autonomous dj collective

driving

so we're hurting ourselves both with parking policy and with driving policy. smart.

sausage

awesome article re current financial woes:

There is nothing complicated about finance. It is based on old people lending to young people. Young people invest in homes and businesses; aging people save to acquire assets on which to retire. The new generation supports the old one, and retirement systems simply apportion rights to income between the generations. Never before in human history, though, has a new generation simply failed to appear.

*****

The world kept shipping capital to the United States over the past 10 years, however, because it had nowhere else to go. The financial markets, in turn, found ways to persuade Americans to borrow more and more money. If there weren't enough young Americans to borrow money on a sound basis, the banks arranged for a smaller number of Americans to borrow more money on an unsound basis. That is why subprime, interest-only, no-money-down and other mortgages waxed great in bank portfolios.

optimistic thought experiement

interesting article re why we live in a time of bubbles (short answer:  everyone's betting against collapse; if you bet on collapse and "win" there's no way to collect).

hayek on prices

via megan, hayek on why prices do so much more than just identify how much a good costs:

Fundamentally, in a system where the knowledge of the relevant facts is dispersed among many people, prices can act to coordinate the separate actions of different people in the same way as subjective values help the individual to coordinate the parts of his plan. It is worth contemplating for a moment a very simple and commonplace instance of the action of the price system to see what precisely it accomplishes. Assume that some where in the world a new opportunity for the use of some raw material, say tin, has arisen, or that one of the sources of supply of tin has been eliminated.

All that the users of tin need to know is that some of the tin they used to consume is now more profitably employed elsewhere, and that in consequence they must economize tin. There is no need for the great majority of them even to know where the more urgent need has arisen, or in favor of what other needs they ought to husband the supply. If only some of them know directly of the new demand, and switch resources over to it, and if the people who are aware of the new gap thus created in turn fill it from still other sources, the effect will rapidly spread throughout the whole economic system and influence not only all the uses of tin but also those of its substitutes and the substitutes of these substitutes, the supply of all the things made of tin , and their substitutes, and 50 on; and all this without the great majority of those instrumental in bringing about these substitutions knowing anything at all about the original cause of these changes. The whole acts as one market, not because any of its members survey the whole field, but because their limited in. individual fields of vision sufficiently overlap so that through many intermediaries the relevant information is communicated to all. The mere fact that there is one price for any commodity--or rather that local prices are connected in a manner determined by the cost of transport, etc.--brings about the solution which (it is just conceptually possible) might have been arrived at by one single mind possessing all the information which is in fact dispersed among all the people involved in the process.

The marvel is that in a case like that of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its products more sparingly; i.e., they move in the right direction.

The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on, and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they never know more than is reflected in the the price movement.

The price system is just one of those formations which man has learned to use (though he is still very far from having learned to make the best use of it) after he had stumbled upon it without understanding it. Through it not only a division of labor but also a coordinated utilization of resources based upon an equally divided knowledge has become possible. Its misfortune is the double one that it is not the product of human design and that the people guided by it usually do not know why they are made to do what they do.

I am convinced that if it were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind.

warming v. social security

re MR, is it true that those who favor combating global warming generally not more concerned about social security or medicare?  regardless, if your discount rate is low -- the cost of fixing these problems is largely the same now and later, we shouldn't just leave things for the future, richer us to deal with -- are social security and medicare more certain problems than warming, worthy of a fix now?

In the debate over the economics of global warming the correct discount rate to apply to future generations is a key variable with those arguing that we should do something now, implicitly (and explicitly) arguing for a low discount rate.  But if we count future generations highly we ought also to be in favor of reforming social security.  Investing social security in the stock market "royally screws" current retirees but increases the savings rate which will be benefit future generations.  Thus, a low discount rate ought to weigh in favor of doing something about global warming and investing social security funds in the stock market.  Not many people come out consistent on these grounds

(the money you save from not addressing the problem now grows at discount rate/tech or growth will take care of problem vs. you shouldn't pass the buck for a problem you created/live beyond your means and pass along debt (doesn't there have to be some preference for the current generation, which actually exists, over some speculative future generation?))

cumulative advantage

this NYT article re who wins in the culture market is about so much more than that:

social influence played as large a role in determining the market share of successful songs as differences in quality. It’s a simple result to state, but it has a surprisingly deep consequence. Because the long-run success of a song depends so sensitively on the decisions of a few early-arriving individuals, whose choices are subsequently amplified and eventually locked in by the cumulative-advantage process, and because the particular individuals who play this important role are chosen randomly and may make different decisions from one moment to the next, the resulting unpredictably is inherent to the nature of the market. It cannot be eliminated either by accumulating more information — about people or songs — or by developing fancier prediction algorithms, any more than you can repeatedly roll sixes no matter how carefully you try to throw the die. . . .

Economists like Brian Arthur and Paul David have long argued that similar mechanisms affect the competition between technologies (like operating systems or fax machines) that display what are called “network effects,” meaning that the attractiveness of a technology increases with the number of people using it. But even in markets that don’t exhibit obvious network effects (like markets for low-carb or organically produced food, fuel-efficient vehicles or alternative energy technologies), sudden shifts in consumer demand can still arise, persist and then shift again. These shifts often come as surprises but are soon explained away as mere reflections of changing public sentiments. Yet while in some sense these markets do reflect what people want, that is true only of what they want right now. If markets not only reveal our preferences but also modify them, then the relation between what we want now and what we wanted before — or what we will want in the future — becomes deeply ambiguous.

Our desire to believe in an orderly universe leads us to interpret the uncertainty we feel about the future as nothing but a consequence of our current state of ignorance, to be dispelled by greater knowledge or better analysis. But even a modest amount of randomness can play havoc with our intuitions. Because it is always possible, after the fact, to come up with a story about why things worked out the way they did — that the first “Harry Potter” really was a brilliant book, even if the eight publishers who rejected it didn’t know that at the time — our belief in determinism is rarely shaken, no matter how often we are surprised. But just because we now know that something happened doesn’t imply that we could have known it was going to happen at the time, even in principle, because at the time, it wasn’t necessarily going to happen at all.

baumol's cost disease

i'm not sure i buy the analysis (isn't it contradictory to say the cost of arts will increase relative to manufacturing and other costs, but artist's wages will lag behind those of other skill workers; and does it really make any sense to consider the arts somehow discretely separate from other human economic activity) (newmusicbox looks like an interesting magazine):

First described by economists William J. Baumol and William G. Bowen in 1966, the main symptom of the disease is this: labor costs in the performing arts will always inexorably rise, and at a faster rate than other industries. That's because in most industries, technological advances allow for increased productivity without an increase in labor. This doesn't happen in the performing arts, though. As Baumol and Bowen famously describe it in their book Performing Arts: the Economic Dilemma:

Whereas the amount of labor necessary to produce a typical manufactured product has constantly declined since the beginning of the industrial revolution, it requires about as many minutes for Richard II to tell his "sad stories of the death of kings" as it did on the stage of the Globe Theatre. Human ingenuity has devised ways to reduce the labor necessary to produce an automobile, but no one has yet succeeded in decreasing the human effort expended at a live performance of a 45-minute Schubert quartet much below a total of three man-hours.

what conservation?

i've never understood why people think i "save" gas or decrease energy consumption in some meaningful way by riding my bike to work -- instead, i make (e.g.) gas cheaper for soccer moms in expeditions or oil cheaper for industry in china and india:

But surprisingly few make what, to me, seems like a more basic point:  energy is a tradable market good.  It is not as if there is some fixed demand for energy, so that by using less carbon-emitting energy, you actually decrease the amount of carbon emitted. 

This is, of course, ridiculous.  When you donate money to build a new windfarm, you don't take any of the old, polluting power offline; you increase the supply of power, reducing the price until others are encouraged to buy more carbon-emitting power.  On the margin, it may make some difference, since demand for electricity is not perfectly elastic, but nowhere near the one-for-one equivalence that carbon offsets would seem to suggest.  Especially since the worst offenders, big coal-fired plants, are not the ones that renewables will substitute for; solar and wind power are not good replacements for baseload power.  Instead, renewables are likely to take relatively clean (and expensive) natural gas plants offline, since those are the ones that provide "extra" power to the system. Similarly, by giving villagers in Goa energy-saving CFL bulbs, you do not lessen the amount of electricity consumed; rather, you make it possible for other people to purchase the extra energy freed up by more efficient lightbulbs.  This may be excellent poverty policy, but it does not lessen the carbon footprint of your international flight.

no solutions, only tradeoffs

definition of economics:

economics is the study of how to get the most out of life. I like this because it strikes at the true heart of economics—the choices we make, given that we can't have everything we want. Economics is the study of infinite wants and finite means, the study of constrained choices. This is true for individuals and governments, families and nations. Thomas Sowell said it best: no solutions, only tradeoffs. To get the most out of life, to think like an economist, you have to be know what you're giving up in order to get something else.

inequality

good analysis of inequality debate:

Leaving all other matters aside, we expect globalization to produce a rise in income inequality in the United States (and the other industrialized societies). We also expect it to raise incomes in the poor countries and thus reduce global income inequality. That does indeed seem to be what is actually happening.

Whether this is a good or a bad thing to be happening is another matter entirely, that depends upon our own moral senses. It is perhaps something to which there can be no "right" answer for it depends upon our own prejudices. Should we be more concerned about inequality in one country? Or across the world? As the bleeding heart classical liberal that I am I do wish that it was not one that caused the other: I would of course prefer there to be no downside at all to the poor becoming rich.

Yet in this particular instance I find that my own answer is quite simple. Those poor who are getting richer in other countries are not moving from one level of luxury to a slightly higher one. They are moving from destitution, from not knowing where the next meal is coming from, to something close to a middle class income. They are doing this in their hundreds of millions, across the globe, and that has to be a good thing.