Heretics' almanac

Recession, adjustment, or what?

In a macroeconomic sense, recessions aren't bad things; they're adjustments. In a broad sense, they result when inventories have built up to the point that production has to decrease until the inventories come down to a reasonable level. The problem is that when production declines, then demand declines, and then it takes longer to reduce the inventories. When there are rising prices on, say, corn, farmers readjust their capacity to grow more corn. Over time, the supply and demand balance shift, but people who have grown corn with certain price expectations are reluctant to take losses. Especially when the incremental capacity comes at higher average fixed cost. Prices will eventually go down, but some of the capacity will have to be shut down and investments written off. Social costs follow, with dislocated farmers and farm workers.

In this particular case, a bunch of people assumed that residential real estate prices would continue to rise and markets remain liquid, thereby assuring value of the collateral of loans made to people who might otherwise default. Investors underestimated the risk of the assets and priced them incorrectly.

Illegal immigration and constitutional interference in marriage

It is hard to understand Bush's presidential priorities. The United States has lots of serious problems to deal with: poverty, health care, sectoral underemployment, and of course a pretty expensive war with an uncertain outcome. But the centerpiece policy items lately have been illegal immigration and a ban on same-sex marriages (and by extension, I suppose, polygamous marriages).

On the immigration issue, the debate is surreal. It is, after all, precisely the fact that some immigration is illegal that makes the labor we derive from it so cheap. These are workers who want to get paid in cash, expect no benefits, and generally refrain from accepting social services lest they be discovered and deported. If we made it legal to hire them, we'd force their employers to pay them a minimum wage, remit social security and medicare taxes, and possibly withhold income taxes. We'd have to offer the workers access to the same kind of benefits others would be entitled to, including medical services, education, etc.

Using money to save babies

I was doing some comparative statistics between Israel and the Arab states (which seem to indicate that the Palestinians might have been more independent if Israel didn't exist, but not better off in any other way), when I noticed something interesting related to infant mortality rates. Which was that while the poorer the countries were, the more of their kids died young; there wasn't a linear relationship. Some managed to save more infants with what little they had, and others did a poor job even with more money.

So I pulled together stats from 139 countries and ran a correlation analysis between infant mortality and per capital income. I converted all the raw numbers into logarithmic scales, and the coefficient was -0.87, which is pretty high. (For the raw numbers it was -0.6). But to find out which countries did the most with their money to save babies' lives. I calculated the ratio between the logarithmic value of these two numbers.

Interesting findings:

Why all hotels should offer 802.11 for free

Steven Landsburg wonders in Slate why some hotels offer free wireless service and others charge for it. His preliminary explanation relates to legal price discrimination, but he can't quite make sense of it.

The reason may be because he assumes there is a rational reason for it. Hotels simply haven't figured out where wireless internet fits into their overall offering - is it a necessary feature, such as a TV, soap or a bedside phone? Is it an optional amenity, such as the beer and nuts in the minibar? Or is it one of those weird things only a few guests want, like shoe polishing services?

My guess is that they haven't figured out how to source it, either, so they're probably paying some third party some ridiculous amount for a service that is utterly lacking in transparency (hint: there may be a business opportunity here).

Economics of natural disasters, a seed

It seems to me that the "experts" (always such an overly ambitious term in times like these) miscalculated the impact of Katrina on New Orleans.  The eye of the hurricane missed the city and passed it on the right side, so the winds, etc., weren't as devastating as they could have been.  Originally, they thought there'd be an all-clear by Tuesday, when the hurricane had moved on.

I'm not sure what they underestimated, but it seems there was more water from more directions than the city could handle.  So now it's one of those open-ended disasters: we have no idea of the impact of the damage, how many have died, what the secondary effects might be, how long it will take to clear up, etc.  The vast resources of the US military are put into motion to help out, but it's just too difficult, too nasty.

Parsing the Social Security debate

The Social Security debate is not dying down.  But let's be clear that we're discussing two different issues here:

One is the purpose of Social Security: Bush is urging "privatization" of Social Security to promote an "ownership society" that makes our social security account more than just a promise of benefits in return for a mandatory tax.  He wants the tax to become a mandatory savings program, in which the account is measurable, inheritable, etc.  That's a perfectly reasonable proposition, but we should debate openly whether we want that or something else, such as an insurance program for all elderly, or a welfare program.

The other is the solvency of the program in the long run.  After having read all the back and forth, I'm coming around to the view of "who the fuck knows anyway?"  The projections are so far into the future that they hardly make any sense.  The economic fluctuations that are certain to happen will blow the projections out of the water, anyway.

No politician has an incentive to separate those two issues, and most of the press is too partisan to bother.  Is this something the blogosphere has to get excited about?

Me on Social Security privatization

Michael Kinsley doesn't think that privatization of Social Security will work, and sent his theory on the matter to a few famous bloggers, among them Andrew Sullivan.  A number of people have responded to Kinsley's theory, impressing him with their level of sophistication.  An article is apparently forthcoming.

This is turning out to be a much more interesting topic than anyone (including, I suspect, the president) suspected. 

It's worth remembering, though, that Bush's principle has to do with something he calls the "ownership society," and this translates to the idea that those who contribute to Social Security own their account there.  "Privatizing" really means giving these accountholders the right to decide how their money is invested.  This is not to promise better future benefits, but rather to create a sense of ownership over the future.  This is appealing, but there are lots of wrinkles: