Sunday, December 26, 2010

One for the history buffs

I thought this was really interesting: Germany just finished paying off their WW-1 reparations.

I had been under impression that the reparations were paid off in the 1920's, by hyper inflating the debt away. I had no knowledge of the post WW-2 German government's agreement to assume debts stemming from the Treaty of Versailles.

It is amazing how different the world can become in a span of two generations.

Tuesday, December 21, 2010


I've been on Youtube watching videos of Milton Friedman on this issue or that. They are particularly relevant nowadays since we have a resurgence of anti-government and anti-regulation sentiment in this country. I think all of this is very healthy, and I agree with it completely even if I take issue with the abrasiveness of the methods employed (in other words, I agree with the point of the Tea Party but I take issue with the style and methods).

In this video that I linked, Milton Friedman talks about the folly of consumer protection agencies and how absurd that they can be. He finishes by concluding that we don't need government bureaucrats to protect us from ourselves - that we can be trusted to make the right decisions.

An important point that is missed from people who whole heartedly subscribe to these sorts of views, however, is that government regulations and interventions have distorted the market that Milton Friedman and maybe the Tea Party completely trusts to solve the problems that we face today.

Take obesity. Politicians like Sarah Palin have come out and mocked Michelle Obama for wanting to stop children from drinking soft drinks, and the Republicans in general scoff at the idea that we might impose a tax on soft drinks. But the point that these sorts of people miss is that the government has intervened to subsidize corn farmers and these subsidies have artificially driven down the cost of soft drinks; thus have encouraged overconsumption. The cheapness of fast food is another example, thanks to generous subsidies to meat farmers. I do not believe it would be possible for McDonalds to be so cheap without those price supports - and if a trip to McDonalds cost 2-3 dollars more, people would consume far less fast food.

The government does other things, like imposing tariffs on Brazilian ethanol, which is much cheaper than American ethanol, to protect our market. The government has all sorts of regulation regarding property development, commercial development, that stipulate that they must have so many parking spaces available or be so close to this or that. Furthermore, roads are paid for by government, instead of the costs appropriately going to the drivers of cars. This tangled web of regulations, inappropriate subsidies, and other incentives have distorted the market and seem to have contributed to urban sprawl, over reliance on cars, and a lack of other transportation mechanisms in many cities.

Current disciples of Milton Friedman like Greg Mankiw have written about negative externalities. Mankiw argues that driving cars imposes negative consequences other than having to pay for fuel: roads are more congested, CO2 is released, and geopolitics is far more complicated (we need secure sources of oil). Mankiw is no liberal - he is the former chairman of the council of economic advisors under G.W. Bush. He argues for a gasoline tax to account for these externalities and price gasoline so that the market can respond appropriately.

This is an important lesson for Republicans, libertarians, Tea Partiers, and anyone else who wants to keep "government out of our lives" - government is already in our lives. You cannot rely on the market to solve problems if the market is already distorted. We need to make sure we are removing these imbalances to the market before we start deregulating everything. Until then, I'm going to side with Michelle Obama and encourage government bureaucrats to help prevent our children from drinking so many soft drinks.

Friday, December 17, 2010

Cowen on Income Inequality

One of my favorite bloggers, economist Tyler Cowen, has a long piece about the great socioeconomic challenge that America is grappling with.

The cause of rising income inequality has been something I have been very interested in lately. Any philosophical justification of an increasingly progressive tax code, for me, requires accurate interpretation of the causes of that rising inequality. In other words, there needs to be a good reason for increasing taxes on 'the rich', which may be necessary in the future, beyond simply that "they have the money".

Wednesday, December 15, 2010

On hackers and security breaches

I was having dinner with my father last night and he brought up a good point about Wikileaks, and computer hackers in general. For years, the prevalence of annoying viruses, trojans, and spyware have exposed weaknesses in the internet and in browsing software. We have responded over the years by developing firewalls, pop-up blockers, spam filters, secure browsers like Firefox, virus scanners, et cetera. As a consequence, the infrastructure of cyberspace is much stronger than it originally was. Theoretically, imagine if these breaches had never taken place. Our internet would remain as porous and vulnerable as it was in 1995. Then the day might come when those weaknesses could be exploited by an enemy cyber-attack, instead of by 15 year old hackers looking for bragging rights or viagra salesmen.

So in a sense, all of the hackers and viruses have strengthened the internet in the same way that infection and environmental insult strengthens the body's immune system. Funny that my dad was the one who made this analogy and not me, because he is a mechanical engineer and I spent the last year doing immunology research. In the recent Wikileaks controversy, thousands of relatively harmless diplomatic documents were leaked to the press by a US government employee. Embarrassing maybe, but not catastrophic. Imagine instead if one US government employee had been paid to steal and secretly deliver thousands of documents about the construction of nuclear or chemical weapons to the North Koreans or the Iranians. It is suddenly very easy to see that Wikileaks did us a favor for exposing these serious vulnerabilities in our system.

Saturday, December 11, 2010

Ron Paul on Wikileaks

Ron Paul speaks on the house floor about Wikileaks.

During the video, Paul mentions that some are calling for Julian Assange's assassination. I'd like to add that those "some" are pundits at Fox News. Here is a video if you don't believe it. Just stop and think about that for a second. Julian Assange did not hack into or steal anything from the US government. He simply published documents that were leaked to him by someone inside the US government. Doesn't that sound like something a journalist would do?

Fox News is calling for the assassination of someone for committing what is in essence a journalistic act. And everyone is OK with this. Did I miss something?

Wednesday, December 08, 2010

Obama's tax cut cave/compromise

The left is fully up in arms about Obama's compromise with Republicans regarding the extension of the Bush tax cuts. There are talks of Democrat Senators filibustering the bill, of primary challenges to Obama in 2012, and all other sorts of nonsense. I wish I had some insight into Obama's decision making process, because from our perspective it is very difficult to distinguish between Obama being spineless / indecisive and Obama having extraordinary strategic insight, a knack for predicting the outcome of political battles, and reacting appropriately.

I'm not a huge fan of Paul Krugman, because he is such a partisan. For months his NY Times opinion column has called for more fiscal stimulus and expansionary monetary policies in order to get the economy moving. I agree with him on the need for those programs! However, in the current political climate there is no way Obama is going to get another stimulus bill. There is no way he is going to get the GOP to go along with all sorts of other reasonable proposals that would improve the economic situation. The only remotely stimulating policy that Obama can get in the short term is an extension of the Bush tax cuts, and furthermore there is no way the GOP will let the cuts for the top 1% get decoupled from the rest. And yet Krugman has blasted Obama's compromise on these cuts as a policy sell out.

Every time the North Koreans do something provocative, there will inevitably be a bunch of loud people who puff up their chests and say its time to take a stand and "do something" about the DPRK. The South isn't afraid to fight, but the consequences of that fight are too great. Even if the ROK could conquer the DPRK in a week, the DPRK could still level Seoul in hours and kill tens of thousands of people. Obama, like the South Koreans, knows that it is stupid and rash to escalate a situation if unprepared for the consequences of escalation. That is why the South Koreans don't "stand up" to the North - because if the North calls the bluff, the South looks even worse. Likewise, the left is furious that Obama isn't "standing up" to the GOP. But what if he did, and the GOP called, and taxes went up for everyone? Obama would then have to either back down, and look far worse, or accept the damage to the economy and the middle class. And as he put it in his address to the nation the other night, Obama is not willing to let the middle class get hurt as a consequence of political theater in Washington.

Four more related tidbits:

1. I read that Obama and Pelosi pushed Reid to bring up the issue of the Bush tax cuts before the 2010 election and Reid refused b/c two Dem senators didn't want to be on record voting for tax increases before the election. This revelation makes all of this self-righteous indignation coming from Democratic congressmen about the issue even more humorous, since they are the reason the issue was punted in the first place.

2. In the 2008 election, everyone projected their own values onto Obama with regards to his message of "change", and of course he was willing to let everyone do that for political reasons. For many on the left, that meant a shift to left-wing progressive politics. It never meant that for me. "Change" never meant going from partisan and divisive right-wing politics to partisan and divisive left-wing politics. It meant going away from partisan and divisive politics. This tax cut compromise is vindicating my interpretation of what Obama actually based his presidential campaign on.

3. Who wins politically here? Certainly, Barack Obama. The long game on this issue is in the Democrats' favor anyway because they can just vote down or filibuster tax extensions for the wealthy in 2012, when the economy is stronger and Obama isn't up for re-election. Meanwhile, the Republicans just compromised with this supposedly radical left wing socialist president and greatly legitimized him in the process. When this goes through, the American people are going to recognize that Republicans were willing to hurt the economy to protect the wealthy and the Democrats were willing to hurt the economy to grandstand about the middle class. Meanwhile, Obama made a politically challenging decision that will benefit the American people.

4. The issue on which I remain the most torn is whether Obama is actually a strategic thinker or an indecisive leader. Clearly he has been naive at some points, but that doesn't really strengthen or weaken either scenario. Regarding health care reform, geopolitical dealings with Iran, and this tax cut compromise he has looked like a great strategic planner who figured out how to get the most he could given nontrivial political constraints. On other issues, especially with dealings with Israel and the Palestinians, he has looked incompetent, unprepared, and weak. The jury is still out for me.

Saturday, December 04, 2010

From the wikileaks archive

This title on the NY Times about one of the wikileaked documents: "Cables Discuss Vast Hacking by a China That Fears the Web".

This post is a continuation of the one immediately before: Of course China fears the web. Open access to information is lubrication to the workings of democracies; it is poison to the workings of autocracies. This is why Wikileaks is intrinsically a force for good, even if we don't have a particularly fond view of it at this moment.


*** Update ****

Right on cue, Ron Paul weighs in: "We need more Wikileaks. In a free society we're supposed to know the truth. In a society where truth becomes treason, then we're in big trouble. And now, people who are revealing the truth are getting into trouble for it."

*** End Update ***

I was thinking about how Western governments are pursuing Julian Assange after the latest Wikileak dump. I've read a lot of these leaked documents. Not many of them really say anything that we don't already know, but even more than that, I actually think they paint the US in a pretty decent light. It looks like we have a pretty capable diplomatic corps around the world who are working to advance US interests. More importantly, and someone might call me naive for saying this, but in most of the cases "US interests" happen to align with the interests of most other nations, and indeed arguably the world. The US is a hegemon, and people are naturally suspicious of such power. The great debate the world over is whether the US is more of a benign or a malignant hegemon; I think these documents really strongly support the case for the former.

In the short term, this leak is a little embarrassing, I guess. However, our long term interests definitely lie with transparency access to information for all of the people in the world. If the people in North Korea, Iran, Saudi Arabia, and other repressive nations were better informed, we would all be a lot better off. While open conflict or belligerency may in the interests of politicians and industrialists, it certainly isn't in the interests of people...and better informed people are more difficult to manipulate.

To really be a force for good, I'd like Wikileaks to make a better effort to target other nations in their efforts for "transparency". They've leaked American documents what, three times now? Yet the US is already one of the most transparent nations in the world, and most of those dumps weren't particularly revealing, although the push for American transparency is always healthy. Meanwhile, Wikileaks should start turning their efforts to decidedly less transparent governments around the world. If they did that, they'd prove to me that their intentions are pure, rather than just an exercise in left wing anti-Americanism.