Dr. George Reisman
Mises Economics Blog
The Distributed Republic
The Angry Economist
Civilian Gun Self-Defense
In The Pipeline
Free Money Finance
The numerous and recent tax scandals surrounding President Obama's nominees (Geithner, Daschle, Richardson, Killefer) and members of congress (Rangel, Franken) are disgusting and insulting. I simply don't believe them when they say they've made honest mistakes. But whether they're liars or merely stupid doesn't matter… there's an easy solution.
Audit them. Audit them all. Every year. Every member of congress, every cabinet official, every department head. The IRS performs hundreds of thousands of audits every year. Let's remove a few random audits, substituting instead these audits targeted at a population that has shown a predilection for being tax cheats.
Why doesn't someone pass a law to make this happen?
… oh, yeah, right.
It came out during the Geithner confirmation hearings that it's common for U.S. citizen employees of the IMF and World Bank (who are technically considered self-employed) to fail to pay their Social Security and Medicare taxes.
So, why doesn't the IRS have a check for this? Can't they get an employee list from the IMF and World Bank and specifically check all those individuals? Or can't they identify people who paid income taxes but no payroll taxes, and take a closer look?
I am suggesting that they target their auditing efforts in areas that are known to be problems. This is basic stuff. Who's in charge over there, anyway?
… oh, right, it's Geithner.
Announcing my Engagement
On the night of January 16th, I put a ring on my girlfriend's finger. It was a private moment for the two of us. On July 18th I'll do it again, with friends and family to witness.
The Stimulus Error
This post by Arnold Kling is the most compact and powerful thing I've read recently.
I remain resolutely opposed to all government bailouts and to any "stimulus" package that increases government spending. The economy is already reeling from the credit crunch. The last thing it needs is for government to crowd out productive activity by squandering resources on alleged public goods.
Arnold guesses that about 500 people would have significant influence on how a stimulus would be spent:
He is much too generous. I cannot imagine a wise technocrat taking even $1 of mine and spending it more wisely than I would. The technocrat does not know me, my situation, my goals, my desires. Only I do. It's a certainty that if my dollar is taken and spent by the government, I'll get less value than if I had spent it myself. The same is true for you.
I'm surprised that Arnold cast the hypothetical in the way he did. I cannot even conceive what it means, except in a comic-book-like way, to spend someone's money better than they would spend it themselves. Better by what standard? It's enormously arrogant to claim that the technocrat's goals are superior in any objective sense to the taxpayer's.
There are no collective goals. There are only the goals of individuals.
I Heart T.J. Rodgers
I loved it. Nothing more to add.
I know I haven't been writing much during this period of financial turmoil. That's not because I don't have anything to say, but that I've had so little spare time for blogging. I'm trying to ease back into it.
One of the topics I've been meaning to write about for a while is executive compensation. Outrage over the vast pay packages of corporate executives has been building for years. The government bailout of financial companies has provided another opportunity for people to vent their outrage — or, more honestly, their envy.
Why do I call it envy? Because there's no factual basis for outrage. An individual's pay is a matter between that person and their employer. (In the case of a corporate executive, the Board of Directors represents the interests of the stockholders.) If you're a stockholder and you're upset, you can vote out the Board, or more realistically you can sell your shares — exit being more effective than voice. If you're not a stockholder, what do you care how much money they make? You are not a party to the transaction. It is quite literally none of your business.
What bothers people isn't the level of compensation, but the disparity between the people at the top and those at the bottom. They feel it's unfair for the executives to make five hundred times as much money as the entry-level employees. Feeling doesn't make it so. Running a company takes a lot of hard work and talent and genuinely is beyond the capacity of most people. Competition for skilled executives is fierce, and they have the burden of making incredibly impactful and often risky decisions affecting their employees, customers, and suppliers. They decide which business ventures to expand in, which to cut back on, they evolve the organization of the company, respond to competitive threats, and so on.
If you think the pay is excessive, you're welcome to try to outcompete them. Offer your services as corporate executive for half their salary. See if you can get the job. Think of high executive pay as an opportunity, not as a problem! (But before you try this, you might want to read about Ben and Jerry's experience searching for a CEO when they limited executive compensation.)
It's worth observing that major portions of executive compensation are based on the performance of the company as a whole. Through bonuses based on profitability and stock options whose value swells when the share price rises, it's true that to a significant extent executive compensation can be driven by factors that have less to do with the individual's performance than with the overall economic climate. Stock options do well when the economy does well, and badly when the economy does badly. This is double-edged; an executive who had their options priced two months ago, before the company's value was cut in half, is (almost certainly) not responsible for that fall… but their pocketbook is hurting because of it.
I don't have any specific recommendations about how executive compensation ought to be done. The goal is easily stated: pay should reflect performance. But it's very difficult to measure performance — isolating the executive's impact from the economic and competitive landscape. And it's difficult to structure a pay package so that it provides enough money up-front to motivate the executive to do his job, yet also waits for the data regarding long-term performance to be available.
Until I've served on a compensation committee, or had some other reason to study the intricacies involved, I'm not going to complain much about executive compensation. I know that current pay practices are not ideal, but I don't know how to improve them. I see that executives are making a lot of money and I understand that they ought to. In fact, I'm entirely open to the argument that they're underpaid.
How to Control Samba de Amigo (Wii)
Samba de Amigo was released for the Wii about a week and a half ago. I had played this game on a friend's Sega Dreamcast system, and we thought this game would be a natural port to the Wii, where it could use the motion sensitive Wii Remote instead of an expensive custom controller.
I bought the game. I played it. I had some trouble with the controls. I looked around online and discovered that a lot of people have had trouble with the controls. In fact, the most common complaint is that the game doesn't control very well. I found some well-intentioned recommendations online but they didn't help me very much.
Then I stated experimenting, and I've figured it out. The controls are actually excellent, perhaps better than on the Dreamcast, but only if you use the proper technique when playing.
The trick is to think like an accelerometer. Samba de Amigo does not use the IR-emitting Wii Sensor Bar during gameplay. It uses the accelerometers in the Wii Remote (or Nunchuk). First of all, the game does not know how high you're holding your hands. It determines whether you're aiming at the upper, middle, or lower targets purely on the pitch of the controller. (You can hold the controller at your knees, but point it straight up, and the game will register that as aiming at the upper targets.)
For cross-overs — using your left hand to aim at the targets on the right side, or vice versa — the yaw and roll are also used. In the calibration screen you're taught to do a cross-over to the middle target by holding both controllers on their sides (pointing both left or both right) with their tops facing your body. (By "top" I mean the side of the Wii Remote with buttons on it, not the "front" that houses the IR receiver.) The calibration screen doesn't teach you how to cross-over to the upper or lower targets. It should, because this isn't as intuitive. For the upper target, do exactly like the middle target but hold the controller at a 45° angle instead of horizontally. For the lower target, you again want the 45° angle, but you need to rotate the controller so its top points away from your body rather than toward it. (This makes sense: for the middle target you point the controllers at the television, with tops toward the ceiling. When you drop your arms to point down at the lower targets, the buttons face away from you, not toward you.)
After figuring how how to reliably hit all six targets with either hand, I was able to progress farther in the game, but often had trouble when switching rapidly between the high and low targets. Especially when moving from low to high, my shake was often not recognized. I noticed that when the movement was slower, or if I had time to let the controller "rest" at its new position before I needed to shake, things worked better. But on some songs there just isn't enough time to do that!
I put on my engineer's hat, thought about how the system works, and realized that the way I shake the controllers was part of the problem. In addition to positioning the controllers correctly, you also need to shake them correctly.
The insight came when I thought about letting the controller "rest" at its new position before the game shows the white circle at that target. If I swung the controller from low to high, it took a moment before the game realized I was holding the controller up. The programming difficulty here is that the game knows the controller's pitch only due to the acceleration of gravity. If I'm moving the controller with my hands, the influence of gravity is being overwhelmed by the influence of my hands — hence the game not recognizing a new pitch until I stop my hands for a moment and let the accelerometers report what gravity alone is doing to them.
In order for the game to know that I'm pointing "up" when I shake the controllers, I need to shake in an upward direction. I had been tilting the controllers up but then shaking by pushing forward, toward the television. No! Bad! The correct method is to shake by thrusting straight up, toward the ceiling. That motion makes the acceleration of the shake in exactly the same direction as the acceleration of gravity when the controller is aimed up, so the game interprets this as a shake on the upper target. With this, I could reliably hit in the upper targets, no matter what position I was moving from. For the middle targets I shake out, horizontally away from my body. (I probably ought to be shaking forward, not to my sides, but the middle targets seem to be the most forgiving.) For the lower targets I shake down, toward the floor.
To make this as effective as possible, I had to adjust my positioning. The game will recognize that you're aiming for the upper or lower targets with just a 45° pitch, but I needed to position the controllers at a 90° pitch so that my shaking up or down would be directly along the axis of the controller, rather than at an angle. (However, it should also work to keep the 45° angle if you shake out along that same angle. The key is to shake along the axis of the controller.)
I've found that this method of playing is a lot more tiring than what I had been doing before, and certainly more tiring than some of the advice I had read online (like "don't move your arms at all, just tilt the controller.") But this method of playing is a lot more fun! The forceful and energetic motions make the game more immersive. And naturally, they make the game more fun because they work.
I wish that the game's instruction manual included information like this. Clearly, a lot of people have had trouble with the control scheme. It does work, but it's not fully intuitive, and does benefit from being explained in detail.
(Yes, I have completed the superhard difficulty level in career mode. When controlling the game properly, this isn't superhard after all.)
Vegas Vacation Report
I recently vacationed for three days in Las Vegas, Thursday afternoon until Sunday afternoon, and had such a great time that I can't resist writing about it. Enjoy this rare economics- and politics-free post. :)
I was there with my main squeeze (who wishes to remain anonymous) and we stayed at Treasure Island (natch). Almost everything we did was on the strip, but it was still an excellent idea to rent a car because we spent time at four different casinos and had many errands to run, too.
I can happily recommend Treasure Island. The room was great: spacious, clean, attractive and comfortable furniture, and the shower/bathtub was excellent. In fact I only have three complaints about the room: 1) It didn't have a phone book. 2) The toilet ran a little (but you couldn't hear it outside the bathroom). 3) The alarm clock didn't work. It was originally stuck at 11:10pm with no apparent means for the guest to set the time. Housekeeping eventually fixed that but they got AM/PM reversed, so the alarm didn't go off.
I was hoping for a lot of pirate-themed stuff at Treasure Island, but it isn't very themed at all. It felt like a hotel and casino, not like a pirate adventure. <sigh> But speaking of pirate adventure, one night we did see the free "Sirens of TI" show at Treasure Island, and… once was enough. Almost from the beginning we both thought the show was awful. The lip-syncing and revealing costumes I can understand, but they should have taken some of the special effects budget — or some of the casting budget — and spent it on the script. The dialogue and song lyrics were groan-inducing. Literally. I groaned.
Even though I didn't enjoy that particular show, I still marvel at Las Vegas for its private provision of public goods. All that free entertainment! Oops, I did say this would be an economics-free post, didn't I?
The free entertainment at Bellagio — the water fountains — was much more enjoyable than the Treasure Island show. (But it really snarls traffic. Driving southbound past the Bellagio is painful. I think the problem is pedestrians ignoring traffic signals. They don't let cars through, so several lanes of traffic back up.) But my favorite free entertainment was at the Venetian. Singers in costume perform at several spots along the indoor canal, and always drew a crowd.
Of course the paid entertainment is better than the free entertainment. We saw four shows: Blue Man Group (Venetian), Cirque du Soleil's O (Bellagio), Zumanity, (New York New York), and Mystère (Treasure Island).
We saw Blue Man Group shortly after arriving, and I was amazed. It far exceeded my expectations, and I said that it was the best show I had ever seen. (It was also the most expensive show I had ever seen, and the economist in me can't avoid making that connection. Oops, right, no economics in this post…) The show is exciting, funny, energetic, surprising, and entertaining. You won't realize until it's over that you just thoroughly enjoyed a mime act.
That first show set the tone for the whole weekend. The Cirque du Soleil shows were also fantastic. The shows are so varied, and there's so much inside each show, that I don't know how to begin summarizing them. O is a water show, with a stage in several sections that submerge, permitting diving and swimming stunts. Zumanity, my favorite of the three, is very much an adult-themed show — sensual and beautiful and erotic, and the finale is incredible. Mystère was my least favorite of the shows, but was still an impressive showcase of acrobatics and music, and extra points if you love trampolines.
We had a specific mission when we went to Vegas. It has a reputation as a city couples elope in, and we took advantage of that. My companion dropped hints to a few of her friends along the lines of running off to Vegas and getting married as she discussed me with her friends. I told my parents that we were taking a vacation together but didn't say where we were going. So, on the strip, we looked for a seedy authentic Vegas chapel to get a picture in front of. We found two.
The one we wanted to use, but ultimately couldn't because it wasn't lit well at night, was a small chapel right next to an adult video store. We would have arranged the picture to have both signs visible simultaneously. The one we used was the Chapel of the Bells, where they'll chauffer you to a courthouse to obtain a marriage license… and yes, they even have an Elvis package!
When we arrived we asked the security guard to take our picture, which he was happy to do… until a strung-out hooker walked toward the area and the guard had to do his job and take care of the situation. Happily, at almost the same time, another couple showed up who wanted to do the exact same thing! We all laughed at the situation, took pictures of each other in front of the chapel, and went our separate ways. My companion sent a cell phone to a few of her friends immediately, and to some of mine the next day. We each had one person believe we had gotten married. Much fun!
This was a superb vacation. We knew that we would enjoy it simply because we could spend that time together. It turned out to be tremendously fun, too, much better than either of us expected. It was thoroughly wonderful and highly memorable.
And yes, we took a gondola ride at the Venetian. :)
Rep. David Wu on the Bailout
My "representative" in Congress, David Wu, voted against the bailout package on 9/29 but then voted for it on 10/3. He released statements explaining his actions on both votes and, shockingly, he cited the "sweeteners" added to the bill after it was originally rejected as the reason he changed his vote.
I now have a simple litmus test for the next election. If there is a difference in positions on the bailout among the candidates, I will support the one who voted against the bailout, or says they would have voted against the bailout. A candidate who pledges to introduce a bill to repeal the bailout automatically gets my vote.
I hope my local readers will join me in voting Rep. Wu out of office.
After hearing that Caterpillar had to pay a lot to raise capital in a bond sale last week — paying 3.25% over the rate for U.S. Treasuries — I suspected there might be an opportunity in corporate bonds. The banks are illiquid, but I'm not, so maybe I can make some money here.
There are probably few things more dangerous than a novice bond investor wish cash in his pocket. Fortunately I won't have to learn this lesson the hard way. I started looking at bonds and discovered that the high yields among "investment-grade" bonds are all in the financial sector. And oh my, are they high! When I see bank bonds with double-digit yields rated as A1/A+, I know I'm looking at craziness. Nothing looked attractive at all. (And a company like Caterpillar isn't attractive either; it just got me interested in the idea.)
With savings account and CD rates so low, and with a bailout plan on the way that will devalue the dollar, I'm looking for someplace to go. My glimmer of hope in bonds got crushed, and both stocks and precious metals (except for gold) have behaved poorly this year. Something ought to be cheap right now. I'm just not sure what that is.
Maybe I should give up and buy expensive toys while my money is still worth something.
I am resolutely opposed to the proposed bailout. I do not want to invest in those rotten mortgage-backed securities, and I'm incensed that my government is going to force me to do it.
I remain deeply skeptical that any bailout of any kind is even useful, much less necessary. If anything is to be done at all, I would much prefer Kling's proposal to anything being considered by Congress.
My preferred outcome is for the government to do nothing at all. If these banks and investment companies are on the verge of collapse, we should let them die.
Everyone is worried — although few are willing to state it in such terms — that if we do nothing, the economy may collapse into a depression. I do think it's important to acknowledge that this is possible. The credit crunch we're in right now really is of historic proportions; a major change in the economy is inevitable. However — and this is where I break with common thought — I believe government intervention will slow the process of recovery.
Bankruptcies and liquidations would do us good. The bailout plan's raison d'être is to prevent bankruptcies and liquidations, deliberately prolonging the malinvestments currently in the system.
The Great Depression was not caused by the credit crunch. The Great Depression was caused by government policies (wage and price controls, National Industrial Recovery Act, public works programs) aimed at preventing price adjustments and the liquidation of failed businesses. At the present time the calls for intervention haven't spread beyond the financial sector… but if they do, we could indeed be witnessing the beginning of a Second Great Depression.
If we'd let the financial meltdown play out by itself, we could see a sharp but short recession. Think 1921, not the 1930s.
All Those Things I Meant To Say
I haven't been blogging very much in the past few months. Nothing's wrong; my relative silence has been for all the right reasons — I've acquired a girlfriend and we've been consuming each others' free time, plus a little more.
Here's a quick rundown of a few things I wanted to say, even though this is no longer timely.
So the judge doesn't think it was wrong to break the law. I guess he agreed with the defense's argument:
I see. It looks like we should elucidate the principles guiding this argument. Would the judge be so lenient if it were an on-call surgeon parking illegally? What if it was just someone with a sprained ankle who doesn't want to walk from a legal parking spot? What if it were the mayor or a congressman? If we think the law is bad, we should move quickly to fix the law. I, and all citizens, need to be able to know in advance what circumstances make it acceptable to ignore the ordinary rules.
Naturally, the job of the police is to enforce the law … without breaking it. It is not acceptable for them to ignore the law because it doesn't contain a loophole they wish it did. I couldn't get away with that. Neither should they.
I have a couple other examples of police misconduct. In Florida, an officer was fired after trying to shake down a coffee shop for free stuff, both on and off duty:
Taking for granted that the accusation is true, this disgrace of an officer has been serving for 15 years. I cringe at the thought of what other evil he has done. There's no way extortion for free coffee is the only thing he's done wrong.
In Tennessee, a man was illegally arrested after refusing to delete pictures he took of an officer during a traffic stop. Some followup posts go into additional detail. I find this argument completely convincing:
In counterintuitive health news, a research review has shown that breast self-exams are a bad idea. The researchers don't state it so bluntly, but I was gratified that they came close: "a rational choice would be not to do regular breast self-examination" and "We don't want to recommend against it but there's no evidence to recommend for it".
I'm still waiting patiently for politicians to admit mandating corn ethanol for gasoline was a bad idea. But that's politics, not science, so I'm not holding my breath.
Oh yeah, Fannie Mae and Freddie Mac got nationalized. Of course I think this is terrible, that there is no such thing as "too big to fail", and that these institutions should have been allowed to fail.
If I had time for blogging, I'd say more about that. But I don't. :(
I woke up this morning and started to check the news, and bang, Georgia and Russia are at war and Russia claims 1,500 people have already died.
Anyone else's jaw hit the floor?
The lead-up to this was not well-reported. I know I've been a little away from the news cycle lately, and blogging even less, but even so I only started seeing mentions of South Ossetia in the last couple days. I had no idea the tensions were this high.
How much of this conflict is actually about Georgia seeking to join NATO and how much is it about control over South Ossetia itself? The press articles I've read do a very poor job providing background on this conflict. :(
Using Less Paper
The government of Zimbabwe was recently dealt a blow by the paper company that used to supply banknote paper to the country. They decided not to sell to Zimbabwe even though, given the hyperinflation, I suspect they were a good customer.
Now comes news that Zimbabwe is resetting its currency to remove 10 zeros from all denominations.
I can't resist… This will allow the government to print narrower bills to conserve paper, a move being lauded by Western environmentalists. None of the millions of billionaires in Zimbabwe could be reached for comment.
Andy Grove, former CEO of Intel, has written an article for The American titled Our Electric Future in which he recommends a transition toward using electricity instead of petroleum to power the U.S. transportation system.
He rightly dismisses "energy independence" as a worthwhile goal, instead making "energy resilience" — reducing the likelihood of, and increasing our ability to endure, supply disruptions — the standard. He argues that electricity should be the backbone of national energy policy.
I don't like one of his reasons:
The "stickiness" of electricity is a disadvantage. This stickiness means we have to generate electricity locally, which provides protection against it being bid away by other nations. But that also means that we can't bid it away from other nations.
The very fact that we're able to import oil, a practice much maligned by the energy independence crowd, means that we have access to (much) more than we're able to produce ourselves. That's a good thing! We import it because that's cheaper than domestic production. With electricity we don't have the option of importing on such a grand scale.
Grove recognizes that electricity can be generated from many different fuels, reducing the risk of a fuel-based supply disruption. But as anyone who lived in California in 2000 could say — and incidentally, didn't Grove? — the electricity generation and distribution infrastructure itself can be a significant point of failure. If California could have hypothetically solved its energy crisis by importing electricity, even from a foreign cartel, that would have been wonderful!
It's important to underscore the fact that although oil prices have risen dramatically, there have been no shortages outside of actual natural disasters. The market, and this fuel, works. I look at petroleum and see an energy source that's already resilient! It looks more resilient to me than electricity, where California demonstrated that misregulation could create a crisis even with no natural disaster in sight.
Sorry Andy, you've completely lost me here. Why, pray tell, should the government impose your preferences on everybody else?
I'm confused. Didn't this happen without government intervention?
Now I'm even more confused. Didn't Intel, not the government, cause this to happen? Please please can't we take credit for this? I want my stock to go back up…
Grove admits that the market will cause the transition to electric vehicles on its own. But he's dissatisfied with the pace. He thinks he knows what the optimal transition speed is — he thinks it should be faster. He wants to subsidize the transition. He thinks he knows better than you how to spend your money.
I could argue (but won't bother going into detail here) that the free market rate of technology transition is the only objectively defensible rate of transition, and that therefore the currently already-subsidized rate of transition is too fast and should be slowed down by ending the subsidies. I at least have economic theory to ground this argument. I'm pretty sure I saw Grove just waving his hands, without considering the impact of his subsidies on Sumner's Forgotten Man.
Grove is a genius, and he has my high respect. But he doesn't know the right way to spend my money, and he doesn't know the right way to spend yours. Hold on to your wallet.
Treesonously Bad Pun
A couple days ago I was out hiking with a group from work, including our intern. In a spot with an amazing view deep into the forest, I asked her to take a picture because I thought it would be fun to send it to the rest of my team at work and have them guess how many trees are in the picture. To make things interesting I added that "the closest guess may win a potentially valuable prize!"
Tim knew exactly the right answer:
Six Days to Spam
I receive any and all e-mail sent to the arbyte.us domain. This enables me to use arbitrary addresses (in my domain) as read-only e-mail inboxes. If I sign up for something online and use a new e-mail address, I can filter mail based on the address they sent to, and I can also see who sells my address to spammers.
Last weekend I upgraded the operating system on one of my computers (from OpenBSD 3.9 to 4.3) and as I was doing that I also configured the system as a Tor relay. I invented a new e-mail address to be the administrative contact for the relay. The list of Tor relays and administrative contacts is available online (indeed, that's how clients find the relays) but this e-mail address has never been used anywhere else for any purpose.
Today, six days after I started the relay, I got my first spam. I have it on good authority that my contracting company is due a payment of US$15.5M from the Nigerian government. Awesome. :) Who knew you could make money on the internet?