Why The United States' Much Ballyhooed Military Will Not Be Able to Defeat ISIS With or Without "Boots on the Ground"

"One small attack on an oil pipeline in southeast Iraq, conducted for an estimated $2,000 dollars, cost the Iraqi government more than $500 million in lost oil revenues. That is a return on investment of 25 million percent."

-John Robb: "Brave New War: The Next Stage of Terrorism and the End of Globalization"

In the popular discourse surrounding American military interventions little effort is spent on educating the public about who the enemies are or what their history, goals, strategy, and tactics are. We see this with the media punditry surrounding ISIS today. There is all this talk about whether or not boots on the ground will be necessary, whether this is or is not a war (as supposed to what?), et cetera. What I saw painfully little of in the media coverage, was discussion of how ISIS formed, its history up to that point, or how it was likely to react to the different strategies that its enemies are contemplating deploying against it.

I suppose some of this could be the result of simple racism: "motivation?!, history?!, tactics?! These are just terrorists who hate us for our freedom what difference does it make what they are hoping to achieve or how? Plus they are, you know, brown and they pray kind of funny. Just let our obviously superior war machine crush them and be done with it." However, at least in this case, I think this discussion is held back more by the frightening implications it would have.

Indeed, looking at ISIS's history and motivations reveals that they have little to fear from the American military, boots on the ground or no. ISIS emerged as an offshoot of Al-Quadea in Iraq and cut its teeth fighting against the US Occupation. Much like the other Iraqi insurgent groups, it was able to employ anonymity, systems disruption, and asymetric warfare tactics to prevent US military operations (not matter how successful in isolation) from meaningfully advancing the US and Iraqi governments long term political goals, which is the ultimate criteria by which the success or failure of a military strategy must be judged.

America is often said to have the most capable military in the world. This is definitely true in the narrow sense of operational capability; no group can match the US Military where the bullets are actually flying. The words 'tactics' and 'strategy' are often used interchangeably, but they actually have importantly distinct meanings. Strategy refers to overarching goals and long run plans to achieve them; tactics refers to the immediate small scale objectives and operations that (hopefully) move one closer to achieving strategic goals. I would suggest that the US military is unmatched tactically, but ISIS's strategy will make mincemeat of it, nonetheless.

The US military's role (and that of any modern military) is to take and hold territory, it does this with unsurpassed efficacy. However, the taking and holding of territory, a tactic, is only really useful as part of a greater strategy of making that territory passive and economically productive. However, in the context a modern post industrial economy doing this requires massive supply chains, physical and administrative infrastructure, and logistical networks. These can stretch literally around the globe and certainly stretch far beyond what even the US military is capable of defending.

These form the soft underbelly of the US military industrial complex. During the US Occupation, no matter how effectively the US military defended the territory it was charged with defending, the insurgency could easily attack targets outside of this territory, sabotaging or destroying infrastructure, undermining these logistical networks, and creating a climate of chaos that prevented the development of US military occupied territory into anything peaceful or economically productive. It took nearly a decade for Iraqi oil production to be restored to pre-invasion levels let alone to increase, and that was in a climate of increasing global oil prices that cannot be counted on this time around. If ISIS and other groups like it did this to the US military once, they can do it again. Of course, the presentation of such bleak prospects to the American public would not do much to sure up public support for intervention, which I am inclined to think is not as strong as the polls are indicating.

Right now, public sentiment is reeling from seeing two videos of ISIS beheading American citizens. That something must be done is the immediate and impulsive reaction. However, the long run fundamentals of American public sentiment are that the United States is neither responsible for or capable of making the entire a world a safe place, that the government's justifications for military action cannot be trusted, and that foreign warfare costs much more in blood and treasure than it achieves in improved security. Even if the US military were capable of defeating ISIS (which it is not), it would take longer to defeat ISIS than it will for the public sentiments fundamentals to reassert themselves.

Links October 9 2014

From eco-restore.net: some thoughts on how to measure biodiversity restoration

From the New Yorker: An interesting article on the role of immigrant networks in the American Chinese restaurant industry (thanks to Marginal Revolution for posting this)

From Bloomberg View: Asking whether or not the previous five years of pretty consistent stock market gains are drawing to a close, includes some good lines on whether this is a slowdown or just a return of higher volatility

A Good Marginal Revolution Post on Non-Compete Agreements and Prisoner's Dillema

Here

In California, however, the courts have consistently refused to enforce non-compete agreements. An employee who leaves one company can join a new company and start work the next day and they can do so regardless of any agreement.
Silicon Valley could not operate if non-compete agreements were enforced. Silicon Valley is a hyper-mobile workforce. Moreover, it’s precisely in the circulation of workers that Silicon Valley has one of its advantages the diffusion of new ideas. The key to Silicon Valley and much innovation today is the diffusion, the combination, the integration of different sorts of knowledge and worker mobility has been a big part of this. Not just worker mobility between firms in Silicon Valley but also immigrants, circulation between different countries, university-firm partnerships and so forth.
- See more at: http://marginalrevolution.com/marginalrevolution/2014/06/non-compete-clauses.html#sthash.YSh2DpSU.dpuf

In California, however, the courts have consistently refused to enforce non-compete agreements. An employee who leaves one company can join a new company and start work the next day and they can do so regardless of any agreement.
Silicon Valley could not operate if non-compete agreements were enforced. Silicon Valley is a hyper-mobile workforce. Moreover, it’s precisely in the circulation of workers that Silicon Valley has one of its advantages the diffusion of new ideas. The key to Silicon Valley and much innovation today is the diffusion, the combination, the integration of different sorts of knowledge and worker mobility has been a big part of this. Not just worker mobility between firms in Silicon Valley but also immigrants, circulation between different countries, university-firm partnerships and so forth.
- See more at: http://marginalrevolution.com/marginalrevolution/2014/06/non-compete-clauses.html#sthash.YSh2DpSU.dpuf

In California, however, the courts have consistently refused to enforce non-compete agreements. An employee who leaves one company can join a new company and start work the next day and they can do so regardless of any agreement.

Silicon Valley could not operate if non-compete agreements were enforced. Silicon Valley is a hyper-mobile workforce. Moreover, it’s precisely in the circulation of workers that Silicon Valley has one of its advantages the diffusion of new ideas. The key to Silicon Valley and much innovation today is the diffusion, the combination, the integration of different sorts of knowledge and worker mobility has been a big part of this. Not just worker mobility between firms in Silicon Valley but also immigrants, circulation between different countries, university-firm partnerships and so forth.

An excellent post. I would add, that I think it is important to understand the proliferation of non-compete agreements as part of a larger move by corporations to tighten control of "intellectual property" and restrict the flow of ideas and media to regulated channels. While this does have frightening implications for the social process of innovation, it also represent a potentially rather rewarding opportunity for those who can find ways around the tightening controls.

In California, however, the courts have consistently refused to enforce non-compete agreements. An employee who leaves one company can join a new company and start work the next day and they can do so regardless of any agreement.
Silicon Valley could not operate if non-compete agreements were enforced. Silicon Valley is a hyper-mobile workforce. Moreover, it’s precisely in the circulation of workers that Silicon Valley has one of its advantages the diffusion of new ideas. The key to Silicon Valley and much innovation today is the diffusion, the combination, the integration of different sorts of knowledge and worker mobility has been a big part of this. Not just worker mobility between firms in Silicon Valley but also immigrants, circulation between different countries, university-firm partnerships and so forth.
- See more at: http://marginalrevolution.com/marginalrevolution/2014/06/non-compete-clauses.html#sthash.YSh2DpSU.dpuf

In California, however, the courts have consistently refused to enforce non-compete agreements. An employee who leaves one company can join a new company and start work the next day and they can do so regardless of any agreement. - See more at: http://marginalrevolution.com/marginalrevolution/2014/06/non-compete-clauses.html#sthash.YSh2DpSU.dpuf

In California, however, the courts have consistently refused to enforce non-compete agreements. An employee who leaves one company can join a new company and start work the next day and they can do so regardless of any agreement.
Silicon Valley could not operate if non-compete agreements were enforced. Silicon Valley is a hyper-mobile workforce. Moreover, it’s precisely in the circulation of workers that Silicon Valley has one of its advantages the diffusion of new ideas. The key to Silicon Valley and much innovation today is the diffusion, the combination, the integration of different sorts of knowledge and worker mobility has been a big part of this. Not just worker mobility between firms in Silicon Valley but also immigrants, circulation between different countries, university-firm partnerships and so forth.
- See more at: http://marginalrevolution.com/marginalrevolution/2014/06/non-compete-clauses.html#sthash.YSh2DpSU.dpuf

In California, however, the courts have consistently refused to enforce non-compete agreements. An employee who leaves one company can join a new company and start work the next day and they can do so regardless of any agreement.
Silicon Valley could not operate if non-compete agreements were enforced. Silicon Valley is a hyper-mobile workforce. Moreover, it’s precisely in the circulation of workers that Silicon Valley has one of its advantages the diffusion of new ideas. The key to Silicon Valley and much innovation today is the diffusion, the combination, the integration of different sorts of knowledge and worker mobility has been a big part of this. Not just worker mobility between firms in Silicon Valley but also immigrants, circulation between different countries, university-firm partnerships and so forth.
- See more at: http://marginalrevolution.com/marginalrevolution/2014/06/non-compete-clauses.html#sthash.YSh2DpSU.dpuf

In California, however, the courts have consistently refused to enforce non-compete agreements. An employee who leaves one company can join a new company and start work the next day and they can do so regardless of any agreement.
Silicon Valley could not operate if non-compete agreements were enforced. Silicon Valley is a hyper-mobile workforce. Moreover, it’s precisely in the circulation of workers that Silicon Valley has one of its advantages the diffusion of new ideas. The key to Silicon Valley and much innovation today is the diffusion, the combination, the integration of different sorts of knowledge and worker mobility has been a big part of this. Not just worker mobility between firms in Silicon Valley but also immigrants, circulation between different countries, university-firm partnerships and so forth.
- See more at: http://marginalrevolution.com/marginalrevolution/2014/06/non-compete-clauses.html#sthash.YSh2DpSU.dpuf

In California, however, the courts have consistently refused to enforce non-compete agreements. An employee who leaves one company can join a new company and start work the next day and they can do so regardless of any agreement.
Silicon Valley could not operate if non-compete agreements were enforced. Silicon Valley is a hyper-mobile workforce. Moreover, it’s precisely in the circulation of workers that Silicon Valley has one of its advantages the diffusion of new ideas. The key to Silicon Valley and much innovation today is the diffusion, the combination, the integration of different sorts of knowledge and worker mobility has been a big part of this. Not just worker mobility between firms in Silicon Valley but also immigrants, circulation between different countries, university-firm partnerships and so forth.
- See more at: http://marginalrevolution.com/marginalrevolution/2014/06/non-compete-clauses.html#sthash.YSh2DpSU.dpuf

In California, however, the courts have consistently refused to enforce non-compete agreements. An employee who leaves one company can join a new company and start work the next day and they can do so regardless of any agreement.
Silicon Valley could not operate if non-compete agreements were enforced. Silicon Valley is a hyper-mobile workforce. Moreover, it’s precisely in the circulation of workers that Silicon Valley has one of its advantages the diffusion of new ideas. The key to Silicon Valley and much innovation today is the diffusion, the combination, the integration of different sorts of knowledge and worker mobility has been a big part of this. Not just worker mobility between firms in Silicon Valley but also immigrants, circulation between different countries, university-firm partnerships and so forth.
- See more at: http://marginalrevolution.com/marginalrevolution/2014/06/non-compete-clauses.html#sthash.YSh2DpSU.dpuf

In California, however, the courts have consistently refused to enforce non-compete agreements. An employee who leaves one company can join a new company and start work the next day and they can do so regardless of any agreement.
Silicon Valley could not operate if non-compete agreements were enforced. Silicon Valley is a hyper-mobile workforce. Moreover, it’s precisely in the circulation of workers that Silicon Valley has one of its advantages the diffusion of new ideas. The key to Silicon Valley and much innovation today is the diffusion, the combination, the integration of different sorts of knowledge and worker mobility has been a big part of this. Not just worker mobility between firms in Silicon Valley but also immigrants, circulation between different countries, university-firm partnerships and so forth.
- See more at: http://marginalrevolution.com/marginalrevolution/2014/06/non-compete-clauses.html#sthash.YSh2DpSU.dpuf

In California, however, the courts have consistently refused to enforce non-compete agreements. An employee who leaves one company can join a new company and start work the next day and they can do so regardless of any agreement.
Silicon Valley could not operate if non-compete agreements were enforced. Silicon Valley is a hyper-mobile workforce. Moreover, it’s precisely in the circulation of workers that Silicon Valley has one of its advantages the diffusion of new ideas. The key to Silicon Valley and much innovation today is the diffusion, the combination, the integration of different sorts of knowledge and worker mobility has been a big part of this. Not just worker mobility between firms in Silicon Valley but also immigrants, circulation between different countries, university-firm partnerships and so forth.
- See more at: http://marginalrevolution.com/marginalrevolution/2014/06/non-compete-clauses.html#sthash.YSh2DpSU.dpuf

In California, however, the courts have consistently refused to enforce non-compete agreements. An employee who leaves one company can join a new company and start work the next day and they can do so regardless of any agreement.
Silicon Valley could not operate if non-compete agreements were enforced. Silicon Valley is a hyper-mobile workforce. Moreover, it’s precisely in the circulation of workers that Silicon Valley has one of its advantages the diffusion of new ideas. The key to Silicon Valley and much innovation today is the diffusion, the combination, the integration of different sorts of knowledge and worker mobility has been a big part of this. Not just worker mobility between firms in Silicon Valley but also immigrants, circulation between different countries, university-firm partnerships and so forth.
- See more at: http://marginalrevolution.com/marginalrevolution/2014/06/non-compete-clauses.html#sthash.YSh2DpSU.dpuf

In California, however, the courts have consistently refused to enforce non-compete agreements. An employee who leaves one company can join a new company and start work the next day and they can do so regardless of any agreement.
Silicon Valley could not operate if non-compete agreements were enforced. Silicon Valley is a hyper-mobile workforce. Moreover, it’s precisely in the circulation of workers that Silicon Valley has one of its advantages the diffusion of new ideas. The key to Silicon Valley and much innovation today is the diffusion, the combination, the integration of different sorts of knowledge and worker mobility has been a big part of this. Not just worker mobility between firms in Silicon Valley but also immigrants, circulation between different countries, university-firm partnerships and so forth.
- See more at: http://marginalrevolution.com/marginalrevolution/2014/06/non-compete-clauses.html#sthash.YSh2DpSU.dpuf

In California, however, the courts have consistently refused to enforce non-compete agreements. An employee who leaves one company can join a new company and start work the next day and they can do so regardless of any agreement.
Silicon Valley could not operate if non-compete agreements were enforced. Silicon Valley is a hyper-mobile workforce. Moreover, it’s precisely in the circulation of workers that Silicon Valley has one of its advantages the diffusion of new ideas. The key to Silicon Valley and much innovation today is the diffusion, the combination, the integration of different sorts of knowledge and worker mobility has been a big part of this. Not just worker mobility between firms in Silicon Valley but also immigrants, circulation between different countries, university-firm partnerships and so forth.
- See more at: http://marginalrevolution.com/marginalrevolution/2014/06/non-compete-clauses.html#sthash.YSh2DpSU.dpuf

A Good Salon Article on College Tuition In America

Here

You should read the whole article, but here are some of the best bits

Over the three decades of the tuition spiral, by far the most forthright antagonist of the inflation-happy colleges was the Reagan-era culture warrior/education secretary William Bennett, who seemed to delight in blunt statements like this one: “Some of our colleges and universities charge what the market will bear. . . . The heart of the matter is that colleges raise costs because they can.” Were some member of the compromise-minded Obama team to talk like that today the centrist earth below Washington DC would gape in outrage and swallow them up...
Democrats today worship education, while Republicans today worship the market, neither of which faith has brought us close to a solution. The efforts of the Clinton administration, for example, were almost unbelievably feeble: With great fanfare, the Democrats streamlined the student loan process, proposed a tax cut for parents who paid for college, and—hooray—cracked down on student borrowers. (“We have tracked down defaulters and made them pay,” Bill Clinton boasted in 1997.)...

They are happy to talk about the “return on investment” when it’s a vague promise of a million bucks for anyone who pays up and goes to college; when someone actually takes them at their word and tries to measure the claim, it seems that fundamental principles are being trampled...

The Reagan administration was always hostile to universities and loved to bemoan the tuition spiral; what’s more, over the period in question, the universities themselves embraced a hyper-leftist public image that helped them distract attention from the catastrophe they have visited upon the nation’s young.

As the article suggests, the tuiton spiral has been mistakenly thought to be running out of steam before. However,  I have had more and more conversations with current and former students, parents, and others questioning whether a college degree is all it is cracked up to be.

I will say this with conviction and as someone with a degree from a fairly respectable European university: going to college is a great thing for all kinds of reasons besides improved employment prospects, but it is not worth what the American universities will charge you for it.

Report Released on 2010 BP Oil Spill

From al-Jazeera

A U.S. board's investigation into the 2010 BP oil spill concluded that a last-ditch safety device on the underwater well had multiple failures, wasn't tested properly and still poses a risk for many rigs drilling today.

The report issued Thursday by the U.S. Chemical Safety Board zeroes in on what went wrong with the blowout preventer and blames bad management and operations. They found faulty wiring in two places, a dead battery and a bent pipe in the hulking device. And that, they said, led to the dumping of 172 million gallons of oil into the Gulf of Mexico and the worst U.S. offshore oil disaster.

From the looks of it, no where does the report suggest that the government reconsider whether it should reconsider its decision from a few months ago to lift the ban of BP bidding for new federal drilling contracts (here). This really is an issue bigger than just BP. It sends a message to the whole industry that a companies safety record is of minimal importance when determining drilling access in the United States. If the government really wants to prevent these kind of disasters in the future, this seems like the opposite of the message they need to send.

Student Debt Refinancing Bill

A bill has been introduced in the Senate to permit the refinancing of student debt. In other words, the government is maybe, just maybe, considering taking a small step towards treating student debt like any other kind of debt.

Funnily enough though, I find myself in some amount of agreement with some of the criticisms that the Republicans have levied at the proposal. From al-Jazeera

Senate Republican leader Mitch McConnell of Kentucky criticized the Senate legislation – sponsored by Elizabeth Warren, D-Mass. – for not addressing college costs.
"This bill doesn't make college more affordable, reduce the amount of money students will have to borrow, or do anything about the lack of jobs grads face in the Obama economy," he said in a new release.

I think the most important of these is the point about cost. Even if debt can be refinanced or defaulted (not that you can discharge student debt in bankruptcy but just imagine), people will not be able let alone willing to afford the tuition rates we see in America for very long.

Nonetheless, I hope the bill passes, but am not holding my breath.

Bloomberg View Article On Cliimate Change Adaptation in Florida

Here

Florida's state and national politicians, including Governor Rick Scott and U.S. Senator Marco Rubio, are free to question whether climate change exists. Local officials don’t have that luxury. When it floods, people call city hall.

The need for a practical response, requiring both pumping stations and political cooperation, makes South Florida ground zero (sea zero?) in the debate over climate change. Its public officials, elected and otherwise, are showing how adaptation is not only necessary but also possible.

Unfortunately, articles like this need to be published more often. It seems that the conversation about climate change has been moving away from prevention towards mitigation and adaptation. While it is unfortunate that it has come to that, I have believed for a few years that the fight to prevent climate change was lost and it is good to see the discourse start to acknowledge that so that it can move forward from there.

US Economy Contracts in the First Quarter

The initial release of the GDP figures earlier already showed growth close to zero. The revision has lowered even that unexpectedly negative news. The economy actually shrank last quarter.

The figures show that a good chunk of the decline was due to declines in inventory accumulation. This has lead some (here, for examples) to predict that the economy will correct in the second quarter and we will see growth above-trend growth in the coming quarter. I do not buy it. Consumer confidence and personal finance indicators are declining as well; why should firms accelerate inventory accumulation when demand is lacklustre at best? On top of that, the world economy is looking rickety, with political crises in Ukraine, Thailand, and Turkey plus a number of Eurozone countries still looking at recessions

I would even say there is some probability of the economy going into recession, but I definitely do not see growth getting much above the anemic rates that have become the new normal in recent years, and I anticipate it will be low even by those standards.

April 17th Links

Al-Jazeera America Article on the Gap Between Executive Pay and Worker Earnings

Paciffic Standard on the Counter-Cyclical Nature of Country Music

New York Times on Rising Rent In the United States

Megan McArdle on the Detroit Pension Deal

Sociological Images on American Working Hours

"     On average, U.S. workers with jobs put in more hours per year  than workers in most OECD countries. In 2012, only Greece, Hungary, Israel, Korea, and Turkey recorded a longer work year per employed person.

       A long work year is nothing to celebrate. The following chart, from the same Economist article, shows there is a strong negative correlation between yearly hours worked and hourly productivity. "

 Full article here

When you factor in the opportunity costs of time spent working, such as forgone unpaid work and social capital accumulation, the picture is probably even worse.

Al-Jazeera Article on Renewable Energy Investment

The results of the report should give governments the confidence to embark on plans to cut emissions by investing in renewables before the 2015 climate change conference in Paris, Steiner said...
 
The renewable market and cost reductions are out-pacing the impacts from reduced investments and government support, Nathanael Greene, director of the National Resource Defense Council's renewables program, told Al Jazeera. 


So from the sounds of it, renewable electricity generation may finally be becoming competitive with fossil fuels. It would be all well and good to see a big push of public sector support for renewable right now, which is what the National Resource Defense Council seems to be pushing for. What would be just as good though is if renewables are able to maintain their expansion without such an outpouring of public money. Aside from the fact that that would save tax payers money and be easier to manage politically, it would set renewable energy capacity on a stronger  base independant from the ephemeral support of strained government budgets. It seems like this is where the technology is taking it anyway, but if renewables are proving themselves able to grow even as public support withers, might that be the trajectory we want to maintain?

Emergent Economics on "Poverty Porn"

Full post here

"Ogling the dispossessed misrepresents poverty, says Emily. Poverty isn’t just an individual experience that can be reduced to an image — it’s rooted in social and economic conditions. Poverty porn makes it seem like you can sort out deprivation with handouts when it’s really part of a complex set of circumstances including the behaviour of rich-world consumers and producers. Charity isn’t enough; a change to the system which creates poverty is essential."

 To its credit, the post later acknowledges that 'poverty porn' is often effective at raising money for efforts to ameliorate poverty. It is fair enough for someone to question whether or not the money raised is worth the resulting misconceptions. I think what is important, is to explore other ways of fundraising that do a better job representing the people the money is meant to help. Maybe such methods are too unprofitable, and so the misconceptions are just something we have to tolerate, but I have not really seen much experimentation with anything besides 'poverty porn', so how can we know.

Interfluidity on the Consequences of Inequality for Incentives and My Thoughts

We should expect the prevalence of rent capture (or worse) as a source of economic profit to increase with technological progress. Why? Because, absent chicanery, technology increases the ease of production and the efficiency of distribution. As Schumpeter pointed out, the source of profit in real-life capitalism is the fact that monopoly power is ubiquitous because of natural barriers to competition. The corner store has a monopoly on the convenience of its neighbors, and so can capture some of the surplus that might otherwise be bid away to customers by competitors. On-demand delivery drones would eliminate that monopoly. Yet the corner store industry might lobby to prevent residential rooftop deliveries, in which case it is no longer exploiting a natural inefficiency but capturing a rent. In business school, students are taught that a successful business has a “moat” that makes it difficult for competitors to bid away ones margins. Technological progress renders moats that derive from nature harder to come by. Instead, successful businesses — and successful people (since under capitalism, a human is just a small business) — must rely increasingly on moats that result from social and political arrangements...

“Inequality” — high dispersion of outcome — creates a strong incentives to be on the side of winners. There are some circumstances where being on the side of winners means making an outsize contribution to economic production. There are other circumstances where winning means aligning oneself with coalitions capable of winning legal and political contests that may be orthogonal to, or much worse than orthogonal to, any contribution to production. The two strategies don’t preclude one another...

Instead of talking about “incentives to” (produce, extract rents, whatever), we might describe outcome dispersion as a tax on refraining from mercenary behavior. If the difference between economic winners and losers is modest, people of ordinary virtue might refrain from participating in activities they consider corrupt, might even be willing to “blow the whistle”, because the cost of doing so is outweighed by their preference for behaving well. But as outcome dispersion grows, absenting oneself from or even opposing activities that would be personally remunerative but socially undesirable becomes too costly.

Full post here

If this line of thinking is right, in a world with enough inequality, technological progress will have two counteractive effects on growth. It will of course tend to push up real wealth production by improving productivity. However, it will also tend to reduce output by diverting activity away from production and towards the artificial maintenance of the displaced natural rents. The question becomes, how long can this process last?

It is hard to say. Obviously, if technological progress increases productivity faster than it diverts productive activity, the process could continue more or less indefinitely. A smaller and smaller fraction of society would work to produce the goods and services society uses. While everyone else worked to maintain the social arrangements that enabled that. The total size of the 'pie' would increase fast enough that everyone is still better off in absolute terms (even if inequality increases), so no one has a strong incentive to complain.

If the increase in productivity does not outpace the diversion of resources from productive activity, the picture becomes more complicated. As before, fewer and fewer people work to produce what everyone consumes, but now there is not enough for everyone to be at least as well off as they were before. Especially if inequality is rising, some people start to see their material interests sacrificed. It could just as well be some of those people who are now working to maintain rents instead of the 'productive' workers; exactly who loses out is somewhat beside the point. This in turn leads to agitation by those who see their lives worsening, further diverting resources away from productive activity, as everyone else takes steps to protect themselves and their wealth. 

It is possible that the 'losers' are a sufficiently small and disorganized group, such that it is not particularly costly for everyone else to repress their agitation and the process to continue as normal. However, if this is not the case, then a destabilizing downward spiral could begin. The response to the serious threat posed by the recently disenfranchised proves too costly for everyone else to be protected, more people see their material conditions worsen (and are simultaneously forced to resort to increasingly difficult and drastic measures to protect what they still do have), swelling the ranks of the disaffected, forcing yet more and more costly protective measures and so on and so forth.

One can easily imagine all of this being rigorously constructed as a formal model, with intersecting lines and curves representing productivity, productive labor, rent seeking labor, the costs of protection et cetera. It would of course have a few different equilibria and a nice explanation of what factors might determine which equilibria the hypothetical society ends up at. Such a model would be pretty neat, but I do not know if it would do much for answering the most important question it would raise: exactly where on these curves are  we?

March 25th Links

Bloomberg: How Not to Report on the Obamacare Numbers

Rap News: Crimea Media Games

Marginal Revolution: Metadata Reveals Sensitive Private Information

New Yorker Review of Piketty's "Capital in the Twenty-First Century"

Here 

 "Piketty is certainly right to emphasize that there was nothing natural or inevitable about the income compression that occurred in the middle of the twentieth century. It was the product of global conflict and domestic political struggles. In Europe, two World Wars and the progressive tax policies that were needed to finance them did enormous damage to the old estates and great fortunes: many rich people, after paying their income and inheritance taxes, didn’t have enough money left to replenish their capital. During the postwar era, inflation ate away at their savings. Meanwhile, labor-friendly laws enabled workers to bargain for higher wages, which raised the proportion of income that labor received. And the task of rebuilding after the wartime destruction made for the rapid expansion of G.D.P. This helped to keep the growth rate above the rate of return on capital, fending off the forces of divergence.

In the United States, the story was less dramatic but broadly similar. The Great Depression wiped out a lot of dynastic wealth, and it also led to a policy revolution. During the nineteen-thirties and forties, Piketty reminds us, Roosevelt raised the top rate of income tax to more than ninety per cent and the tax on large estates to more than seventy per cent. The federal government set minimum wages in many industries, and it encouraged the growth of trade unions. In the decades after the war, it spent heavily on infrastructure, such as interstate highways, which boosted G.D.P. growth. Fearful of spurring public outrage, firms kept the pay of their senior executives in check. Inequality started to rise again only when Margaret Thatcher and Ronald Reagan led a conservative counter-revolution that slashed tax rates on the rich, decimated the unions, and sought to restrain the growth of government expenditures. Politics and income distribution are two sides of the same coin." 

I have heard of this book, not read it though. Maybe I will now though. I think it is all well and good to point out that economies do not exist in political and cultural vacuums (and, really, not many economists claim that they do), but the criticism cuts both ways. Policy is not made in an economic vacuum either. It is easy, and in some sense true, to point to changes in say labor and tax and policy and blame them for rising inequality. However, I think that a more important question is why were those policy changes implemented when they were, and why were they not effectively resisted by those who stood to loose out. I mean the conservative government of Edward Heath also tried to break the miners unions in Britain before Thatcher did, and they failed to do so. So what changed about the world that allowed these political changes to happen? I would not claim to answer the question entirely, but I think that technological change and changes in the price and capital structure (i.e. 'sterile' economic variables) are an important part of it.

Also, it is a bit of an incomplete picture of inequality to look only at the share of income going to the top X percent. It ignores the important role of inequality amongst the lower (100-X) percent. A society could easily have a relatively small share of income going to the top, say, one percent and a relatively equal income distribution down most of the income ladder, but still be a really unequal society if say, the bottom ten percent are living in abject poverty. The postwar era in America was a relatively more equal society in the sense that the middle class expanded pretty rapidly among the educated white population. However, large swathes of society (primary racial and ethnic minorities, to say nothing of the status of women) were largely left behind by this, and it does not seem quite right to call the postwar era more equal simply because a smaller share of national wealth went to the top one percent. Really, this is a problem that I have with a lot of the "one percent, ninety-nine percent" rhetoric that you hear alot of these days, even if I am broadly sympathetic to the goal of trying to reduce inequality. Admittedly, inequality is not the easiest thing in the world to measure, but Gini Coefficients will paint a more complete (if, still, subjective) picture of inequality.

March 13th Links

Wired: New Jersey Bans Tesla to Ensure Buying a Car Will Always Suck

Bloomberg View: US Manufacturing is Back, Sort Of

Al-Jazeera: Workers Sue McDonalds for Withholding Wages

Al-Jazeera Article on Time Banking

Some of the best bits:

"One critique of time banking is that it degrades acts of generosity to an IOU. But traditional charity, Blech points out, rarely leads to sustained relationships."
"Cahn believes that we can use time banking to improve civic engagement and decrease government spending: An elderly person who has someone to lend an arm on an icy walk or check the fine print on prescriptions is less likely to need hospital care. Cahn’s projects have received political support from both liberals seeking new tactics for providing social welfare and small-government conservatives (the IRS has ruled that time credits cannot be taxed)." 

"According to Cahn, time banking allows for a more efficient use of our skills: Most people are paid for just one particular kind of labor, even if they’ve also spent decades practicing a hobby.""Most large time banks have at least one paid employee –— the VNSNY time bank has seven — but the cost of operating a time bank, Cahn says, can be as low as $1.50 for each hour of service provided. Critics have said that the necessity for paid staffers belies an obvious flaw in time banking — it requires money to sustain itself. But Cahn says his idea was never to create a wholly different economy, but to validate the kinds of people and labor that the monetary economy does not. They are, he says, a cost-efficient way of offering assistance to those who have lost unemployment benefits or have been pushed to the sidelines of the economy."

      Read the whole article. I am interested to see just how much potential these kind of schemes have. Taking the article at its word, it is an idea with a long history that computing has made much easier to administer, so that bodes well. Also, as my last post suggests, these types of schemes will probably benefit from the languishing monetary economy's slack capacity.

Naked Capitalism on Unemployment of 'Prime Age' Males

Naked Capitalism has a good post replying to a Wall Street Journal article. Unfortunately, the article is behind a paywall, but just reading the quotes and commentary on Naked Capitalism is interesting. He raises a very good point at towards the end of his post.

Lambert raised a question that the commentariat might be able to help answer: what happens to men in this fix? I told him that he shouldn’t be surprised, there’s money only to research things that show things are really swell, and not ferret out the many manifestations of distress and dislocation.The article makes clear that at least some of the men are on trajectories that can’t be sustained, borrowing and selling assets yet starting to fall behind on payments. Clearly (again as the article indicates) some wind up living with relatives. And even with budget cuts, we do have enough in the way of social safety nets to forestall the establishment of Obamavilles. But I wonder how many people are living in cars, or couch-surfing (meaning one step away from being homeless), or (as one reader found out over the summer) renting rooms in trailer camps.

        What is really puzzling is that so many of these men have given up looking for work entirely. I mean, I understand that finding work is costly and likely poorly rewarded in today's economy, but if their situation was so desperate would they not redouble their efforts anyway? Nor do I find the explanation that they are simply languishing on the welfare rolls to be particularly plausible either. Even at the best of times, the welfare system in America is not particularly generous, and it has been cutback pretty severely recently, so relying on it does not seem like a particularly attractive option for many. This is not to say that these men are not claiming any welfare, just that I do not think the welfare system would adequately explain why they are not looking for work. That they are being supported by family or spouses seems somewhat more plausible as an explanation, but why would their families and partners be so forthcoming with support for sons and husbands who are economically inactive? This question brings me to what my instinct says is the most likely explanation, that many of these men probably are working in the informal economy and will continue to do so for as long as the formal economy languishes.
       I will prefer to use the term 'informal economy' when discussing this trend since I dislike the authoritarian moralizing implicit in terms like the 'shadow,' 'black,'  'underground,' or 'illegal' economy. I would take the informal economy to mean any and all economically productive activities in which monetized transactions are not reported to the state. This can include activities where money changes hands but is not reported (i.e. cash in hand work) or transactions where no money changes hands (volunteer work, reciprocal mutual aid networks, household production).
     For one, there is evidence that the informal sector has expanded since the recession, and since such an expansion would probably be impossible without an increase in participation, it seems a likely candidate for where many of these men have taken their labor. Secondly, political and regulatory uncertainty has been rampant recently, from the debt-ceiling standoff, to the implementation of Dodd-Frank, to the Obamacare debacle. All of this is probably making businesses in the formal sector slow down investment and hiring. The informal sector, which is effectively unregulated, is basically immune to this effect and may even benefit from it. Finally, the Naked Capitalism post suggested that one reason that men may be hesitant to take jobs in the formal sector is that such jobs may not be worth it because of the costs of moving, commuting, or surrendering government benefits. While informal sector work is, perhaps, just as likely to require commuting or moving, it would not require relinquishing benefits. Add to this that there is no taxation of value created in the informal sector, and the appeal of dropping out of the formal labor market starts to make sense.

Sunday 26th of January Links

Political Blindspot: Cop "Stops and Frisks" African American Teen, Literally Destroying His Genitals

Bloomberg: Davos Finds Inequality Its Business as Backlash Seen

Megan McArdle: The Mother of All Collective Action Problems (they mean climate change)

NPR: Computers Are the Future, but Does Everyone Need to Code?

Overcoming Bias on Evaluation Criteria

Robin Hansyn has a really good post on the influence of coalition politics on our criteria for evaluating claims made by allies and rivals.

"      Most of us live in worlds of conversation, like books or blogs or chats, where we tend to give many others the benefit of the doubt that they are mostly talking “in good faith.” We don’t just talk to show off or to support allies and knock rivals – we hold our selves to higher standards. But let me explain why that may often be wishful thinking...
        Do you presume that your worlds aremostly dominated by politics, where different coalitions vie tosupport allies and knock rivals? Or do you see the groups you hangwith as holding themselves to higher standards? If higher standards,are they standards that outsiders can easily check on? Or do you inpractice mostly have to trust a small group of insiders to judge ifstandards are met? And if you have to trust insiders, how sure canyou be their choices aren’t mostly driven by coalition politics?     "

    Read the whole post. I am not to familiar with the basis for Robin's claim that prediction markets are a good way of cleansing discourse of political influence, but I would always approach such a claim from a position of scepticism, as I think Robin would suggest we do. Even if they were, they would sooner or later fall prey to political manipulation for that very reason  But that is not what I really want to write about now.
   The more important takeaway from this post is that interpretation and evaluation are inherently political acts. In political discourse, I am often struck by how often each faction claims to be advocating policies that are based on "objective assessment" of "facts," "logic," and "arguments," as supposed to rivals whose proposals are based on emotion, prejudice, interest, authority, or whatever. However, all "objective criteria" really means is that evaluations can be easily checked against the criteria by more or less neutral outsiders and NOT that the criteria do not favor some over others.
   Of course, this means that there is more than one way of assessing and interpreting something "objectively" and not necessarily any reason to suppose a priori that some criteria are necessarily 'better' than any others, especially in a way that did not vary with context. In other words criteria can be simultaneously 'objective' and 'relative.' This is not really to suggest, however, that we should start doubting whatever criteria we use to asses phenomena, especially if those criteria have served us well in the past. After all, we have to assess things somehow, and we cannot really believe anything without thinking that those beliefs are reasonable and that those who do not believe the same thing are somehow wrong. However, we have to keep two things in mind. First that those with whom we disagree, however ardently, probably have criteria they use to establish their beliefs that make as much sense to them as our criteria do to us. Secondly, that our choice of criteria probably has as much to do with serving our interests and maintaining our power as any commitment to "truth."
    Objectivity is a useful and worthwhile thing; it is good for others to be able to double check our assessments, but some criteria being 'objective' does not mean that it is equally applicable and useful by all people in all situations, or  that it is somehow above the fray of the power games played between individuals and factions.

Do you presume that your worlds are mostly dominated by politics, where different coalitions vie to support allies and knock rivals? Or do you see the groups you hang with as holding themselves to higher standards? If higher standards, are they standards that outsiders can easily check on? Or do you in practice mostly have to trust a small group of insiders to judge if standards are met? And if you have to trust insiders, how sure can you be their choices aren’t mostly driven by coalition politics? - See more at: http://www.overcomingbias.com/2014/01/who-wants-clean-standards.html#sthash.VEkEbCit.dpuf

Most of us live in worlds of conversation, like books or blogs or chats, where we tend to give many others the benefit of the doubt that they are mostly talking “in good faith.” We don’t just talk to show off or to support allies and knock rivals – we hold our selves to higher standards. But let me explain why that may often be wishful thinking. - See more at: http://www.overcomingbias.com/2014/01/who-wants-clean-standards.html#sthash.VEkEbCit.dpuf

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Most of us live in worlds of conversation, like books or blogs or chats, where we tend to give many others the benefit of the doubt that they are mostly talking “in good faith.” We don’t just talk to show off or to support allies and knock rivals – we hold our selves to higher standards. But let me explain why that may often be wishful thinking. - See more at: http://www.overcomingbias.com/2014/01/who-wants-clean-standards.html#sthash.VEkEbCit.dpuf

Most of us live in worlds of conversation, like books or blogs or chats, where we tend to give many others the benefit of the doubt that they are mostly talking “in good faith.” We don’t just talk to show off or to support allies and knock rivals – we hold our selves to higher standards. But let me explain why that may often be wishful thinking. - See more at: http://www.overcomingbias.com/2014/01/who-wants-clean-standards.html#sthash.VEkEbCit.dpuf

Who Wants Standards?

By Robin Hanson · January 26, 2014 12:45 pm · 13 Comments · « Prev ·

Most of us live in worlds of conversation, like books or blogs or chats, where we tend to give many others the benefit of the doubt that they are mostly talking “in good faith.” We don’t just talk to show off or to support allies and knock rivals – we hold our selves to higher standards. But let me explain why that may often be wishful thinking.

- See more at: http://www.overcomingbias.com/2014/01/who-wants-clean-standards.html#sthash.VEkEbCit.dpuf

Who Wants Standards?

By Robin Hanson · January 26, 2014 12:45 pm · 13 Comments · « Prev ·

Most of us live in worlds of conversation, like books or blogs or chats, where we tend to give many others the benefit of the doubt that they are mostly talking “in good faith.” We don’t just talk to show off or to support allies and knock rivals – we hold our selves to higher standards. But let me explain why that may often be wishful thinking.

- See more at: http://www.overcomingbias.com/2014/01/who-wants-clean-standards.html#sthash.VEkEbCit.dpuf

Who Wants Standards?

By Robin Hanson · January 26, 2014 12:45 pm · 13 Comments · « Prev ·

Most of us live in worlds of conversation, like books or blogs or chats, where we tend to give many others the benefit of the doubt that they are mostly talking “in good faith.” We don’t just talk to show off or to support allies and knock rivals – we hold our selves to higher standards. But let me explain why that may often be wishful thinking.

- See more at: http://www.overcomingbias.com/2014/01/who-wants-clean-standards.html#sthash.VEkEbCit.dpuf

Who Wants Standards?

By Robin Hanson · January 26, 2014 12:45 pm · 13 Comments · « Prev ·

Most of us live in worlds of conversation, like books or blogs or chats, where we tend to give many others the benefit of the doubt that they are mostly talking “in good faith.” We don’t just talk to show off or to support allies and knock rivals – we hold our selves to higher standards. But let me explain why that may often be wishful thinking.

- See more at: http://www.overcomingbias.com/2014/01/who-wants-clean-standards.html#sthash.VEkEbCit.dpuf

Who Wants Standards?

By Robin Hanson · January 26, 2014 12:45 pm · 13 Comments · « Prev ·

Most of us live in worlds of conversation, like books or blogs or chats, where we tend to give many others the benefit of the doubt that they are mostly talking “in good faith.” We don’t just talk to show off or to support allies and knock rivals – we hold our selves to higher standards. But let me explain why that may often be wishful thinking.

- See more at: http://www.overcomingbias.com/2014/01/who-wants-clean-standards.html#sthash.VEkEbCit.dpuf

Most of us live in worlds of conversation, like books or blogs or chats, where we tend to give many others the benefit of the doubt that they are mostly talking “in good faith.” We don’t just talk to show off or to support allies and knock rivals – we hold our selves to higher standards. But let me explain why that may often be wishful thinking. - See more at: http://www.overcomingbias.com/2014/01/who-wants-clean-standards.html#sthash.VEkEbCit.dpuf

Most of us live in worlds of conversation, like books or blogs or chats, where we tend to give many others the benefit of the doubt that they are mostly talking “in good faith.” We don’t just talk to show off or to support allies and knock rivals – we hold our selves to higher standards. But let me explain why that may often be wishful thinking. - See more at: http://www.overcomingbias.com/2014/01/who-wants-clean-standards.html#sthash.VEkEbCit.dpuf

Most of us live in worlds of conversation, like books or blogs or chats, where we tend to give many others the benefit of the doubt that they are mostly talking “in good faith.” We don’t just talk to show off or to support allies and knock rivals – we hold our selves to higher standards. But let me explain why that may often be wishful thinking. - See more at: http://www.overcomingbias.com/2014/01/who-wants-clean-standards.html#sthash.VEkEbCit.dpuf

Emergent Economics on Methodology

Dan Gay writes:

"Thinking about methodology – how methods are selected and applied – is important when practising development economics. Economists are far too reluctant to question their underlying methodology, preferring to think of the discipline as a standardised approach rather than a toolkit or a process of enquiry using ideas from other social sciences like social and political theory. The discipline probably doesn’t carry the same scientific status as the natural sciences, and it should be a lot more modest.

Reflexivity means in part a process of critical self-examination, involving reflection on outside influences as well as the specific peculiarities of a situation. Maybe development economics itself should become more case-study based, empirical and context-orientated instead of so often applying theories based on deductive modelling?"

I would be quite interested to see some examples of the successful use of ethnographic methods to address economic questions and concerns. There seems to be a lot of suggestion in the economics world today about the potential rewards to be reaped from broadening economic methodology, but it is hard  to come across examples of economists actually doing this.

Modeled Behavior on the Minimum Wage

Adam Ozimek writes:

"The claim that “for older workers, the two effects offset one another” is only true if you count the utility of keeping a job as offsetting the disutility of not being able to find one. I am surprised how quick people are to accept this is not only a neutral development but a positive one, arguing that less turnover in the labor market is a good thing. I am more concerned that more stable but harder to get jobs is not what you want during a time of problematically high long-term unemployment."

Adam makes a good point, but there is an important counterpoint. For those who do manage to find or keep their jobs after a minimum wage hike, the jobs will not only be more stable, they will be higher paying. These pecuniary benefits might accrue completely to those workers who hold onto their jobs, but they may not. Plenty may have friends or relatives who are long term unemployed to whom they may transfer resources. If we accept that minimum wage hikes represent a tradeoff of unemployment for some versus higher wages and job security for others, should we not also accept that it is, at least in principle, possible for some of the gains to be transferred to those who lose out. Depending on the elasticity of labor demand, it may even be possible for it to be a Pareto-improvement from the workers perspective. It would be interesting to see some data on this if any exists.

Anthropological Observations on the Usefulness of Anthropology

Ted Fisher writes

"Social scientists, and anthropologists in particular, bring what should be a privileged perspective to public policy debates. Taking as our starting point not idealized theory (say, of rational actors) nor (hopefully) partisan moralization, anthropologists look at, and take seriously, what folks actually say and do...

Hampton's follow-up studies show that use of the public spaces in his sample has gone up over the last decades; that there are many more women in those public spaces; and that there is more, not less, social interaction going on despite the ubiquity of cell phones and other technology. "

      Anyone with at least a little background probably knows that the relationship between economics and anthropology is generally sceptical at best. This is a shame since the two disciplines could probably learn a lot from each other.

      As Ted says ethnography is a useful tool for bridging the gap between abstract theories and concrete manifestations and economists would benefit from making use of it more. Ethnography, however, should start from a position of healthy scepticism towards how people explain themselves. It is useful to 'look at and take seriously what people say and do.' However, talk is cheap, and in the ultimate what people do should be taken more seriously.

Links January 21st 2014

Bloomberg: EU Must Contain Energy Costs or Risk 'Deindustrialization'

Al-Jazeera: "Till Death Do Us Part: US Victims of Forced Marriage"

BBC: Edward Snowden Nominated as Rector of Glasgow University

Grist: Get Ready for More Extreme El Ninos

The Uses, Meanings, and Limitations of Finance

      When discussing economic affairs, it is not uncommon for people to distinguish between the "real economy" and the "financial economy." The difference seems obvious enough; the financial economy is the economy of banks, hedge funds, stockbrokers etc. while the real economy contains everything else. That is not too bad as a starting point for a definition, but it does not really explain what the difference is and it leaves a lot of unclear cases, for example are insurance companies part of the financial sector or not?
      This in turn contributes to widespread, and probably not entirely accidental, public ignorance of and alienation from the financial industry. Ignorance and alienation that was useful enough for motivating the Occupy movement, but which ultimately leaves people mystified by finance. This mystification only serves to cement the power of financiers, because even their most vocal critics and most dependant customers (often enough the same people) do not have a good understanding of what financiers do, or even what finance really is. One sees this reflected in discourse about "complex financial instruments" like derivatives and credit default swaps that "almost no one really understands." This despite the fact that futures and options (the most common kind of derivatives) as well the infamous credit default swaps are actually relatively straightforward financial instruments, even if their specific contractual details can become somewhat technical.
      In an interview last year, Robert Schiller (recent winner of the economics non-Nobel prize), said the following in an interview:

“When you think ‘finance’, most people think ‘make money’, ‘get rich’, you should instead think ‘financing activities’, things that people do together that are important to them, achieving goals that are shared by groups of people, financing activities is what it is all about. And the underlying problem is that just about anything that we think is important to do can’t be done by one person. You needs groups of people and you need resources, various things that are produced in other countries that would be inputs to your activities. And the organization generally has to last for years and years to achieve the goal. So it has to have some kind of continuity of support from people and resources, and that support is called ‘financing’; so that is what it is all about.”

     This illustrates well the intended function of the financial industry to wider society, but it also, importantly, illustrates the wide variety of forms finance can take. As Schiller suggests, almost anything worth doing will require many different quantities and qualities of resources, often enough more resources than the people who would do it have at that particular moment, let alone what they might need in an unforseen eventuality. Fortunately, at that same time there are probably people somewhere  with more resources than they need for what they wish to pursue then. If those in the second group could lend their surplus to those in the first group and receive a cut, everyone could be better off (assuming the activities are as successful as its participants imagine, and  no one unexpectedly comes to need their resources back early).
     Of course, it is rarely so simple that the resources are simply transferred and, hopefully, eventually returned. More likely in a modern economy is that those with resources to spare do not know those short of resources let alone trust them with potentially large amounts of their wealth. Even if they did, they may very well lack the time or knowledge to realistically assess whether or not the proposed projects are likely to be worth the risk and temporary sacrifice. Enter the role of financiers, individuals who make it their living to find those with extra resources and borrow from them and lend these resources to those who need them. Since they intend on a share of the profits and support many ventures regularly, they can spend the time and money necessary to investigate opportunities and decide if they are worth the time and the risk. They pay those they borrow from and charge those to whom they lend. The (hopefully positive) difference or "spread" pays the costs of their searching.
      I want to be careful not to overstate the point and be precisely clear about what I am saying; accordingly I think it is important to emphasize two caveats. Firstly, there are many possible institutions that can be set up to do this, and there really is no reason to think that the financial industry we have today is necessarily the most effective or desirable way of achieving this end. Considering the recent financial crisis, its economic aftermath, and that little seems to have changed in response, I think it is hardly unreasonable to critically examine whether or not our social-financial machinery is really adequate, while remaining conscious that there are reasons for its existence beyond mere greed.
     Secondly, despite its media and national accounting prominence, the investment of surplus resources into financial instruments will be amongst the last places many will find it reasonable to direct accumulated resources. What do I mean by this?
       If surplus resources are taken to mean any resources above ones present level of consumption, then is nearly tautological that the rich will tend to have more resources and therefore have more available to invest, unless consumption increases one to one with income (it doesn't). More importantly, remember that the goal of finance is to redistribute extra resources between parties that do not necessarily know, care about, or trust each other. There are plenty of things of things that individuals, both alone and organized with others, will find reasonable to do with extra resources, before they see fit to make them available to strangers, even if the institutions set up to facilitate this are adequate. For example, in Poor Economics Abhijit Banerjee and Esther Duflo suggest that one of the most important ways that poor people save is spending extra time and money on DIY home improvements and construction. Considering that many of the individuals they discuss actually start living in their houses before they are completely built, it is simply inaccurate to suggest that their low rates of financial savings are because of meer myopia (or, to use more polite technical terminology, a high time-discount rate). While they may lack surpluses upon surpluses of resources to invest in many financial savings instruments; this does not  mean that they are not making considerable tradeoffs of time and money in the present in order to reap the returns later, i.e. saving. Education is another important example of this kind of non-financial investment.
       These investments are too often ignored when tabulating national accounts. If an individual is lucky their actual money spent on tools and materials may, at least, be counted as expenditure on consumer durables, even if its classification as "consumption" is questionable. The heart of the problem is that saving via financial instruments, is not the same thing as saving, i.e. making investments now for future payoffs. It is not entirely untrue to say that financial institutions help people allocate their savings, but it is important to understand that they represent a much larger share of some peoples savings than others, in particular those people lucky enough to have enough wealth to have already maxed out the savings options in their own immediate environment. While having an adequately developed financial infrastructure is useful, it is only relevant to a certain lucky few.
          We must keep all of this in mind when we seek to analyze, develop, and organize social economies.

January 14th Links

Duke University begins a masters program in Economics and Computation (Hat Tip to Turnings Invisible Hand)

Portland had zero bicycle fatalities in 2013

Analysis suggests NSA surveillance has little effect preventing terrorist attacks

Demolitions of affordable housing accelerate as rent rises and poor's income stagnates

      Megan McArdle has a post about the economics of marriage, titled "Marriage Makes You Rich and Stupid." A fair bit of it is just a restating of the fairly well understood economic benefits of marriage (i.e. household economies of scale and non-rival consumption). However, what is particularly interesting about her take on it, is her argument that marriage makes us, in effect, less capable individuals

      I used to know where I kept my batteries and old documents. But when we got married, my husband, who is much tidier than I am, took over organizing the house. Now, unless it’s a piece of my clothing or kitchen equipment, I have no idea where we keep anything. And while I’m pretty sure I used to be able to put up shelves, now all I know how to do is ask my husband to do it.

        On the other hand, he has no idea how much money we have, or in what accounts. And he can’t do the grocery shopping, because he doesn’t know what we consume. Individually, we are less competent to survive on our own. But collectively, we eat better, and we have a tidier house and better-managed finances. And our shelves don’t fall down so often.

       Of course, this is really just a re-stating of the consequences of the division of labor in the context of a household. I have chosen to use this as the first post for this blog for a few reasons, but one in particular; I think it reflects an important theme that I intend to return to throughout the postings, namely it discusses both the benefits and the costs of the division of labor using a readily accessible example.
       For reasons long understood in economics. The division of labor as well as the whole apparatus of exchange, market or otherwise, that comes with it does make us wealthier. It is important to acknowledge, however, that these gains come with a cost. In the case of Megan's example it is of skills lost by her and her husbands increased reliance on each other (I suppose a technical term for it would be human capital displacement).
       Of course, it is entirely possible that the costs are outweighed by the benefits, as presumably they are in the case of Megan and her husband otherwise they probably would be maintaining separate residences and bank accounts. However, it is important to ensure that we minimize these costs as much as possible as we pursue the benefits, thereby enriching ourselves even further.
      In Megan' s case, though I do not pretend to tell her how to run her house, I suppose the best way they could do that is with effective and regular communication between her and her husband about what they are doing, how they are doing it, and why they are doing it.  This way each of them is aware of conditions and decisions that have important material consequences for each of them, and therefore exercise more control over them, even if they are not personally acting upon them. It also forces each of them to maintain at least enough understanding of the tasks to be able to communicate with each other, minimizing the skill loss she refers to. Again, this is just an pedagogical example, I have no intention of suggesting that Megan fails to run her house effectively.
      The beginning of Megan's post also has a good example (originally sourced from Matt Yglesias) of the use of data to mislead by relying on calculation methodologies that remain unstated, even if those methods make a lot of sense in their own right.