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The Miracle Worker
I just finished watching The Miracle Worker, for the first time.
I'm not quite sure what to say about it, but it had such an impact on me that I feel I've got to say something. The subject matter is very important. The dialogue is fantastic at times. The film is intelligent and exquisitely heart-wrenching. I've never cried so much watching a movie. If you haven't seen this movie, you should.
I'm exhausted, so I'm just going to link to an InstaPundit article that links to a bunch of things happening in Iraq. His first link is important and depressing, and while normally I'd have lots of comments about that story, right now I just don't have the time.
Over the 4-day Christmas "weekend" from work, I think I blogged myself out. I wrote much more than usual and also increased my blog reading list by about 50%. I came home from work Monday night and spent two and a half hours reading and commenting on blogs. I didn't eat anything until after 9pm. My family called, twice, and I kept telling them to call back later after I finished.
Clearly this pace is not sustainable. Looks like I picked up some bad habits over Christmas vacation and now I need a vacation from the vacation. So nothing more from me until New Year's, unless it's Very Important™.
More Filth from Government "Schools"
His conclusion, which I endorse without reservation:
You'll have to read his article to learn exactly what's outrageous enough to prompt such a condemnation. You'll be outraged too, and should consider joining the club.
Hooray for Federalism!
The shocker is that the Ninth Circuit is responsible for lots of the recent goodness. I'm under the jurisdiction of the Ninth Circuit so I'll pretend to myself that they're being influenced by their constituency in these cases. :)
Pricing and Large-Scale Production
(Part of a series of articles on pricing.)
Last time I discussed how different goods, and even methods of production, are always in competition with one another to be used in the satisfaction of human purposes.
Production on a large scale adds important elements to the topic of pricing.
The law of diminishing marginal utility implies that a factory owner who produces 5000 widgets will not place a high marginal utility on additional widgets, yet marginal utility is the fundamental determinant of prices — trade will only take place at a price between the marginal utility of the seller and the buyer.
With large-scale production, the seller's marginal utility is likely to be near zero or could actually be negative due to costs of inventory storage and transportation. What impact does this have on the price?
In order to answer that question, the issue of time also needs to be addressed. If the seller must liquidate his inventory quickly he would indeed be willing to virtually give it away. In contrast, if the seller is in no particular hurry, he will plan his sales in an effort to maximize his revenues.
The seller will prefer to sell his product gradually instead of all at once. because the buyers are also subject to the law of diminishing marginal utility. At any particular point in time, there are a finite number of buyers for his product, say 100, making an average of 50 widgets available for each person. Those people will attach very little marginal utility to their last widgets and would therefore be willing to pay very little for them.
Imagine that the users of widgets consume them over time at a rate of approximately one per week. The 5000 widgets thus represent approximately a year's supply of widgets for the 100 buyers. If the seller can make a transaction with each buyer once per week instead of once per year, he will benefit by bargaining against each buyer's full marginal utility (the difference between having one unit and having none at all) each week. This strengthens his bargaining position.
The foregoing may not be obvious because there is another principle implicitly at work in that example: Time preference. Due to uncertainty about the future (and other factors that would take us off-topic) people place a higher value on having their wants satisfied in the present than in the future. People prefer to have their diverse short-term needs met before obtaining a large supply of widgets not needed until the future. Several practical concerns factor into this: The possibility of buying other more urgent and perishable things (such as food) with the funds spent on the 49 "extra" widgets, the need to store all those widgets through the year, the attractiveness of the widget-pile to widget-thieves, and even concern that widgets may become obsolete during the year so that buying so many would be a waste of money.
A robot might value 50 widgets all at once equally with 50 widgets throughout the year, but a person would not. A person would only purchase all 50 at once if they could get them at a discount — that's the effect of time preference, that's why one unit per week has a higher marginal utility to the buyer and therefore a potentially higher revenue for the seller.
The issue of time has another impact as well. Over a long period of time, there is effectively a floor on the price of a widget: For the widget producer to remain in production, his revenue must be sufficient to cover the costs involved in producing the widgets he sells. The average revenue from a widget must equal or exceed the average cost of producing a widget. This is not a "hard" price limit because it is possible to run the factory at a loss for a short period of time, but it must be taken very seriously when considering what is possible and what is not possible in the long run.
Some of the commenters over at Prof. DeLong's blog think I'm "just delusional" for advocating personal responsibility in connection with one's own career.
(Prof. DeLong teaches at Berkeley, and in this case the stereotypes that association conjures up about his readership are accurate.)
There are presently over a hundred comments on that article, so it's perhaps already past the point where people read them all, but you can find the parts I'm involved in by using a case-insensitive search for "Kyle". In most cases that will put the cursor at the bottom of the relevant comment, though.
The thread is about globalization, and in those comments I continue to advocate the position that globalization is good. In response I'm smeared as "right-wing." (Heh!) I continue to be amazed at how quickly people stereotype me when I express an opinion. They don't seem to be aware of the intellectual nuances involved — nor are they aware of their ignorance on that point. What they don't do, as a rule, is ask me to describe my position in my own words.
I've gotten involved in this thread as well. But I'm not addicted, I can stop whenever I want to. I just don't want to stop, you see?
Dean's "Common Sense for a New Century"
Stop! It isn't the government's function to serve the interests of the people. That's much too broad. A quick perusal of the Declaration of Independence is sufficient to remind us that the purpose of our government is to secure individual rights: "That to secure these Rights, Governments are instituted among Men, deriving their just Powers from the Consent of the Governed, that whenever any Form of Government becomes destructive of these Ends, it is the Right of the People to alter or to abolish it, and to institute new Government".
When the government violates individual rights, it's acting against its own purpose, even if it's violating those rights for the alleged goal of "serving the interests of the people."
For something to "culminate" is for it to reach its highest point. Does Dean really believe that the Bush administration represents the highest point of special interest power? Even greater than, say, Labor in the 1930s? And why is he talking about the executive branch at all, rather than the legislative? They're the ones who control the money. If Dean wants to be President, he should know enough to place blame on the correct political body!
This I can partially agree with. Businesses shouldn't be writing the rules of the economy… but neither should politicians like Dean! Capitalism — real, laissez-faire capitalism — only requires that the government protect individual rights and then stay out of the way.
His quip about lower wages is mysteriously unexplained, making it simply a smear against business, but he's probably taking a petty swipe against globalization. As I've argued at great length, globalization is good and benefits everyone because it's simply the natural effect of economic competition. The unemployed in particular should support free labor markets because that's the best way for them to get a job! Protectionist measures to stifle globalization are guaranteed to backfire by making American companies unable to compete with foreign ones with lower cost structures.
If Dean identifies the fact that Congress abdicated their power and responsibility, why does he blame the executive branch?
It's time to put the meme that "we never declared war" to bed. The bill was H.J.RES.114.ENR and specifically stated that it was "specific statutory authorization" under the War Powers Resolution of 1973. If Dean wants to accuse Congress of abdicating its power and responsibility, he should target the 93rd Congress for passing the War Powers Resolution, not the 107th for using it!
Shocking! Outrageous! No, I'm just kidding, this is something I can actually agree with.
Except that there's no reason to make it personal. The only reason to say "John Ashcroft" instead of "The Attorney General" or just "The Government" is to smear the individual, which isn't very Presidential behavior.
The United States didn't start this war. Al Qaeda did. The military effort in Iraq is not a war by itself, rather it's one (important) battle that's part of a very large war with the ultimate aim of reforming the Middle East to defang the brand of Islamic extremism that is unwilling to tolerate the existence of the United States.
I'm surprised Dean would make a statement like this, because I've listened to him in the Primary debates and I know he understands the larger issues at hand, he's said that Wahhabism is the problem.
I can't offer much except plain disagreement with Dean's assessment of Bush's foreign policy strategies. Our willingness to use force has won concessions from Iran and Libya, and our strategy of "engaged apathy" (to use SDB's term) in North Korea has been working well. Dean evidently thinks that the rocky relations between ourselves and our European allies like France and Germany are issues of our creation. They're not. France and Germany have behaved like enemies and that's how they deserve to be treated. They're allies only on paper.
Dean is absolutely right — the government has far too much power. I wonder how he plans to fix this problem? What parts of government, specifically, would he scale back? And by how much?
Whew. I'm tired. Somebody should've told me that fisking was so much work. I don't know if I'll finish the job — there are two more pamphlet pages with ideological material on them — but I think I've made a good start.
Does Bush have anything like this posted? I think I would get more enjoyment from ripping apart Bush's terrible economic policies.
Iran Refuses Aid From Israel
In the wake of the earthquake that flattened the Iranian city of Bam (insert joke here) — which incidentally is pronounced like "bomb" (insert another joke) — Iran has agreed to accept humanitarian aid from the United States:
…but apparently some aid is not aid (the Law of Identity notwithstanding) when it's coming from private organizations in Israel:
Huh. I guess beggars can be choosers!
Reflections of an Undercover Capitalist
The discussion group is over now because we've completed the series, which was created by the Northwest Earth Institute. They offer other discussion courses too, but the globalization course is new and this was either the first time (or one of the first times) a group has gone through it. Due to its newness, they're eager for feedback from participants, which I will definitely provide to them… and to y'all as well. :)
The overall tenor of the discussions was that the people present were extremely open to suggestion. I only met one person there (and only in one meeting) who had any economics background at all. The reading material was, true to its own announcement, heavily biased. In every meeting I pointed out facts and arguments that I thought obviously relevant but were totally overlooked in the reading material. Ironically, one of the discussion topics was media bias — and I take some pride in the fact that one of the attendees said he's become more aware of the bias in all his sources of information, including the discussion group reading material itself!
I confirmed, happily, one of my suspicions — popular environmentalism has no serious intellectual foundations. No one reading those articles with a focused, critical mind would find them convincing. They're the sort of fluff pieces that can do nothing more than stir up the emotions of the already-converted: they merely preach to the choir. They do not argue the important issues, they presume them, and actually seem unaware that there are opposing points of view. (Most of the authors came across as so ignorant that I do not accuse them of dishonesty.)
I consider myself immune from environmentalist nonsense because I reject its fundamental premise — that nature has intrinsic value — at a philosophical level. I reject it root and branch (pun intended) because it is fundamentally arbitrary: there is no way to know which things have intrinsic value and how much they have. On those grounds, disagreements between people are irreconcilable in principle.
I adopt a position of objective values based upon the philosophically sound and scientifically testable standard of human life. (I think I would enjoy writing about this subject in much more detail at a future time.) When I'm in a flippant mood I'll describe myself as an anti-environmentalist, but it's more accurate to say I'm anti-environmentalism. I do not hate the environment or go around polluting streams in my spare time — after all, a clean environment is valuable from a human life perspective — but I do hate the people who advocate the destruction of industrial civilization in order to protect the environment.
Capitalism has dramatically improved the environment — the environment that's relevant to human life, where people actually live, i.e., our homes and workplaces. Cities are cleaner too: We no longer dispose of trash and sewage (including from horses) in the street, almost everyone has indoor plumbing instead of getting water from a well, and almost nobody heats their homes directly with wood or coal anymore, which produced lots of waste ash.
Environmentalism's concern isn't about human well-being, but about preventing the development of areas that might be used to improve human well-being — environmentalism is opposed to human well-being. For example, they staunchly oppose using oil exploration in the Arctic National Wildlife Refuge, despite the fact that only 2000 acres of ANWR would be developed out of 19 million total acres. The environmentalist position is that ANWR should be totally closed to development forever, that this land should never be used to improve the lives of humans. They would surely oppose developing a beautiful area so that people can enjoy it. (Only a few thousand people visit ANWR as tourists each year, do you suppose environmentalists would be happy if this number increased 100-fold?)
Environmentalism is renunciation. It is nihilism. It is poison. Yet the earth is a giant ball of natural resources, and we ought to be proud every time we use those resources to improve human life.
Money and the Constitution
Do I have any readers who are lawyers or who study law? (Or who are on friendly terms with a lawyer and would forward them this article?)
I have some monetary questions related to the United States Constitution, specifically about the gold standard. I quote Article 1, Section 10, and color-code the parts I believe are relevant:
The purple text highlights the fact that the first paragraph, unlike the others, is absolute: The states are forbidden to do the things listed in the first paragraph whether Congress would permit them or not. The paragraphs are consecutive, so this must have been a deliberate decision; I cannot imagine this phrasing resulted from an editing oversight.
The blue text marks powers forbidden to the states, but explicitly granted to Congress by Article 1, Section 8.
The green text requires the states to adhere to a gold and/or silver monetary standard — but there's a slippery word here, "make". It clearly prohibits the states themselves from making anything but gold and silver legal tender, but today's Federal Reserve Notes are legal tender due to an act of Congress (31 U.S.C. §5103), not of the states.
…on the other hand, Zimbabwe is one of the most dysfunctional nations on the planet, so perhaps the news that inflation is running at over 600% isn't so shocking. But it's still outrageous!
Not a good year for fiat currencies, but oh my, it's been lovely for gold. Incidentally, the Gold and Silver Blog covers news relevant to the (you guessed it!) gold and silver markets.
If you're a hard-core gold bug, you should always include AJPM in your comparison shopping. In addition to having a storefront in downtown Portland, their prices are always among the best.
About two months ago I accidentally discovered Spike TV's show Most Extreme Elimination Challenge. I've been watching it semi-regularly since then because it's so ridiculously funny.
If you haven't seen the show before, you need to know that all the dialogue is dubbed because the video comes from an old Japanese game show. Contestants participate in silly physical games designed to get them hurt and/or dirty.
The faux dialogue between narrators Vic and Ken goes by very quickly but it's loaded with bad jokes in poor taste, just the way I like 'em. Here's a tip: Watch the show with closed captioning turned on! (The captioning is very well done, better than most shows.) With captions you'll be able to get all the jokes even though your laughing drowns out the audio. It helps tremendously to have a DVR so you can back up in short increments if the distraction of reading causes you to miss seeing exactly how the contestants injure themselves.
Sunday they ran an episode marathon, of which I recorded several hours. I'm watching the episodes now (most of which I haven't seen before) and here's one of the most ridiculous exchanges so far:
Infinite Economic Values??
Dave asks for my thoughts about this article on The Angry Economist. Russell is involved in an argument about recycling, and defending the proposition that a finite physical supply of some resource can have an infinite economic value:
Talking about infinite values in an economic context is ridiculous. Economic valuations are ordinal, not cardinal — a person ranks their alternatives by their 1st, 2nd, 3rd, (etc.) preferences, but cannot quantify (give a cardinal number for) the magnitude of the distance between any pair of preferences. "By how much do you prefer an apple to an orange?" cannot be sensibly answered.
(Before any mathematicians pounce on me, please note that economists and mathematicians don't define "ordinal" and "cardinal" in the same way. They're terms of art in each field.)
The concept of infinity does not apply to ordinal numbers as used in economics.
Russell's conclusion (that we shouldn't worry about running out of resources) is correct, but not on the basis of infinite values. At the end he switches to the correct reasoning — competition among goods will cause people to use less of a resource as its increasing scarcity causes it to become relatively more expensive compared to its alternatives.
It is possible for a resource to be completely used up, but this is not necessarily cause for alarm. For example, the extinction of the dodo bird, which never had much economic value even as its population dwindled to zero because its habitat was destroyed to be used for purposes with higher economic value. There were never infinite values involved.
Working With the Enemy
Following a telephone conversation about Libya's WMD announcement, I realize that I have a lot more to say about the implications of this subject.
The ethical question is: Are we sanctioning evil by cooperating with people like Moammar Gadhafi?
(I mean sanction in the transitive verb sense, definition 2. Not definition 3. "Sanction" is one of those unfortunate words that can be their own antonyms, like "cleave" and "dust" and "trim". <grumble>)
The answer is yes, cooperation with evil people is a form of sanction. It lends a sense of legitimacy to people who do not deserve it. However, that doesn't mean we should never do it! One clear case where cooperation with evil deserves no objection is in hostage negotiation, where a proper application of the virtue of justice is to make the punishment of evil subordinate to the protection of the lives of the hostages. The first priority is to establish the safety of the innocent, and the second priority is to punish the evildoers. (Depending on the circumstances, refusing to negotiate is of course a legitimate option.)
This pattern also applied to the cooperation of the Allied powers with the Soviet Union in World War II. The best way to defeat Germany — to secure the primary goal of winning the war — was to fight on many fronts simultaneously. Cooperation with Stalin, certainly one of the most evil men who has ever lived, should be evaluated with that context in mind. (The unsatisfying settlement at the war's conclusion is a topic too large to discuss here.)
Another example is the efforts of intelligence agents, who must often deal with evil people — and in some cases commit evil acts — for the purpose of gathering information useful to fighting against that evil on a larger scale. This is the attitude I take toward my participation in an environmentalist discussion group earlier this year.
On a wider scale, this form of temporary "cooperation with evil" in the pursuit of more important goals has been an obvious part of the War Against Terrorism. Many people underestimate the scope of what we're doing. This war isn't about defeating Al Qaeda or about freeing the Iraqi people from a tyrant, it's about fundamentally reforming the Middle East so as to end the ideological poison emanating from places like Saudi Arabia and Iran. It will take decades to complete; it's on the scale of the Cold War.
Iraq itself was not the most dangerous nation in the region, but it was the only one politically possible to attack. (There are many other practical reasons why it was appropriately the first target.) This fact directed us into a strategy of "cooperating" with the more evil nations such as Saudi Arabia for the purpose of preventing them from uniting against us which would have made ultimate success too costly. We will deal with those other nations in time, and as circumstances require.
I reject the line of thinking that only wholly-savory strategies are permissible. It is important to move quickly, which necessitates choosing the best of the available alternatives — and no utopian alternatives are available. The path we have chosen involves a great loss of blood and treasure and freedoms at home and an expansion of cronyism. I do not condone these negative effects, but I do view them as outweighed by the progress being made in the War. Of the realistic, politically possible, non-utopian alternatives, I think the United States has chosen well. I am open to modifications of our strategy that limit its negative effects, but not at the cost of success. Sadly, most who oppose the war are not suggesting better alternatives, they're just complaining.
Sun Tsu advises that "supreme excellence in war lies in causing your opponent to surrender without a fight." The Libyan announcement demonstrates that our firm handling of Iraq is leading to success at this level. Obviously we do not have much trust in the Libyan government, but at present it appears that the weapons inspectors are genuinely welcome and are not being routinely thwarted as was the case in Iraq.
Dismantling Libya's WMD programs will make the world a safer place, including for Americans. The current path does involve a level of cooperation with evil, but the alternatives are not attractive by comparison. Invasion to remove the tyrant is politically impossible (and would be costly), while refusing to negotiate on moral grounds that we shouldn't sanction evil will not be effective at removing the objective threat posed by Libya's weapons programs. It would also have the seriously negative effect of causing other enemy nations to believe they have nothing to gain by buckling to our diplomatic pressure — it would make them more resistant, rather than more compliant, actually making the War Against Terrorism more dangerous for us than it needs to be.
Isn't this pure pragmatism?
No, no, emphatically no! I only support temporary cooperation with evil, and only for the purpose of undermining it. In this sense it's not truly "cooperation" at all — it's taking advantage of (and in some cases creating) an opportunity to fight against evil. We should certainly be mindful of the future effects of that cooperation and attempt to minimize the damage, but the future can't be known with certainty and there are definitely risks involved.
What bothers me is when a holier-than-thou "principled" person declares that we should not (for example) cooperate with Pakistan because Musharraf is a military dictator. They'll scream that I'm a "pragmatist" but in fact they are dropping the context of this war on a gargantuan scale. Without Pakistan's support, it would have been vastly more difficult to effectively attack al Qaeda in Afghanistan. "Principled" people ought to recognize the fact — the fact — that there are no utopian solutions here and that their childish demand for one leads to paralysis and an unwillingness to defend the very things they claim to value. It's disgusting.
Perhaps that's too uncharitable. They're willing to defend their values in writing, of course, which is good. The trouble with that approach is that we're at war with brainwashed religious zealots who are not open to rational persuasion. They seem to know this, and aren't trying to engage in debate with our actual enemies. This makes me doubt their effectiveness.
It's essential to understand that our enemies in this war are genocidal. No peaceful coexistence is possible, but this is by their decision, not ours. Read Osama bin Laden's fatwah if you need convincing:
When no utopian alternatives exist — and in warfare they likely never do — the best we can do is to reduce the net threat to Americans by temporarily propping up a lesser evil in order to destroy a far greater one. We are not omnipotent, we cannot make the world perfect all at once.
Libyan WMD Announcement
I am pleased to hear that Libya has decided to end its WMD program. I didn't know it had a WMD program — Libya hasn't been in the news very much and hasn't been identified as a target in the overall War Against Terrorism (where "Terrorism" is a euphemism for "Arab-Islamic Fundamentalism.") Now we know why:
This outcome is richly ironic, because the invasion of Iraq had very little to do with WMDs in the first place — WMDs were merely a diplomatic pretense successfully (if narrowly) used to gain political cover for Tony Blair's decision to help the United States in the invasion, and to mollify the fears of other states in the region. (I regard the deception involved as wholly justified and necessary; we would not have succeeded, or could only have succeeded at too high a cost, without it.)
However, given the nine-month process of the negotiations with Libya, WMDs would have figured prominently when negotiations began. The cooperation of Libya has the appearance of being an unexpected bonus and not something that figured into the plan.
I am curious to learn what our (and the UK's) end of this bargain is.
I am very curious to hear Steven Den Beste's reaction, which I'll link to as soon as he writes it. :) Here it is.
Also see my own followup.
Amusement Park Indicator
Around work we've become fond of judging the safety of any travel destination by the number and quality of available amusement parks. For example, the United States is a very safe place to visit, as measured by the size of the amusement park industry. We're a people who enjoy having a good time. Any people who are so dedicated to having fun are bound to be safe to hang out with.
It works regionally, too. Iowa has a nice amusement park and it's a mostly harmless place. Oregon has less to offer, and I have anecdotal evidence that it's more densely populated with crazy psycho killers. Coincidence? You decide.
Travel the globe and you can quickly spot the trouble areas. Afghanistan? No amusement parks. Kashmir? I don't think so. Iraq? Not yet… but look for them soon. The correlation is fantastic — this is a great indicator!
Or at least I used to think so. I've discovered a possible counterexample. Or maybe this is just a paradoxical data point that, properly understood, reinforces the indicator?
In Defense of Ebenezer Scrooge
In the seasonal favorite A Christmas Carol, the character of Ebenezer Scrooge undergoes a transformation from grumpy curmudgeon to generous benefactor.
'Tis the season to be reminded that the miserly Scrooge is quite admirable from an economic point of view!
I do not personally celebrate Christmas. Originally it was a pagan celebration of the passing of the winter solstice and the promise of better seasons ahead. The early Christians objected to it and, failing to stamp it out, incorporated it into Christianity via the clearly false idea that it was Jesus's birthday. This left people able to have their fun and their piety, too.
In modern times, the focus of Christmas has shifted again with the transformation of St. Nicholas into modern-day Santa Claus and his merry gang of elves and reindeer, distributing toys produced in an unworkable socialist manner. Despite the implicit endorsement of socialism, there's a lot to like about Santa the man, from his hearty ho-ho-hos to his commitment to rewarding only virtuous behavior. But I can't endorse the fantasy because in practice it means lying to children, and I'm a stickler for honesty.
I approve of the seasonal gift-giving — there's nothing wrong with it economically or ethically — and I think it's great to revel in good company and gift-giving and enjoying time with each other. But I don't see any reason to concentrate it at the holidays. That puts it on a schedule. The crowds make holiday shopping stressful both for the shoppers and for the people who work in stores. Combine that with everybody trying to get vacation at the same time and trying to travel at the same time, and the stress continues to build.
Why should everyone do these things at the same time and at the same frequency? Wouldn't we celebrate things more often — and wouldn't the celebrations be more appreciated — if they were held when the events of our lives merited them instead of on an annual schedule where they can become a chore instead of a joy?
Scrooge gives us this reminder of tolerance: "Keep Christmas in your own way, and let me keep it in mine."
Saddam Hussein Captured Alive
This morning when I turned on my computer and started on my daily reading, I learned that Saddam Hussein had been captured while I was sleeping. I immediately thought this was appropriate, and I was not sad to have missed the news as it came out. The military did its job while I was sleeping peacefully in my home.
However, I do wish the capture operation hadn't been named "Red Dawn".
Pricing and Competition Among Goods
(Part of a series of articles on pricing.)
Last time I discussed how competition between buyers and between sellers reduces the range of possible prices of a good, and that this smaller range is still based on the marginal utilities of the agents involved.
Before it is proper to discuss the pricing of multiple units of a single type of good, it is important to understand the effects of competition between different types of goods.
People do not desire goods qua goods, in and of themselves. People desire goods because they contribute to some purpose — they buy food to maintain life, they buy cars to improve transportation, they buy opera tickets for recreation.
Any single good may be useful for a variety of purposes, but may not be essential to that purpose. For example, water may be used for many different purposes: Drinking, washing, irrigation, hydroelectric power, marine transportation, used as a solvent, used to store thermal energy, etc. For the purpose of drinking, water is absolutely essential and has no substitutes. However, there are ways to generate electricity that do not require large quantities of water, and there are many forms of transportation other than boats. When there are several different ways to achieve the same end, each using different resources, the method that is the least expensive will be preferred over the more expensive options — both utility and cost play a role in determining precisely which goods will be used toward which purposes. In this sense, all goods are in competition with all other goods.
This is an economy-wide phenomenon, much broader than any single industry. It is widely recognized that a higher price of cotton will tend to favor substitute materials such as wool in textile production. There are also alternatives even when there are no direct substitutes. Water may have no substitute in irrigation, but at a high enough price of water, local irrigation would cease and transportation would be used to bring in food from other areas where water (and therefore irrigation) is cheaper. The substitution in this case is local vs. remote production, not water vs. some other irrigant. There are other possibilities too, such as a dietary shift in favor of less water-intensive and therefore less expensive foods.
There is competition even among methods of production. Drinking water may be created by collecting rainwater, digging wells, building a desalination plant, processing it from a river or aquifer, etc. The extent to which any of these alternatives will be employed, along with the possibility of importing water from other areas, depends on the utility and cost of each.
Newly-invented goods are also subject to competition. They compete with already existing goods in the satisfaction of the purchaser's desires. The telephone competed with the telegraph, the automobile with the horse, the television with radio, fluorescent with incandescent lighting, and new drugs compete with existing disease treatments. Differences in cost and utility, as judged by the individuals within the economic system, determine the success of each good. The competitors may coexist (fluorescent and incandescent lights), one may win decisively (telephone over telegraph), or one may be relegated to a niche where it still has an advantage (horses on ranches or for recreation, but not for general travel).
A movement in price of one good relative to other goods changes the competitive balance between them, as the goods are considered for their various uses. Within a particular field of use for a good, if it becomes more expensive than a substitute — either because its price rises or because the substitute's falls — the substitute will be used. By the same reasoning, when a good becomes cheaper relative to others, it tends to be used more intensely and in a greater variety of ways by replacing its substitutes.
It is difficult to go much farther on this line of thinking without directly addressing the matter of pricing in large markets with many units and many traders. However, it is still too early. There are other topics to address first.
Faith Based Prison Program in Florida
Reader Dave sends a link to an article about Florida's new faith-based prison program. The reasoning behind the program is that faith-based rehabilitation will be more effective at reducing recidivism. This program will operate from a state facility at taxpayer expense.
No, no, nononono NO. That is totally unacceptable.
Long-time readers will remember that I was split about the Ten Commandments Monument case in Alabama, in moral agreement that the government shouldn't promote religion, but finding the legal argument against the monument very weak.
However, the legal status of this prison program in Florida is absolutely open-and-shut. Section 3 of the Florida Constitution reads (emphasis added):
This prison program is a brazen overreach of the government's authority. It will — or ought to be — quickly stopped by the courts. (I wish the courts had the power to stop abuses like this before waiting for them to come to trial.)
I hope the Florida voters have the good sense to hold their elected officials responsible for this outrage.
To quote one of my favorite lines from Thomas Jefferson, "To compel a man to furnish contributions of money for the propagation of opinions which he disbelieves and abhors, is sinful and tyrannical."
It doesn't matter if the faith-based programs would be successful at reducing recidivism or not. It's wrong to compel taxpayers to fund them.
FuturePundit runs an article about gas hydrates and reports that gas hydrates, now known to be a feasible energy source, could more than double the world's reserves of fossil fuels as the technology improves.
That's not a doubling of the natural gas reserves, that's a doubling of total reserves of all kinds. This is an enormous energy source.
Iraqis Rally Against Terrorism
Iraqi blogger Zeyad covers the Dec. 10 rallies in Baghdad. He has lots of pictures. It's important. Read, and look.
Would you like to own a genetically engineered pet? On January 5, you'll be able to — because the GloFish will go on sale. A fish that glows! Woo-hoo! They should cost about $5 each wherever they're sold.
Oh, except that they won't be sold in California.
Sam Schuchat, a member of California's Fish and Game Commission, supports his state's ban:
(Note to the Associated Press: You misspelled his name. Great fact-checking job.)
Genetically modified pets should be banned because he feels it's wrong? Gee, it's so obvious now — all we have to do is feel, and the legislation practically writes itself! No need to go around justifying things with reason, that old-fashioned, inflexible, overrated and obsolete faculty. It's so much simpler and easier and doubtless more efficient to just follow our whims. Thank you, Mr. Schuchat, you've made it all so clear.
Oh, wait… what if my feeling is different — maybe even opposite — from yours? How will we ever resolve our differences? (If there's going to be a law involved it seems like we've got to resolve them somehow!)
The right place to start would be a couple philosophy books (which you could feel in your hands) that explain, using reason, why feelings are a wholly inappropriate way to base one's ethics.
Environmentalists, are you listening? Come on, you need to at least try to put together a logical argument. It's not sporting for me to go after guys like this, and I do try to be a good sport.
Market Pricing of a Single Item
(Part of a series of articles on pricing.)
Last time I discussed marginal utility as the cornerstone of pricing. People will only trade when they perceive the thing they obtain has a greater marginal utility than the thing they give up. This fact delimits a range of prices acceptable to both buyer and seller.
Here I consider the simple case of a single item to be traded. This may occur when the item is inherently unique (e.g. a work of art), when there is only one buyer who only desires a single unit, or when there is only one seller who only offers a single unit.
When there are multiple buyers for the single item, sale by auction is most natural. The item will be sold to the highest bidder, the person who judged it to have the highest marginal utility. In order to exclude all other bidders, and thereby to win the auction, the price will fall within the range between the second-highest bidder's marginal utility and the highest bidder's marginal utility.
For completeness, the seller's marginal utility must also be considered. The price must at least equal the greater of the seller's marginal utility and the second-highest bidder's marginal utility, and must not exceed the highest bidder's marginal utility.
When there are multiple sellers but only one buyer interested in only one unit, the situation is the mirror image. In that auction sellers would offer progressively lower prices until the lowest bidder emerged. The range of possible prices is again constricted — it must at most equal the lesser of the buyer's marginal utility and the second-lowest bidder's marginal utility, and must at least equal the lowest bidder's marginal utility.
The operation of these principles can be directly seen at auctions such as on eBay. The proxy bidding system encourages buyers to bid at their marginal utility, and the starting price or reserve price represents the seller's marginal utility.
The case of multiple sellers but only a single buyer is not directly supported at eBay, but it can roughly be seen to occur when a seller (or competing sellers) offers many items in separate auctions that are not popular enough to attract bids for each item. The starting or reserve price again represents the seller's marginal utility. If the items do not sell, the seller (or competing sellers) are likely to relist them at a lower price.
The competition among agents, whether they be buyers or sellers, operates to narrow the range of possible prices, shifting it in favor of the side that has less competition.
A possible objection to the foregoing is that the price range is actually being fixed by the amount of money the bidders have available, not by their marginal utilities. A super-rich buyer could win any auction with a negligible portion of his wealth and may not actually value the item very highly. What may be an amusing trifle to the rich bidder may be of great importance to a poorer person who was outbid.
There is some truth in this objection. Marginal utility determines the willingness to pay, but wealth determines the ability to pay. To succeed in an auction, both willingness and ability must be present.
To resolve the objection, it is important to understand that the law of diminishing marginal utility applies to money as well. A poor person values their money very highly, while it is easy (and popular) to imagine the super-rich lighting their cigars with hundred-dollar bills. The higher bid of the super-rich buyer is still reflective of the marginal utility they place on the item — they're willing to bid a lot for a trifle, because the money is also a trifle to them.
Even when the poor bid against the rich, the amount of their bids are still connected to their respective marginal utilities, and incorporate the fact of the rich person's lower valuation of money.
The bids are established by the varying marginal utilities of the agents involved, and therefore so is the resulting price range.
The ethical matter of the disadvantage of the poor when bidding against the rich is outside the scope of this discussion. My belief (which I consider off-topic here and state without argument) is that this circumstance is fully morally correct and I would vigorously defend the rich person's ability to outbid the poor person. (Any other proposed resolution of the "injustice" must confront the injury done to the seller who would presumably be forbidden from accepting the rich person's higher bid.)
Two weeks ago I was out bowling with a co-worker (Dave) and the bowling alley we happened to be at was playing some rather odd music. Old things, weird things, clichéd things.
As we bowled to We're an American Band, Dave mentioned that he had a CD with a version of that tune played on a bunch of accordions — We're an Accordion Band. (Which you can download, free and legal.) I borrowed his CD and satisfied my need to listen to accordion music for, um, a while.
I retaliated a few days later by telling him that he should listen to Wylde Nept's Beer beer beer. You can easily find a low-quality copy of it online, probably not legal but they're not selling the CD it's on right now. They might if they get lots of e-mail about it. (Hint, hint.)
If you like Celtic music — I mean, if you're human and not deaf — you should listen to Beer beer beer. Dave thought it was very interesting and asked me how I came to possess knowledge of such music. I was quick to blame my father. What I didn't know until tonight is that the band Wylde Nept is from Cedar Rapids, Iowa, where I grew up. They're a local band. My father must have heard them live and bought their CDs and used them to corrupt me.
I just ordered their third CD, to add to my sparse but eclectic music collection.
Pricing and Marginal Utility
Each individual judges the usefulness — the utility — of things they have or might acquire based upon the particular circumstances of their lives. No two people are in identical circumstances, so no two people make identical valuations of the things around them. It is this inequality that gives rise to trade.
The fundamental characteristic of economic trade is that it is voluntary. Each participant trades because they judge what they receive to be more valuable than what they give up. This is why people say "thank you" when concluding a trade. (The nice ones, anyway…)
The change in utility resulting from having one more (or one fewer) unit is fundamentally important to understanding trade. This unit is called the marginal unit and its utility is the marginal utility. A person who hasn't eaten in days will value their first unit of food very highly (it has a high marginal utility), while a person with a fully-stocked kitchen will not place much value on acquiring an additional unit of food (it has a low marginal utility). The fact that additional quantities of a good have a lower marginal utility than earlier quantities of a good is known as the law of diminishing marginal utility.
People trade when they can obtain things of higher marginal utility in exchange for things of lower marginal utility. It must be stressed that the judgment of utility is individual and based on that person's circumstances: different people will have different preferences.
A price is the ratio between two things (or bundles of things) in a trade: A shovel for an axe, two apples for an orange, three dollars for a gallon of milk, or ten dollars for an hour's work.
Prices are always between the marginal utilities of the seller (at the low end) and the buyer (at the high end). This satisfies the condition that both people must gain from a voluntary trade. These marginal utilities may be far apart, creating a wide range of prices that would be acceptable to both buyer and seller.
Consider the exchange of two apples for an orange. Let us arbitrarily call the owner of the apples the "seller" and the owner of oranges the "buyer". The change in the seller's utility would be (-2 apples, +1 orange) and the change in the buyer's (+2 apples, -1 orange). If both these quantities are positive, which depends on the utility valuations of the individuals involved, the trade will go through and the price would be 2 apples per orange.
Let us make the situation more complex through the introduction of a third person, offering a pair of shoes for the two apples. The possible outcomes for trade are:
Eliminating the negative (-2 apples) may make the analysis easier. If the seller imagines the apples as not his own, but available for free, the three alternatives become:
The seller would choose the alternative judged by himself to have the highest utility. (#1 is equivalent to not trading.)
The introduction of money — a universal medium of exchange — greatly simplifies trade because it makes the alternatives directly comparable without the need for thinking in terms of oranges or shoes. With money, the seller must consider only two alternatives: Not trading, or trading with the buyer offering the greatest quantity of money.
Money also simplifies complex bartering situations, such as needing to temporarily obtain a good or goods purely in order to trade them for the goods one really wants. (If you want an orange but the seller wants a pear, you would need to trade your apples to someone else for a pear in order to finally get the orange.) Like such intermediate goods, money is not desired for its own sake. The utility of money is derived from its expected use in future trade. The universality of money means that it is the only intermediate good needed because everyone will accept it.
Future articles will assume money prices, not bartering, and will introduce many other factors besides marginal utility involved in the setting of market prices.
I've come to the conclusion that my plan to cover the whole issue of pricing in a single article or essay is too ambitious. All day I've struggled to acquire the activation energy needed to work on the topic, and I wasn't able to get there until I decided to change my focus and instead present the topic as a series of shorter regular blog articles.
I still plan to discuss the subject by building it up from fundamentals in a logical order. An advantage of doing it as a series of articles is that you, gentle reader, will have the opportunity to "interrupt" me with e-mail to prod me into addressing the details you'd like to have addressed.
I don't wish to alienate my core economics audience too much, so here are a few interesting tidbits worth linking to.
There's an excellent article about bank failures and deposit insurance over at the Mises Institute.
EconoPundit runs a simulation of the economy in an alternate universe where taxes were raised to prevent the deficit. I'm highly skeptical of the accuracy of econometric modeling, but it's fun to look at the pretty graphs even if you don't think they're very meaningful.
The only piece of news I feel like commenting on is that Bush has lifted the steel tariffs. It's about time! Next, he needs to reduce the tariffs on Canadian lumber and needs to roll back some of those agricultural subsidies. But I know that's just a fantasy, because Bush's idea of a good idea is to revive manned travel to the Moon, which is a radiation-blasted desolate wasteland, for no discernible reason. The only thing I like about Bush right now is his unwavering commitment to a real solution to terrorism.
Public notice: This article has nothing to do with economics. Regular economic posting will resume shortly. I'm just trying something different and more personal because the #1 item of feedback from people who used to be on my e-mail list is that they miss the more personal stories. So here's a personal story. It's about psychology, if you have the urge to connect it with something academic.
I went to Pizza Hut tonight, as I'm prone to do, planning to order a pizza and then pick it up on my way back from the grocery store. It didn't go quite according to plan.
Joy was working there tonight. She used to work at that same restaurant about 5 years ago when I was just in Oregon as an intern. By the time I moved to Oregon permanently she was no longer working there. Several years passed, and then about a month ago she started working there again. I came in one day and we immediately recognized each other — well, mostly she recognized me, and I just thought she was sorta vaguely familiar.
Short digression: I do not understand why, but for some reason I'm very memorable. People readily remember me and call me by name, even if by my estimation we barely know each other. (That always puts me at a disadvantage.) For example, I get my hair cut at a small shop with a small staff, but very infrequently — only about twice a year. By the third or fourth time I went there, they recognized me as I walked in the door and commented that it must be time for my six-month haircut. They were absolutely right, of course, but I was dumbfounded that they would remember the habits of one infrequent customer who never talked to them very much. They must have so many regular customers, I don't know how they remember me.
When I saw Joy several weeks ago she reminded me that she used to work there, then my brain clicked and I remembered too. She said I should dine in sometime (that day I was just picking up a carryout) so we could chat and catch up on things.
I had been back to that Pizza Hut several times since then (could you tell I eat a lot of pizza?) but hadn't seen her in many weeks, so I assumed she quit and I wouldn't see her again. Then, tonight, she was there.
I was making my usual circuit (order pizza, buy groceries, pick up pizza, eat at home) so when she asked if I was dining in I said, "No, not tonight." Then she hunched over and let out a melodramatic sigh, then looked at me with sad puppy-dog eyes. Unable to resist — I am powerless against puppy-dog eyes — I said, "Oh all right, if it means that much to you…" and changed my plans.
It had been an unusually busy day and they were running out of pan crust dough. I later learned (not from her) that she stole the last pan dough from some other customer's order so I could have it. That's good service! :)
The restaurant was very busy, but she was eventually able to steal away a few minutes to chat with me. The time was interrupted by her need to go around and do her waitressing thing a few times, but I think we talked for a total of about ten minutes. I learned more about her in that ten minutes than I had known and forgotten from five years ago. I thought this was a little odd, because people are usually more reserved than that. Knowing a person from five years ago is not the same as knowing a person for five years, but she was totally comfortable telling me details about the sorts of things people normally don't talk about in public, much less to someone you barely know and while you're at work.
I'm either very disarming, or she really needed a sympathetic ear. (I do have a history as a sympathetic ear, but there's no way she could have known it.)
When I was getting ready to go, she quietly said that she couldn't "let me leave" and that we would "have to" continue talking outside while she went on break. I had to suppress a grin because that's such a wonderful line — it's a way of asking a question from a dominant position, making "yes" the default response, but asking it so innocently! I said, "Sure." I'm jealous. I recognized what she was doing, but don't know how to do it myself.
Clearly she has excellent interpersonal skills. She's great with children — there were a few in the restaurant and they liked her immediately — and she told me she's been getting a lot of positive comments from customers. I watched her interact with everyone else during the breaks in our conversation, and she's definitely well-suited to working in a customer service role. (She'll be asking for a raise soon, and she's worth it.) She knows how to pull all the right strings, mine included of course, and I enjoy watching a master practice her craft.
We talked outside for an extra five minutes or so. That wasn't very comfortable because I wasn't dressed for the weather. Thin people like me tend to get cold easily (we have a large surface area for our mass), and I was already cold from drinking the ice water that was part of my meal. Standing outside in the wet cold, I shivered a lot. It must have been distracting, but she didn't mention it. (Well played…)
Psychology has been one of my minor hobbies for several years, so it was fascinating for me to observe how she interacted with people with such ease. She seems to be the kind of person who could get whatever she wants from others, despite the details of our conversation demonstrating that this hasn't been true in practice. I don't know if I could eventually learn her techniques simply through observation, but I doubt she's consciously aware of them enough that she could teach me. I intend to try, though at the same time I need to figure out her unstated motives. Too much was unusual, I don't remember her being like this five years ago.
I love research. And I'm obligated to add, "…for Science!"
In celebration of our co-worker Loren's return from a business trip, we decorated his cubicle.
One of the silly but enjoyable things about my line of work is that there's more than one of me. They're not clones (oh that it were so!) but they do have approximately the same role as myself, each within a different group in the company. By my count there are at least five of me, all of whom I've been face-to-face with in the past month.
Two of me are in Oregon (I'm training a me), two more of me are in California (Folsom and Santa Clara), and today I met another me from Israel. I spent almost the whole day with him today, including about an hour's conversation after work. The great thing is that because another person was present, nobody thought I was crazy for talking to myself!
One of the many nifty things I learned is why his surname has an apostrophe in it. It comes from an Arabic character that doesn't have a clean correspondence to an English character. Fun, eh?
In the future there will be six of me. I'm not involved in training that one personally, but I'm reasonably confident that the steady rise in my population will one day enable me (us?) to Take Over the World! We'll do it just in time for someone to make it into a sappy after-school special about how important diversity is, because wouldn't it be boring if everyone was the same?
Laptop computer + wireless networking = laziness opportunity!
One of my new habits is to put my laptop on the nightstand next to my bed when I go to sleep. This enables me to wake up the next morning and check my e-mail and do my morning blog reading without even getting out of bed! I can stay toasty warm the whole time, in extreme comfort.
This is one of those things that I never anticipated before I bought my laptop, but golly I've got a great hammer and oh my, look at all those shiny nails!
During the week of Thanksgiving I got an unusually large amount of sleep. Since REM sleep occurs most heavily toward the end of the sleep cycle, longer sleep means more dreaming. During the week I used the ever-so-nearby laptop to quickly write down some notes about the dreams I had, before I forgot about them. (Forgetting dreams only takes a minute or two. I don't know why they fade so quickly.)
Of course I don't give any credence to such silly things as dream analysis, but as pure entertainment I think I've had some first-class dreams and I have enough notes about them that I could write some very (thankfully?) short stories. Who wants to hear about the time when I was in the space military and I smuggled out a top secret document from the insectoid alien invaders who captured me, but my commanding officer was so stupid that he told me to use the document as a notepad? Yes, I really dreamed that — you can't make this stuff up! :)
How did I miss this news until now? The animated series Family Guy — Irreverent! Hilarious! — may return in 2005! That would be lovely! I never watched it when it aired on Fox, but I think I've seen every single episode since it's been airing on Cartoon Network. (I've thought about buying the DVDs of the earlier seasons just so I can clear up some room on my DVR…)
I think it's important for y'all to understand one of the problems with the English language.
Y'all sure don't see advice like this very much anymore. I considered myself pretty (wholly?) fashion-stupid up until now, but it looks like I've found a guide. The only trouble is that I've cultivated a "Hawaiian shirt and jeans" reputation at work, to the extent that if I'm not wearing a Hawaiian shirt on Friday, people ask me what's the matter and check my forehead to see if I've got a fever. Then they avoid me (which perhaps isn't related, it's so hard to tell.) I don't know if I'm ready to give that up! Advice, anyone? Jamie? Beuller? Beuller?
Obviously I haven't finished writing about pricing yet. I've succumbed to the temptation to reinvent the wheel (again) by building up the subject starting from fundamental principles instead of confining myself to the narrow topic at hand. I'm prone to doing that because of my philosophical urge to integrate all knowledge. Everything makes more sense that way, but it sure increases the writing effort! Sorry, but the schedule looks like "not before next weekend" now.
One of this week's readings for the anti-globalization discussion group is available online. The overall gist of the article is that Evil Transnational Corporations™ exert powerful control over public relations in order to shape the public's perception of the issues and that this is anti-democratic. ("Anti-democratic" is a useful all-purpose smear, isn't it?)
What the article doesn't mention is that environmentalists are stunningly successful at this sort of thing themselves. Environmentalist propaganda is presented completely uncritically on the news and it is thoroughly embedded in the public education system.
Yes, let's talk about global warming, that's an excellent example. The critical point to understand is that there is not a scientific consensus about global warming. The "consensus" is a manufactured illusion of environmentalist propaganda, complete with its own value judgments (global warming is bad) and suggested behaviors (prevent global warming by destroying industrial civilization).
Through the study of glacial ice cores, we have 400,000 years of climate data to consider. The planet's temperature has undergone significant (and cyclical!) changes — ice ages — throughout this period. In fact, we are currently emerging from a minor ice age, so a trend of global warming is to be expected.
One of the (many) serious problems with environmentalism is its fixation on the present — the present global temperature, the present number and distribution of species, the present delicate balance of ecosystems. This ignores the fact that the earth has undergone dramatic changes in the past, due to entirely natural causes, that have resulted in such Shocking! Outrageous! outcomes as the global-scale upheaval of ecosystems and mass extinctions.
Why is the current global temperature the right global temperature?
The historical data suggests that the current temperature is unusual… so why should we care to preserve such atypical conditions? Ice ages are the norm. They're also choked with deserts, both arctic and hot. The current warm period is lush and green. Maybe — just maybe — the environment would improve if it were even a little warmer than at present?
I do not think the science is understood well enough at this point to even state whether or not human activity is having an influence on global temperatures. The climate models can't even predict the recent past accurately:
Global warming is taught in schools as fact, treated on the news as fact, and treated by government as fact.
Haven't we gotten a little ahead of ourselves?
Doesn't it seem like environmentalism is moving forward on some basis other than sound science? Isn't that a little frightening?