a serious drop in the stock market. From the peak of over 13,800 in December of last year we've reached a low of 7,800 in early October of this year. The "crash" is best described as the period of steep decline from 11000 that started at the beginning of October. The 1 year drop corresponds to a 43% decline; the 1 month drop corresponds to a 29% decline.

Our crisis was also being "led" by a loss of manufacturing jobs in America, beginning in 2000 and continuing to the present day. GDP has not followed that trend, proving unremarkable and unresponsive, with 2.8% growth followed by -0.3% growth in the past two quarters. So, it appears that even though manufacturing jobs are being lost similarly to the lead up to the great depression, the reported level of actual production has not declined. This may be because the reporting is faulty, but part of what is going on is probably that we are more dependent than before on intangibles, services, and high tech products.

The decline in housing in the United States has nicely mirrored the decline in home building prior to the great depression. In our case, we have a general decline in economic prospects. This decline plays out in a magnified, clustered fashion, since local exports are literally the backbone of a local economy. Nation-wide statistics are merely the compilation of discrete events, therefore the continued decline of a national economy will produce an effect located in clusters where the industries affected physically reside. Each cluster will magnify the economic problems for the local region, which not only discourages new building but also undermines property values. This is not, however, the whole story of the housing market. There is certainly something to be said for the use of Option-ARM mortgages and the associated speculative excesses of banks, but these tools are really just a lending scam that wouldn't have had such a detrimental effect on the economy if not for falling housing prices. A mortgage is at much greater risk of default when the property value of the associated property declines. Furthermore, the demographic trend in the US right now is a away from the urban lifestyle in which much of our mortgage debt is locked. Data shows that condominium prices have increased dramatically over the same period and in the same regions where home prices have stagnated or fallen, and survey results show that Gen-Xers and my generation are more inclined to live in the city. Combining our changes in taste with projected increases in fuel prices means that home prices will have to fall dramatically in order to entice us to stay in the suburbs. My own feelings on the matter are that no price will entice me to live in the suburbs. If sufficient numbers of young people share this sentiment, then our economy is going to experience a painful transition through which suburban slums replace inner city ones.

The most immediate aspect of the mortgage crisis is its effect on the flow of money. The difficulty is not in any type of psychological problem. Some have argued that there is a sort of herd mentality situation, or that there is a perception of a crash that is sending people panicking and creating a self-fulfilling prophecy. I must reject these explanations because the work that bankers do is very much tied to the real economy and factors that are not under the sway of herd psychology. The flow of money problem is pretty simple really. Banks must have inflows of money in order to loan money out. Similarly, when loans expire, banks must have new loans or other attractive investments in order to preserve their income flow. Banks also keep stores of money to account for and manage the risks associated with the assets they own. In our current crisis, the banks have an extensive network of inter-institutional borrowing. This is a type of leveraging that allows banks to magnify profits. On the other hand, when a bank starts doing poorly the attitude is not to "ride it out" but to call the loans due, in part because of the concept of priority that determines the order in which debts are settled during court proceedings. This does not magnify problems - it quarantines them. However, many institutions have been revealed to have fewer assets than their balance sheets might have indicated. This is not all due to cooked books - a fair amount of it is tied to problems elsewhere in the economy. The mortgage debt that has more or less been treated as a safe and long term commodity is turning out to be just the opposite, leaving banks reeling.

Leveraging has also reared its ugly head in our current financial straits. We have hedge funds, bundled securities, leveraged buyouts, margins and all of the other instruments that got us into trouble during the 1920s. The banks are leveraged in two directions right now, and both are doing poorly. They are of course tied up in stocks that are in decline. They are also the owners of "bad mortgage debt" which represents houses that are on the market and cannot be sold except at a loss. Portfolios that might have been considered diversified or safe, including 401(k) funds, have been hit very hard because even safe stocks such as GM and safe mortgage debts such as those sold by Fannie Mae and Freddy Mac have declined. This is oddly similar to the great depression, where bank failures similarly ensured that economic losses on wall street hit main street.

The ill-fated setting of $4.86:£1 by Churchill brought inflation in the United States. Similarly, in the past few years, Bush has been ordering his stooges in the Federal Reserve to continue cutting interest rates and bringing the dollar value down on foreign exchanges. Skyrocketing Oil has also impacted Americans and represents a significant inflationary factor. America has been languishing in a state of serious wealth inequality since the 1990s. We are also living in an age of new technology that is driving serious frictional shifts in our economy, mostly due to the development of the internet. These factors, together, are all very similar to what existed in the 1920s for Americans. I expect that in any of these respects, our crisis will be similar to the great depression. Our currency has already increased relative to other currencies, and oil prices have already plummeted since the crash.

In a few respects, our situation is more dire. We are facing agricultural crises, but they are quiet catastrophes that will affect us only when we are on the brink of ruin. We have the death of honeybees in colony collapse disorder that has been attributed to the use of unsafe pesticides (specifically nicotinoids). We have mounting water shortages. We have saltification of the central valley in California. We have the death of marine ecosystems. We are facing natural resource shortages that will necessitate a whole new way of life. What will we do when the world supply of copper is exhausted in 2060, when there is no more natural gas, when the Oil runs out? These are not part of the crisis itself, but then again, it was World War II that so suddenly interrupted our languishing malaise, reminding us that Economics is really nothing more than "What, and for whom?"

"When there's a will, there's a way."

My prediction is that we will see a tiny deflation of the dollar over the next year or two. This is because our balance of trade will decline, and so our currency will increase relative to that of other nations. It also seems to be the case right now that vast amounts of wealth are disappearing from the housing market. As long as that continues to happen, the amount of wealth that the vast majority of Americans have will go down, since most of us are as wealthy as our house is valuable. Naturally, we will ask for and expect less for a while, and that means lower prices. I'm not about to proclaim and end of materialism, but as long as we remain in this jaded state, the effect will be felt on consumption patterns and prices will drop to entice inventory flow. Incidentally, companies have trended toward low inventory levels and rapid restocking over the past few years, and that probably helps. However, it means that consumer prices are a lot more stable and rather than functioning as a buffer against price deflation, businesses simply pass along changes. Prospects of deflation are also going to be affected by Government choices, but at this time I don't see much that would inflate the dollar. Lowering interest rates might actually allow home prices to slip faster, and so we might see some serious problems. A return to a stable, slow inflating dollar should not happen until home prices stabilize. I may be wrong about this, but at least I'm sticking my neck out.

Monday, November 3, 2008

Political Campaign is coming to an end

Well, I've worked hard for the past two months for the Matthews Campaign. Greg is such a great guy. I expect him to win. As my campaign strategist said "He's a great fucking candidate". It is all coming down to the results tomorrow night. I'll be down at the convention center in Portland, watching results roll in.

Of course, the results for Oregon House District 50 are petty compared to the epic clash between Obama and McCain. I'll be holding my breath for that one. Even though all the polls say it is an easy win for Obama at this point, I just can't believe it. I'll have to see him being sworn in before I'll believe that the Bush nightmare is truly in the past.

The challenges that the next generation of leaders face will be dire. I don't have faith that the base for democrats will produce enough of the change that we need if we just leave the forces within it to themselves, to stew. There is a kind of leadership, that I hope will be plentiful during the next four years, where men of vision brush away old ideology. In the space that these leaders would so carefully clear, the new generation grows, bathed in the participatory power it needs. Such intergenerationalism ensures that democracy can flourish. Furthermore, if we are too conformist, if we have too little variety in friends, too few sources of information, we will always be susceptible to corrupt leadership. Greed on the part of our leaders ought never again be tolerated. I will not stand for it. Those among us who are ignorant, wrong, foolish, providential, or petty cannot be allowed to shape our discourse. We must have leaders that stand tall and pure, casting aside conventional wisdom and leaving our ears buzzing with talk of solutions. It will be the most necessary of all tasks.

Friday, October 31, 2008

The misreading of Academic Bullshitting

Economics, which developed contemporaneously with American Democracy, is framed in the same philosophy. The discourse is oriented toward property, labor, and rights. To avoid serious ethical complexities, utilitarianism is used. The objective of argument is to show that liberalism and market non-interference will produce a stable and prosperous society. This same liberal culture became the basis for democracy. Economics, in this sense, is merely an aspect of the argument for democracy. The plenty that the new world offered gave a long delay to the serious testing of the free market thesis. Such a politically motivated origin for the basic ideas of economics ought cast serious doubt on the "truthiness" of the profession.

Thursday, October 23, 2008

The Problem with "Bias"

A naive but well-intentioned lad seeking to root out bias in the media might base his argument, as others have done, on a right/left dichotomy. He may focus on the distribution of positive and negative coverage, or he may look at numbers that show the political self-identification of journalists. He may also take a methodology that assumes there are "two sides" to every story and categorize coverage of specific issues as "one sided" and therefore needing a perspective adjustment. All of these methods fail at the conceptual stage and should not have been employed, because each begins with a tacit and indefensible assumption that bias can be identified merely through comparison to other bias. Unfortunately they are employed, and this makes me sad.

Suppose one were to use this method to evaluate the bias in the statement that 2+2 = 4. One would begin by attributing "2+2 = 4" to a mathematicial perspective and "2+2 = 5" to an alternative perspective. One would then conclude that our discourse surrounding addition is biased toward - or by - mathematicians. This is possible with any statement using any pair of perspectives. The method gives no insight to the truth or veracity of the claims in question.

When applied to a political issue we are left with the same type of conclusion. The problem is that bias is a term that implies two conditions. The first is that a biased perspective is some source of information that conflicts with other information available. The second condition is that a biased perspective is in some way methodologically flawed. Our argument from the previous paragraph, and the arguments encountered in the media tend to just look at the first question. There is no discussion of methodology. Therefore there can be no claim that the "biased perspective" is in fact not the best or most useful information available.

To further illustrate, suppose a detective investigates a murder. There are three suspects. His investigation initially finds evidence against each of the suspects. However, he concludes, from a careful examination of all of the evidence, and through further investigation, that only one of these three suspects is guilty of the crime. It would be misleading in this case to present an untrained opinion that conflicts with that of the detective as "evidence" of bias by the detective. The accusation of bias implies that there was a problem with the methodology used in the investigation, but no evidence of that has been presented.

The buzz of speculation that there is bias in the media is therefore completely without merit. Similar accusations that the academic world is liberal and that scientists are anti-religious fail on the same ground. The debate about policies and world events should focus on the methodologies. Once he has considered these methodologies objectively, it will be clear to the investigator that liberals are mostly right. The truth itself, and the best and most effective policies are not things that can be described as biased. Academic methods, long scorned in public policy, will have to take the fore in the coming years because the situation for humanity will soon be dire.

Monday, October 20, 2008

Welcome to the Jungle Primary

Measure 65 is an odd duck. It is championed by a smattering of left and right organizations. It is opposed by every political party. The measure eliminates the "party only" primary system in Oregon and replaces it with one where everyone can vote for one candidate, regardless of party affiliation, and that the two with the most votes go on to the ballot in the fall. This is not the only option for open primaries, nor is it what is usually called an open primary. That's why I'm calling it a Jungle primary. In truth, it is not appropriate as a stand alone measure, even though that is what it is.

There are actually a long list of better options than this Jungle Primary. It may be a step in the right direction, but it will no doubt give rise to some serious abuses, just as the system that currently exists does. I've read enough about voting systems, which are a mathematical topic in political science, to know that there are a few relevant theorems. I'm going to highlight two of them that I'll be using in my argument.

The first theorem is that there are no voting systems that are completely fair. This means that no matter how the laws are written, no matter what procedures are used, there will always be ways to abuse the system and that it is possible (although it can be unlikely) for a less popular candidate to win while a more popular candidate is excluded or has his vote split. I don't take this as a dogma. There is a proof, and the proof makes use of definitions that can be disputed. The proof also deals only in theoretical situations, so it may very well be that a voting system is practically quite fair because the political climate doesn't present it with any challenges.

The second theorem is that it is possible for each voter to rank the candidates. By evaluating different aspects of what the candidates think, the voters can each come up with a list of candidates in order of support. This is important because voting systems that involve voters submitting such lists are generally seen as more fair. This "theorem" is not really provable because it requires a theory of the mind, which is not a matter of pure logic. Still, I think it makes sense just as much as democracy in general does, since both ask people to make a choice from among a pool of possibilities. In the case of making a list, we could assume it is populated by a repeated process of "pick, then exclude" so that the same "pick the best" process can be used over and over. From a programming standpoint, I don't like that because it is inefficient. Certainly the mind must make some kind of binary comparisons in the first place. If we are to pick someone as the best we are going to put the list of candidates more or less in order in the mental process of determining best. Nevertheless, the ranked list is a great tool for democracy and strikes me as a natural way to vote, just as much as picking one person is.

What goals should a good voting system in Oregon have?

First, we have to acknowledge that the date of our primary, and the existence of a primary, will have to meet the standards used by the national committees for the major parties or we will risk penalties or losing our delegations. That deals with the national races, but because creating more separate voting dates destroys voter turn out, the number of primaries should be limited to one.

Secondly, the system should strive to eliminate the "Nader Effect". By Nader effect I don't mean consumer safety standards. I mean the phenomenon where a third party candidate siphons votes from the candidate that they are closer to politically. I could also call this the "Perot Effect", or the "1860 Election Effect" or some other things because this is probably the single most common failure of our voting system (though there may be larger problems with the political system). The "Nader Effect" is a type of crippling gridlock that has left America spiraling down a slow path of corruption ever since the constitution itself was inked. If you think about it, every time a single party gets an overwhelming majority, that party begins to splinter. Right now there is a huge democratic shift. No doubt within the next 20 years, there will be a serious split election that brings a Republican into power. This Republican will either do well and swing the balance back to where it was, negating the potential for change in the political climate, or fail, paving the way for more serious corruption to manifest within the Democrats.

Third, the system should create a stronger association between candidates and their track record and parties and their history. What I mean by this is that the voting system should not allow voters to focus so much on promises and platforms because these generally do not contain much in the way of concrete policy suggestions. For example, in some parliamentary systems, one coalition is responsible for most of what happens during a given time period. At the voting booth, people select the party they are backing and use the recent track record of the party as their guide. I believe that voting systems can have an effect on the political discourse and that the system in the United States is generally one that promotes a rather lackluster debate.

Fourth, the rankings that voters mentally make should be honored by the results. If 18% of voters like candidate A, 23% like candidate B, 27% like candidate C, and 32% like candidate D, it is presumptive to assume that candidate D is the "choice of the people". The people may be 78% united in the view that candidate D is a douchebag, and that candidate A is awesome, B is bueno, and C is cool. As noted above, there is no easy way to determine how to settle this but one approach is to make a series of pairwise comparisons. In a race of n candidates, there are n! possible orderings. Start with C vs D. If more voters ranked C higher than D, we can say that C is preferred to D; D would be eliminated and now C would be compared to B, then the remaining of those two is compared to A. If the voters have ranked the candidates, it is possible to do this instantly. Ireland has such an Instant Runoff. For me, that system is "good enough".

Also note that the American party system is a bit silly. In effect it creates little, segmented pockets of various viewpoints that a candidate must be filtered through before reaching the general election. These pockets don't allow truly centrist candidates through and they also give a lot of weight and power to special interests which usually become embedded into the party structure. If we view the party as a private organization, we could adopt the attitude that the party is simply a freely formed organization of individuals who want to pick a candidate from amongst themselves. The candidate in turn pledges to represent their interests. There is no obvious reason why such a system should be regulated at all by the public. The problem arises not from this stage of association but from the way the system evolves. As soon as the elections start to happen, those parties begin to consolidate power within their own structures. Incumbents gain huge advantages in our system. Within the parties, structures emerge to filter which candidates reach the top. These structures are entry barriers created with or without government help, to block outsiders and generally people with vision from being able to rise to political office. This allows the parties to get away with promoting candidates that do more for the party and less for the public. Regulating the parties themselves tends to disassociate the parties from the candidates and thus the history of the party and candidate becomes less important, creating an illusion that the candidate is not a party insider. The voters then focus on talking points and platforms rather than results, so regulating parties seems to more or less imply that democracy will be watered down. It is probably better to regulate the election and leave party formation and association a matter of private control.

Instead of a "Jungle" primary or a "Party Only" primary, Oregon could have a system where parties themselves pick their candidates with little government interference. Candidates are on their own to appeal to a party, or start their own. Candidates can't run independently because registration numbers determine who appears on the ballot: something like 0.5% is fair. In the general election, the voters would do a ranking of the candidates for each office, and a trusty fleet of PS3s could do the Instant Runoff tabulation.

After careful reflection, I want to say that what I initially said about Measure 65 may be wrong. We have a culture that vilifies political parties but in my opinion they are essential. Democracy cannot exist without them. The measure takes power away from these parties and that only means that this power is going to be in the hands of incumbent politicians and the now consolidated media.

Measure 65 may also exacerbate the "Nader effect". There could be four or more candidates on a primary ballot that get 10% or more of the vote, creating many more scenarios for eliminating more popular candidates in favor of less popular ones. Just as with the history of Presidential elections, the system created could be crushing to Oregon Democrats precisely because they are more popular. In order to prevent splits, the parties will be required to consolidate their own power. They will need to prevent rivals within the party from ever seeing the light of day, mercilessly squelching dissent.

So, hmm, maybe measure 65 isn't a good idea. It certainly isn't a meaningful election reform.

Saturday, October 11, 2008

Oregon Ballot Measure Hoedown

Not all that glitters is gold. Sometimes, what glitters is merely glitter.

OBM 54 / HJR 4 - YEA

  • Fixes some discrepancies in School Board voting eligibility, bringing the age requirement from 21 to 18. Trivial.

OBM 55 / HJR 31 - YEA

  • Makes various small changes to how redistricting works. Trivial and filled with random junk.
OBM 56 / HJR 15 - YEA

  • Removes a requirement that was put in place in 1996 by ballot measure 47. The requirement was a mandate that if less than 51% voted (for or against) a measure, and that measure increased property taxes, it was automatically struck down. This is clearly warranted because there's nothing special about tax increases relative to any other ballot measure change. It follows that a uniform procedure be used.
OBM 57 / SB 1087 - YEA

  • Creates minimum sentences for certain drug and property crimes. This is unwarranted. Drug use and property crime can't be effectively addressed in this way. Virtually all methodologically sound scholarly work suggests the ineffectiveness of minimum sentencing. Judges also lose discretion to reduce sentences for mitigating circumstances. On the other hand, the prison industry will be booming. I talked to some coworkers about this one and I guess both it and 61 are slated to pass this year. The one with the most votes will become law. I'm left with the grim task of saying "vote for this" just so that 61 doesn't go into effect.
  • Increases funding for drug treatment programs. Despite the gloriousness that is drug treatment programs, such glitter isn't enough to make the measure worth voting for as a whole. Darn, if we only had line-item balloting.
OBM 58 / IRR 19 - YEA

  • Establishes limitations to ESL instruction for kids who do not speak english. This is a complex matter. Much research suggests that kids will learn more quickly in an immersion environment. The problem is that while they learn English, they don't learn the subject matters that are taught to them in English. This measure would also bring Oregon out of Federal Standards, costing the state some federal education funding. I'm personally inclined to support the measure because I actually believe that ESL is more or less a failure and a bloated waste. The groups that oppose the measure are connected to the teacher unions and motivated to protect a few ESL teachers that would lose their jobs or programs. I have a hard time believing that the problems that immigrants face in coming to America, and in rasing children in a foreign culture like ours, can be addressed by educational methods. It is also probably true that underperformance by these kids shouldn't be viewed as alarming or something that needs to be fixed considering their background and lack of guidance or support.
OBM 59 - NAY

  • Removes federal deduction cap from state income tax liability. Currently, federal tax liability is subtracted from income for state tax assessment purposes, but the cap is $5,500. Therefore this measure allows "complete" deduction of federal tax paid. My opposition to this measure is mostly because I believe in balanced budgets and this would drive the budget further out of balance. To be honest, there is no philosophic reason why there should be any deduction at all. I'd rather there wasn't. Removing the cap would only benefit people who make more than $89,000 a year, and that means shifting the tax burden to the poor. That's antithetical to the way I play.
OBM 60 - NAY

  • Makes teacher pay based on "classroom performance", not seniority. Classroom performance is going to mean giving kids with angry parents that A+ that they obviously deserved. Naturally since it is possible for all teachers to do badly, no raises would be given. Seniority isn't as bad as people think, and at least it mandates certain levels of pay.
  • Least qualified teachers will be laid off first. This will mandate excessive, irrelevant education.
  • Shall be known as the Kids First Act. Hurray!
  • Limits future contracts (teacher hires) but preserves existing ones. Essentially this means that any benefits of this will be long delayed.
OBM 61 - NAY

  • Mandates minimum sentences for a long list of nonviolent crimes. This is just a much worse version of 57. The problem is that there are limited prison beds. All that is going to happen is musical chairs. I'd rather slap nonviolent criminals on the wrist and throw the book at the violent ones to ensure that we have and keep a safe society.
OBM 62 - NAY

  • Sends 15% of lottery profits to a public safety fund. This is a redirection of funds from other uses, such as education. It isn't a good fix for public safety because none of the money goes to hiring more judges and increasing court services, which are the bottleneck in the whole system currently.
OBM 63 - YEA

  • Allows limited improvements to existing structures without a building permit. The truth here is in the small print. Since this will cost the government revenue, it means that building permits are being used as a source of revenue. That's crazy and unfair. Allowing limited improvements without a permit is just one step toward making a betting housing policy in the USA.
OBM 64 / IRR 25 - NAY

  • Stops unions and other "public" organizations from participating in politics. This is just an orwellian screw-job. Unions are inherently political organizations and they exist because businesses tend to screw their workers over. We can better all workers by supporting unions and working toward workers' rights, or we can worsen ourselves and all workers through jealous bickering over the scraps of justice others have earned.
OBM 65 - Nay

  • Creates an open, "jungle" primary where the top two candidates advance. Please see the next post, it deals specifically with this issue. I've actually changed my mind on this one.

There you have it: my feelings. Enjoy.

Friday, October 3, 2008

A Veep debate full of Dumbth

The veep debate was an epic fail for both candidates.

To be fair, Palin actually exceeded people's expectations of her. However, that can be chalked up to two factors. First, that the bar was set so low for her that all she needed to do was show up sober, which she apparently did. Second, the format wasn't extended long enough on any single issue for her lack of wisdom to become clear.

Biden didn't orate like I thought he would. I had heard various excerpts of him speaking before but he didn't live up to the fiery energy that I anticipated from him. He held his composure together, and was certainly less of a blatant liar than Palin. Still, the result was less clear than I had hoped beforehand.

That's all the overview I'm going to give. Now I'm going to move on a sort of play-by-play featuring some key statements that show the dumb. I'll pair them with my own take on the issue.

The first question is about the economy. Biden answers first.

If you need any more proof positive of how bad the economic theories have been, this excessive deregulation, the failure to oversee what was going on, letting Wall Street run wild, I don't think you needed any more evidence than what you see now.

"You want more proof? Too bad, you got all the proof you need."

I see this as a classic "oh shit" moment where Biden obviously couldn't think up anything to say to drive his point home. This is sad because he could have said any number of things like:

  • "If tax cuts were all it took to save the economy, we wouldn't be having any economic problems right now."
  • "The problem is that both McCain and Bush have surrounded themselves with economists that specialize in selling bad policies as if they were good. We've had banking crises in the past: The S&L crisis of the '80s, the Tech bubble of 2000 and 2001, and now the housing crisis which has been steadily getting worse for years now. In each case, it has been the same dishonest theories that have been used to sell policies that get a few people rich at the expense of everybody else."
  • "If you look at the average American's budget, you'll see that the biggest chunk is going to be fixed payments. These are payments on loans, credit cards, medical bills, rent. Bush and McCain are trying to distract you, saying they'll cut taxes, but at the same time they're going to raise the price you pay for everything else. How many people would go bankrupt if the interest rate on their loan went up 1%? If they have surgery and get stuck with a $10,000 bill? If rental prices went up by $100 a month, how many more people would be out on the street?"

Palin's initial response to the economy question was pretty damn good. It featured masterful imagery. Pretty much the only people that wouldn't like it are people who have already made their mind up for Obama.

Then she says this:

John McCain, in referring to the fundamental of our economy being strong, he was talking to and he was talking about the American workforce. And the American workforce is the greatest in this world, with the ingenuity and the work ethic that is just entrenched in our workforce. That's a positive. That's encouragement. And that's what John McCain meant.

So, McCain spewed a bunch of weak B.S. in his debate against Obama about the American Workforce being strong. Palin saw fit to repeat it in patriotic fashion. If I was her, I would have probably wanted to spin this a bit differently. Her word choice, at least, could probably be better. For me, the phrase just entrenched conjures up that lazy guy who always argues during meetings. She finishes by saying, essentially, that McCain's economic strategy hinges on positive thinking.

Next we have that wonderful straight talk express dodging the deregulation question with Orwellian doublespeak:

I may not answer the questions that either the moderator or you want to hear, but I'm going to talk straight to the American people and let them know my track record also.
Palin then transforms the deregulation question into a brag about her tax cutting record as mayor of a tiny-ass town in Alaska. Very impressive. She ends by saying "Look at campaign finance reform", which not only has nothing to do with the question OR what she had been talking about but was also pretty much itself an abject failure.

The debate moves on to talk about McCain's sneaky proposal to tax employer healthcare plans, which would most certainly take away much of the incentive for employers to have healthcare plans. Palin is asked to defend this policy and she tells a lie about the $5000 tax credit for healthcare being budget neutral. She makes some wierd statement about going across state lines. She doesn't really answer the question.

Biden's response is rather degenerate:

Gwen, I don't know where to start. We don't call a redistribution in my neighborhood Scranton, Claymont, Wilmington, the places I grew up, to give the fair to say that not giving Exxon Mobil another $4 billion tax cut this year as John calls for and giving it to middle class people to be able to pay to get their kids to college, we don't call that redistribution. We call that fairness number one.
I realized after reading the above statement that he was referring to Palin's comments on Barack pursuing a "backwards way to grow the economy". Somehow, in the brain o' Biden, this became "redistribution". In reality, Government does redistribute wealth, but so does the free market. Neither is inherently more fair, since at the theoretical level a Democratic government is just as beautiful and elegant as an unfettered market. This point, being too subtle for the audience, was transformed into an unintelligible string of buzzwords.

Now the debate (OH MY GOD ITS SO LONG) goes through bankruptcy laws, climate change, carbon caps / clean coal (why does Palin seem to get easier questions?), and Gay Rights. Ifill says that the two candidates agree on Gay Rights, but of course they don't because Palin would not do anything to address the lack of rights for gays in the status quo, while Biden would pursue everything short of redefining marriage.

This brings us to the wonderful Iraq debate. There's talk about how great the surge has worked. Here we have Biden in a tight spot because he doesn't want to sound like he's disagreeing with Petraeus. Chances are that Petraeus is mouthpiecing and puppeting for Bush but that's not the kind of thing Biden can come out and say.

Biden comes back strong by painting the scene as one where Bush has acquiesced to the very timetable that he nominally opposed. McCain becomes the odd one out. I'm impressed by the sophistication and skill of the argument. Naturally it is disheartening when he later comments that:

...If an attack comes in the homeland, it's going to come as our security services have said, it is going to come from al Qaeda planning in the hills of Afghanistan and Pakistan. That's where they live. That's where they are. That's where it will come from. And right now that resides in Pakistan, a stable government needs to be established.
The mixture of highbrow and lowbrow appeals is rather dissonant.

Palin responds well by using the convenient statements of Petraeus and makes a good point about Nuclear Iran. Once again, she just can't seem to stop herself and continues on to the "meeting with foreign leaders" debate. This debate is, to me, a really dumb one. It deserves its own place in infamy because the candidates just can't seem to understand what the other is saying. Even though this is probably a side effect of the decisions that were made by campaign staff on how to spin the issue, it often takes conscious effort to recall the actual point of contention. Biden pounces on the issue because there really are a fair number of people (me included) who fear that McCain will start World War III and failed diplomacy fits into the equation nicely. Palin wants to make Barack look weak or suggest that he will make concessions that might allow rogue states to become greater threats. They are living in different worlds.

The discussion moves on to Darfur. I'm not really very happy with either side's response. This was really a chance to talk a bit and use time to sound like an expert since the topic is a bit less well known than Iraq. Biden may have assumed that we know more than we actually do.

The next question is about how the VP would differ from the Pres if the Pres died. I heard excellent responses from both candidates. Biden steps up to paint McCain as a third Bush term and Palin responds in a unique way:

Say it ain't so, Joe, there you go again pointing backwards again. You preferenced your whole comment with the Bush administration. Now doggone it, let's look ahead and tell Americans what we have to plan to do for them in the future.
This is a great example of how to lose a debate. She even goes on to tout No Child Left Behind, which is a high profile and problematic Bush policy. This is not the way to appeal to independents, and I suspect that it may alienate the base as well. Palin also makes a comment about Biden's wife getting her reward in heaven, but I think she was referring to his living wife and not his dead one.

The next point is about the powers of the Vice President. Palin once again raises some eyebrows when she claims she would be "independent". She even cites a precedent set by Cheney, which is sort of silly since Cheney isn't a judge or a court case. So, here we go, Biden smacks her down with a good rebuttal and clear description of what the constitution says. Personally I think he should have driven home some impacts about abuse of power, loss of civil liberties, culture of corruption, etc.

Palin goes on to describe how hard it is raising a family and being a woman. She says that she has been without healthcare. Somebody should fact-check that. Biden comes through on this point as well, demonstrating that he has suffered much harder times than her. His theme of "more of the same" really starts to hit home at this point.

The last question is a tricky one. It asks the candidates to say something that they have changed their mind on. For some reason, this fails to be a powerful rhetorical point, like it should be. The candidates both think up some rather small issue. The strategy in Biden's case seems to be to mention the supreme court because many people are anxious about McCain's judicial nominees. I'm scared to death about the future of the supreme court, since most environmental protections are held in place by shoestrings. Palin mentions wanting to cut taxes and spending even more. She definitely comes across as an extremist and to me it looks like she would collapse the government itself if she were President, but I suppose there are still a lot of people out there who just don't know what's going on. Here we had the chance for a truly heartfelt story that shows the growth and development of experience and judgement, a chance for the audience to grow closer to the candidates and in my view both blew it.

The closing statements are not noteworthy.

Thursday, September 25, 2008

Bailout? More like pillage...

Source: NYT



Section 1. Short Title.

This Act may be cited as ____________________.

Sec. 2. Purchases of Mortgage-Related Assets.

(a) Authority to Purchase.--The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.

(b) Necessary Actions.--The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:

(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;

(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;

(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;

(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and

(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.

Sec. 3. Considerations.

In exercising the authorities granted in this Act, the Secretary shall take into consideration means for--

(1) providing stability or preventing disruption to the financial markets or banking system; and

(2) protecting the taxpayer.

Sec. 4. Reports to Congress.

Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.

Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.

(a) Exercise of Rights.--The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.

(b) Management of Mortgage-Related Assets.--The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.

(c) Sale of Mortgage-Related Assets.--The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.

(d) Application of Sunset to Mortgage-Related Assets.--The authority of the Secretary to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.

Sec. 6. Maximum Amount of Authorized Purchases.

The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time

Sec. 7. Funding.

For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Sec. 9. Termination of Authority.

The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.

Sec. 10. Increase in Statutory Limit on the Public Debt.

Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.

Sec. 11. Credit Reform.

The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.


The total effect of this bailout will be to issue treasury bonds from the public sector, in order to pay $700 billion to companies hand picked by Treasury Secretary Paulson. My concerns about this are dire. Congress has chosen not to act immediately, and is instead reviewing this proposal. There is probably good reason for that, but I'd just as well they rejected it outright.

First, we have the issue of the maximum positive effect that this bailout could provide. At the moment, mortgage companies are failing. Under this scenario, the ability to draw extra money out of the banking system diminishes. The companies are unable to take part in lending so long as they cannot convince their financiers that the loans will be paid back. Injecting tax dollars directly into this system will allow the mortgage companies to make loans for a while, without having to court private companies for equity. However, if the economy is doing poorly enough, the $700 billion will not be paid back.

And the economy is doing poorly. The financing of this bill, in particular, is coming from treasury bond issue, and the money this bill provides doesn't constitute an economic stimulus. The economic consequences are broad and will be negative in both the short and long term.

Every dollar of treasury bond issue is a dollar that an investor takes out of equity in some private fund and gives to the government. Therefore, in the short term, we would replace private sector funds that would be used for general speculation with government money that would be paid directly to banks. This will have a net negative effect on the economy because a greater portion of private general equity goes toward capital development. Instead, the dollars go to pay of mortgage debts. However, mortgage companies don't have any strings attached in this proposal, so they have no disincentive to forclose on houses. Furthermore, companies that are building new housing developments even as existing homes flood the market will get a secondary boost and we will see this type of development continue even though it is nothing but an exacerbation of the housing crisis.

Every dollar of national debt generates interest payments for the private sector, which come out of public sector spending. In the long term we ensure a lower level of government services relative to the rate of taxation. Since government employs more individuals per dollar than the private sector, this becomes a reduction to the demand for labor.

I have an alternative proposal for how to fix the markets and curtail the housing decline. The government should broker a deal where non-new homes for sale are marked down about 30%. By non-new I mean homes that are 3+ years old. Then, with government backing, individuals with outstanding mortgage debt who sell their houses at this markdown will have a portion of their debt dismissed.

Some might object that my plan would not be appealing enough to banks and that they would need to be forced into it, would go bankrupt, etc. However, what I see this as is a failure of the free market. The free market failed to provide a mechanism whereby people could sell their houses for less, precisely because it would leave them with untenable leftover mortgage debt. The free market (and, yes, many politicians too) sold a lie about the need to own or buy a home. Seen any of the posters that say "You should become a homeowner!"? The banks, which have already failed, shouldn't be able to count on getting this money back from people. If the government plays the cards in the right order (something that the Bush Administration is unfortunately guaranteed not to do), it can keep banks from folding. A plan to dismiss a portion of mortgage debt wouldn't give banks any chance to profit from the drama. If it is followed by or tied to a requirement to sell your home for less, banks might actually welcome the increase in money flow.

The systemic problems underlying the current economic problems are not orginating with the mortgage industry. The real causes of the crisis are the high level of national debt, the terrible and poorly negotiated balance of trade, petroleum dependent urban sprawl, as expensive rental housing market, a labor system that provides little to the workers on the bottom, and the emerging consequences of unsustainable practices resource management. These things are going to get worse. My only hope is that Barack Obama wins the presidency and actually has the vision to implement sensible reforms to our ailing system.

Sunday, September 21, 2008

Economic Decision Making

I'm not satisfied with the set of economic assumptions that make people into rational actors. I'm also not satisfied with the set of assumptions that take the principal role of information gathering out of economic behavior. I define any economic model that makes both of these assumptions as an orthodox one. The evidence against orthodox economics is damning and broad. For one thing, you just can't explain certain parts of our economy in an orthodox model. Advertising is the source of nearly all media funding in the United States, and advertising itself is not easy to explain, let alone the nature or purpose of media. Furthermore, individual preferences seem to empirically fail the tests that allow them to be seen as legitimate goals of rational behavior. Even if the assumption of rationality is made, real-world information does not generally adopt a statistically "nice" character, obscuring available choices and degrading the information that would be used in optimization. There is also the converse problem of engineering, where even in a situation of complete information, the means of making a rational decision is nontrivial. If not for these concerns, few economists would find employment.

I favor modeling the economy as a time dependent, multidimensional, dynamical system.
Here's a diagram:

The central box, The Economy is everything that actually happens. The colored boxes are schools of thought used by individuals in decision making. The boxes in dark gray are the orthodox boxes, the material elements of the economy. Note that the human behavior box is orthodox but that the internal psychology box is light grey. This reflects the tradition of using a simple, behaviorist model of "utility" to model preferences. I reject that tradition and so group human activities into quantifiable behaviors as well as cultures and thought patterns which might be evaluated at a qualitative level.

This chart can further be taxonomically divided by cycle type.

There is only one two cycle, which is between The Economy and Resource Availability. This reflects the hard fact that our economy is directly constrained by resources.

There are several three and four cycles. These reflect the passing of information from one field to the next. Groups that recieve the data are dependent on the analysis made by the group that passed the information to them. For instance, econometric data is gathered from the economy itself and then analyzed before being passed on to the businesspeople. People educated in business do not specialize in economic trends but instead depend on economic and statistical assessments made by people who can do econometrics. Therefore, our economy is not at all self contained but is significantly influenced by a very broad set of factors and schools of thought.

For better or for worse, I have grouped some things in. Government regulations should fit into their appropriate sphere. For instance, funding for environmental research would fall under Ecology and Geology. Minimum wage laws would fall under Business Science and Provisioning.

In order to develop this model further I will need to move on to conceptualizing the actual functions involved. Of greatest interest to me at this time is the possibility of using a leontief type input output model to feed data from The Economy to the other squares, which would then modify the data according to policies and practices used in each field. The series would convert data back to the apropriate input type for the leontief model as cycles returned to the central square.