Tuesday, November 29, 2011

Quite Right

Thought of the Day, from Thomas Sowell:
"The more doctrinaire libertarians see the benefits of free international trade in goods, and extend the same reasoning to free international movement of people. But goods do not bring a culture with them. Nor do they give birth to other goods to perpetuate that culture."
Bingo.

If I had to describe where I part company with (some) libertarians, it is on exactly this point - that I think they frequently tend to underestimate the importance of culture. This often makes them both unwilling to defend western culture in a meaningful way, and enthusiastic about widespread immigration,  even if it is comprised of individuals unlikely to share (or even deeply antithetical to) the values of western society.

Monday, November 28, 2011

A Snapshot of Modern Britain

Article 1 - British Police spring into action to arrest woman for saying nasty racist things on a train:
A woman has been arrested after an online video apparently showed a woman abusing ethnic minority passengers on a packed south London tram.
...
British Transport Police said a woman, 34, had been arrested on suspicion of a racially-aggravated offence.
...
In the online clip, the woman confronts several passengers, saying: "You are not British". She then starts swearing. 
A British Transport Police spokesman said: "The video posted on YouTube and Twitter has been brought to our attention and our officers have launched an investigation. ....We will not tolerate racism in any form on the rail network and will do everything in our power to locate the person responsible."

Article 2 - Theodore Dalrymple recounting how the British legal system doesn't give a rat's @** about burglary:
While on the subject, let me just recount one story to illustrate how seriously the British state takes the defense of the property of its citizens. I was looking through the criminal record of one of my patients in the prison and discovered that he had not long before been convicted for the fifty-seventh time for burglary. Since most criminals will happily admit, in confidence, that they have actually committed between five and fifteen times as many crimes as they have ever been caught for, it was quite possible that this man had committed more than five hundred burglaries. And what was his terrible punishment for his fifty-seventh conviction for burglary? A fine of $85, presumably paid for from the proceeds of his activities.

Now that's a society with its priorities set straight! Get your feelings hurt by racist white trash assholes? Leave no stone unturned to arrest them! The same racist white trash assholes are breaking into your home right this second while you're on the phone? Sorry, we're very busy. Stop by the office later and we'll give you a useless police report so you can file an insurance claim.

It's also refreshing to see that the British Police have also taken a leaf out of Ken at Popehat's "Chicago Manual of Style For Censorious Dipshits":
The obligatory “we believe in freedom of expression” paragraph in the standard defend-our-censorship communique is simply embarrassing. That’s why the Chicago Manual of Style For Censorious Dipshits (“CMSCD”) recommends eschewing it and launching straight into the meat of your uninformed and conclusory stomping on First Amendment law.
Yes indeed, the British Police are admirably straightforward - they don't believe in freedom of expression, and don't care if you know it.

Sunday, November 27, 2011

File this under 'unpersuasive'

To put it mildly.

Robert Frank wrote an op-ed claiming that there was an arms race in thanksgiving store opening hours which, of course, needed regulation. Tyler Cowen wrote about it, and Frank sent Cowen an email with some additional details. Included was the following anecdote about the recent allowing of Sunday trading hours in liquor stores in New York State :
I had a recent conversation about this issue with a friend in Ithaca who owns a wine store. Traditionally, New York State wine merchants were not allowed to do business on Sundays. But last year that restriction was repealed, and I asked my friend how the change had affected him.
His overall sales were about the same, he told me. The change had thus been a clear negative from his perspective, since it meant that he and his wife were no longer able to spend Sundays together with their children. The upside was that customers who lacked the foresight to shop in advance for their Sunday wine needs could now be accommodated. If we’re willing to discount the cost of an inconvenience suffered by those who could easily have avoided it, the costs in this case seem clearly to outweigh the benefits.

You don't say! If you're willing to discount the main cost of a given action, the benefits will frequently outweigh the costs. Feel free to try this with a range of meddling economic proposals:
-If you're willing to discount the millions in unrecoverable funds, the benefits of the government guarantee of Solyndra seem to clearly outweigh the costs.
-If you're willing to discount the cost of reduced competition and higher prices, the benefits of mandatory licensing of interior decorators clearly outweigh the costs.
 etc.

But there's an easier way to tell that this proposal doesn't make sense. What's so special about Sundays? Why not restrict Mondays as well? Or only allow trading one day a week? After all, if we're willing to discount the inconvenience suffered by those who could easily have avoided it, these would clearly make sense too!

Eventually, the Robert Franks of the world would look at this and say, yes, but there's a limit, customers need some convenience.

But this implicitly acknowledges that his argument, as phrased, is a crock. It's not that you can actually 'discount the cost of an inconvenience suffered by those who could easily have avoided it', but instead that Robert Frank thinks that the inconvenience they suffer is less valuable than the benefit to the liquor store owners.

To which I ask, how exactly are you arriving at that conclusion? Because it sounds a lot like you're just pulling that conclusion out of your @**, and you'd have no idea what the actual inconvenience to customers is, nor how many of them there are, nor how to value it.

Personally, I cannot fathom a theory of government that says if I want to open my store at 9am, 4pm or 2am to sell you a computer, a suit, or a bottle of whisky, why it is any business whatsoever of the government's. A government that is willing to intrude in this is willing to intrude in absolutely anything.

Saturday, November 26, 2011

Why was the Greek default "voluntary"?

Marginal revolution links to this piece in the UK Daily Telegraph:
But perhaps the biggest sin of the lot was effectively to render all credit default swaps (a form of insurance against default) on sovereign debt essentially worthless, or void, by making the Greek default "voluntary".
This has made it impossible to hedge against eurozone sovereign debt purchases, and thereby destroyed the market. Worse, it's made investors believe that the euro cannot be trusted, that it'll repeatedly find ways of reneging on contract. That's the point of no return. This is no longer a serious currency.
Tyler Cowen refuses to take a stand on the question of whether the stated claim (making the default "voluntary" was a big blow to the credibility of the Euro) is true. And I think it's not clear, although the argument is not unpersuasive.

But it does raise a something that I now wish I'd written about earlier when I thought of it at the time, namely this: I don't understand why on earth they insisted on making the default "voluntary". The quotation marks are deliberate, as it was about as "voluntary" as when Vito Corelone makes you an offer you can't refuse, complete with a decapitated horse head left on your pillow. But technically, the private debt holders just happened to agree to forgive half the Greek debt they held. You know, like debt holders always do! Call up your student loan company, they'll tell you all about it!

When investors in Greek debt have to take a haircut, somebody is losing money. In a simple world without credit default swaps, the holders of the debt lose money - easy enough, that's the risk they took when they bought it. In this case, it doesn't really matter if the default is voluntary or not, they lose the same amount of money.

But when you add in credit default swaps, now it does start to matter. For the non-finance audience, think of this as like an insurance policy for the case that the debt defaults. You make periodic payments in advance, and then get a payoff if there's a 'credit event' (default, delay in payment, reduction in principal or interest, and a bunch of other contractually specified events). Some people buy the CDS contract and the bonds, some people buy the bond but not the CDS, some people sell (i.e. write) the CDS.

In a typical default, the ordering goes like this: the best off are those who had the bond and the CDS - this is like when your house burns down, but you have an insurance policy. The next worst off are the guys who have the bond but not the CDS. They're like the people whose house burnt down without insurance, but they still at least have the land (i.e., whatever the recoverable value of the bond is). The worst off are the CDS writers (i.e. the insurance comapny) - they pay out on the policy, and get nothing.

In well-functioning financial markets, we tend to think that this kind of risk-sharing is welfare improving. The insurance company is better placed to bear the risk of my house burning down than I am, and I pay them a premium for this service. Everyone benefits in the long run, even if there's winners and losers in any given event.

So here, it's as if the EU governments decided to not only burn down the house, but also void all the fire insurance policies, since "voluntary" defaults don't trigger the CDS contract payments. The best off are the CDS writers (the insurance companies), who pay nothing. The second worst off are the guys with bonds but no CDS (the homeowner without insurance), who takes the haircut but that's all. And now the single worst off guy is the one who bought the bond and the CDS - he loses  out on the value of the bond, AND he's been paying premiums for all these years on the CDS! Essentially you're totally screwing over the guy who bought the Greek Bonds but was a bit nervous about the risk and tried to insure himself. Congratulations pal, you get to eat a sh*t sandwich!

Now, bear in mind this is the exact opposite  of what governments normally do in catastrophes. If anything, they like to pressure insurance companies to pay out in situations they might not have. Both September 11th and the Paris Car Burnings could arguably be considered acts of war or civil emergencies (respectively), neither of which tend to be covered in insurance contracts. But the insurance companies paid out anyway, perhaps because of actual (or implied) pressure from the respective governments. Obviously there are clear political reasons in those cases - lots of voters on one side, a couple of nasty insurance companies on the other - but still, it's the general rule for how things go.

So why the hell would they deliberately do the opposite in this case? Truthfully, I don't really know. The "voluntary" defaults were taken by private investors and banks, and the people who wrote CDS contracts were largely other banks. So it's not clear why the EU government should prefer one group over the other. Maybe the government had private information that the financial stability was more threatened by CDS writers going under than bondholders, but it's not clear why this should be the case - a lot of French and German banks stood to lose money by this deal, as they held the bonds and CDS contracts that got screwed.

So what's left? A symbolic 'we never defaulted!' victory? Seems like a pretty damn Pyrrhic victory to me, as investors are not going to be fooled at all next time they're thinking about investing in PIIGS government debt. And the article author is right - they're also going to rightly question whether they can even get proper CDS insurance on this debt, or whether the EU will choose to screw them over again. This might not cause the collapse of the Euro, but it sure doesn't seem to be adding to the desirability of EU sovereign debt.

I'm hoping there's a good reason they did this that I don't know about. But from reading around, I haven't uncovered what it is. I can think of a bunch of bad reasons (CDS writers were more politically connected, the EU had a hard-on about the idea of not actually defaulting). But if there's some higher purpose to the whole thing, you can put me in the same camp as Jeremy Warner at the Telegraph in not understanding what it is.

Friday, November 25, 2011

Thursday, November 24, 2011

The Difference Between Game Theory and Decision Theory

Game Theory assumes (at least) two things: common knowledge of the structure of the game, and mutual best responses by all players.

Decision Theory assumes neither.



The classical decision theorist would look at this picture and reflect that the lesson is that sometimes people do things that are TOTALLY CRAZY.

The more nuanced decision theorist would look at this picture and reflect that the lesson is that sometimes the other party isn't actually playing the game that you think they're playing.

Personally, I side with the latter as the one that you've really got to be worried about.

Either way though, caveat emptor.

Filling in the relevant details of the game is, of course, left as an exercise for the reader.

Predicting Behaviour During a Divorce

Apparently Hulkamania is running 70% less wild these days.
Linda Bollea, 52, who divorced Hulk Hogan in 2009, received a little more than 70 percent of the couple's liquid assets in their divorce settlement, a recent court filing shows.
In addition, Hogan, 58, the semiretired professional wrestler whose real name is Terry Bollea, agreed to give his ex-wife 40 percent ownership in his various companies and pay her an additional $3 million "property settlement," according to the 
filing.
...
The Bolleas married in 1983 and divorced in July 2009 after nearly two years of acrimonious proceedings. 
This is what happens when you get divorced in California, a community property state. The 70% is an overstatement because it only applies to the liquid assets, and Linda gets $3 million from the sale of their property. But from reading through the rough description of the settlement numbers (it's hard to figure out the exact details from the article), it seems like she's probably getting maybe 50% of the total net worth.

I'm guessing that when Hogan got married in 1983, he wasn't imagining that in the event of a divorce, he'd be going through 2+ years of nasty court proceedings and still lose half his stuff. The latest dispute, apparently, is over whether he owes his ex-wife 40% of the company's gross revenues, or 40% of net revenues. Over such minor drafting ambiguities do years of litigation depend when people loathe each other.

The question is, why are people so bad at forecasting how their partners will act if they get divorced? I think part of the problem is that they keep being influenced by the way the partner is acting today. In other words, they think of how Bob or Sally is today, and imagine them breaking up.

But this is deeply faulty. By the time you get divorced, it's fair bet to assume that they will hate you more than any other person in the world. You have the burden of years of messy and hurtful deterioration of the reltationship, and/or surprising and nasty betrayals of trust. Plus you're then forced into a very high-stakes negotiation with someone that you now despise. Which may last years. And in which they'll have a lot of opportunities to engage in costly punishment - refusing to agree, dragging out court proceedings, etc.

So the better measure is the following - how do they act towards other people they hate or have hated in the past? Are they vindictive? Do they bear grudges for long periods? Do they find ways to get back at people? And how many such people are there - do they have a long list of people they don't like? If you have data on past relationships, this is even better. Are they on speaking terms with their past boyfriends/girlfriends/ex-wives/ex-husbands? Were they cheated on, and if so, how did they react?

A second, but somewhat less useful category, is how greedy are they with money generally? Someone may go after your money either as punishment for you, or because they really want the lifestyle it gives them. What is their attitude towards receiving charity? Are they reluctant to be financially supported by other people? I think this is a weaker test, because a) there's substantial punishment motivations for going after money as well, and b) by this point, they're likely to view it as being their money, not yours. And if there's any lingering aspect on this, having it intermediated through the courts will probably weaken it further.

But my strongest predictor would be the following - what's their attitude to the courts? Have they ever seriously threatened to sue someone? Have they gone through with it? Has this happened multiple times? If any of these start coming up, you'd better believe you're going to be in for a nasty divorce if it happens.

And once you've got your estimate of the chances of the divorce being messy, double it. Then either get yourself a good pre-nup with your spouse getting independent legal counsel that gets documented (knowing that courts will probably throw it out anyway), or don't get married. Unless you're in Australia, in which case even not getting married may not to save you. In which case, bend over and take it like the government demands, or presume to spend a ton on lawyers no matter what.

Tuesday, November 22, 2011

The Single Worst Law in America Today

The rule that both parties in legal disputes pay their own costs, regardless of the outcome.

This leads to gold-digging lawsuits. It leads to people suing home owners because they slipped on their pavement. It leads to disgruntled employees filing lawsuits every time they get fired. It leads to doctors being sued every time an operation is not successful, regardless of whether it was their fault. It leads to robbers suing homeowners for injuries they sustain in the course of burglaries.

Why, you may ask, does it lead to all these various things?

Because it creates the most screwed up incentives imaginable. A lot of plaintiffs get their fees charged on contingency – no win, no fee, in other words.

When someone files a lawsuit, no matter how ridiculous, the only cost is their time. Monetarily speaking, every lawsuit has a positive expected value from filing. Any risk that’s there is retained by the lawyer, who spends more time on the case.

When people defend a lawsuit, even when they win, they lose. Because there’s no payoffs to successfully defending a lawsuit, defence lawyers can’t charge on contingency. Hence, apart from a few special cases like SLAPP statutes (where you can argue that the lawsuit was designed to silence free speech), the defendant has to pay up front.

The best case scenario is that you just pay your legal fees. The worst case scenario is that you pay your legal fees and the judgment against you.

But then the plaintiffs will make you the devil’s bargain – if it will cost you at least 30 grand to defend this, why not just settle the case for five grand, even though it’s bogus?

The main people who defend lawsuits are those who have a personal conviction that they’d rather spend more money on lawyers just to make sure the plaintiff doesn’t get anything. But even then, the plaintiff doesn’t get punished, they just get zero. If defendant actually wins. Which they may not.

This system has a number of problems.

Firstly, it creates an incentive for all sorts of gold-digging lawsuits. Lawmakers end up trying to play whack-a-mole to fix the related problems, such as capping medical negligence damages (where everyone still has an expected benefit, but it’s now smaller.) Or maybe make it harder to win lawsuits if you slip over, or if you were in the process of robbing a home. But whatever you do, you’ll always be playing catch-up as long as the base incentives to file lawsuits remain in place.

Secondly, it creates a morally impoverished citizenry that views every trivial wrong as a potential lottery ticket. Those who justifiably view this system as legalized extortion may choose to voluntarily refrain from filing, but this merely means that the benefits accrue disproportionately to the shameless, the self-entitled, the greedy, and the narcissistic. What a horrible incentive to erode virtue.

Thirdly, it fails to recognize that lawsuits impose a real cost on the counterparty and society. Like any externality, when people aren’t forced to internalize the cost, they over-consume the item. Same with lawsuits. Making the losing party pay the winning party’s legal fees means that people are forced to consider if they actually suffered a serious and acute legal wrong for which they need compensation, or whether they’re just trying to punish someone they’re pissed off at. It is manifestly not the role of the legal system to help ameliorate your hurt feelings.

But for some reason, the popular support for this position is very slim. Websites like Overlawyered document very well the egregious abuses of this lawsuit-obsessed society. But they don’t really talk about why this happens, or what can be done to stop it.

I would love to see the Republicans propose ending this practice. The trial lawyers would scream bloody murder, but it would be amongst the easiest and most beneficial changes that could be made to the law.

Monday, November 21, 2011

Man, Dog, TSA version

Dog bites man:
A Transportation Security Administration employee is accused of sexually assaulting a woman in Manassas.

Police said the victim reported that she and a friend were in the 10500 block of Winfield Loop in Manassas when the suspect approached them. The suspect flashed a badge and sexually assaulted the victim before fleeing on foot, police said.
Wait... this happened outside of an airport? Outrage!

Bad Signals of Movie Quality

When the premise of the movie begins as follows:
"X is a (movie/book/etc.) writer who has enjoyed past critical success. But he  finds himself suffering from a bad case of writer's block, and ... [blah blah blah]"
The problem is that this just screams out projection by the scriptwriter. "Holy crap, I can't think of anything to write and the studio is busting my @**! Let's write a movie about a guy who's struggling to write a movie and the studio is busting his @**!"

Let's not.

This formula is just a very slightly disguised version of what happened in primary school when you were told you had to give a speech but couldn't think of what to talk about, so you gave a speech about how to give a speech. It wasn't interesting then, and it's not interesting now.

Looking back to the synopsis above, there's only two possibilities. Sometimes the [blah blah blah] is actually interesting, in which case why not just start there? Why have all this self-indulgent bit at the start that merely dilutes the average quality? The other possibility is that [blah blah blah] isn't actually that interesting. In which case, the good news is that quality is not being diluted, but the bad news is that it's uniformly bad.

I noted this while watching Barton Fink last night, which follows almost exactly the plotline above for values of [blah blah blah] = murder plot that comes out of nowhere. It definitely one of the Coen Brothers weaker efforts, and I'm normally a big fan of their work. The movie has a great performance by John Goodman, and some hilarious portrayals of 1940s Hollywood types, especially the studio head. But it takes 70 minutes before anything interesting happens. 70 minutes! Many good movies are mostly finished by that point!

I did look at the Netflix synopsis, which was pretty similar to the outline above, and it gave me some trepidation, but I figured the Coen Brothers could make it work. Yeah, not so much. Do yourself a favour and watch The Big Lebowski a third time, you'll have more fun.

Thursday, November 17, 2011

Miscellaneous Joy

-An interesting theory about McDonald's McRib - that it only gets reintroduced when pork belly prices drop. (via Kottke)

-A wicked sight-reading of the Super Mario Brothers theme, by someone who apparently has never played the game.

-Click and drag around to control the view from a helicopter ride. Rad!

-Coyote lays the smack down on the bogus use of statistics by global warming hysteric James Hansen. Deliberately misleading or just plain stupid? You decide!

Wednesday, November 16, 2011

The Off-Equilibrium Benefits of Widespread Gun Ownership

Economists sometimes talk about about the idea of certain things being 'off the equilibrium path'. What this means is that you never actually expect to see the situation where the alternative scenario would arise.

I think that military size is a classic example of this. If you have a military that is overwhelmingly stronger than everyone else's (and you only plan to fight defensive wars) you probably ever won't need to use it. Once you have the biggest army, why would anyone want to fight you? Other countries know they'll lose.

And here's where the off-equilibrium part comes in. You never expect to see the scenario where the huge army is actually useful. But if you took away the big army, suddenly you would need it, because other countries might be tempted to invade. In other words, you can't look at the fact that your army is not being used to fight wars and infer from that the large army wasn't necessary. The benefits, in other words, never get observed, because they are off the  equilibrium path.

I think that one of the big benefits of widespread gun ownership operates in the same way. Widespread gun ownership has lots of costs - more crimes of passion, more accidental shootings, etc. But like a large army, having lots of hunters (and even just armed gangbangers) has off-equilibrium national security benefits. Last year, Marginal Revolution linked to the following post at Federalist Paupers on this subject:
The state of Wisconsin has gone an entire deer hunting season without someone getting killed. That’s great. There were over 600,000 hunters.
Allow me to restate that number. Over the last two months, the eighth largest army in the world – more men under arms than Iran; more than France and Germany combined – deployed to the woods of a single American state to help keep the deer menace at bay.
But that pales in comparison to the 750,000 who are in the woods of Pennsylvania this week. Michigan’s 700,000 hunters have now returned home. Toss in a quarter million hunters in West Virginia, and it is literally the case that the hunters of those four states alone would comprise the largest army in the world.

This kind of level of armed citizenry would make it incredibly difficult to successfully invade the US. Even after you beat the main professional army, everywhere your soldiers go they risk getting killed by trained riflemen. That's going to make it very hard to subdue the populace.

The interesting thing, at least politically, is that when benefits get sufficiently far away from the equilibrium path, people tend to forget that they're there. It is almost unthinkable that someone would try to mount a land invasion of the US any time in the near future. And at least part of this is due to the deterrent effects of domestically owned guns. But the prospect of hunters shooting at - who? the Russians? the Chinese? - seems so far-fetched that people discount it. The relevant question is to assume that we're no longer in equilibrium. If the Chinese had invaded, would America's hunters shoot at them? Very likely. And as long as that's the case, it's a real benefit. Even though it's incredibly unlikely you'll ever see it come to that.

It may still not be worth it to have lots of guns. It may be the case that, hunters and gangbangers or not, the conventional US Army is enough to make invasion very unlikely. But that's not really the point - a benefit is a benefit, even if it might be very costly to obtain.

As Cypress Hill noted about guns: When the $#*t goes down, you'd better be ready.

The game theorists riposte would be as follows: If you're always ready, the $#*t may never actually go down. But that doesn't mean you don't need to be ready anyway.

Tuesday, November 15, 2011

Monday, November 14, 2011

That's just super!

Back during the debt ceiling debate, one of the key components of the compromise agreement between Democrats and Republicans was that a fabulous new "supercommittee" was to be formed to figure out how to reduce the deficit. No, not the Bowles-Simpson commission, which had been formed to investigate just that question and came to some quite reasonable-sounding conclusions, but a great new one! Made of the same quality politicians that steered the country right to the brink of voluntary default!

So how exactly is that working out? Well, here's the answer, according to The Hill:
It's a move that's been dismissed as a budget gimmick, but it's also one that could make the supercommittee's job a whole lot easier: counting the savings of withdrawing troops from Iraq and Afghanistan.

The White House says $1.1 trillion will be saved by drawing down those troops from Afghanistan and making the U.S. presence in Iraq a civilian, not a military, one.

Given that the supercommittee must track down at least $1.2 trillion in cuts to avoid the triggering of automatic cuts, simply accounting for those savings would nearly get the panel there all by itself.
Yes, that's definitely the kind of tough political decisions that S&P was hankering after when they downgraded the US credit rating! I'm intrigued by the first sentence - is there anyone who wants to seriously take the counter-position that this is not, in fact, simply a budget gimmick? Anyone at all?

But not only that, apparently Democrats on the committee have already proposed that these miraculous 'savings' should now be spent on a second stimulus instead of used for deficit reduction. Yes, that's right! They found new funny money, and can't wait to spend it on real commitments! Which will, in the grand tradition of Washington, be advertised as one-off extraordinary spending, but somehow will make it into future budgets as the baseline of spending, from which any cuts will be demagogued as harsh and cruel.

Mark Steyn heaps well-deserved scorn on this whole exercise:
But, aside from that, in what sense are these “savings”? The Iraq war is ended – or, at any rate, “ended,” at least as far as U.S. participation in it is concerned. How then can congressional accountants claim to be able to measure “savings” in 2021 from a war that ended a decade earlier? And why stop there? Why not estimate around $2 trillion in savings by 2031? After all, that would free up even more money for a bigger stimulus package, wouldn’t it? And it wouldn’t cost us anything because it would all be “savings.”
Come to think of it, didn’t the Second World War end in 1945? Could we have the CBO score the estimated two-thirds of a century of “budget savings” we’ve saved since ending that war? We could use the money to fund free Master’s degrees in Complacency and Self-Esteem Studies for everyone, and that would totally stimulate the economy. The Spanish-American War ended 103 years ago, so imagine how much cash has already piled up! Like they say at Publishers’ Clearing House, you may already have won!
It is becoming clearer and clearer that the US deficit will not be seriously dealt with until the country is in the same position as Greece is now. And given how well that's working in Greece, that may well mean that it's not dealt with at all. Unless you count 'default and being frozen out of credit markets' as a form of dealing with the problem. Which it is, after a fashion.

Reality will eventually deal with unsustainable spending one way or another. As Herbert Stein noted, if something cannot go on forever, it will stop. But you ought to care which way it happens. A car can stop by slowly pulling up to a red light, or it can stop by colliding with a brick wall. At this stage, I'm betting on the latter.

High Marginal Value Cleaning

The law of diminishing returns is called a law for a reason. The more of something you do, eventually the payoff decreases. It might increase at first (e.g. if there's network effects or economies of scale), but sooner or later, it turns negative.

But if you're clever, you can use this to your advantage. Take the lazy bachelor's approach to cleaning. Suppose (entirely hypothetically in my case, I assure you), your bathroom is quite dirty. In the case of cleaning, the first efforts at cleaning have huge payoffs. Just wipe the floor with a paper towel and you'll pick up maybe 70% of the filth. And it only takes 5 seconds! This is clearly a huge return on effort. But if you really want to get the floor clean, you'd have to get the mop and bucket, run the water, put in detergent, scrub the floor, and wait for it to dry.

In other words, that last 30% is going to take you 10 minutes, minimum. Honestly, who's got that kind of time?

The answer, of course, is people who are OCD about dirt, clean for a living, or have too much time on their hands.

It will come as no shock to those who know me in real life that I would self-classify as none of those three. Okay, maybe the third one is true (see, for instance, this blog), but I don't have the inclination to spend it cleaning.

If you don't believe me, just ask David Ricardo:


You should listen to your friend David Ricardo, he's a cool dude.

Wednesday, November 9, 2011

Phrases that I challenge ANYONE to explain the logic behind

(After the plane has landed):

"You may now use your cell phones but all other electronic devices must remain off."

Gotcha. Now we've reached the seventh circle of anti-scientific hell - my iPod might cause the plane to crash into the hangar, but when they installed a cell phone receiver to make it an iPhone, this somehow fixed the problem.

Ugh.

A Pre-Mortem Post-Mortem

Over at Hacker News, there's a fascinating article discussing the prospects of Raystream, a company that claims to have a new video compression technology. As their 'about' page describes their claims:
Using Raystream, the same one hour 720p video can be compressed up to 90% of its original file size, which makes it easily streamable over connection speeds ranging from 0.4 to 1.0 Mbs per second.
No playback modifications required (codec, browser player, set top box, smart phones, etc.)
Interesting, no?

Enter the description at 'Ihatelawyers3':
OK, at this point, if you know anything about video compression, you start to see a red flag waving in your face. The only way one can encode videos so that they (a) play on mobile phones, and (b) need no playback modifications (codecs, etc) is... if you use an existing codec.
But how can an existing codec compress to 10% of what it... already can do?
So he decided to take their test video and compress it using off the shelf technology. And the results, as described in the hacker news thread:
If you encode their test-video with an off-the-shelf open source H264 codec on normal settings, you end up with a video that is smaller than their sample video. Their "amazing new technology" is just vanilla h264 compression.
 Or put another way:
It means the _normal.mp4 file was encoded in an absurdly high bitrate for no reason except to make their claim of 90% compression.
 Hmmm.

I don't know video compression. The hacker news discussion and the github site seem pretty compelling.

But I do know finance.

Here's Raystream's stock price over the last month:


Yeeeaaaaah. It sure looks like something fishy is going on.

It's an over-the-counter stock, so you can't short it. But let's put it this way - Shylock Money Management is not investing any of its proprietary trading money in RayStream, and would be interested in possible short exposure to the stock.

Tuesday, November 8, 2011

Spam Comment of the Day

From a spam site commenter calling itself 'Wastewater Training' (no link for the spam site):
"A lot of water is wasted in those taps. But that doesn't end there. There are still a lot of things we should look into if we really want to save water like for instance in the garden. We should use the conventional water container to water the plants rather than using a hose or a sprinkler."
Yeeaaah. I'm not so sure that that was really the original point of the post:
So here's the bottom line. I refuse to feel the slightest bit guilty about taking long showers as long as the water department are blowing taxpayer dollars on ridiculous ads. If you want people to use less water, raise the damn price.
But sure, why not! Those free-market types will be rushing to take your online environmental compliance and safety training class after reading how insightful your remarks were.

Morons.

Monday, November 7, 2011

Market-Clearing is Overrated

In Australia, today they voted in the Senate to pass a tax on carbon dioxide.

Now, there are some reasonable argument for having a world-wide price of carbon, assuming countries could somehow be arm-twisted into doing so.

There are bugger-all reasonable arguments for imposing carbon tax when very few other countries are doing so. All that will happen is that carbon-intensive industries will be exported overseas.

But (as Tim Blair notes) to add to the hilarity, the tax comes in at a specific amount - in this case $23 a tonne. The trouble is that the current carbon price in Europe is about half that. You can see the progress for yourselves.

But that's alright, we've got Climate Change Minister (yes, really, Australia actually has one of those) Greg Combet to point out the answer:
But Climate Change Minister Greg Combet is not convinced the difference demands a change in the local price, saying a few months ago the European cost was “there or thereabouts” of $23 a tonne.
“We’ve just got to take a bit of a longer term view of this,” he told ABC Radio
Hmm. Any particular reason you think that the current price is unrepresentative, but the old price is clearly accurate? Any reason at all? I mean, if you're willing to admit that the market is inefficient today, why is 'a few months ago' the gold standard for the halcyon days of price efficiency?

Don't hold your breath waiting for a good answer to that one. But even this is beside the point - efficient or not, the European price of carbon right now is a lot less than it will be in Australia. (Not to mention that the Chinese price is forecast to be $0 for quite some time now, with an R-Squared of about 100% on that regression). As long as there's going to be a price, it ought to be the market price. Unless you think the relevant market is the US and China, in which case we're back to the earlier Shylock regression.

In Australia, the price will be at $23 a tonne, which some days will be less than Europe, and other days will be more.

In other words, the price will definitely not be a market-clearing price. This gives Australian firms a fluctuating competitive position relative to Europe, and a permanent disadvantage relative to just about everywhere else. Heckuva Job, (Bob) Brownie!

One prediction I can make with some confidence - expect the market for Australian-produced Aluminium to start clearing very rapidly at an equilibrium quantity supplied of zero.

Friday, November 4, 2011

Some Quality Trolling

This is one of the most hilarious heckles on the repulsive Westboro Church cult.



Unfortunately, these clowns are too obtuse to even be embarrassed (kind of goes with the territory). But Brick Stone does a great job of ridiculing them, which I think is far and away the best response to these imbeciles.

Thursday, November 3, 2011

Randomised Compassion

The problem with giving to the homeless is twofold.

First, how do you tell which people are truly in bad shape, as opposed to merely being professionally homeless? There are lots of people who are really out of luck. On the other hand, back when I was at university, the same 'bum' worked the same corner for years near school, and didn't look that homeless. I subsequently found out that he actually lived in the same large apartment building that I did.

Second, how do you give money without creating bad incentives? In other words, if you give money to people that beg, you create incentives for more people to beg, as opposed to say apply for a low-wage job. The last thing you want to do is set up a situation where someone makes more money begging than they would at a minimum wage job, or you'll end up with the hard-working being punished on net.

One solution that I like is to to give large-ish amounts of money to people who aren't asking for it.

In other words, find someone who is clearly homeless and away from significant pedestrian traffic, so it's unlikely that they're doing things for the benefit of an audience. For instance, I came across I guy today near a petrol station who was going through the bins looking for aluminium cans.

Now, clearly this guy meets criteria #1. Nobody digs through rubbish bins unless they're clearly down on their luck - it's not an obvious way to win sympathy from people, unlike holding up a sign saying you're a homeless vet.

But even better, giving the guy money isn't going to change his incentives. Because the generosity was essentially random from his point of view, he'll keep doing whatever he was doing before - in this case, working to eke out a small existence recycling cans. If you give money to a guy begging, your generosity is not random - it's a response to him asking you, and thus you're creating incentives for him to beg more.

Now, if the guy is truly homeless, this honestly isn't such a problem - more people get hassled, but he gets a little more money. I can happily call that a wash, or even a gain overall.

The bigger problem is the incentives you create for people who aren't actually homeless - slacker hippy tourists, for instance, who see beggars getting money. Unless you're able to clearly distinguish genuine need from grifters, giving to homeless beggars will create incentives for non-homeless beggars. And those are the people that definitely should be applying for jobs instead. Even worse, being asked for money by obvious moochers tends to make the average person reluctant to give money to anybody, even those actually in need.

In other words, I'd rather give twenty bucks to a guy sleeping on the street than twenty cents to a guy begging.

This is not a problem-free solution, of course. The guy who is truly in real trouble is likely to ask for money, out of desperation if nothing else. And he's the guy you'd really rather not turn down. The problem, as always, is the hippie grifters, mooching off people's sympathy.

In this sense, when I do give to beggars, the question of whether they truly are homeless is dealt with using the strong application of the Ronin principle  - if there is any doubt, there is no doubt.

It's not perfect, but compromises necessarily aren't. Don't blame me, blame the moochers.

Wednesday, November 2, 2011

Miscellaneous Joy

- A wonderful, rambling essay about crows as a metaphor for the working poor. There's plenty in The Exiled to disagree with (including, herein, gratuitous enjoyment about the Blackwater deaths at Fallujah), but they'll sometimes have these kinds of brilliant pieces that you're unlikely to read elsewhere.

-A great rant about how bad the websites are for Indian trains. Having been in the unfortunate position of having to once book railway tickets in India, I can attest to every word.

-Copyright troll who sued people for reproducing newspaper articles loses, big-time. Popehat has more on the background to this development.

-JWZ had this great post about how ridiculous Google's claimed 'support' for pseudonyms was, offering instead the following alternative policy:
Google's statement is obvious bullshit, and here's why. The way you "support" pseudonyms is as follows:
1. Stop deleting peoples' accounts when you suspect that the name they are using is not     their legal name.
2. There is no step 2.
Sure enough, they didn't take him up on the offer.

Stop it, B!

Something I was put on to recently - Felonious Munk. He has a whole series of interesting rants full of common sense and gratuitous swearing and humour. Check 'em out - the first is his appeal to the government to balance the budget.



The other great one was about the bad state of modern relationships. The good bit starts at about 3:00, and boy is it a corker!



Interestingly enough, the guy who put me on to him was Jay Nordlinger in National Review, which is not the most obvious audience for this stuff. But that's part of what appeals about Nordlinger in particular, who is one of the more interesting (and not rigidly political) conservative writers out there.

Tuesday, November 1, 2011

Your Proud Feelings vs. Drowned Boat People

Ho hum, another six asylum seekers drowned while on the way to Australia.

I wrote about this at some length last year when another bunch of boat people drowned near Christmas Island.

Here's a summary of the main point from last year. :

image

I don't know what the updated graph looks like, but if anyone would like to wager over the direction of the line, do let me know.

That's what compassion will get you. Look how self-righteous the Labor Party and the Greens were! No more wicked off-shore detention of asylum-seekers. No more housing people in those cruel, cruel detention centres! How virtuous we feel, now that we've finally gotten rid of those evil and nasty laws that John Howard put in place.

In an inconvenient turn, hundreds of people are estimated to have drowned since Labor scrapped the previous laws, based on the inexorable logic that 'more people attempting the crossing = more people dying in the attempt'. But who cares about such a trifle as that!

The phrase 'tough love' is one of those expressions that lefties hate, as it's one of those cliches that gets thrown around a lot in support of many policies, some of which really are tough love, and others of which are just tough.

But doubt not this: people respond to incentives. When people tried to point out to Julia Gillard that her policy was indirectly leading to hundreds of deaths by drowning, she responded that this was a “vile slur”, and among the most “dangerous”, “irresponsible” and “despicable” she’d heard in politics.

So here's a question. Let's put our 'correlation!=causation' caps on, and say that the straightforward incentives and persuasive time-series evidence is not conclusive. I'll take that. But even then, what the hell is Julia Gillard's alternative explanation for this trend? So you saying you're not killing people, huh? Then what exactly is the contention? Is it that more people aren't actually drowning, or that the increase in people coming and drowning has nothing to do with the fact that they are more likely to be processed in Australia and given asylum? Is it driven by the supply and demand of leaky vessels? Is it driven by these asylum seekers expecting to hop off the boat and get a job in Australia's booming mining industry? What?

In fairness to the Labor Government, since last year they've been trying to get offshore processing going again. Whether this attempt can be construed as a tacit admission that the previous policy was in fact killing lots of people is a different question, and one which I would love a reporter to ask her. But the policy hasn't been passed, mainly because they continue to operate under the ridiculous self-imposed constraint that  they won't use the single most logical place for it, namely Nauru.

Because then they'd have to admit that Howard was right. And nothing is more important that that. Certainly not a couple more drowned asylum seekers.

Andrew Bolt is right in skewering the worst delusional culprit - Bob Brown, leader of the Greens. But then again Bob Brown has never, in his entire political life, given even the vaguest indication that he grasps how incentives work. This imbecile is a walking monument to the Dunning-Kruger effect - the more he screws up policy, the more sure he is of his idiotic beliefs. You'd have more luck trying to get your dog to understand Fermat's Last Theorem.

Ostentatious moral vanity is unpleasant enough to watch at the best of times. Ostentatious moral vanity that is simultaneously leading to hundreds of preventable deaths, on the other hand, is sickening.