While I wait for my new friend to show up, I figured I'd take the opportunity to define a few terms that I think were causing hangups in our discussion.
The one that drove me nuts (maybe because of my background) was savings. Typically, we define savings as the residual of income after paying all expenses. This seems consistent with Keynes (Y=C+S or something) and Friedman, who had the "lifetime wealth" formulation. This makes sense to me, but then I'm trained to think in a certain way. I'm open(ish) to debate on this issue.
The other thing is aggregate demand. This is my bad. I always think AD means consumer spending. But it does include investment and government spending and net exports (I imagine). So I promise to keep that in mind.
Any suggestions as to what else to include?
Tuesday, September 21, 2010
Tuesday, September 14, 2010
Statistical Insights in Movies
I am watching "Death Wish" with Charles Bronson right now. About halfway through, Bronson's character is at a party, and he walks by a man and woman talking about the recent vigilantism. The man says something like: "Is it any question he's a racist? He's killing more blacks than whites!" and the woman responds: "Or for Heaven's sake! More muggers are black than white! What do you want us to do, increase the proportion of white muggers?"
This is some cleverness I don't expect you'd see in PC movie-land we have today. The killings reflect the underlying distribution of muggers. The result, while skewed in a certain direction, isn't because the agent is discriminatory. It's because the underlying distribution is composed in a certain way. Selection bias. Brilliant.
This is some cleverness I don't expect you'd see in PC movie-land we have today. The killings reflect the underlying distribution of muggers. The result, while skewed in a certain direction, isn't because the agent is discriminatory. It's because the underlying distribution is composed in a certain way. Selection bias. Brilliant.
Monday, August 9, 2010
Middle-Skilled Employment Gap
In the WSJ today there's a very interesting article detailing a gap between work available in middle-skill industries and people with the appropriate skills for the job. The excess of work has grown during the recession but since 2000 middle-skill employment has been on a downward trend while high- and low-skill employment has been on an upward trend. A couple of reasons for this gap are extensions of unemployment benefits, which keep people looking for jobs similar to what they had in the past, and high personal debt, which makes it much more difficult to move for work. But these reasons only explain part of the story, and aren't particular to the middle-skill jobs market.
I've been hearing for years now from manufacturing firms that they can't find skilled laborers to work in factories. It's hard, for example, to find people who can do mathematics and can run various wood-cutting devices. This is a long-run trend, and it's now gotten worse. I think that I know one of the key factors behind this long-run trend. Actually, the factor can be divided into two issues, but they are sides of one coin, and that coin is education, or rather the education industry.
It boils down to this: too many people are going to university/college instead of trade schools; and the value of high school education is very low. The first factor drives up the demand for "high-skilled" jobs even while driving down the salaries since supply doesn't necessarily keep pace. That leads people with some college education to take "low-skilled" jobs, pushing down salaries for people with only high school education. The problem here is that college education, generally, doesn't prepare people for the "middle-skilled" jobs, which often combine technical knowledge with "hands-on" skills. Ability to dissect a Jane Austen novel not desired. The second factor, poor high school education, leaves those youngsters who do not go on to some post-secondary with a very uncompetitive battery of skills. That spells a lifetime of low-skilled, and low-pay, jobs.
There are many incentives in place to encourage youngsters to go on to college, including grants, scholarships and cheap loans. Combine the monetary incentives with the rhetoric about college (go to college! you're nothing without a degree! it's the path to a good-paying job!) and teenagers face very skewed and somewhat bewildering incentives. Furthermore, their teachers and guidance counselors and principals are all college graduates and therefore have a personal incentive to push college as the default. Okay, so the upshot is too many people going to college/university, and a lack of people getting technical education (like welding, carpentry, etc.).
Now, the failure of secondary education is the other problem. I'm certain many of us have seen those old exams (from the 1930s, say) that crop up now and again. In the midwest, a lot of those exams have to do with agriculture, as might be expected. But while the specific knowledge tested in those exams is now irrelevant, the skills tested on those exams is not. The mathematical demands on students was much higher in years gone by than it is now.
High school even changed while I was in it. My cohort was the last one to be required to take algebra in every grade, and at least two sciences in each grade. We were offered calculus in 12th grade, but it wasn't required. But the cohort immediately following mine had the math requirements gutted. Now, they had to take math every year, but they could substitute elementary math for algebra.
The dumbing down of elementary and high school education is not news, though. Public high school failures make charter school and other program successes very important, but still most youngsters are educated at public schools.
So take these factors all together, and I think that's producing the skill gap that results in a shortage of middle-skill workers on the long-term.
I've been hearing for years now from manufacturing firms that they can't find skilled laborers to work in factories. It's hard, for example, to find people who can do mathematics and can run various wood-cutting devices. This is a long-run trend, and it's now gotten worse. I think that I know one of the key factors behind this long-run trend. Actually, the factor can be divided into two issues, but they are sides of one coin, and that coin is education, or rather the education industry.
It boils down to this: too many people are going to university/college instead of trade schools; and the value of high school education is very low. The first factor drives up the demand for "high-skilled" jobs even while driving down the salaries since supply doesn't necessarily keep pace. That leads people with some college education to take "low-skilled" jobs, pushing down salaries for people with only high school education. The problem here is that college education, generally, doesn't prepare people for the "middle-skilled" jobs, which often combine technical knowledge with "hands-on" skills. Ability to dissect a Jane Austen novel not desired. The second factor, poor high school education, leaves those youngsters who do not go on to some post-secondary with a very uncompetitive battery of skills. That spells a lifetime of low-skilled, and low-pay, jobs.
There are many incentives in place to encourage youngsters to go on to college, including grants, scholarships and cheap loans. Combine the monetary incentives with the rhetoric about college (go to college! you're nothing without a degree! it's the path to a good-paying job!) and teenagers face very skewed and somewhat bewildering incentives. Furthermore, their teachers and guidance counselors and principals are all college graduates and therefore have a personal incentive to push college as the default. Okay, so the upshot is too many people going to college/university, and a lack of people getting technical education (like welding, carpentry, etc.).
Now, the failure of secondary education is the other problem. I'm certain many of us have seen those old exams (from the 1930s, say) that crop up now and again. In the midwest, a lot of those exams have to do with agriculture, as might be expected. But while the specific knowledge tested in those exams is now irrelevant, the skills tested on those exams is not. The mathematical demands on students was much higher in years gone by than it is now.
High school even changed while I was in it. My cohort was the last one to be required to take algebra in every grade, and at least two sciences in each grade. We were offered calculus in 12th grade, but it wasn't required. But the cohort immediately following mine had the math requirements gutted. Now, they had to take math every year, but they could substitute elementary math for algebra.
The dumbing down of elementary and high school education is not news, though. Public high school failures make charter school and other program successes very important, but still most youngsters are educated at public schools.
So take these factors all together, and I think that's producing the skill gap that results in a shortage of middle-skill workers on the long-term.
Wednesday, August 4, 2010
Types of Capitalism
Here is my submission to the Mont Pelerin society essay contest. I lost (ah, well) but the discussion over at Cafe Hayek about Cuba and Portugal made me decide to post it. Any comments/critiques very welcome!
Tuesday, July 20, 2010
Governance and the State: A dichotomy
Interesting op-ed in the Wall Street Journal today. Apparently Hong Kong is instituting minimum wage laws and some anti-trust mechanism. The article suggets this is misplaced populism. Whatever it is, it's an expansion of government intervention in the free market. It will do the same thing to HK as it has done everywhere else these same interventions exist: reduce employment of low-productivity workers, and reduce competition by giving discretion over M&A to government officials.
So fine. The point I want to make here is actually one of degrees of state involvement. There's a lot of discussion about the optimal size of government. The underlying assumption here is that government can be restrained to some fixed size. Of course this is not the case. As any student of history knows, it is the nature of government to keep growing. There is almost never a recession of government power. Most "revolutions" lead to an increase in government power. Not all, clearly. But most.
This leads me to the realization that no "small government" political philosophy is tenable against reality over any significant period of time. Thus the choice is really binary: state or no state. Central government or anarchy. HK stood against increasing government intervention for a long time. It too is falling.
So fine. The point I want to make here is actually one of degrees of state involvement. There's a lot of discussion about the optimal size of government. The underlying assumption here is that government can be restrained to some fixed size. Of course this is not the case. As any student of history knows, it is the nature of government to keep growing. There is almost never a recession of government power. Most "revolutions" lead to an increase in government power. Not all, clearly. But most.
This leads me to the realization that no "small government" political philosophy is tenable against reality over any significant period of time. Thus the choice is really binary: state or no state. Central government or anarchy. HK stood against increasing government intervention for a long time. It too is falling.
Sunday, July 11, 2010
Stability
People enjoy stable lives. Stability, peace, comfort - most people find these desirable. But these qualities are not to be had for any long-term period, judging by our history as humans. For the bulk of our history getting food and securing shelter were daily chores and so stability, peace, and comfort could be had for only a short while - an evening, perhaps, and then a season after developing agriculture. Technology has been the path to lengthening the relative periods of peace and tranquility for the human race, and we've come to a point that a lot of instability is idiosyncratic - it depends on one's personal decisions.
A strange thing has happened, though, over the past 150 years (or so) in industrialized countries. We've come to a point where we believe the natural instability inherent in human lives can be reduced or even eliminated. How? By giving the responsibility of our lives over to the state. We can see it clearly in social security operations: welfare, unemployment, state medical care - of course all paid for by taxes. Taxes are absolutely certain. I don't find them desirable in the least. But it also comes up in other policies: central banking, for example; rate-setting for utility companies, for another.
These policies have the effect of introducing greater stability and comfort into peoples' lives, this is true. But it is a short-term effect. Maybe a few years, maybe even a decade. But the trade off for this short-term stability is long-term instability. The payment for stability today is a sudden shock tomorrow. We can see this now, in our economy. All the spending by government, fueled by taxes and borrowing has led us to a point where state budgets are cracking up. My point is that, if people were left to manage their own idiosyncratic instability in their own way, this universal sort of crack up would not be happening.
A strange thing has happened, though, over the past 150 years (or so) in industrialized countries. We've come to a point where we believe the natural instability inherent in human lives can be reduced or even eliminated. How? By giving the responsibility of our lives over to the state. We can see it clearly in social security operations: welfare, unemployment, state medical care - of course all paid for by taxes. Taxes are absolutely certain. I don't find them desirable in the least. But it also comes up in other policies: central banking, for example; rate-setting for utility companies, for another.
These policies have the effect of introducing greater stability and comfort into peoples' lives, this is true. But it is a short-term effect. Maybe a few years, maybe even a decade. But the trade off for this short-term stability is long-term instability. The payment for stability today is a sudden shock tomorrow. We can see this now, in our economy. All the spending by government, fueled by taxes and borrowing has led us to a point where state budgets are cracking up. My point is that, if people were left to manage their own idiosyncratic instability in their own way, this universal sort of crack up would not be happening.
Sunday, July 4, 2010
The Virtues of the Declaration of Independence
On July 4th, I read the Declaration of Independence. I have it in a convenient little book form, along with the Constitution and the Bill of Rights. My version is a 2008 reprint of the 1998 printing from Bantam with an introduction by Pauline Maier. She gives a very nice, brief, discussion of the events surrounding the writing of each document which gives a bit more insight than just the document.
Prior to this particular July 4th, I've been reading "The Bourgeois Virtues" by Deirdre McCloskey. Among other things, the book makes the case that seven virtues (4 pagan, 3 Christian) form the foundation of "goodness" in behavior and in practice these seven virtues are the path to good society and prosperity. Prof. McCloskey's book is a lot more than that, but that's what I want to focus on here. The seven virtues, in no particular order, are: love (neighborly), hope, faith, courage, prudence, temperance, and justice.
As I was reading the Declaration today, it occurred to me that some of these virtues are embodied in the text itself. Obviously, the whole operation is an act of courage, and by the discussion of Ms. Maier it was born of desperation. But, as one reads the text, other virtues become clear.
The first sentence displays temperance with the word "necessary:" "When in the Course of human Events, it becomes necessary for one People to dissolve the Political Bands..." The independence is not to be invoked willy-nilly, but only for good reason.
Then we have this line: "...to assume among the Powers of the Earth, the separate and equal Station" with suggests courage, prudence, and temperance all at once: we will take our place among the world's powers (courage) and demand equal treatment for the good of ourselves (prudence) but we do not ask overmuch (temperance).
Of course, faith is wrapped up in the whole thing too: "...to which the Laws of Nature and of Nature's God entitle them..."
The first paragraph ends in prudence and temperance, and in fact justice, as they say: "a decent Respect to the Opinions of Mankind requires that they should declare the causes which impel them to the Separation." Here are our reasons, we make them plain for all to see (prudence and temperance) so that you may judge our position and find that our actions are equitable based on those actions taken against us (justice).
Now for perhaps the greatest sentence ever written: "We hold these Truths to be self-evident [prudence - there can be no disagreement], that all Men are created equal [is this love? justice?], that they are endowed by their Creator [faith] with certain unalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness...."
Life is more than just "living" or survival. Inherent in the phrase is a sense of good life - not serfdom, but the life of a free person. So Life and Liberty are inseparable and contained in these two ideas, held jointly, are several virtues. Obviously there is courage to live freely. This may be an uncomfortable life, after all. Hope and faith - well, they're in there for the founding fathers, certainly - to live a good life one must rise above material wealth to the "transcendent" after all. Prudence and temperance - to know how to conduct oneself, but never to go beyond your own freedom and interfere with someone else. Justice is part of that. And love, well - that we can come together and belief in a life of freedom and pursuit of happiness with our neighbors, and trust that we can all work together without be impelled to do so - that is love.
The remainder of the second paragraph lays out the right of people to abolish current government and set up a new one (justice) but states outright that prudence demands that people not do so because of "light and transient Causes." They then go through all the infractions of King George III against the colonies. Let's pick up at the last paragraph.
"...appealing to the Supreme Judge of the World for the Rectitude of our Intentions [faith and hope]... these United Colonies are, and of Right [justice] ought to be, FREE AND INDEPENDENT STATES;"
"And for the support of this Declaration, with a firm Reliance on the Protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes, and our sacred Honor."
The last sentence has it all. For the love of ourselves and each other, we are impelled to reject the authority of King George III to direct our lives and impose his rules upon us. We are joined together by our will in this and risk everything we have. These are the virtues upon which America is founded.
Happy Independence Day! Earn it.
Prior to this particular July 4th, I've been reading "The Bourgeois Virtues" by Deirdre McCloskey. Among other things, the book makes the case that seven virtues (4 pagan, 3 Christian) form the foundation of "goodness" in behavior and in practice these seven virtues are the path to good society and prosperity. Prof. McCloskey's book is a lot more than that, but that's what I want to focus on here. The seven virtues, in no particular order, are: love (neighborly), hope, faith, courage, prudence, temperance, and justice.
As I was reading the Declaration today, it occurred to me that some of these virtues are embodied in the text itself. Obviously, the whole operation is an act of courage, and by the discussion of Ms. Maier it was born of desperation. But, as one reads the text, other virtues become clear.
The first sentence displays temperance with the word "necessary:" "When in the Course of human Events, it becomes necessary for one People to dissolve the Political Bands..." The independence is not to be invoked willy-nilly, but only for good reason.
Then we have this line: "...to assume among the Powers of the Earth, the separate and equal Station" with suggests courage, prudence, and temperance all at once: we will take our place among the world's powers (courage) and demand equal treatment for the good of ourselves (prudence) but we do not ask overmuch (temperance).
Of course, faith is wrapped up in the whole thing too: "...to which the Laws of Nature and of Nature's God entitle them..."
The first paragraph ends in prudence and temperance, and in fact justice, as they say: "a decent Respect to the Opinions of Mankind requires that they should declare the causes which impel them to the Separation." Here are our reasons, we make them plain for all to see (prudence and temperance) so that you may judge our position and find that our actions are equitable based on those actions taken against us (justice).
Now for perhaps the greatest sentence ever written: "We hold these Truths to be self-evident [prudence - there can be no disagreement], that all Men are created equal [is this love? justice?], that they are endowed by their Creator [faith] with certain unalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness...."
Life is more than just "living" or survival. Inherent in the phrase is a sense of good life - not serfdom, but the life of a free person. So Life and Liberty are inseparable and contained in these two ideas, held jointly, are several virtues. Obviously there is courage to live freely. This may be an uncomfortable life, after all. Hope and faith - well, they're in there for the founding fathers, certainly - to live a good life one must rise above material wealth to the "transcendent" after all. Prudence and temperance - to know how to conduct oneself, but never to go beyond your own freedom and interfere with someone else. Justice is part of that. And love, well - that we can come together and belief in a life of freedom and pursuit of happiness with our neighbors, and trust that we can all work together without be impelled to do so - that is love.
The remainder of the second paragraph lays out the right of people to abolish current government and set up a new one (justice) but states outright that prudence demands that people not do so because of "light and transient Causes." They then go through all the infractions of King George III against the colonies. Let's pick up at the last paragraph.
"...appealing to the Supreme Judge of the World for the Rectitude of our Intentions [faith and hope]... these United Colonies are, and of Right [justice] ought to be, FREE AND INDEPENDENT STATES;"
"And for the support of this Declaration, with a firm Reliance on the Protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes, and our sacred Honor."
The last sentence has it all. For the love of ourselves and each other, we are impelled to reject the authority of King George III to direct our lives and impose his rules upon us. We are joined together by our will in this and risk everything we have. These are the virtues upon which America is founded.
Happy Independence Day! Earn it.
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