Monday, September 29, 2008

To Your Room

In a comment on my post about tantrums, Niffer asks:
What do you do when your kids throw a fit in public and you can't send them to their room?
First, when we've done a good job with the tantrums at home, the probability of tantrums in public seems to be reduced... but not eliminated. There are two things that we've tried. One works well for toddler aged children, but requires a lot of planning and assistance from a friend. The other is easier to implement, but you have to do it with older kids.

What we've done a couple of times is to establish the reality of having the kids go to their rooms when they're in public. We had problems with our kids in the grocery store. My wife couldn't get through the store without being really hassled by the kids. So, she made an agreement with a next door neighbor. They would each help each other out. So before going to get some groceries, she called our neighbor and asked if she'd be available for the next 90 minutes or so. She said yes. So my wife took the kids to the store. At which point, predictably, they started misbehaving. To which, she calmly said, "My ears and eyes are being hassled by your behaviour. Would you prefer to be well behaved children with me, or spend some time in your room?"

She tells me that they looked at her funny for a second and went right back to doing what they were doing. At which point, my wife called our neighbor. The neighbor drove to the store, scooped up all our kids, and took them to their rooms. Where they stayed until mom got done with the grocery shopping. She took an extra long time just to drive the point home. The neighbor permitted exit of the room only for potty breaks. The next time they went to the store, and started misbehaving, my wife asked the *exact* same question. That was a much nicer trip.

We've only had to do this a couple of times. One of the times, I had to come and pick up the kids. But they again spent the rest of the time in their rooms until mom got home.

Older Kids
The other thing that we do, mostly with our older kids, is that we give them a delayed consequence. That is when they're misbehaving, we say something like, "You know, that behavior isn't working for me. You want to change it or let me think up a consequence?" If they don't change the behavior, we say something like, "Ok. Got it. You'd prefer a consequence. I don't have one right now, but I'll think of something. Try not to worry about what I come up with." Then later on when we can implement the consequence, we say, "Hey remember that consequence? I came up with something." And then lay it on them.

We try to make delayed consequences a bit more creative. Here are some things we've said:
  • Son, you remember when you were hassling me in the store? Yeah, me too. That gave me a real headache. And I think I'm going to need to not hear your favorite TV program for a week so that my head can recover.
  • I spent all of my extra energy being hassled by you in the store. Now, I don't have any left to scrub the floors like I had planned. Would you rather scrub the floor or pay 3 weeks allowance to have someone come in and do it?
  • Yes, tonight is normally desert night, but I got so hassled by my experience at the store, that I forgot to get it! (Sweets are a serious motivator for my kids.)
  • You know, I'd love to take you to the (fill in the blank, swimming pool, playground, etc) but you remember the store? I used up all of my energy dealing with you and I don't have any left.
Our kids use up our energy a lot. So, we've got to the point, where if they're hassling us and we can't implement an immediate consequence, we dramatically say, "Oh, my energy. It's getting drained! OOOH... it's going..." This is usually a key word that lets them know something later on is coming. Or another favorite one liner is, "Try not to worry about how I'm going to react to that later." I think our kids have translated that into "Uh oh, I better start worrying a lot." Which is our goal.

Re: Gas Shortage

Anonymous makes the following comment on my post on Gas Shortage:
Aren't price caps in place to protect commodities which have inelastic demand? You need gas to get to work. You'll buy gas at $7 per gallon if necessary.

Suppose merchants A, B and C set the price of gas to $7.00, when supply is severely constrained. When the supply returns to normal, merchant D will make enough money at $7.00 per gallon, that there is no motivation to lower it to $5.00 to gain the extra demand.

What am I missing?
You're missing several things:
  1. Demand for gas *relatively* inelastic. It is not completely inelastic. My company recently encouraged people to work from home. That's an elasticity that allows for conservation of fuel. People also increase ridership in carpools and public transportation in order to decrease their demand for gas. Some people have started riding to work on scooters which get 100 mpg. Given sufficient time, people can be incredibly creative in their ability to conserve a scarce resource. High prices give them the signal to start thinking about the problem, and thus increase the elasticity of their demand.

  2. Retail gas is extremely competitive. Competition will bring down high profit margins once the supply returns. Retailers who are charging a high profit margin will find themselves with a prisoner's dilemma: do I keep the price high and earn extra profits, or do I wait to lower them. If I wait, my competition may lower their prices first and I'll lose more than I'd lose if I lower my prices. So I'll lower my prices as soon as I can, so as to not lose customers.

  3. Price caps actually have done a very poor job of protecting commodities with inelastic demand. When gas is gone, how much does it cost to get a gallon of gas? The answer is that no one has enough money to get it. It's gone. The price is infinite. Price caps intended prevent the price from going to $7/gal or $10/gal, actually raise the price to $infinity/gal. Price caps are an abject failure at what they're intended to do. They are intended to keep the price low, but they don't.

  4. When there's a shortage, price caps don't allow for a smooth transition from high supply to shortage. You simply run out. People don't get a chance to figure out how they're going to work around the shortage. The supply just disappears one day. Whereas when the prices rise, people can stop other (less important) consumption in order to give themselves a little time to figure out how to conserve on the commodity that's in short supply. Price increases allows people to link things that have relatively inelastic demand with something that has higher elastic demand. This gives people time to think and devise a plan.

    What price caps do is create the illusion that there's no supply disruption until supply runs out. And then (rather suddenly) the price jumps up from $4/gal to infinity. And everyone's stuck trying to get a commodity that's gone with very little time to figure out an alternative.

Sunday, September 28, 2008

Gas Shortage

Over the past few days there has been a shortage of gasoline where I live. And I find myself wishing that I could give one lesson in economics to everyone around me. That lesson would be: let the prices rise. It seems that very few people agree with me on this point.

I recently saw this article:
N.C. Attorney General Roy Cooper issued three additional subpoenas today to the owners of three gas stations, including two in Yadkinville.

Two weeks ago, Hurricane Ike pounded the south Texas coast and disrupted gas deliveries from many oil refineries there. Because of the storm, retailers are getting much smaller deliveries than they expected, said Carol Gifford of the AAA Carolinas office in Charlotte.

"Consumers deserve to be treated fairly when they fill up," Cooper said in a statement. "If we uncover evidence that Hurricane Ike was used illegally to run up prices and gouge customers, we'll take legal action."

The attorney general's office sent a letter to Mohamed Nasrallah, the president of LR&S Inc. of Winston-Salem, which owns the Four Sisters Center and the Yadkinville Food Mart, both in Yadkinville. The letter demands that Nasrallah produce documents about fuel deliveries and prices at the stations.

Last week, the attorney general's office sent subpoenas to the owners of 23 stations who were reported to have sold gas for more than $5.35.
Letting the price rise sends a signal to people who are irrationally panicking. It tells them to conserve since they don't really need the gas. And they get the signal because the price is so high. Leaving fuel behind for those who desperately need it. But if you don't let the prices rise, the irrational will not get the signal. And those who really do need it won't be able to get it for any price since it will run out.

Of course all of this is a consequence of anti-price gouging laws. Those laws which were intended to keep the price of gas from rising to $5.35/gal actually raise the price to infinity.

Now, of course, there is the fear that gas stations will get rich off the rest of our misery. I understand that fear. But two comments:
  1. The station owner also owns the gas. Until you come to an agreed upon price, you don't have any right to it. Further you have no right to force a price on them. Doing so violates their property rights.
  2. People who sell a commodity product can not, in the long run, keep the price high. So while the station owners may make a bundle in the short run, that profit will encourage others to show up with better prices. And (miracle of miracles) increase the supply. When you force the price lower, no one has any incentive to bring in new supply. So, no one does.
Prices send two signals, one to the consumer that tells them about the relative scarcity of a good. When it's expensive, conserve. When it's cheap, consume. And it sends a signal to suppliers, when prices are up, add supply. When prices are down, don't add supply.

Price is the point at which supply and demand meet. If you don't allow it to float, one or the other (or both) will be disrupted.

Wednesday, September 24, 2008


Niffer's child is starting to learn the fine art of the tantrum. I tried posting this as a comment on her blog, but (as is normal) it got too long. Someday, I'm going to learn how not to be so wordy. But until then, here's another blog post.

Parenting w/Love & Logic has much to say about how to handle tantrums. Here are some examples of how we've put L&L techniques into play.

When any of our children have tantrums, I walk up to him, touch him on the shoulders, and then say in as sincere a voice as I can, "Honey, would you rather work this out in your room or be sweet with me?" And I mean it. I'm not trying to punish him. I really want to know if it'd be better for him to have the tantrum. And if so, he has to have it in his room. But if he wants to stay around me, he has to be sweet.

Now, if he ignores me, as any self-respecting 2 year old almost certainly will. I follow-up with, "Oh. I guess you really need to have this tantrum. Ok. I'll take you to your room." I then pick him up, and put him in his room. As I'm leaving I say, "Feel free to come back when you're sweet." Now if I've already taught him "basic german shepherd" (see below), then I say, "Please stay." And he usually stays. But sometimes I haven't gotten around to teaching that, or maybe he needs a few practice sessions. And he follows me out the door. So, I say, "Oh, are you going to be sweet already? Hmm... doesn't sound like it. Please go back in your room and come down when you're sweet."

And then I turn into a broken record. Every time he comes back out, I say the same thing. "Please go back in your room and feel free to come down when you're sweet." I do this until he emerges and he's not crying.

The older ones (4-6) don't tend to have as many tantrums. But they still have them from time to time. when they do, I treat it a little differently. I might say something like, "Son, that tantrum is not up to your standards. Usually you do much better than that. Why don't you go practice in the *upstairs* bathroom. Watch yourself in the mirror until you're sure you've got it right. Feel free to come back after you're done."

What is absolutely key to this is to make sure they know that they are free to have their tantrum, if that's what they need. But they have to have it somewhere other than in my eyesight. I'm fine letting them be with me, but they have to be sweet. I am explicitly *NOT* trying to tell them to stop having a tantrum. They get to choose what's best for them: to have the tantrum or be with me.

I've learned over the last 11 years that you really have to mean it when you offer them the choice. You can't be angry or obviously sarcastic. If you are, it makes it worse. If you can empathize with them, then they start to learn the value and importance of choosing wisely. Also, the choice has to be one that you're ok with whatever option they chose. Other wise it's not really a choice. They can't learn to choose wisely if they're not actually choosing.

Not being sarcastic or angry can be really, *REALLY* hard. I still fail at that. The good news about this, though, is that in getting angry or sarcastic, I've almost certainly not fixed the problem I was hoping to fix. And I'll get another chance (probably soon) to try again.

Basic German Shepherd
The goal of Basic German Shepherd is to teach your young child some simple commands: sit, come, go, no, stay. The theory is this: at about 10 months old, your child is smarter than your dog. So beyond 10 months, they should be able to learn all of the things that you can teach your dog. Each of these can be fun to teach if you make it into a game and you play it when everyone is happy! Here's the "Stay & Come" game. We started teaching it to our children as soon as they became mobile.

We would take our child and sit him on the bottom stair of the stair well. Then we'd move about 2 feet away, but still facing him. All 4 of them got up immediately and started crawling or walking to us. And we'd say, with a big smile on our face, "Please stay. Can you stay?" They wouldn't get it so we'd sit them back down, and say "Please stay." Eventually they'd figure out that we were asking them to stay. We are smiling the whole time. We'd let them sit there for just a few seconds, and then with big grin or laugh, we'd say, "OK, please come!" And they'd get up and rush over to us as fast as they could. And we'd laugh and say, "Awesome! Good job!", etc. Then we'd do it again, but this time the "stay" part is a little bit longer, and we're a little bit farther away. Every time they stay until we say, "Please come" we cheer them on. Everytime, they come before we say it, we put them back.

We play the game for about 30 minutes. By the end of the 30 minutes, our goal was to be almost in a different room, but still in eyesight. The next time we play, we start off a little bit closer than where we ended last time. By the end of the second time, we want to be in a completely different room and out of eyesight.

Our kids really loved this game. A couple of them had a few tears before they figured out it was a game. But the cheering and encouragement really made it fun. And every time when we put them down on the stair... every single time, we'd say "Please stay". These words then get burned into their brain as keywords. So that when you're not playing the game, and you're asking them to stay in their room or not run across the street to you, they understand what you're telling them. And, what still strikes me as miraculous, they actually stay.

Every so often, a child will not stay when asked. All that means is that we need to play the game again. We call it a practice session. And, what also seems miraculous to me, they still like the game even after they know that I'm going to use "please stay" outside of the game.

This has worked great for us.

Thursday, September 18, 2008

Double Standards

I love this quote in the Wall Street Journal (HT: EconLog):
"No one in a democracy, unelected, should have $800 billion to spend as he sees fit," said Mr. Frank.
Notice the caveat "unelected"? Just like the "do not call" list, the politicians seem to think: good for thee but not for me.

Tuesday, September 16, 2008

Wealth Transfer

A friend shared this with me. The author's main point is very good. He's talking about how to be better stewards of the resources given to the church. This act is the very definition of economizing. Economizing is trying to figure out how best to use scarce resources. It's determining how to get the most bang for the buck. Maybe that means spending less, but getting the same level of utility. Or it could be spending the same, but getting increased utility. Necessity is the mother of invention. The result of being in need is that smart people now have an incentive to think up new ways of accomplishing more with less. Some times those inventions are rehashes of something already invented. Sometimes they're completely novel ideas. Sometimes it involves replacing jobs done by people with automation. Which (eventually) leads to creating new jobs for those people to do.

Now, take all of this activity (what economists call economic activity) and multiply it across the entire population. We call the thing that emerges "the economy". We call it that because it is the sum total of all decisions to economize on scarce resources.

So can you control this thing? Can you engineer it so that people will behave the way you want them to? Can we simply tweak things here or there and increase wealth creation? Good question. Maybe, but probably not. People with free minds, even if they live under a dictatorship, will figure out ways to satisfy the things that they have an incentive to satisfy. Given that, we should be *extremely* cautious about what results we think the government can create. If there's a strong enough incentive to do something, legislation will not prevent it. All that will happen is money will be wasted trying to enforce the unenforceable. If there's a strong enough incentive to avoid doing something, no amount of legislation will make it happen. But, most importantly, if you create legislation that creates a new incentive, you may end up with some surprising results.

An example: anti-gouging legislation. During a crisis, these laws exist to prevent the price of goods from rising. Their purpose seems to be to keep the cost of goods down so that the poor will continue to have access to those goods. But during a crisis the demand for goods goes up and/or the supply of goods goes down. Creating a law that prevents the price from rising does not change the incentive that people have to buy those goods. If the price doesn't go up and signal to the consumer that the demand is higher than the supply, the mass of consumers will not have any information telling them to cut back. The perverse result is that the goods run out because no one is getting the signal to stop consuming. As a result, the poor don't even get to purchase the good at a higher price. The supply is gone. Anti-gouging legislation which intends to keep prices down doesn't do it. It raises prices to infinity.

Which brings me to some of the things that I find frustrating in the above listed article. For example:
We are witnessing what some are calling the greatest transfer of wealth in human history. The McKinsey Global Institute has shown how assets are moving primarily from Europe and America to the oil countries of the Middle East and the manufacturing giants of Asia.

At the end of 2007, these oil producing countries owned about 4.6 trillion dollars of assets. That’s about 1.6 times the whole economy of the UK. The six Arab countries of the Gulf Cooperation Council are receiving 1.5 billion dollars a day. Those are pretty staggering numbers
This paints the picture that we're getting poorer while the Middle East and Asia are getting richer. This is not true. When people engage in voluntary trade, one side does not get poorer while the other side gets richer. Both get richer. Each side brings something to the trading table. When they trade, they are saying by their actions that they value what the other side has more than what they have. If they didn't, they wouldn't trade. So yes we're sending $1.5 billion per day to the Gulf Cooperation Council. But in return, we're getting $1.5 billion in oil. The transfer of dollars to the middle east is offset by a transfer of oil to us. And we value the oil more than the dollars, so we're richer. They value the dollars more than the oil, so they're richer. Neither side gets poorer from this exchange. Both sides see the positive possibilities of the thing they're getting.
And what would you expect to happen when the price of oil goes up? Well, suddenly the value that we're getting for our dollar is less. So what do we do? We buy less. But we do this by engaging in economic activity. Some people start taking the bus. Some people carpool. Some sell their gas guzzling SUV and buy a cheap 4-cylinder. Some, unfortunately, decide to not do any of that and decrease their donations to church.

So, yes this guy's church has less disposable income because the price of fuel is increasing. And it's a wholly appropriate exercise to figure out how to get by with less. That exercise leads to good. But we're not poorer. Moreover, serious problems will result from telling people that we're poorer because we're trading with those foreigners. Bryan Caplan documents two types of biases that result: anti-foreign bias and anti-market bias. This biases lead people to want legislation to control the amount of trading that we do, especially international trading.

Two things:
  1. Limiting our trading actually does make us poorer. Being forced to keep something that I value less than the thing I'd rather buy makes me poorer than if I could buy it.

  2. We should be very very careful when we legislate. Perverse results are not far away.
So while I applaud what this guy wants to do within his church. I wish he could call for it without simultaneously encouraging people to desire legislation to solve this problem. Legislation that will almost certainly not create what it's supposed to create, and will most likely make us poorer.

Update: F.A. Hayek once said, "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." Megan McArdle gives some good examples of this principle. And it makes my point that we should be *very* careful about what we think we can legislate.

Thursday, September 11, 2008

Sunny Tuesday

I had to get up really early that morning. Like 4:30. Back then I was doing some contracting work on the side. Fixing the stuff for small companies who didn't have the need to hire a full time computer geek. This particular company sold electrical parts. And they had an army of sales people who roamed the territory trying to peddle their wares. That army had to login to the main office to get their email and submit orders, etc. They did this, of course, over the internet. Which meant that when they had a problem with their internet firewall, they'd call me to come and fix it. And I had to do it ASAP because their army couldn't submit orders. Without the orders, no business. So I got up and drove the 45 minutes to their location south of the city. So that they could be back on line before the army started trying to submit the orders for Tuesday.

The problem took longer to fix than I thought it would. When I left, it was a bright sunny day. Not a cloud in the sky. It was quite a contrast to when I got there, where it was still basically night time. I left for my normal job. I got there about 7:30-ish. This was quite a bit earlier than my normal arrival time of 9am.

I don't remember what it was that I did at first. I occupied about nearly two hours before a friend of mine contacted me on AOL instant messenger. Back then my (very large) company still allowed AIM in and out through their firewall.

My friend asked me if I used to work in the World Trade Center because he'd remembered that several months and one company prior, I had spent a lot of time in New York. I told him, "No. I didn't work in the WTC, but the company I contracted with was one block away. So, I spent a lot of time in the area and stayed in the WTC Marriot a couple of times. Why?"

"Because an airplane just flew into one of the buildings."

"Into one of the WTC buildings?"


"Wow, is the fog really thick or something?"

"No. It's a completely clear day."


Most of the conversation, I don't specifically remember. I remember it went something like that. I think that there was more of me trying to clarify what he said, becuase it didn't make sense. But I've forgotten most of it. But I remember this part, exactly.

"How do you accidentally fly an airplane into a building on a clear day?"

I also remember the feeling of being condescending. Of thinking, how bad of a pilot do you have to be for that to happen. I even made fun of the pilot. I wasn't taking the situation seriously. My friend and I were cracking jokes back and forth. I thought it was just an accident. Until he wrote:

"Holy shit! Another plane just flew into the other building."

"What? You must be reading some report on the internet that has it confused."

"No, no. I saw it on TV. I saw the plane fly into the building. It was a big plane. They just showed it."

"You saw it! You saw a big airplane crash into the building. One of the other WTC buildings?"

"Yes. The other tower. Now both buildings have smoke coming out of them."

I wasn't yet convinced that this was a 2nd plane.

"Are you sure this isn't just a replay of the one crash?"

"I've been watching this for a while, and they haven't showed any replays of the first crash."

"And you can see both buildings on fire at the same time?"

"Yes. Right now, they're showing both buildings in the same shot burning."

There was a long pause where neither of us typed anything. And then I wrote, "I gotta go. I have to find a TV."

When I got out of my cube, there were only a 3-4 other people also looking for a TV. We converged on the conference room. We turned it on. We didn't have to switch the channel. Every channel was covering this. They showed the replay of the 2nd plane crashing into the tower. They had lots of talking heads repeating facts. And tons of different angles. Mostly from helicopters.

In the room. Nobody said anything. Not a single word. For at least 30 minutes. I remember fighting with myself in my head. There's no way that this is an accident. It can't possibly be an accident. But if that's true, then who on earth would want to do this? What is their purpose? And holy crap! There were people on those planes. They were just trying to get somewhere. Maybe to a business meeting. Maybe vacation. Maybe there were kids on those planes!

I don't know who in the room broke the silence first, but someone did and I think everyone was having the same internal arguments that I had. Becuase that's what we talked about. People being on the airplanes. Someone else mentioned that there were probably people at their desks. And how would the people above the accident get down? Then someone asked, does our company have any people in that building? No one knew.

The news coverage switched. They were covering something that had happened at the pentagon. Another plane crash. And here's another thing that I remember vividly. The coverage went split screen. In the upper left they had coverage of smoke and fire at the pentagon. In the lower right, in a much smaller area, they had coverage of NYC. I had my eyes on the smaller WTC image. Maybe it was because I spent so much time in that area in the previous year or so. But I remember worrying that the building could fall.

And then I saw something happening. And I said, "What's happening?" The girl in front of me said didn't understand, so I clarified. "No I mean in New York, on the small screen. It looks different. Something's happened." And that's when they cut back to New York to report that one of the WTC towers had fallen.

A few minutes later, our division's director came by and informed us that we did, in fact, have people in one of the buildings. He didn't know which building they were in. He had last heard from them just before they got into the stairs to get out of the building. This was some time ago, and he was hopeful that they'd be out by now. After that he announced that we could go home and be with our families. I decided immediately that I was going to leave.

I called my wife, who was completely oblivious to anything that had happened. The way I talked on the phone, must have been very confused because she was scared that something had happened to me. I didn't know what to say or, really, how to talk. I just told her to turn on the TV, I'd be home in about 40 minutes.

By the time I got to my car, which was a 15 minute walk, the other tower had fallen.

Wednesday, September 10, 2008

Library Elf

My wife homeschool's our four boys. This is an insane amount of work for her. Somehow she manages it. But life just got a little bit easier. She's part of a homeschool group and one of the other members told her about Library Elf. This is a really cool service.

We live right on the border of two counties. We live in the much smaller of the two counties. The larger county has a very big library system and the smaller county has a small one. So we pay an annual fee to be a member of the library in big library system. So between my wife and me, we have 4 library cards. But it gets more complicated because our 2 oldest children also have library cards in each of the counties. Our 3rd oldest has one in the big county. All together we have a total of 9 library cards that we need to keep track of.

And then, on top of that, in order to homeschool, my wife will frequently go to the library and get 30 books. While she's doing that, our kids will decide that they want to check out some books on their own library card. We are constantly going to different library websites and putting books on hold and returning them. And it takes some time to login to each account and make sure that everything is copacetic.

But not anymore. I just logged into Library Elf, created a free account, put in all the library cards that we have and it tells me on a single web page:
  1. What we have out
  2. What we have on hold, but not yet ready
  3. What we have on hold, and ready to pick up
  4. What we have due
  5. What we have overdue
I've configured it so that it will send my wife an email 4 days before anything is due, and whenever a hold is available. At the same time, it generates an RSS feed for me that I can read in google reader.

This is a cool website.

Tuesday, September 09, 2008


My mind can not grasp all the possibilities in this video. I don't like that she's calling for a mandate to make this happen. I'd rather that it emerge on it's own through the free choices of people who think it's good. But it might just be one of those things economists call "public goods". That is a good that people want but that the uncoordinated market won't provide.

More thought is required, but at first glance this is really cool.

The American Poor

I've mentioned a couple of times in previous postings how I don't really think that the poor in America are poor in any absolute sense. My friends have even mocked me by saying that I "hate the poor".

In a real sense, it's true. I hate that poverty exists. I hate that there's no simple solution to defeating it. But the poverty that I hate doesn't really exist in the U.S. Don't believe me? Go to this site and enter your salary. Then enter 10% of your salary. Then enter $1000.

Then consider this: the biggest reason that poverty persists in the world is bad government. If you want to fight poverty in the world, you can't be sanguine about the role that government plays. You also can't be sanguine about the role that our government plays. Every effort, by both democrats and republicans, to increase the control of the government - and consequently remove individual freedom - has the impact of increasing poverty.

Freedom is the most potent weapon against poverty. It seems unintuitive, but well meaning calls to the government, will very likely have a chilling effect on freedom. Calls for the government to provide health care, to increase military spending, to provide prescription drug programs to the elderly, or to do mostly anything have the impact of reducing freedom within a society. Kill freedom, impoverish the world.

Personally, I think that this is why freedom is such a recurring theme within the Bible. The Bible detests slavery and lauds freedom. God even gave us the freedom to reject him. This is how valuable freedom is to God. Trampling freedom is IMHO the work of Satan, whether done by the Republicans when they create a government entitlement program, or by the democrats who seem to think that universal healthcare is a good idea.

Monday, September 08, 2008

Re: My Comment

Anonymous comments on my comment:
If you buy potatoes from South America, South American farmers have jobs. If you buy potatoes from Idaho, Idaho farmers have jobs. If you live in Idaho, then your neighbors have jobs and presumably will spend money in other local businesses... What am I missing?
What Anonymous is missing is that nothing can possibly be produced entirely locally. For a good description of why this is true, checkout Leonard Read's "I, Pencil". There are an unbelievable number of things that must be purchased, and almost always, must be purchased outside of the local environment just to make a simple pencil. When you buy locally, the *vast* majority of the cost of producing locally already goes somewhere else. What remains local is the profit. What people who advocate buying locally forget is that getting a better deal *also* keeps money local. Probably more money than is retained in profit by the local producer. The only real question is who gets the local money. Me or the local producer? If maximizing localization of money is good, then keeping money more local to me must be better then sending it remotely to some other producer - even one who lives down the street.

But let's assume for a moment that the herculean task of all local production could be accomplished. Doing so would almost certainly result in a lower quality product. Why? Because the assumption in producing locally is that we have the best natural resources, capital and labor in the world locally. That assumption is almost certainly false. When that's false, you end up with worse quality for the same price. Sometimes the price goes up while the quality goes down.

Now, of course there are some things for which it's true that you have the best natural resources, capital and labor to produce a product locally. In which case, that's good. Wisconsin does a much better job of producing milk and diary products than Arizona. In that case, it makes sense to buy locally. But it almost never makes sense to buy everything locally. No place can possibly be the best at producing everything.

So, if you could wave some magic wand, and despite the immense difficulty of doing so, you could manufacture something locally - that isn't already produced locally - the resulting quality would be probably be terrible compared to what you can get through participating in a global economy. But, of course, some have tried. Take for example the 100 mile suit.

The first thing that comes to mind is that it looks horrible! Is there any question at all that this is a significant reduction in quality?

But the next thing that comes to mind is that the person who did this, almost certainly cheated. Did the transportation that she used to make this suit get produced w/in 100 miles of where she lives? What about the roads that she drove on. Was the equipment that made those roads produced w/in the 100 mile radius? How about the camera that she used to document it. Is that a local product? Or the communications devices that she used to coordinate her efforts. All made in New York? Or the fuel that she used. Did that come out of New York ground, get transported around in vehicles made in New York and refined in New York? How about the feed for the sheep that produced the wool, or the feed for the cows that produced the leather? What about the food that she ate to fuel herself for this work?

If the answer to any of those questions is no, then it's almost impossible to measure how much the global economy was needed for the production of the suit. How much did the suit cost to make as it is? How much would it have cost if she had to substitute any or all of the above for local production? The difference is how much (unmeasured) profit she got from relying on globalization. So, sure you can call that unbelievably ugly suit a local product if you're willing to cheat. But even then, it took monstrous effort for her to make. I'd bet the amount she lost in wages working on this project would have paid for several top quality, custom tailored suits. But even in producing what she did, she still relied on immeasurable resources from globalization. She would have been better off, by far, just buying a suit made by someone else, even one that was custom tailored.

But here's the most incredible part. As a consumer, I don't really have to know who has the best resources, capital and labor to produce products. That information is carried through the price. Those who have access to the cheapest natural resources will develop the physical and human capital to distribute those resources. They will become the most efficient at it, and drive the cost of production down. So all I need to know is this: which product is the least expensive for my desired level of quality. The pricing system sorts out all of the stuff that I don't have a clue about and allows the most efficient producer to emerge.

Inexpensive quality is the road to wealth. Calling for everyone to produce entirely locally, will drive us towards poverty. We will lose all of the unmeasured profits that globalization provides.

My Comment

One of the comments to Will Wilkinson's article was this one:
Wil, you need to do a little more research into Buy Fresh, Buy Local before you get on your soabox. Eating locally and seasonally keeps more of the food dollar in the local economy. In western Minnesota where I'm from that is very important. Local foods will keep more people on small farms and help decrease our national dependence on petroleum. Modern corn and soybean production puts money in Monsanto, Archer Daniel Midland, and the other conglomerates pockets at the expense of local economies. Local food puts the food dollar into local farmer's and grocer's bank accounts.
I posted a response, that I don't know if the MarketPlace editors will approve. So I'm posting it here as well:
Mike Jorgenson says, "Eating locally and seasonally keeps more of the food dollar in the local economy." This is false. First, it's irrelevant how much money is kept in the local economy. What's more important to wealth creation is taking advantage of those who can produce the most efficiently.

But suppose your goal is to keep more money in the local economy. If so, then don't forget that when I spend less to buy remotely produced food, I keep money in the local economy. Suppose a locally produced food costs $2 and the same remotely produced food costs $1. Buying the remote produced food immediately keeps $1 in the most local economy possible: my own. Now it's highly unlikely that a local producer could come anywhere near matching the economies of scale that a large remote produce can take advantage of. So it's highly likely that the profit margin of the local producer is lower than $1.

So if I buy remote I keep $1 in the local economy. If I buy local, I keep less than $1 in the local economy.

But like I said, keeping money local is irrelevant. What matters is efficiency. If the local producers are more efficient than remote producers, then buy local. If not, then don't. How do you know which is most efficient? The one who can sell their product for the least price is the winner. Buy from that person. That's the best way to make yourself and your neighbors wealthier.

Tuesday, September 02, 2008

My two cents

Niffer wonders how her daughter will grasp money. Which got me thinking about what we do for our kids.

When it comes to money, I want my kids to learn three things:
  1. Money is not infinite.
  2. Desires are infinite.
  3. As a result, you will *never* have enough money to buy everything you want, so think before you spend.
To achieve this, we've done three things. My parents did the allowance thing, but the other two are ideas entirely the brainchild of me and my wife.
  1. When they start getting a concept that money can buy things, we give them an allowance. For the oldest three, we started at 4 years old, giving them $0.25/year (e.g. the 5 year old gets $1.25, the 7 year old gets $1.75 & the 10 year old gets $2.50). Of the allowance that they get, we force them to give 10% to God and put 10% into savings. They get to spend the remaining 80% however they wish.

    There are a couple of things we hope to achieve through this. First, just like we give them pencils and paper to practice writing, we give them money to practice using it. It also alleviates a lot of pressure when we go to the store. A common question that is asked is, "Can we get candy?" (You can also substitute tons of worthless trinkets for "candy".) And the answer is always the same. We smile and give an excited, "Sure!" but then follow-up with, "You have money to pay for it?" Almost always the answer is, "No". To which we say, "Oh that's too bad, because they take money here." One time, my oldest got cute and said, "I've got pretend money." To which my wife responded, "Well, that can buy a pretend candy bar."

    The really hard part of giving them an allowance is also giving them the freedom to spend the 80% however they want. My older two frequently come up with grandiose ideas of how they're going to pool their savings so that they can buy something big. Something, which I usually approve of. But instead, they're usually at the store unable to resist buying Pokemon cards - which are really expensive and almost entirely useless. When that happens, it takes every effort I have not to jump in and forbid them from doing it. Mostly I succeed, but sometimes I don't. What I have to remember is that if they don't experience the feeling of "being broke" now, they'll not learn how to avoid it in the future. I'd rather that they wasted small amounts of money on pokemon cards at 10 years old instead of wasting large amounts of money on useless crap at 25. I hope that they learn that it's their previous spending choices that determine their later spending capability. If I step in and make the choice for them, that's a lesson they'll never learn.

  2. The 2nd thing that I do is that I have my kids help me pay the bills. I pay almost all of our bills electronically. So I give the kids some jobs to help me pay the bills. Their job is to

    1. open the envelopes
    2. throw away everything except the actual bill
    3. tell me how much it's for
    4. file the bill into the filing system.

    I then take care of sending an electronic payment to whomever it is. This is especially useful when it comes to the credit card bill, which is (invariably) the largest bill. One that we pay off in full every month. My kid will say, "Credit card bill is big again."

    "Yep, but take a look at everything that it bought"

    "The grocery store is on here a lot. And wow, the gas station charges are really expensive."

    "Yes. Those expenses have been going up a lot lately. It means that we have to figure out how to spend less somewhere else."

    "Where have you been spending less?"

    "Well, I don't golf as much as I'd like. I give your mom backrubs instead of paying someone for them. We switched cell phone providers recently to one that was cheaper. We've also been more frugal on the family vacation. That's why we stayed where we did and why we didn't go to that expensive place that you and your brothers were really hoping for. Basically we do a lot of little things, but where most of it comes from is... well... let's just say that I hope you get a college scholarship, son." My oldest two are the only ones who are capable of helping me pay the bills, and they laugh at the joke that they are probably on 90% sure is an actual joke. It is a joke, but I don't mind letting them wonder a bit.

    In any case, I hope that by watching me pay the bills, they see that life is expensive. I also like the fact that they get to see me giving 10% of our money to God and putting at least 10% into savings just like we demand of them. (These are tasks that take place at the same time as paying the bills.)

  3. Finally, from the 7th birthday on, we decided to change how birthday's were handled. So the oldest two no longer get a gift and a party from us. Instead, they get $100 to use as they see fit for their birthday. They can plan a huge party and use what's left over for a gift, or they can buy themselves a huge present. Either way, they get a chance to learn about budgeting. The oldest likes to have friends over. So, he almost always puts a large percentage into the party. He buys the cake, the napkins, the paper plates and plastic ware. He also buys all of the items for the "goodie bags" and prizes for the games. At first he suggested that he invite some friends to a local theme park. "Great idea!" we said, "Which two friends do you want to take?"

    "Only two?"

    "Well, yeah, that place is expensive. Along with your ticket, you just barely have enough money for that." He had been planning to spend some money buying himself a computer game. Suddenly an inexpensive party at home with *LOTS* of friends began to sound really good to him.

    Child #2 did the party last year in similar fashion to his older brother, but I suspect that next year he's going to skip the party altogether and spend all the money on a gift for himself. That'll be hard for us, but we're just going to have to bite our lips and let him do it. Time will tell.
So that's it. That's what we do to try and teach our kids about money. Any other suggestions?