Socialism Beats Capitalism; Dictatorships beat Democracies

A well-run central planning system that can make the optimal and most efficient decision every time (arguably the same results as a pure market system) is superior to the market system because it can arrive at its decisions quicker and without the overhead of competition. Likewise, an enlightened dictatorship is more decisive than a democracy in implementing policy. I doubt that anyone will argue against this.

Now the question is that how do we ensure that these plutocrats make the best decisions every time without mistakes of succumbing to self-interest?

For the record, if anyone’s wondering, there is no country that has a perfect democracy or a pure market economic system. There is always some layer of indirection, corruption, or inefficiency involved.

Spanish or Spanish

So, I’ve basically decided to dedicate this summer to studying Spanish and touring a foreign country. Looking around, there are two programs that I’m wavering between. The first is Celas Maya, a host-family + intensive Spanish immersion program in Guatemala. The second is GeoVisions’s Conversation Corps program. I’d have to work 15 hours a week as an English teacher for a host family. In return, I can take classes in my spare time and wander the country. Both cost around the same.

Does anyone have experience in these programs? Are there other ones out there that are any good? My focus is on quality and the experience, rather than cost.

Lobbing Mortars from Hell

Was reading Phoronix today when I encountered this great quote about S3 graphics:

Personally, S3’s biggest recognition in my life was playing Heavy Gear 2 at a LAN. Some putz was putting mortars on us from way the Hell at the far end of the map with impunity. After allegations of cheating and threats of beating, we all found out his Savage4 didn’t support pretty much any way of rendering distance fog. He had an infinite viewline.

After further allegations of cheating and rigging, we found out that not only did he not intentionally arrange a corner case to get this screwup, there were no drivers from S3 that could fix it, and S3 had stopped making drivers for his card.

Maybe that’s why no one uses S3 video cards.

The Last Word on Health Reform

This will be my last post on the subject, I swear, due to two articles so compelling that they prompted my linking.

First, Electoral-vote.com has an overview of the political dimensions that the bill going through the Senate right now addresses. The biggest problem I’ve had with entitlement programs is that there’s a phase out point for subsidies. Why not be comprehensive and provide the same baseline for everyone? Britain gives health insurance to everyone regardless of income. Then there is the issue of how did health insurance ever become the province of the employer? Most companies don’t have expertise on selecting health plans and don’t spend the money any wiser than the employee if he had gotten extra income instead.

Next, T. R. Reid has a good article dispelling myths about the health systems abroad. The US has the “luxury” of being a late adopter in that it can see what worked elsewhere. So, why not just import elements of one of these systems? Politics. The American people take pride in being innovators in everything and turn up their noses at anything “not invented here”.

Good Governance Ideas

As a political moderate (that’s the term I use to describe a “classical liberal” who is, in terms of today’s political spectrum, socially liberal and economically conservative), I’ve often disagreed with both parties on their approaches to policy. This is still true for the health care bills floating through Congress. Ostensibly, the Democrats want to address rising costs and uninsured people, but the Baucus bill focuses heavily on the latter. The CBO projects that costs will rise compared to the current plan. I recently listened to a podcast on why costs are high, and agree for the most part with the argument that none of the stakeholders have any incentive to hold costs down. Patients don’t foot the bill, doctors will be sued unless they order tests for every remote possibility, and insurance companies are too cowardly to confront the other two.

How do we turn back the tide? One idea is to expose patients directly to the cost of treatment and to force care providers to compete on cost. The insurance companies can function as it does with respect to car insurance. For a premium, the insurance company will pony up to a certain amount per year in treatment. Patients will be required to put their own money into health savings accounts, which will function much like IRAs and be subject to a government match up to a certain amount. Note that there is no adjustment or subsidy depending on income level. It’s really the individual’s responsibility how much value they place on their care and how much they expect they will need. So, if you start saving when you’re young, you’ll have a nice nest egg when you’re older and more susceptible to needing care. Having this system of patients paying out of pocket will make them more price-sensitive, acting as a market-driven deterrent against excessive treatment and rising cost.

The second component of my plan is to have hospitals and clinics compete in terms of pricing. All other businesses except for utilities and monopolies compete. The end result is reduced prices and increased choice. What if hospitals offered patients treatment options and an accompanying price, leaving the choice of which one to pursue in the patient’s hands? It just seems ridiculous to me that consumers are so insulated from the cost of procedures. Do you know how much that MRI you just got costs? Exactly!

Thinking along these lines, I come up against my basic opposition to entitlement programs. The two issues I have is that they’re inefficient and unfair. The first is obvious. There’s a problem when a person receives more benefits (food stamps, unemployment insurance, welfare, medicaid) when poor, so much that it pays more to earn less (when the difference is relatively small). Note my earlier reference to a 70% marginal tax when benefits are factored in. This is inefficient because it prevents the economy from operating at peak efficiency. Individuals have reduced incentives to work and to contribute to the overall welfare of the country.

The second problem of fairness is that a wealth transfer program run by the more numerous poor will always seek to take more and more from the rich. We’ve seen taxes go up and entitlement programs expand. Where is the limit? There’s nothing putting checks and balances on the growth of handouts. A person, once accustomed to a certain level of comfort, will seek to improve that level, and for the poor, nothing is more convenient than Robin Hood politics. The issue of fairness also ties back to the problem of inefficiency. For a rich person, what is the incentive to work more and create more jobs when most of the extra money earned will go to subsidizing a poor person?

With that said, I’m not against some kind of social safety net. After all, circumstances change, disaster can strike, and the rich can suddenly become poor. A safety net is also in society’s best interests, reducing drug use and crime, which are common results of poverty. Therefore, I propose scrapping all entitlement programs and tax breaks, shifting them into a flat rate handout to every taxpayer (including foreign full-time workers who pay taxes) and citizen (including unemployed ones). A single cheque every year for say $8,000 adjusted for inflation would be less than the per capita expenditure of current entitlement programs plus the overhead in administering them. This plan is neutral in terms of income level. An added bonus is that the money is more tuned to individual needs (individuals can allocate spending in different ways) rather than to whatever limits the legislators deemed appropriate. Finally, $8,000 is more than enough for subsistence (I’ve lived on less) and a few creature comforts. If individuals want to better their material existence or find fulfillment in some endeavour, they can work and earn money on top of that basic guarantee. That is a positive and powerful incentive.

I’m also in favour of an overhaul of the current tax system. First to go is the income tax. It is one of the worst taxes out there because it counters productivity and reduces incentives to work. Next are taxes associated with investment, such as dividends and capital gains taxes. Again, investment is a net positive for society, so why should we put roadblocks against it? What kind of tax would I replace them with? A single VAT tax levied federally. VAT is done for efficiency reasons; it’s harder to dodge a tax collected at each stage of the product lifecycle. It also discourages consumption, which Americans do far too much of. Finally, it’s just more convenient when the sticker price is the price individuals actually pay.

News Roundup

More on the 70% marginal tax rate

The question is if the penalties for higher income are much reduced benefits, is it even worth it to work harder/longer/more productively? It used to be that this only applied to really high income earners, but due to a component of the health care plan, this becomes the case for people around the average income level.

Prostitution in all but name

The phenomenon started in Japan as enjo kosai. It has since spread to Hong Kong where young girls sell their bodies to earn clothes money. To me, this is a sign of two things. First, the market for sex is quite a profitable transition for both parties, so why do government need to regulate it? Put up an age limit and make it legal and safe, a la Amsterdam. Second, Hong Kong society puts a high value on material goods, more so than in many other capitalist countries. My Hong Kong friends tell me that a teenage girl wouldn’t think to leave the house without a designer purse. Then, they bug their boyfriends to buy expensive clothes, cars, and gifts for them. No wonder the men are under such pressure to become big earners. I guess the single girls resort to prostitution to keep up with everyone else.

Futurama is now reality

Want to be Fry and see what life is like in the year 3000? We’re now one step closer to that goal with this potential breakthrough in using poison gas (of all things) to freeze tissue. I’m just waiting for someone to write a historical fiction on Hitler being frozen with the same gas the Nazis used in the camps only to emerge in the next millennium.

Obama wins Nobel Peace Prize, before doing anything

Imagine my surprise when I wake up one morning and read that Obama had won the Nobel Peace Prize. I thought it was some kind of sick joke at first. Really now, even the presenters noted that Obama won for his “potential” rather than for any accomplishments. Ostensibly, he has led the world on climate change, Israel/Palestine, and… what else? Even those two issues are noted more for hot air than anything of substance.

Why marriage is a raw deal for men

As I’ve told Willa, marriage in its current form is just not a logical decision for men. Given current divorce rates, disparity in partners’ earnings, and the proclivity of divorce judgments to favour the woman, the cost-benefit analysis concludes that marriage is just too much of a raw deal for rational men. Still, people are irrational about most things, including love, and I don’t expect this to ever change. Golddiggers have been around since forever, and prenups don’t seem to have slowed them down at all.

An answer for marriage: PACS

Why am I not more despondent about the state of the institution of marriage? I look at France and the excellent alternative to marriage that they have created. There, the system is a civil union called the pacte civil de solidarité. The ideal replacement for marriage would be to transition the term to purely a religious ceremony devoid of any societal benefits or meaning. The state would then only recognize civil unions for all individuals. The rules would be similar. Only one civil union may be in place at a time for any individual. Leaving a union can be done by either partner. Spousal benefits would apply. Finally, the most crucial component is a plan for property division drawn up at the time of formation of the union.

Unbalancing the dollar

The dollar’s fall in recent years has been precipitous. I’ve no doubt that it’s a deliberate unannounced policy of treasury to weaken the dollar, boosting exports and increasing consumption of domestic rather than foreign goods. This is a good policy because the US is a debtor country and inflation is currently low. However, for those of us who travel overseas frequently and who are profligate savers, this policy is just another example of the kind of punishment savers endure. There are consequences, however. Trade partners will not look kindly at this beggar-thy-neighbour policy. China has already started retaliating. Worst of all, foreigners may stop buying US debt. That day of reckoning may not be too far away.

Bill Gates exits health care

The Gates Foundation has historically given money to fund health care and education causes, especially when they intersect with poverty. Now it appears that it is shifting gears and transitioning to addressing a more basic problem – global hunger. I applaud the shift, as food is one of the most basic necessities that has been ignored for far too long. I pose the question of how to create a sustainable system of elevating poor countries out of the hunger crisis without making them dependents on rich countries or foundations.

Rachel Getting Married

What a terrible movie. I don’t care what Rotten Tomatoes says; I’ve disagreed with critics on many occasions, such as the Godfather series.

The movie was part of a psychology club dinner+movie+discussion night. Admittedly,  the acting is powerful, and all the relevant players deliver convincing and human roles. However, the scriptwriting and camera work is downright shoddy.  I understand that the handheld feel is possibly there to make the film more human, but when it gets to the point that it stands out rather than adds to the work, it’s become disruptive. The storyline is utterly unrealistic. Kym’s relationship with her family is never resolved, nor is the major theme of Ethan’s death. Everyone just suddenly seems to forget their hostilities at the end even though no convincing catalytic event causes that transformation. Maybe they’re all tired of each other and want to put up facades. Scene to scene transitions are also terribly done. Various scenes just seemed to have no purpose other than to show us how the family normally behaves or how a wedding goes. Belly dancers? How do they add to the plot? Characters can be hateful at one moment, crying the next, and happy again, all in the span of a weekend. Golly gee. If the dad is suddenly reminded of his dead son and has to leave the room, quieting everyone, we shouldn’t expect to see him acting all normal again just 10 minutes later!

The one film I will compare this to is Revolutionary Road, which I found to be much tighter in terms of plot and generally more moving. “Rachel” bandies emotions like drunks at a bar fight. Revolutionary Road deals with the transformation of genuine feelings and is smooth and slick like a duel in a ballroom. Or perhaps I should use the comparison of cheap beer to fine wine.

News Roundup (Econ Edition)

America at work, Europe at play

The heading may not be strictly true, but Americans do tend to work more (25.1 hours per week for 46.2 weeks per year). I agree with the blog post, but with not the original post. The difference here is cultural. Without making any value judgments, Americans just seem to prize wealth accumulation more than social interactions and overall well-being. This has been my experience from living on both sides of the Atlantic.

This has gotta be the absolute worst-case scenario, right?

A depressing read, predicting a depression no less. The author believes that current high levels of private sector debt are unsustainable. Therefore, as soon as government withdraws its prop, the economy will tank again. Government cannot lower interest rates or print money anymore, and a tanking dollar will drastically escalate prices. Consumer spending won’t ever recover with a double punch of inflation and unemployment. I wonder if the writer also believes in a debt jubilee.

Summers to the rescue again

Larry, as he always seems to do, rides in at the time of trouble to dazzle everyone with his genius. This was the case in the Asian financial crisis of 1997, and is so again today. My personal belief is that intelligent people like Summers and Greenspan (already accomplished) are going to be surprised that the fundamentals here are so bad that straight Keynesian stimulus and easy money will not set the country on the road of stable growth. Those men have rather firm beliefs about how the world works, and are loathe to change for a fear of the unknown, embarrassment of being mistaken, or just plain denial. Regardless, this article is an excellent and unbiased narrative of Larry’s life, how he rose to fame, and how he thinks.

Jobs report: the subtext behind the headline

Headline unemployment is at 9.8% right now, and that number may not fall any time soon. This is because the laid off workers are (stop me if you’ve heard this before) in unskilled labour sectors such as manufacturing or low-skill jobs in hospitality, restaurant, and retail. Job openings are primarily concentrated in the skilled service sectors such as education, health care, and engineering. Workers are slowly transitioning by going back to school, but it will be a rough ride in the meantime.

Consequences of unemployment

It’s easy to look at the headline figures, but there are long-term implications of unemployment. Not only is the work force unsuited for the kinds of jobs created, but the risk propagates to future generations. Unemployed families usually cannot provide a stable environment for children to become educated. Also, crime and depression usually rise with high unemployment. This article delves into data to discover which population segments are suffering the most and what impact that may have long-term.

China comes calling

America got into the crisis by borrowing too much money and using it to consume. As a result, public and private debt totals have soared to historic levels. Note that this is in raw numbers, not as a % of GDP. As a result, people like Krugman suggest that we can afford to borrow more. Winkler believes that this is not tenable and that Argentina and California (default) are examples of the endgame. Chinese calls for a new global reserve currency in light of the plummeting dollar are only the start of the decline.

Reagan’s greatest sin

Staying on the subject of deficits, prophets of doom proclaim drastic inflation down the road. Liberal economists acknowledge that this is possible, but that getting the economy growing is the top priority. Sadly, they just want to inflate another bubble instead of buckling down and rebuilding economic fundamentals. When the bubble does start up again, there will be calls for more spending or tax cuts. The last president (Clinton) to attempt deficit reduction did so on the slimmest of margins. For all of Reagan’s sins, his worst may have been, in Cheney’s words: “Reagan proved that deficits don’t matter.” Because of Reagan, there’s absolutely no political will to cut the deficit.

HSBC returns to its roots

How the mighty have fallen. Britain and America were the two centers of finance in the world. HSBC, my personal bank, is based on London but has decided to shift its corporate HQ to Hong Kong, citing Asia’s rise as a global power. I’m not surprised. Look for BRIC countries’ growth to outpace the west in the future.

Thorough rebuke to Keynesianism

Robert Barro, a perennial favourite for the Nobel Prize, wrote this article contrasting tax cuts with stimulus spending (deficit-driven or not). He finds that tax cuts have a higher multiplier than stimulus spending in general cases. I’m not a fan of Keynesianism, but I take issue with this study in that it looks at historic events in isolation. The spending events being tracked are all military spending, which I doubt has a high multiplier in contrast with infrastructure spending. The author admits this and uses the excuse that nonmilitary spending is difficult to track and isolate. Another problem I have is that the results of tax cuts are measured in terms of GDP. As we’ve seen in the last recovery, GDP does not equate to many factors of well-being, such as employment, fulfillment, happiness, average income, and income disparity.

A sad end to free trade

If China and America’s recent spat over tire tariffs isn’t enough, overall global trade has absolutely collapsed. This article takes a depressing look at the other ways that protectionism is rearing its ugly ear. Bailouts and subsidies protect domestic industry in an attempt to win political points with labour by propping up employment in dying industries. Truly this is a sad time for free-traders everywhere.

Applying Math to Romance

I’m taking a break from studying anatomy to present you with a trifecta of math papers to brighten up your day!

The first deals with “The Carol Syndrome”, a common experience to many single women. You’re smart, attractive, and available (or at least you think you are). So, why are so few men willing to approach you? José-Manuel Rey believes that it’s actually the rational thing for men to do. I’ll summarize here without going into the mathy details, but feel free to click through to the paper. Imagine the payoff as 1 if the woman accepts the man’s overtures and 0 if she rejects him. If the man chooses not to approach, he can do something else with his time and receive payoff somewhere between 0 and 1. The only reason he would have to approach is if he feels the probability of acceptance is greater than his payoff if he doesn’t accept (based on expected utility). Now, how would you calculate that probability? The article goes into depth, but in short, if you as a man are blind to how many competitors there are, it’s most likely that an attractive woman is not available. Even if she is, the number of competitors ensures that there her choosing your candidacy is slim. The only rational thing to do is to ignore her.

The second is about information overload, the Nash Equilibrium, and flirtatious men. This time, men are not behaving rationally by approaching multiple women in the course of an evening, as common sense would dictate. The ideal would be to have a strategy in place with optimal success given the available information. Then, over the course of the evening, only change strategies (hitting on someone else) if there is a shift in information (people pairing up, getting rejected). Even then, it is only wise to do so when the expected rewards are greater than the upheaval cost of changing strategies (women notice that you’re changing your target). Because of imperfect information, men in real life are quite skittish and, fearing the worst, are quite liable to change strategies more than they should.

The third article describes how to decide on an optimal strategy of mate selection with one’s given standards. This seems to be an extension of the stable marriage problem but takes into account reality (you can’t meet everyone) and incomplete information (how can you rank someone instantly?). The models of players in this game interact and again, the plight of imperfect information strikes. Given the situation, the article describes some of the expected outcomes and how each strategy will pan out given a healthy dose of reality. Sorry for giving a vague description, but you really have to click through to sample the delicious content and witty presentation.