Quotes of the day

Economics evolved as a more moral and more egalitarian approach to policy than prevailed in its surrounding milieu. Let’s cherish and extend that heritage. The real contributions of economics to human welfare might turn out to be very different from what most people — even most economists — expect. --Tyler Cowen

In the longer run, the solution to the economic plight of high school dropouts and other low skilled persons is, as I have argued in previous blog posts, to ease the obstacles to boys and girls from poorer backgrounds that prevent them from finishing high school and getting additional training after high school, such as learning to drive trucks or work with computers. In the shorter run, it would be desirable to replace the welfare benefits that discourages many low skilled individuals from working with an expanded earned income tax credit that does the opposite and encourages them to work.--Gary Becker

In Ms. Sandberg's ideal world, "half our institutions are run by women and half our homes are run by men." Until this utopia comes to pass, it might be wise to take another look at "society." Society is, after all, a fancy word for other people. And what is society actually telling women these days? It is telling them that they ought to go out and earn a string of degrees qualifying them for hard-charging careers that the majority of them eventually discover that they don't actually want. As a result, many of them quietly cut back their hours and do what they actually want to do and do very well: make homes for their families. Sheryl Sandberg isn't one of them, and more power to her. But she is likely to find that nagging men and women to change their natures is a more daunting task than anything she does at her day job.--Charlotte Allen

Because pursuit of the truth is often irrelevant in evolutionary competition, humans have an evolved tendency to hold self-favoring priors and self-deceive about the existence of these priors in ourselves, even though we frequently observe them in others.--Eli Dourado

The minimum wage is far from the most harmful regulation on the books.  Why then do I make such a big deal about it?  Because it is a symbol of larger evils.
...
From the standpoint of public policy, the minimum wage is a symbol of the view that "feel-good" policies are viable solutions to social ills: "Workers aren't paid enough?  Pass a law so employers have to pay them more.  Problem solved."  From the standpoint of social science, the minimum wage is a symbol of the myopic view that you can become an expert on X by reading nothing but the leading research that explicitly addresses X: "Does the minimum wage reduce employment?  Read the top papers on the minimum wage.  Problem solved."
...
We need to get rid of the minimum wage.  But that's only a first step.  Our ultimate goal should be to get rid of the errors that the minimum wage has come to represent.--Bryan Caplan

Quotes of the day

Too much schooling is a bad thing.--Eric Falkenstein

Some claim that what sets us apart from other animals is our use of tools. Au contraire. Even sea otters -- a species that has neither reached the moon nor invented the beer cozy -- use stones to crack open the shells of their prey. No, what makes us unique is our staggering imagination and creativity, mostly when it comes to ostensibly obeying laws while utterly circumventing their spirit. We are homo loopholeus.--Patrick Hruby

... the startup job creation rate has collapsed during the last three years and actually fallen lower in 2011 than ever before. I’ll ask: Why did the IRS start cracking down on companies that hire American contractors in 2009?--Tim Kane

To achieve a real recovery

..., government policy should focus on individual incentives to work, produce and invest. Central here are tax rates and regulations, including especially clarity about future policies. In a successful policy package, the government would get its fiscal house in order and make meaningful long-term reforms to entitlement programs and the tax structure.

The Obama administration seems to think that individual incentives and serious fiscal reforms are of no great importance and policy should emphasize Keynesian-style demand stimulus (public works, prolonged benefits) along with bits of industrial policy (loans and grants to "green" energy companies). This approach has failed for three years.

That's Robert Barro.

Quotes of the day

What makes it so hard is not that you had it bad, but that you’re that pissed that so many others had it good.--Melvin Udall, in As Good As It Gets

FDR, it seems, was apparently dead wrong about the financial purpose of his Social Security system. He advocated it as an insurance system, in which the benefits paid to an individual were linked to the contributions paid by that individual. But today we are told that the funding side of Social Security is a “tax”—the “payroll tax.” We are also reminded that it’s a regressive tax—a larger burden to the middle class and poor than the rich—but we are not reminded that it is a “contribution” to a system that will eventually pay out benefits in proportion to each individual’s contribution.--Steve Conover

Resentment is a powerful, long-lasting emotion that usually is self-serving and dishonest (I have never heard a criminal complain that his defense lawyer is upper-class, as he often is), as well as useless. Resentment is undoubtedly part of everyone’s psychology, at least potentially, and few of us have never heeded its siren song. A population’s general level of resentment, however, is not a natural phenomenon that one can analyze in purely mechanical terms, as if it increased geometrically with the Gini coefficient. Britain itself has been far more unequal in the past without widespread riots’ breaking out, so it is clear that we cannot understand people’s behavior without referring to the meanings that they attach to things.--Theodore Dalrymple

Photo links here and here.

Instructional video of the day: Occupied Wall Street

I get so much junk mail, I think this is a great idea.


Via John Carney.

Quotes of the day

No matter what technology and science bring us, the dystopias of our future will always be of our very own, all-too-human design.--TED

And as long as we continue to pay attention, we lose. Because we all tuned in to her stupid wedding special and allowed her to be a star, Kim Kardashian is the 1 percent and we are all bottom-feeders.--Molly Lambert

Finally, I am part of a 1%!--Cav, who did not nor does not pay attention

The President has imposed on himself a ban on taking contributions from lobbyists.--David Axelrod, President Obama's close advisor

No the President has not done this. He still takes contributions from lobbyists. He still has lobbyists raising money for him. A few examples: Lawrence Rasky and Joseph Baerlein, Chairman and President of the lobbying firm Rasky Baerlein, are Obama donors. Google public affairs manager Ginny Hunt and Blue Shield public policy VP Tom Epstein are Obama donors. Obama donors Mark Boatwright, James O'Neill and Soyla Fernandez list themselves on Obama's FEC filings as "lobbyists." There are plenty more. What Obama has done is tried to exclude registered federal lobbyists from donating. Of course, lobbyist registration is basically unenforced on the federal level, so that's a cosmetic rule.--Tim Carney

He doesn't, uh, hire lobbyists.--David Axelrod

The most accurate description for this Axelrod statement --  a colloquial term for the manure of a male cow -- is not fit for a family-friendly blog.  At least 50 former lobbyists have taken senior positions in the Obama administration. This includes multiple cabinet secretaries. The former lobbyist for the Swiss Bankers Association is Obama's general counsel at the IRS. A former lobbyist for Goldman Sachs is Obama's Treasury Department Chief of Staff.  I think Axelrod knows everything I've blogged above. That's why it's hard to avoid the conclusion that David Axelrod is lying.--Tim Carney

Defense attorneys, embracing the new rights, did not bring forward evidence of their clients' innocence but instead sought to suppress evidence of their guilt. Whatever the other merits of the procedures, they were bound to make the justice system do a worse job of separating defendants who deserve punishment from those who don't.  Mr. Stuntz powerfully argues that such decisions have perversely worsened inequality in the criminal-justice system. The Miranda rule, for example, gives sophisticated suspects—mainly recidivists and white-collar defendants—the ability to "lawyer up" and avoid questioning altogether. Many other suspects—including the innocent but poor—waive their rights and receive less protection than they did before Miranda.--PAUL G. CASSELL

The scandal isn’t what’s illegal -- but what’s legal.--Nicole Gelinas

Being a former Goldmanite [like Jon Corzine] has long been considered the ultimate calling card. But, in some cases, it has proved to be a liability: A series of blunders by former senior Goldman executives raises questions about whether Goldman’s secret sauce can actually be exported. Think John Thain. Or Robert Rubin. Or J. Chris Flowers.--Andrew Ross Sorkin

If the practical effect of any rescue proposed by Greece is to force Greece to "live within its means," the logical response is to repudiate debt. If you are living within your means, you don't need access to global credit markets. Still differently: If you owed $40,000 in credit-card debt you could not afford to pay and decided to swear off ever incurring more debt, why not declare bankruptcy? You don't need good credit if you aren't going to use it.--John Carney

Credit-rating companies routinely award higher rankings to debt issued by banks and corporations that pay them the most, a conflict of interest that may escape Congressional efforts to change the way they do business. Bonds from countries and cities that pay about half as much as issuers of less creditworthy debt are “rated more harshly,” according to a study by scholars at Indiana University in Bloomington, Washington, D.C.-based American University and Rice University in Houston. Sovereigns rated A had no defaults over a 30-year period, compared with 1.8 percent of corporate bonds and 27.2 percent of securities backed by debt such as mortgages and loans assigned that ranking, the study of Moody’s Investors Service data said.--John Detrixhe

Businesses give back to society every day by pleasing their customers and employing their employees. There's nothing business owes other than selling the best product at the best price.--William Frezza

With a long early is just early. With a short early is plain wrong.--John Hempton

Dangers lurk, no question about it. The thing we just stress is keep climbing; we don't want to hang on. Like a rock climber, it takes more energy to hang on than to keep climbing.--Jim Harbaugh

We are atoms connected to create big, awkward, intelligent animals, animals complex in construction, equipped with minds, hearts, and the like. Spinning secretly around us is an intricate system of interconnected physical laws, completely dependent upon one another for effectiveness. And we are in the middle of it; actors on Shakespeare’s stage, madmen in Nietzsche’s streets, accidents in Sagan’s universe, children in God’s creation.--Don Miller

Information is cheap; meaning is expensive.--George Dyson

Quotes of the day

The courageous and unshakable old man that Daniel became (Dan. 6) was formed by a young man who obeyed God even in what he ate, and who was so honest that he would not take any credit where none was due. He was committed to faithfulness, humility, courage, and integrity. He has few successors in high places.--Don Carson

A recent study by Jonah Berger of Wharton and Devin Pope of the University of Chicago highlights how being slightly behind is often an advantage. The authors devote a large part of their research to studying 18,000 NBA and 45,000 college basketball games. They also conducted an experiment in which people played competitive games and were given feedback halfway through. During a break in the experiment, someone would come in and tell the participants that they were either slightly behind, far behind, slightly ahead or tied. The control group was told nothing either way. Berger and Pope found that participants who thought they were slightly behind significantly increased their effort.--Azure Gilman

I think this Easterbrook dude has the journalistic equivalent of “tenure”.--Andrew Gelman

California has long been among America's most extensive taxers and regulators of business. But it had assets that seemed to offset its economic disincentives: a sunny climate, a world-class public university system that produced a talented local work force, sturdy infrastructure that often made doing business easier, and a record of spawning innovative companies. No more. In surveys, executives regularly call California one of the country's most toxic business environments, while the state has become an easy target for economic development officials from other states looking to lure firms away. ... its successful firms increasingly expand elsewhere.
...
In 2007, Google built a new generation of server farms in Oregon; the following year, Intel opened a $3 billion production facility near Phoenix. Earlier this year, eBay, based in San Jose, Calif., said it would add some 1,000 back-office jobs in Austin, Texas, over the next decade. Hank Nothhaft, former CEO of the San Jose-based micro-electronics firm Tessera, has estimated that Silicon Valley lost one-quarter of its computer, microchip and communications-equipment manufacturing jobs from 2001 to 2008. A suffocating regulatory climate has a lot to do with the state's bad business numbers. Writing in the California Political Review this summer, Andrew Puzder, chief executive of California-based CKE Restaurants—which operates 3,000 eateries nationwide—called his company's home state "the most business-unfriendly state we operate in." CKE, which runs Hardee's and Carl's Jr., has stopped opening restaurants in California, where the regulatory process can take up to two years. But it plans to open 300 in Texas, where the start-up time can be six weeks and opening costs $200,000 less than in California.--Steven Malanga

Obama’s most coveted tax hike — an extra 3 to 4.6 percent for millionaires and billionaires (weirdly defined as individuals making more than $200,000) — would have reduced last year’s deficit (at the very most) from $1.29 trillion to $1.21 trillion. Nearly a rounding error. The oil-drilling breaks cover less than half a day’s federal spending. You could collect Obama’s favorite tax loophole — depreciation for corporate jets — for 100 years and it wouldn’t cover one month of Medicare, whose insolvency is a function of increased longevity, expensive new technology and wasteful defensive medicine caused by an insane malpractice system. After three years, Obama’s self-proclaimed transformative social policies have yielded a desperately weak economy. What to do? Take the low road: Plutocrats are bleeding the country, and I shall rescue you from them.  Problem is, this kind of populist demagoguery is more than intellectually dishonest. It’s dangerous. Obama is opening a Pandora’s box. Popular resentment, easily stoked, is less easily controlled, especially when the basest of instincts are granted legitimacy by the nation’s leader--Charles Krauthammer

Congress isn't getting a glimpse of what's on President Barack Obama's Blackberry - or any more internal White House communications related to the bankrupt solar company Solyndra, which received a $535 million loan guarantee from the federal government. House Republicans investigating the loan controversy had requested all internal White House documents about the issue. House Energy and Commerce subcommittee chair Rep. Cliff Stearns said that includes emails on the President's Blackberry. On Friday the White House Counsel sent a letter to the House Energy and Commerce Committee explaining they won't comply with the request because it "implicates longstanding and significant institutional Executive Branch confidentiality interests."--Jessica Yellin

People from every State in this great Nation sent us to Congress to
defend their rights and stand up for their interests. To do that we
have to tear down the barriers that separate citizens from the
democratic process and to shine a brighter light on the inner workings
of Washington.--Senator Obama

Genius: no more beer until a compromise is reached

Of course, it's Eric Falkenstein:

The key to ending an impasse is to have something really annoying but not catastrophic happen while the impasse occurs. Default was the current topic in Washington, but this is pretty severe. As was done over 2000 years ago in Lysistrata, a crisis should focus on something both more and less pressing at some levels, in this case have a clause that says 'no more beer until a compromise is reached.' That would provide the same incentives but not affect our credit rating.

Quotes of the day

All great spirituality is subversive ...  We have the audacity to stand in the middle of the world and weep over the false idols of culture, the power, the money, the sex, the fashion.--Don Miller

I’m a firm believer that I can only lead others to the extent that I can lead myself. To that end, I’m constantly challenged to wrangle my thoughts and emotions and drive them to produce purposeful results.--Geoff Webb

Derek Jeter is wildly overrated. And Derek Jeter is wildly underrated. Perhaps no player has ever been so effusively praised for great defense with so little evidence of great defense to show. Twice, perhaps three times, he should have won the MVP Award and did not. ... There's a reason for this, I think. Jeter -- like Rose -- has been inescapable. If you are a baseball fan, you must have an opinion about him. His game is out there. His baseball soul is exposed. You can like him or dislike him, admire him or object to him, but you cannot ignore him.--Joe Posnanski

I can solve the deficit in 5 minutes. .. If debt exceeds a % of GDP, all sitting members of Congress are ineligible for re-election.--Warren Buffett, on CNBC this morning

Both [Colin] Farrell and Bullseye were Irishmen with terrified eyes brought to America by rich men thanks to lethal skills and an equally lethal inability to control them.  ... his is the rare Hollywood fairy tale told in reverse. We began with the boring prince. Here before us, at last, is the far more interesting frog.--Andy Greenwald

Explanations of how Greece got in this mess typically focus on profligate public spending. But its fiscal woes are also due to a simple fact: tax evasion is the national pastime.--James Suroweicki

... soccer fans can now rest assured that women are less likely than men to fake on-field injuries, according to a new study by researchers at Wake Forest Baptist Medical Center published in the July issue of the journal Research in Sports Medicine.--Science Daily

Doing good stats means exercising a pathological interest in the story that might have been missed. Doing politics can seem to mean a near pathological interest in telling us why your story was right all along.--Michael Blastland

Quotes of the day

Life isn't like a story, it's more like a run-on sentence.--Eric Falkenstein

IN REAL LIFE, MOST OF US ARE A MIX of wise and foolish, prudent and silly, thoughtful and impulsive. Nevertheless it helps us to see what the issues are by setting out the alternatives as a simple choice. That is what Proverbs 9 does for us. It pictures two women, Wisdom and Folly, calling out to people. In some ways, this drive toward a simple choice ... is typical of Wisdom Literature. It is a powerful, evocative way of getting across the fundamental issues in the choices we make. ... There is a sense in which someone who accepts wisdom is already proving wise; the person who rejects wisdom is a mocker or wicked. Hence the powerful contrast of ... “Do not rebuke a mocker or he will hate you; rebuke a wise man and he will love you.”--Don Carson

We all saw him run that 40. Oh my goodness, that's the slowest 40 I've ever seen in my life.--Rex Ryan, on why Tom Brady dropped to the sixth round of the NFL draft

[Walter Williams'] students learn more about free markets before 9 a.m. than most college kids do all day — or maybe all semester, given the biases of the modern academy.--JOHN J. MILLER

I’m happy to have gotten my education before it became fashionable for white people to like black people.--Walter Williams

When you talk about liberty, you have to smile.--Milton Friedman

I thought one of the strongest arguments for the mandate--and the broad outlines of the Patient Protection and Affordable Care Act--was people with pre-existing conditions. The new high-risk pools were supposed to be a stop-gap for those people until PPACA kicked in. But so far, just 12,000 have signed up, or about 3% of the expected total. Either pre-existing conditions just aren't the large problem that advocates claimed, or something has gone disastrously wrong with the implementation of these pools. ... thanks to the rules making it illegal to exclude children with pre-existing conditions, insurers have now stopped selling child-only policies in 34 states. Both the government of Massachusetts and the administration are eagerly exploring the option of simply commanding insurance companies to sell policies at the price they would like to pay, a tactic that doesn't really have a great track record in modern industrial economies.--Megan Mcardle

In terms of income, the gap between rich and middle class is growing, but in terms of happiness it is relatively low by broader historical standards. Second, a lot of envy is local. People worry about how they are doing compared to their neighbors, their friends, their relatives, their co-workers, and the people they went to high school with. They don’t compare themselves to Michael Bloomberg, unless of course they are also billionaires. When the guy down the hall gets a bigger raise, perhaps by courting the boss, that’s what really bothers us. In other words, envy and resentment are not going away and they also do not stem fundamentally from the contrast between ordinary lives and the lives of the very wealthy. ... The weight has not swung to the point where there is more unearned wealth than earned wealth and so Americans identify with business and a business ethic, especially compared to attitudes in Europe. Americans know that they have done well by their pro-business and pro-wealth ethic. Should they trade in those views for a bundle of envy and resentment? The case for that switch has not yet been made and fortunately there is still a lot of common sense out there.--Tyler Cowen

Price equals marginal cost. And the marginal cost of accessing a journal article is pretty much zero. The research has been written, the type has been set, and the salaries have already been paid — usually thanks to a university, think tank, or government grant. So the socially optimal price is: free. Every time we charge a price higher than this, we risk pricing out someone who might benefit from the insights of an academic scribbler.--Justin Wolfers

In the days after this quake, intellectuals were divided between the impulse to hold fast with the government at a time of crisis and the urge to point out failures in leadership. I frequently heard comparisons of Japan’s nuclear lobby to the American entanglement with defense contractors.--Evan Osnos

So really, the question isn't how will we feed 9 billion by 2050? The question is how many people will we really have and what will they be eating? Poverty of course plays a big role in both these issues because, as Juergen Voegele, director, agriculture and rural development, the World Bank, pointed out to Revkin: "We already have close to one billion people who go hungry today, not because there is not enough food in the world but because they cannot afford to buy it." Raising incomes, or course, is a difficult nut -- one that doesn't succumb to a solution hatched in a lab. But more income means better-educated families, and even declining population growth. The flip side, though, is that rising incomes are also associated with higher meat consumption, which can get us closer to option five on Smil's lifestyle if we are not careful. So the best case: to raise incomes and to incentivize less resource-intensive food consumption.--Samuel Fromartz

I don't buy individual Chinese stocks.
I don't buy stocks with market caps under $500 million (and usually not under $1 billion).
I don't invest in one-drug biotech companies.
I don't do private placements.
I don't buy closed-end fund IPOs.
I don't trade naked options.--Joshua Brown

The President does not have power under the Constitution to unilaterally authorize a military attack in a situation that does not involve stopping an actual or imminent threat to the nation.--Barack Obama, in 2007

When Jackie Robinson broke into baseball, he had to be the best. There was no alternative. Today, black athletes can show up and fail and nobody will say blacks can’t play. We can afford incompetent athletes, but we can’t afford an incompetent president. The first black president needed to be better than Jimmy Carter.--Walter Williams

I ... suggest that the legitimacy of a war is established not by how it is organized, but by whether its aims are both morally and strategically sound. The Iraq War was a mistake, in this sense, not because Jacques Chirac and Gerhard Schröder opposed it, but because it involved serious strategic miscalculations on the part of the American government: An overestimation of the danger that Saddam Hussein posed to the United States, and an underestimation of the difficulty of occupying Iraq and transforming it for the better. ... There is no perfect way to fight a war: Every approach to military action comes with distinctive dangers as well as with advantages. Which is why discretion in warmaking really is the better part of valor. Some conflicts are better approached as multilaterally as possible. Some are better fought under explicit American leadership, or by America alone. But many, in Iraq and now in Libya, are better left unfought entirely.--Ross Douthat

No clear national or even humanitarian interest for military intervention. Intervening well past the point where our intervention can have a decisive effect. And finally, intervening under circumstances in which the reviled autocrat seems to hold the strategic initiative against us. This all strikes me as a very bad footing to go in on. And this doesn't even get us to this being the third concurrent war in a Muslim nation and the second in an Arab one. Or the fact that the controversial baggage from those two wars we carry into this one, taking ownership of it, introducing a layer of 'The West versus lands of Islam' drama to this basically domestic situation and giving Qaddafi himself or perhaps one of his sons the ability to actually start mobilization some public or international opinion against us. I can imagine many of the criticisms of the points I've made. And listening to them I think I'd find myself agreeing in general with a lot of it. But it strikes me as a mess, poorly conceived, ginned up by folks with their own weird agendas, carried out at a point well past the point that it was going to accomplish anything. Just all really bad.--Josh Marshall

Until Apple introduced its highly popular touchscreen device [the iPhone] in 2007, which went on to become the world’s leading smartphone, Deutsche Telekom had been generating decent sales from its American operation, with growth in some years surpassing that achieved in Germany.  But after the iPhone went on sale, sold exclusively at first by AT&T in the United States, T-Mobile USA began to lose its most lucrative customers, those on fixed monthly plans, who defected to its larger American rivals — AT&T and Verizon Wireless, which began selling the iPhone in February.--KEVIN J. O'BRIEN

Photo link here.

Quotes of the day

We are all creators, but too many reject the God-given right to create and instead become consumers, hiding in the safety of some government, some corporation, some self-help philosophy to take care of us. And so why should we be surprised when we turn around and somebody is sitting in our chair, dictating how our marriage will go, how our career will go, whether or not we can have peace with our neighbors? We shouldn’t be surprised. We handed them our authority. Until we believe we are creators, nothing will change save what some other creator changes for us. We are their servants, the consumers of whatever fate is dictated to us by the bold, be they good or bad.--Don Miller

I liked [Jerry Brown] when he was running for president [in 1992] on the flat tax. . . . A ton of economists, both liberal and conservative, have argued for a flat tax, but nobody's ever had the nerve to do it. . . . It would simplify things, but simplification doesn't seem to be in the human psyche.--Clint Eastwood

Fred Wilpon, the owner of the New York Mets, will be forced to sell the baseball franchise as soon as 2010 after incurring heavy Bernie Madoff-related investment losses.--Erin Arvedlund, in 2009

Your banking system needs a shock.--Gamal Mubarak, son of Hosni, to Senator Joe Lieberman

History entirely removed from the canon provides numerous circumstances where the tiniest adjustment would have changed the course of events. Suppose Britain had not broken the “Enigma” code machines. Would the Battle of Britain, and even World War II, have gone another way? Suppose Hitler had not held back his panzers at Dunkirk, sending in his planes instead. Would 150,000 British soldiers have been captured or killed, once again changing the face of the war? Is it not remarkable that Hitler’s persecution of Jews drove some of the best scientific minds out of Germany and into the United States? Had he not done so, is it not entirely possible that Hitler would have invented an A-bomb before America did? What then would the history of the past fifty years have looked like? Suppose Khrushchev had not blinked at the Cuba missile crisis, and a nuclear exchange had followed. What would be the state of the world today? Suppose the bullet aimed at Kennedy had missed. Suppose the bullet aimed at Martin Luther King had missed. Suppose the bullet that took out the Archduke in Sarajevo had missed.--Don Carson

Every big powerful technology company has met a new technology that has undone their dominance. For Microsoft it was open source and the Internet. For Google, it appears that it may be social. For Facebook, it appears that it may be mobile.--Fred Wilson

... a little thought makes clear that some types of economic inequality have great social value. For example, it would be hard to motivate the vast majority of individuals to exert much effort, including creative effort, if everyone had the same earnings, status, prestige, and other types of rewards. For example, many fewer individuals would engage in the hard work involved in finishing high school and going on to college if they did not expect their additional education to bring higher incomes, better health, more prestige, and better opportunities to marry. On my first trip to China in 1981 I visited several factories in the Beijing area. All the employees in each factory received more or less the same pay, and they could hardly ever be fired for bad work or absenteeism. This was an extreme eqalitarian approach to compensation, and the result was that no one worked hard, even though Chinese workers have traditionally been known for their diligence and energy. The picture was more or less the same in all of the factories I visited, and there was also little difference in pay between factories. Urban China was then highly eqalitarian, but it was also extremely poor because of very low productivity. China’s economic miracle has been in good measure based on allowing much greater inequality in pay and incomes to motivate greater productivity in both urban and rural areas.--Gary Becker

... income inequality that you refer to is apparent in many different places. You see it in athletics; you see it in entertainment; you see it in your industry as well. You take a look at the compensation of C.E.O.’s of major corporations, recognizing that those corporations have become much larger —they do business in many different parts around the world — and it’s very difficult to know how to properly benchmark the compensation. ... I think that there is not a good understanding as to the role of financial intermediaries. For example, without banks it’s hard to see how businesses would get the money they need to grow and to hire new workers. Let’s not lose track of the fact that most people need to borrow in order to buy a home, and if you don’t have banks, that’s not going to happen.--Abby Joseph Cohen

At my school, we pay five teachers to tutor kids after school and on Saturdays. They sit in classrooms waiting for kids who never show up. We don’t want for books—or for any of the cutting-edge gizmos that non–Title I schools can’t afford: computerized whiteboards, Elmo projectors, the works. Our facility is state-of-the-art, thanks to a recent $40 million face-lift, with gleaming new hallways and bathrooms and a fully computerized library. Here’s my prediction: the money, the reforms, the gleaming porcelain, the hopeful rhetoric about saving our children—all of it will have a limited impact, at best, on most city schoolchildren. Urban teachers face an intractable problem, one that we cannot spend or even teach our way out of: teen pregnancy. This year, all of my favorite girls are pregnant, four in all, future unwed mothers every one. There will be no innovation in this quarter, no race to the top. Personal moral accountability is the electrified rail that no politician wants to touch.--Gerry Garibaldi

The moment we are content in this fallen world, the dangers return—not least the danger of over-contentment. Without being contentious, prepare for conflict; without being combative, equip yourself for the “good fight”. It will last at least as long as you live.--Don Carson

Quotes of the day

Most people think facts are easy and theory is difficult. It is often the other way around.--Eric Falkenstein

Just because two variables have an expected difference of zero, you can’t conclude they have an expected ratio of one. That needs to be computed separately.--Steve Landsburg

... the fact that markets fail does not mean that government solutions work.--Arnold Kling

Consumers have benefited to the effect of $20 billion a year [from airline deregulation]. Where competition is feasible, the government should get the hell out of the way.--Alfred Kahn

I really don’t know one plane from the other. To me, they’re all marginal costs with wings.--Alfred Kahn

[Kahn] taught us a lesson that competition, even imperfect competition, is better than imperfect regulation; that facts make a difference, if only we have the humane procedures to uncover them and the brains to understand them; and that intellectual rigor, decked out in wit and flair, even in Washington, can be a winning combination.--former U.S. Assistant Attorney General John Shenefield

A 2008 study by the U.S. Securities and Exchange Commission found the average cost of Sarbox compliance is $2.3 million per year. A whopping 70 percent of all smaller public companies said compliance costs have prompted them to consider going private, and 77 percent of smaller foreign firms reported considering abandoning their American listings.--Eric Jackson

Warren Buffett wants the rich to pay a higher tax rate. Even Larry David (co-creator of Seinfeld) had a funny piece in the New York Times mocking the notion that the tax increase would be noticed by people in the hundred-million-dollar club, such as himself. The tax-the-rich argument feels fair if you allow yourself to see the world as only two categories: the rich and the non-rich. And it helps if you let the media install Bernie Madoff as the poster boy for the rich, while perhaps you imagine Tiny Tim as your symbol for the non-rich. But what about, let's say, a hard-working doctor? His taxes would increase when you tax the so-called rich. And unlike Warren Buffett and Larry David, a tax increase likely has real implications for the doctor's family. Before you break out the tiny violins for my hypothetical doctor, allow yourself to imagine that he's got a mountain of college loans, his mortgage is underwater, and he's supporting three grandparents (one on his wife's side) who all need some form of senior care, and the doctor's parents, and his wife's parents, have no spare cash. The doctor's parents might also need help in a few years. Oh, and the doctor has two kids of his own, one of whom needs some sort of special care. That's what the real world looks like for the so-called Sandwich Generation. For this imaginary doctor, any extra tax burden takes money from four generations of his family who needs it and distributes the cash to strangers. ... it is fair to say that the Majority left the bank door unlocked so the Rich could loot it. Nice work, Majority. Now the Majority's proposed solution is to take money from the Suckers income group to compensate for their own gross mismanagement of the country. You might argue that the rich are the ones who are really in charge, even in a democratic system. That makes the story even worse. In that case, the rich plundered both the Majority and the Suckers, and now Warren Buffett and Larry David are pointing fingers at the Suckers in the hope that the Majority doesn't decide to boil the rich for food. That's what I would do if I were a billionaire. Just sayin'. My own view, as a member of the Suckers group, is that if economists determine that the best way to make the country solvent is to increase my taxes, I'm willing to look at those numbers. I'm a practical guy. But I do resent being gang raped by the Rich and the Majority while they high-five each other and call it fairness. And I'd feel a little better about it if the Majority would do a better job managing things going forward.--Scott Adams

The answer to the inherent difficulty of judging performance is not to simply throw up one's hands and pay anyone who manages to show up for work more often than not. Yet this is that the teacher's unions seem to want. The unions, who seem to be the primary source for the New York Times piece, are (like many employees) very adept at picking out the problems in an evaluation system. Unfortunately, their solution is ... : Make no attempt to evaluate performance at all. ... Myself, I'd be happy with a more subjective, manager-intensive effort to evaluate teacher performance, weeding out the very bad teachers, and using pay to lure the very best ones into the places where they are most needed: schools that teach disadvantaged kids. But it's worth noting that such a system is pretty much totally incompatible with a unionized workplace--certainly one with a unionized workforce as adversarial as the teacher's union is in many cities. The whole union system is set up to deal with standardized processes.--Megan McArdle

Yes, Tom Brady is having an MVP-caliber season. Yes, rookies Devin McCourty, Aaron Hernandez, Rob Gronkowski, Brandon Spikes and Jermaine Cunningham have all played significant roles in the team’s success leading to a 13-2 record and the No. 1 seed in the upcoming AFC playoffs. But without the 21 undrafted free agents on the club’s roster, the Patriots would not have had the depth to deal with injury after injury to the rest of the roster. ... What is different is that few teams have managed a rash of injuries any better in recent memory than these 2010 Patriots. The 21 undrafted players are the most of any team in the NFL. Of the 21 players not drafted on the current Patriots roster, no fewer than 12 have found themselves not only playing but starting and playing significant roles, with significant defined by playing more than half of their potential snaps in a game.--Mike Petraglia

In theory, the 12,000 households with the highest incomes are producing more wealth each year than the 24 million households with the lowest incomes. I hate to have to say it, but I find that plausible. In theory, the average federal worker produces more than twice the wealth of the average private-sector worker. I hate to have to say it, but I find that doubtful.--Arnold Kling

... the American school system is actually better, if one makes ... a crude adjustment for demographics (with no adjustment for demographics, European scores are better). However, what might happen if you had a sophisticated way to adjust for the ability of children entering school? Would all of the differences between school systems become insignificant?--Arnold Kling

MBA training can give you insight into the workings of a firm and its components (marketing, operations, strategy, human resources, finance, etc.), but there is much of the investment world that is untouched in the standard MBA curriculum. However, should you want to change careers later on, an MBA is preferable to a CFA. Of course, as with math or any subject, what you get out of an MBA in terms of learning and the value of it as a currency depends greatly on the school you attend. If you think you want to stay in the investment world, a CFA is the better choice. I love the diversity of the subject matter. When I taught CFA classes, I could tell who in the class worked in equities and who in fixed income by their reactions — but everyone has to pass the same test, which includes those subjects, plus economics, quantitative methods, financial reporting and analysis, portfolio management, etc. And ethics, thankfully. You may think that you only need expertise in a couple of those areas, but the more of them you understand, the greater your value as an investment professional. The business will try to paint you into narrow lanes; those that know when to veer across them to seize an opportunity have a distinct advantage. ... If you choose to pursue an MBA or a CFA, remember that they are built upon orthodoxy, by and large, which you need to learn and attack at the same time. There are principles and standards and techniques for you to master, but the business is one that never stands still, no matter the credentials that you earn.--Tom Brakke

Consistent with the firm’s Compensation Principles and existing compensation programs, it is intended that any awards granted under the Plan will be designed to align compensation with long-term performance in a manner that does not encourage imprudent risk-taking.--Goldman Sachs

Since the dawn of the industrial revolution in the mid-18th century, available supplies of coal, petroleum, iron ore, and most other resources have increased significantly – and, as a result, their real prices have fallen. These rising resource supplies and falling prices occurred during a time when human population increased by a factor of ten – from 700 million to nearly 7 billion today, at least 4 billion of whom are now part of industrial economies. So the increase in the number of persons integrated into industrial economies over the past two-plus centuries – from near-zero persons 260 years ago to at least 4 billion persons today – is far larger than is the number of Chinese, Indians, and other peoples now being integrated into industrial economies.--Don Boudreaux

Most snow crystals—as [Wilson Bentley] knew, and kept quiet about—are nothing like our stellar flower: they’re irregular, bluntly geometric. They are as plain and as misshapen as, well, people. The Fifth Avenue snowflakes are the rare ones, long and lovely, the movie stars and supermodels, the Alessandra Ambrosios of snow crystals. The discarded snowflakes look more like Serras and Duchamps; they’re as asymmetrical as Adolph Gottliebs, and as jagged as Clyfford Stills. But are they all, as Starbucks insists, at least different? ... The sign in Starbucks should read, “Friends are like snowflakes: more different and more beautiful each time you cross their paths in our common descent.” For the final truth about snowflakes is that they become more individual as they fall—that, buffeted by wind and time, they are translated, as if by magic, into ever more strange and complex patterns, until, at last, like us, they touch earth. Then, like us, they melt.--Adam Gopnik

Is [the Christmas] story of any interest to non-Christians? Is it historically accurate? I don’t know, but I think it’s a great story. It’s a story of transformative power that comes not from the Palace up above, but from the Manger down below.--William Easterly

Quotes of the day

We could tie the payoffs to executives not just to the value of common shares but to the long-term value of a broader basket of securities. So, for example, instead of giving executives 3 percent of the value of the firm’s common shares, you could give them, say, 1 percent of the aggregate value of the common shares, preferred shares and bonds.--Lucian Bebchuk

Bebchuk's proposal is an improvement over the current system, but would most likely incent executives to inflate their balance sheets, which would not be usually in the interest of the shareholders or bond holders. Can't completely duck the principal-agent problem.--Cav

Faces of brown-eyed men were rated more dominant than those of blue-eyed men, even when their eyes weren't brown.--JR Minkel

While Obama enumerated the steps his administration has taken to clean up the oil and prevent it from fouling the Gulf coast, he was virtually silent about the complaints state and local officials have consistently voiced—that the cleanup effort is slow, inefficient, and confused by multiple agencies whose activities are inadequately coordinated. He failed to acknowledge these difficulties and to offer specific remedies for them. Indeed, the speech was marked—and marred—by its paucity of compelling specifics.--William Galston

Consider the purely hypothetical case of a massive oil spill in the Gulf of Mexico. The traditional libertarian would argue that regulation is unnecessary because the tort system will hold the driller liable for any damage. But what if the leak is so vast that the driller doesn’t have the resources to pay? The libertarian would respond that the driller should have been forced to post a bond or pay for sufficient insurance to cover any conceivable spill. Perhaps, but then the government needs to regulate the insurance contract and the resources of the insurer. Even more problematically, the libertarian’s solution requires us to place great trust in part of the public sector: the court system. At times, judges have been bribed; any courtroom can be influenced by the best lawyers that money can buy. Andrei Shleifer and I have argued that the early regulations were appealing precisely because of a sense that the courts couldn’t be counted upon to protect private property.--Edward Glaeser

The President’s War on Fossil Fuels will reinvigorate an intense policy debate on the future of energy and environmental policy in America. He may be successful in bending the Congress to his will, as he did with health care. He may fail. I prefer another path that is simpler, faster, more unifying, and more targeted at the problem that is in the forefront of our consciousness this summer. I think it would be good for America to unite and say, “We worked together to prevent that problem in the Gulf from happening again.” It is easy to do so, and I wish the President would choose that path instead.--Keith Hennessey

My view of the bailouts is that they are primarily to save French and German banks. All the talk about "saving the Euro" is a smokescreen. I find it ironic to have an EU official warning about the collapse of democracy. The eurocracy is a very undemocratic organization, chronically in conflict with popular opinion. The bailouts are unpopular, and quite properly so. Any official who claims that that the bailouts should be undertaken in the name of democracy is a poseur.--Arnold Kling

... the market is now more worried about a Spanish government default than a default from either Banco Santander or a major telecom company.--Tyler Cowen

On the one hand, colleges generally protect students who abuse alcohol from being arrested or otherwise punished for vandalism and violence that results. In that sense, college students are treated as children not responsible for their actions. On the other hand, colleges do not impose curfews or consequences for students who abuse alcohol. In that sense, college students are treated as adults entitled to freedom from supervision. As to health insurance, you know that my solution is real health insurance, not prepaid health plans. With real insurance, claims would only be made by people in the top 5 percent of health care expenses. As a result, twenty-somethings would face low premiums and most would be able to afford their own health insurance.--Arnold Kling

Human cooperation is powerfully productive. Still, in this example, simply collecting all the pieces of a jigsaw puzzle is not by itself a very valuable achievement. The puzzle must eventually be put together properly to justify the effort spent on finding all the scattered pieces. Think of each jigsaw-puzzle piece as a unit of information that is potentially useful for making the economy work successfully. One piece might be information that deposits of iron ore exist in a certain location in Australia. Another piece might be information about which mining engineers are especially skilled at designing an operation for extracting this ore from the ground. A third piece is information about how best to transport the ore to a smelting plant. A fourth piece is information on how to make a crucial part for the engine of the truck that will transport the iron ore. A fifth piece is how to design the roads on which that truck will be driven. Clearly, the number of pieces of information that must be found and used for iron ore to become, say, a steel girder in a skyscraper is mind-bogglingly immense. It is a number far larger than the mere 1 billion pieces of the jigsaw puzzle in my example. It's beyond foolish to expect any one person (or small group of persons) to find all these pieces of information necessary for the production of steel girders (and steel automobile bodies, steel sheeting for ocean-going tankers, stainless-steel dental tools ... the list is long). Not only is the mere finding of each piece of information too difficult to entrust to a small group of persons; so, too, is the task of putting these pieces together in a way that yields useful final products.--Don Boudreaux

Fast-forward several centuries, and Henry the Lion’s would-be heir is Paul Romer, a gentle economist at Stanford University. Elegant, bespectacled, geekishly curious in a boyish way, Romer is not the kind of person you might picture armed with a two-handed flanged mace, cutting down Slavic marauders. But he is bent on cutting down an adversary almost as resistant: the conventional approach to development in poor countries. Rather than betting that aid dollars can beat poverty, Romer is peddling a radical vision: that dysfunctional nations can kick-start their own development by creating new cities with new rules—Lübeck-style centers of progress that Romer calls “charter cities.” By building urban oases of technocratic sanity, struggling nations could attract investment and jobs; private capital would flood in and foreign aid would not be needed. And since Henry the Lion is not on hand to establish these new cities, Romer looks to the chief source of legitimate coercion that exists today—the governments that preside over the world’s more successful countries. To launch new charter cities, he says, poor countries should lease chunks of territory to enlightened foreign powers, which would take charge as though presiding over some imperial protectorate. Romer’s prescription is not merely neo-medieval, in other words. It is also neo-colonial.--Sebastian Mallaby

In a sense, Britain inadvertently, through its actions in Hong Kong, did more to reduce world poverty than all the aid programs that we’ve undertaken in the last century.--Paul Romer

Modern societies deny men and women the experience of solidarity, which football [soccer] provides to the point of collective delirium. Most car mechanics and shop assistants feel shut out by high culture; but once a week they bear witness to displays of sublime artistry by men for whom the word genius is sometimes no mere hype. Like a jazz band or drama company, football blends dazzling individual talent with selfless teamwork, thus solving a problem over which sociologists have long agonised. Co-operation and competition are cunningly balanced. Blind loyalty and internecine rivalry gratify some of our most powerful evolutionary instincts. The game also mixes glamour with ordinariness in subtle proportion: players are hero-worshipped, but one reason you revere them is because they are alter egos, who could easily be you. Only God combines intimacy and otherness like this ... The sport is a matter of spectacle but, unlike trooping the colour, one that also invites the intense participation of its onlookers. Men and women whose jobs make no intellectual demands can display astonishing erudition when recalling the game's history or dissecting individual skills. Learned disputes worthy of the ancient Greek forum fill the stands and pubs. Like Bertolt Brecht's theatre, the game turns ordinary people into experts. This vivid sense of tradition contrasts with the historical amnesia of postmodern culture, for which everything that happened up to 10 minutes ago is to be junked as antique. There is even a judicious spot of gender-bending, as players combine the power of a wrestler with the grace of a ballet dancer. Football offers its followers beauty, drama, conflict, liturgy, carnival and the odd spot of tragedy, not to mention a chance to travel to Africa and back while permanently legless. Like some austere religious faith, the game determines what you wear, whom you associate with, what anthems you sing and what shrine of transcendent truth you worship at. Along with television, it is the supreme solution to that age-old dilemma of our political masters: what should we do with them when they're not working?--Terry Eagleton

Yale Fan is going to Harvard.--Gabe Deleon

Quotes of the day

Banks of every flavor are in business to make money for themselves. They are not in business to make money for you. If they worried mostly about making money for you, they'd likely go broke, and you'd lose every penny. This is hardly unique. Here's one way to prove it. You've probably got a friend somewhere who works for a large law firm. Ask that friend which partner bills the most. Your friend will instinctively rattle off the top few. Next ask that friend which partner has the best win-loss record in suits. Watch your friend puzzle over that one. It's not known because it doesn't matter. Law firms are in business to make money. When they win suits, that's nice, but victories aren't what get rewarded, unless they're on contingency. They'll take contingency cases only when success looks like a slam-dunk. That's OK. The client gets less reward in a trade for less risk. The strangest thing is that this supposed "unfairness" works far better than regulation. Chinese and Indians are starting to live better because they're letting go of the governmental controls, slightly, that were put in place to make sure things were "fair." "Fair" starved them for generations. Ditto for Eastern Europe. Where controls loosen, populations live better. This is consistently true. The Soviet Union collapsed. Cuba pretends to offer a peoples' paradise, but never go to Miami to count small boats fleeing the U.S. for that brutal island. Traffic there is as one-way as it was over the Berlin Wall, despite those two "fair" governments' attempts to murder escapees. ... So am I mad at Goldman? No. I just understand them better. They're out to make a buck. So am I. And they're better at it than I am.--Gary Sutton

[Goldman] lost their way, fallen for the trap of short term profits, and abandoning clients.--Anonymous hedge fund manager

It's not the same firm it was a decade ago.--Anonymous professional investor

They've now got a 'rip your eyes' out culture.--A different anonymous professional investor

Maybe [Goldman's Abacus CDO deal] was legal. But it was wholly unethical.--A different hedge fund manager

I’ve never used an ATM, so I don’t know what the fees are. It’s true, I don’t know how to use one.--Senator Ben Nelson

... can you explain any rational reason that both the C.F.T.C. and the S.E.C. exist?--Senator Bob Corker

In particular, [Seth Klarman of Baupost Group] is looking at the deluge of government interventions to prop up the financial system in the past couple of years and what those may mean down the road. And he is talking about the danger–not a certainty, merely a danger–that governments around the world will trash their currencies in a continuous free-for-all of "handouts and no taxes." The near-$1 trillion bailout in Europe is just the latest worry.--Brett Arends

If Goldman Sachs ends up paying a billion dollars as punishment for misleading investors in the Abacus deal, what should Washington pay for misleading the American people? Given the utter failure of the Obama administration’s $75 billion mortgage modification program (a.k.a. the HAMP), it’s worth a thought.--Evan Newmark

These scientists jump to an unscientific conclusion. Nothing in economics (or any other science) suggests that energy purchases and sales are efficient and appropriate only, or even chiefly, when buyers reside in the same jurisdiction as sellers. I’ll bet, for example, that each member of the Union of Concerned Scientists imports nearly 100 percent of his or her household’s energy from suppliers located outside of that household’s county. Should this fact cause us concern? Would energy be supplied and used more efficiently or appropriately if each American used only energy produced within the county where he or she resides? Or – even more in keeping with the spirit of the Union’s notion – if each American household used only energy produced by that household? Of course not.--Don Boudreaux

Quotes of the day

Whenever there’s a corporate scandal, it’s typically blamed on an increase in greed, but when there’s a sex scandal, it’s never blamed on an increase in lust.--Paul Rubin

While taxpayers (and unemployed former taxpayers) no doubt were hoping that Washington would focus on economic growth, much of the Obama administration's "stimulus" spending was directed toward ensuring that state and local government workers don't lose their jobs, while the normal appropriations process has been increasing spending for practically every department and agency of government. This situation bears an eerie resemblance to the employment situation during the Great Depression, when private nonfarm hours worked fell steeply from 1929 to 1932 and did not return to 1929 levels until 1941, while millions were added to government payrolls during the New Deal. In both cases, the possibility that government employment crowds out private employment, rather than stimulating it, should not be dismissed. Keynesians like to suppose that whenever the government undertakes new spending to augment the ranks of its employees a multiplier effect will result, causing private economic activity and employment to follow the same upward course. The jobs data tell a different story.--Robert Higgs

To wit, you said this of Joseph Isidore Lieberman, Democrat, Connecticut: ‘A senatorial prostitute’; of Roger Ailes, ‘fat ass’; Chris Wallace, ‘a monkey posing as a newscaster’; Rush Limbaugh, ‘a big bag of mashed-up jackass.’ (All right - I’ll give you that one.) And of Michelle Malkin, you said ‘A mindless, morally bankrupt, knee-jerk, fascistic mashed-up bag of meat with lipstick on it,’ end quote. That, my fine-feathered friend, sounds a lot more like violence against women than anything Scott Brown ever said. You can’t resort to childish attacks that are as hominem as they are nauseum. You’ve ceded the high ground and now you wallow in the fetid swamp of baseless name-calling, and as you know, sir, that’s my thing ...--Jon Stewart, to Keith Olbermann

These [intelligent, well-educated] people don’t understand or accept that the sales director has certain highly developed skills and can probably operate under pressure far more effectively than they can. This is when performance differences usually emerge. And what is really frustrating, is that the skill that the sales director has, he developed because he was the social director of his fraternity, learned to win at drinking games and was actually able to pass his courses with a perpetual hangover. This is highly critical to his job performance and success. The last point is that they don’t value experience and the judgment that comes with it. So, who would you follow into battle, the 30 year veteran or the smartest guy who just graduated from West Point? Where’s the test in that? I would say survival, but they prefer SAT scores.--Tom

When my wife started her position at a humanitarian organization, she and the other new execs were told that maternity leave could be taken… out of their accumulated sick days. Her fellow new colleague, from Ireland, leaned across the desk to the HR person: “Pregnancy,” she said “is not a sickness.”--Chris Blattman

Quotes of the day

I thought about something today -– over the years I’ve made a lot of fun of Ryan Seacrest, Larry King, Spencer Pratt, Geraldo, David Hasselhoff, Kirstie Alley and Donald Trump. And here’s the messed-up thing, they all still have shows.--Conan O'Brien

Air America to Cease Broadcasting Immediately.--Brian Stelter

The dreams of creating an artificial intelligence that would engage in an ancient game symbolic of human thought have been abandoned. Instead, every year we have new chess programs, and new versions of old ones, that are all based on the same basic programming concepts for picking a move by searching through millions of possibilities that were developed in the 1960s and 1970s. Like so much else in our technology-rich and innovation-poor modern world, chess computing has fallen prey to incrementalism and the demands of the market. Brute-force programs play the best chess, so why bother with anything else? Why waste time and money experimenting with new and innovative ideas when we already know what works? Such thinking should horrify anyone worthy of the name of scientist, but it seems, tragically, to be the norm. Our best minds have gone into financial engineering instead of real engineering, with catastrophic results for both sectors.--Garry Kasparov

If nothing else, Vanguard's fund flows imply that investors appreciate low costs, broad diversification, and sober stewardship.--David Falkof

Public-choice economics – pioneered by my colleagues Jim Buchanan (who boasts his own Nobel Prize) and Gordon Tullock – uncovers overwhelming evidence that politics, in fact, almost exclusively is about achieving election and re-election. So to insist that politics should be about something other than what it is really about makes as much sense as insisting, say, that snow should be hot or that donkeys should be bipedal.--Don Boudreaux

Campaign finance restrictions didn't do a thing to free Washington from its captive status--mostly because the politicians don't want to be liberated.--John Carney

It takes chutzpah [for Warren Buffett] to lobby for bailouts, make trades seeking to profit from them, and then complain that those doing so put you at a disadvantage. Those who follow him closely are well aware that he talks his own book, but the wider public still believes him to be a trustworthy broker of unbiased financial advice and commentary. They shouldn’t.--Rolfe Winkler

A failure to spread to other nations could make the Volcker Rule dead on arrival. Suddenly the plan poses a serious disadvantage to U.S. banks, as customers would likely prefer dealing with more robust European ones.--Gus Lubin

[A] plain vanilla bank has interest rate risk. If rates rise their funding costs will rise relative to their asset yield. If rates fall their assets will refinance. Their funding cost might also fall – but at the moment the funding cost seems pinned by the zero-bound. Some hedging of interest rate risk here seems entirely sensible. Banks (and more often S&Ls) have failed in the past because they failed to hedge this sort of interest rate risk. However as both the assets and liabilities are of uncertain duration there is no way of knowing just how much hedging is required. There is a choice here – it is a proprietary choice (in that the bank will trade off hedging costs against profits). And there is no easy way to legislate that choice away. I have even seen a bank swap its fixed rate subordinate funding (fixed rate preferred shares) into floating rate and call it a hedge. That looked like proprietary trading to me as it earned a profit (the yield curve was steep) and the bank was playing the yield curve very heavily in advance of that hedge. The so called hedge increased the risks the banks faced if short rates rose. The auditor signed it off as a hedge. If the auditor, the bank and I disagree as to what is a hedge in the simplest of examples then I have no idea how we are going to find a legislative solution in complex examples.--John Hempton

Although world population has increased by about 80% over this time (World Bank 2009), the number of people below the $1 a day poverty line has shrunk by nearly 64%, from 967 million in 1970 to 350 million in 2006. In the past 36 years, there has never been a moment with more than 1 billion people in poverty, and barring a catastrophe, there will never be such a moment in the future history of the world.--Maxim Pinkovskiy and Xavier Sala-i-Martin

... questions about "deference to precedent" are, again at least as I understand it, code for "are you going to overturn Roe v. Wade", not a request for an actual pledge to endorse any and all things the Supreme Court has ever said in its history. The description in the first paragraph could just as easily describe sodomy law before Lawrence v. Texas, civil rights law pre-Brown, or indeed, the state of abortion law pre-Roe. Had Roberts voted for the majority in one of these cases, would we be hearing the same anguish about his lack of deference to precedent? And respectfully, one does not need to be an idiot savant from Introductory Ec class to think that "Congress shall make no law . . . abridging the freedom of speech" means that, well, Congress shouldn't make any law abridging the freedom of speech, even if that speech is done by corporations. Nor is it crazy to think that as long as people have the right of exit, their decision not to exit legitimates the ability of organizations to speak for them. In fact, I think speech through associations is a lot more complicated than I think this post captures. Many of the organizations we like making political speech don't get any more supervision from the majority of their members than publicly held corporations do. I mean, quick, name the charities you were supporting during the last United Way drive! Pick three of the groups you gave to directly last year, and tell me what issues their lobbyists are working on right now! (Yes, I virtually guarantee that if they're a large state or national group, they have at least one "our man in the capitol".) Maybe you know the answers to those questions, because you're the sort of motivated and very well informed person who, well, reads my blog. But the majority of people don't know. They give to causes because they want to be associated with the vague sentiment.--Megan McArdle

Forget about CEO pay

Professional athletes are even more outrageously compensated.

I think movie actors, television actors, and models should be investigated next.

Welcome to America, 2009

Change we can believe in:

I think that critics of the Geithner plan are missing some of its tactical brilliance. My guess is that behind the scenes, Geithner has arranged a kind of J.P. Morgan moment. You know the story. During the Panic of 1907, J.P. Morgan locked a bunch of bankers in a room and insisted they lend to stave a panic. We've already seen one twisted parody of this event, when Henry Paulson locked a bunch of bankers in a room and insisted they borrow money from the Treasury. This second one is more clever. I don't think the scandal of the Geithner plan is going to turn out to be the subsidy to well-connected investors embedded in the non-recourse loan put option. On the contrary, I think that Treasury has already lined up participants for the "Legacy Loans Public-Private Investment Fund" and persuaded them to offer prices so high that despite the put, investors will expect to take a major loss. My little conspiracy theory is that the Blackrocks and PIMCOs of the world, the asset managers who do well by "shaking hands with the government", will agree to take a hit on relatively small investments in order first to help make banks smell solvent, and then to compel and provide "good optics" for a maximal transfer from government to key financial institutions.

Consider a hypothetical asset manager, PIMROCK. PIMROCK reviews a pool of loans held by the bank J.P. Citi of America, and its analysts determine they are worth 30¢ of par value. The bank holds them at 80¢ on its book. PIMROCK agrees to put down $10B to purchase loans from the pool at 82¢ thrilling stock markets everywhere. It was all just a bad dream!

Under Geithner's plan, PIMROCK's $10B permits a $10B equity investment from the Treasury. Then the FDIC levers the whole thing up, providing $6 of debt for every one dollar of equity. So, $140B of bad loans are lifted from J.P. Citi of America, nearly $90B of which is sheer overpayment to the bank.

Of course, as cash flows evolve, PIMROCK's $10B is wiped out entirely, as is the Treasury's investment. The FDIC gets repaid in a bunch of securities worth about $50B, taking a $70B loss. But, as Calculated Risk, likes to say "Hoocoodanode?" These were real market prices, Geithner or his successor will argue. Our private partners lost everything. There was no subsidy here.

Meanwhile, taxpayers will be out around $80B.

Why would PIMROCK go along with this? Because they feel it is their patriotic duty to work with the government for the good of the financial system, even if that involves accepting some sacrifices. And because they hold $100B in J.P. Citi of America bonds, and they've received assurances that if we can get the nation out of the financial pickle it's in, there will be no haircuts on those bonds. "Shaking hands with the government" means that nothing ever has to be put in writing.

UPDATE: Arnold Kling with the sports metaphor:

Suppose that right now my bracket is looking weak, with only about half the teams I picked to make the sweet 16 still in the tournament. I have not been mathematically eliminated from winning the pool, but I need extremely good luck the rest of the way. (Incidentally, this example is hypothetical. I don't follow college basketball, and I don't enter any pools.)

At this point, my entry is no longer worth $10. If I were to sell it, I might get fifteen cents for it. If I were a bank, my bracket would be a toxic asset.

Now, along comes Tim Geithner with a fistful of taxpayer dollars. The way his plan works, you can put up a nickel to get a share of my bracket, and Tim will lend you forty-five cents, which you do not have to pay back if you lose. If you win, you and Tim split the proceeds. You're happy, because for a nickel you're picking up half a share of a bracket worth fifteen cents. I'm happy, because I sell my toxic bracket for fifty cents instead of fifteen cents. Somebody should be unhappy. Guess who?

De-perversing incentives

Under the plan, Morgan Stanley will withhold a portion of its employees’ bonuses for three years. If a worker’s bets on the markets go wrong during that time, some of the bonus will not be paid. The so-called claw-back provision is intended to discourage employees from making short-sighted decisions by tying their compensation to the bank’s long-term performance.

Seems like a good idea. However, it may disincent top talent from going to MS, or staying, if they can get paid better elsewhere.

A brain drain is great!

Not at all terrible.