Income vs Expenses and Imports vs Exports

Russel Roberts of Cafe Hayek comments on CAFTA. In his comments, he mentions:

they falsely argue that the benefits of the agreement and the increase in exports to Central America and all the jobs that will be created. In this Alice-In-Wonderland world of pseudo-economics, exports are good and imports are bad... Presidents will find it hard to make the case for opening our borders unilaterally to foreign products—the educational well has been poisoned by all the previous mercantilist rhetoric that has argued that exports are good and imports are bad.

This reminded me of a commercial on the radio that I'd heard on the way to work this morning. In it, a state republican congressman was arguing for lower taxes (with which I agree) on the grounds that it would bring more business to our state resulting in more jobs. His argument basically was that a higher tax rate in this state, relative to the tax rates of neighboring states, encourages jobs to be created in those states. I must be starting to think like an economist because I was immediately puzzled by why I should care about whether or not a business comes to North or South Carolina. If I really want to work for the business in South Carolina, it's not hard. I just get a job and then move there. That's how I moved to North Carolina in the first place. Why should I care where that business locates itself. All I should care about is whether or not I want to work there for the salary that they offer me.

Which brings me to Professor Roberts comments about imports and exports. Imports are stuff that we as a nation buy. Exports are stuff that we as a nation sell. As an individual I also buy and sell stuff. Does the assumption that imports=bad and exports=good also apply to me as an indvidual? If so, then I should avoid imports, and try and increase exports. And in certain cases, I do avoid imports. For example, I don't import lawn mowing service. I do that myself. I earn roughly $25/week doing this by not having to pay someone else to do it. But I can't buy everything from myself and it's pointless to even try. The result is that I have trade defecits all over the place. I have an unbelievable trade defecit with the grocery store. I import all of their stuff and never export anything to them. Similarly my employer imports my services from me and I spend a tiny fraction of my salary on their products. This is an incredibly lopsided trade deficit for them in exactly the same way that I have a lopsided trade defecit with the grocery store.

Is this any cause for concern? Heck no! By buying my groceries I receive more benefit than just getting the groceries: I don't have to produce them. As I'm not very good at growing things (for example: my lawn), I get to take advantage of someone else's prodigious green thumb. Similarly, my employer doesn't have to learn certain technology skills; they simply hire me with my skills.

Imports aren't bad. Imports are good. Imports allow us to focus on the things that we do well, and let someone else who's figured out a better way to do things do them so that we can free up our labor efforts to focus on something that we do well. Exports aren't bad. Exports are good. They force us to create value for others when we work.

Neither imports nor exports are bad. Trade is good. Trade restrictions are bad.

Capital Freedom

This is a very good blog. Concise, intuitive, logical, and surprising (she comes up with conclusions that I didn't expect). I wish I could write like that. I wish I could think like that.

Equality in sports...

As someone who lives in NASCAR country, I've never been a big fan of Robbie Gordon. My children know this enough to be able to repeat my complaint. My 4 year old will, during a race, announce the following to whomever listens: "Robbie Gordon is a hothead". That being said, most of NASCAR is full of hotheads. I guess in a system where your own winning matters more than anything, you're not likely to see a lot of empathy or understanding for someone else's point of view. Too much empathy can have a negative impact on your ability to force someone else to lose.

But still, Robbie Gordon strikes me as even more hotheaded than average. And his latest complaint about today's Indianapolis 500 just seems really dumb to me. Basically, he's saying that Danica Patrick, a 100 lb woman, has an unfair advantage over the men in that sport who average 200 lbs. Doesn't an unempathetic hothead have an advantage over an empathetic competitor in NASCAR? Why is one advantage fair and the other not?

Personally, at 5'8" it doesn't matter how smooth my jump shot is, nor how well I can handle the ball. In a basketball game, I have a huge disadvantage against a 6'4" person with the same level of skills. Basketball is a tall person's game. Racing is to the swiftest. And that puts a premium on weight. Robbie Gordon should just get over it. And so should anyone else who happens to think that their particular advantages are fair, but someone else's advantage is not.

3 Little Words

It is impressive to me the difference that only 3 words can make on an entire essay. I read this article and was entirely on board for the entire thing up until the last 3 words.

I think that Adam Smith was onto something, but he miscalculated the origins of our deference.

The Highest Cost Producer

Starting with an article at Marginal Revolution, I read the earlier referenced article, and ended up reading this guy's article, which contained this comment:

Now what needs to be brought into the picture here is that the federal government is not like a big corporation. Governments don't go out of business. Governments don't experience unexpected new competition for their customers. Corporations can't just generate new revenues by taking a vote. And of course corporate managers are supposed to have a different attitude vis-à-vis their employees than elected representatives have vis-à-vis their constituents.

I'm struck by how the author of the comment thinks that all of these things actually support leaving social security as it is. Meanwhile, I see them as an argument for changing social security. Of course, I start from a basic distrust of any government program, mainly because they usually result in the highest costs of production.

Governments not going out of business and not experiencing new competition means that there's no incentive for a government to improve. Corporations not being able to generate new revenues by taking a vote means that they have to come by their revenues by efficiently making things that people actually want. And corporate managers view of their employees is generally better than the governments view of its constituents. Employees are the engine that makes production and profit possible. Citizens are the suckers from whom taxes are forcibly extracted. In other words there is more stability in entrusting investments to a diversity of corporations than entrusting it to a governments guaranteed inefficiency.

How are this guy's points at all useful to support the Social Security status quo?

The Yuk-Factor

This is an interesting quiz (thanks to MarginalRevolution for the pointer). I took it and got the following scores:

Your Moralising Quotient is: 0.40.
Your Interference Factor is: 0.00.
Your Universalising Factor is: 1.00.

Take it yourself and then come back here.

Ok. So you're back. Here's the thing that I wanted to comment on. After the quiz, they gave you some of what they're trying to get to and their rationale for the quiz. This I found interesting:

Nevertheless, it is probably right that we are suspicious of moral judgements which are rooted in the "yuk-factor". Steve Pinker, in The Blank Slate, puts it like this: "The difference between a defensible moral position and an atavistic gut feeling is that with the former we can give reasons why our conviction is valid. We can explain why torture and murder and rape are wrong, or why we should oppose discrimination and injustice. On the other hand, no good reasons can be produced to show why homosexuality should be suppressed or why the races should be segregated. And the good reasons for a moral position are not pulled out of thin air: they always have to do with what makes people better off or worse off, and are grounded in the logic that we have to treat other people in the way that we demand they treat us."

I find it interesting, because I think you could put forth the argument that says that everything, including those things listed, all fall back on some feeling of "Yuk, that's bad." CS Lewis made this argument in "Mere Christianity" when he tried to define the "Law of Human Nature". Even if we say that "harm is caused", on what basis of reason do we say that harm is inherently wrong? Don't we just feel that it's wrong? Perhaps it leads to uncomfortable consequences if pursued, but what makes uncomfortable any more inherently wrong than comfortable? They rely on the golden rule; what makes it any more inherently right than it's opposite?

Ultimately, I fall on the side of "there is unverisal right and wrong", which is demonstrated in my score. Our "feeling" of something being wrong, is part of our innate ability to sense those universal truths. That feeling is no less of a sense (IMHO) than the sense of touch or smell. And as such, I have little doubt that we can be confused by what we're sensing, and that we can perceive things individually that others cannot. That means that responding to that sense is no more or less rational than responding to something smelling bad or responding to being poked by someone else. It doesn't matter that no one else smelled that thing or felt the poke; responding to it is rational. In the same way, responding to the sense of "yuk, that's wrong" can be seen as equally rational.

In fact, it *should* be seen as rational. One of the lessons of Christianity is that much of the evil in the world is a result of our sense of wrong being dulled by sin. In other words, its the fact that we have irrationally ignored that sense that has lead to more wrong and more evil.

Count me on the side of the "Yuk-Factor".

When I'm wrong...

...I'm way wrong. Yet another blogger with substantially the same comment that I had.

Totally Free Market Employment?

Is it possible to be employed in a market that is completely free? I wonder about this because I read that Duke Energy (a local company) is merging with Cinergy. Initially I wondered, "Would I want to work for Duke? They're clearly a growing concern." And then I thought that I wouldn't because they are in a far too regulated market. I'd like to be focused on doing a job so good that customer satisfaction is what drives my profits. Of course, I'm after the profits, but I want to get there by being really good at what customers want. And in the energy market, where there are locally granted monopolies, the thing that motivates the organization isn't customer focus. I thought to myself, "Man am I glad I work for a company more governed by the free market. At least we're more responsive to our customers."

Except, I work for a bank. We're super regulated, too. And I witness this stuff every day when we've got internal auditors and corporate information security running around telling us to stop doing something that's beneficial to the customer and instead focus on something that makes our services more expensive for the customer. And they're doing it because they've got pressure from the above referenced regulators.

So it got me wondering. Is there any job I could take that's in a totally free market? Probably not, because no matter what job you do, you're regulated in how much you must pay people even if they're willing to work for less (minimum wage). What would a job in a completely free market look like? I don't even know what that job would look like, how do I know I'd want it?

Not alone...

In previous post, I lamented the feeling that I was alone in the beliefs that I espoused. Well I've since been proven wrong many times over. But here's a wonderful entry by the coyote blogger. Have I mentioned that I'm really starting to like this guy's stuff?

Ewww... taxes.

I'm really beginning to like Coyote Blog. Here's an example of why:

Many people have worked hard to pay off their mortgage, thinking they could settle down into their retirement in a paid off house. Unfortunately, they may find that their home has increased in value so much that their property taxes at retirement are actually much higher than their original payment on the house. Take the case of a couple who bought their house in an urban area for $25,000 and find its now worth $375,000 forty years later (this is an average urban price increase over the last 40 years). For simplicity, we will assume the effective tax rate has stayed at $1.50 per $100 for these forty years (though its more likely to have gone up). In 1965, they paid $375 a year in taxes. Today, they have to pay $5,625. In other words, their property taxes today are over 22.5% a year of the original price they paid for the house. Now, this is all fine if the couple strove to work up the corporate ladder and get promotions and grow their income proportionately. But what if they didn't want to? What if they just wanted to buy that house, pay it off, and live modestly selling driftwood sculptures at farmers markets, or whatever. The answer is, because of property taxes, they can't. Likely they will have to sell this house, give up the urban life they wanted, and either move to an urban dump they can afford the property taxes on, or they move out to the country... It is ironic that a tax initially invented for populist reasons to cut back on wealth accumulation hurts the lower income brackets and those trying to step off of the capitalist treadmill the most. In fact, it was the poor in the Great Depression who typically lobbied for laws to put moratoriums on property tax collections.

In other words, property taxes contribute to materialism. The only way to keep your lifestyle is to make sure that you're climbing the financial ladder. Thrift and simplicity won't scale in this environment.

Taxes, Bad!

Let's eat!

This is an interesting article. (Which came by way of Marginal Revolution. The part that I find most interesting is this quote:

The latest study had another surprising finding: People who are modestly overweight but not obese have a lower risk of death than people of normal weight. Indeed, the fewer deaths from being modestly overweight partially canceled out the deaths from obesity.

Whoa! Does that mean that the BMI scales are wrong? Does that mean that people who work are to get their BMI index down to w/in "normal" are actually lowering their overall health? For me to hit the upper limit of BMI requires that I lose approximately 20 lbs. I can't wait to tell my wife that it would be detrimental to my health if I did that!

Katherine Flegal, a CDC scientist who led work on the study while a visiting scholar at the UC Berkeley's Center for Weight and Health, said she hoped the findings don't take away from the importance of focusing on obesity as a public health problem.

"Our numbers suggest that weight-related mortality is not as great as previously thought," she said. "But our study just looks at part of the picture. We didn't look at issues such as quality of life. These results shouldn't be overinterpreted to mean that we can all rest easy."

Aw, crap!

FIGHT!

There's a battle royale between the two heavy weights that power Econlog. On the one side is Arnold Kling who favors behaviorism. On the other side is Bryan Caplan who believes that behaviorism is dead.

As someone who tends to think that actions speak louder than words, I tend to fall on the bahviorist side. At the same time, you can't discount the words of people to color their behavior. Unfortunately, I don't really understand the argument in the language of the two fighters. The third party commentary, however, is where I started to get a better understanding.

It comes down to this: do we believe what people actually do or do we believe what they say about what they do? And the example paradox is happiness research as related to salaries. There's lots of research that says that people who earn $50,000 per year are not much happier than those who earn $20,000 per year. Which means that the additional $30,000 doesn't provide much happiness. This is good news for a Christian. However, it conflicts with the fact that even though people say that the additional money doesn't provide much additional happiness, they universally seek it. If we're to believe what they say (that it won't provide much additional happiness) then why do they pursue it as if they think it will? Aren't they either lying or deluded? And if those are the only two choices, how much trust can you place on what people say in comparison to what they do?

That is, of course, the behaviorist argument. It's the only one that I understand. I'd like to present the other side, but I don't really understand it enough to present it. That being said, if the behaviorist argument is that you can *only* use behavior, then I'm not convinced. If the non-behaviorist argument tries to integrate what is said as data to color what is done, then I'd fall in the non-behaviorist camp. However, I'd need to understand what the rules are when words and actions conflict.

Just a question from an economics wannabe.

The 1st Rule of Double Standards

I get to have one and you don't.

Interesting blog entry on a woman's right to choose.

Free!

This is a great book. And now it's available online, in it's entirety, for free.

No more tomes?

Hah! I'm just into short and sweet today. This is a fantastic quote:

Wealth comes not from labor or capital or resources - wealth comes from the mind, and as such requires a rule of law where the mind is free not only to imagine new ideas but to pursue and reap the fruits of these ideas.
- Coyote Blog

Slow news day

What have we become when we're analyzing the president's playlist:

Also on the iPod is the 1979 song "My Sharona" by the Knack, about a man pursuing a much younger woman.

One of that song's lyrics, "Such a dirty mind. Always get it up for the touch of the younger kind," prompted Spin magazine editor Dave Itzkoff to comment: "This wouldn't be consistent with Bush's image as protector of conservative values."
- CNN

:rolleyes:

Terri Schiavo

Orson Scott Card is the author of one my favorite books: Ender's Game. He writes a regular column that I enjoy reading. In a recent entry, he worries about the impact that the Terri Schiavo story will have on us as a society.

The part of this whole story that has confused me the most is this: why, in the face of a family that is more than willing to care for her, would her husband refuse such care? In other words, I don't understand the position of Michael Schiavo. I understand if he's no longer willing or able to care for her. I understand if the toll of constantly caring for has brought him to the end of his rope and he wishes to be done with it. But that's not what he wanted. He didn't just want this particular part of his life to be over so that he can move on, he wanted her dead. And he got his wish. Steve Landsburg says something similar.

I find this to be truly distasteful. I find it refreshing to have read Orson Scott Card's view. My own view is that none of us should be playing God. It was not the responsibility of Michael Schiavo to determine when Terri's life should end. Nor, for that matter, was it the responsibility of Terri Schiavo to decide when her life was complete (*). That decision is for God alone, and when we pretend that we can make it, we are pretending to be God. This is the same reason I am opposed to abortion and the death penalty. I'd rather God's will be done. I'd rather that we all stop pretending to be God, and instead let God be God.

(*) That we can't effectively prevent someone from committing suicide does not mean that people are doing a God endorsed action when they commit it.

Is it just me?

I recommended an article that I really enjoyed to a friend of mine. Oil Econ 101 by Arnold Kling. I like this friend. He's a smart guy. And he hated the article. Not because he disagreed with the conclusion, but because he thought that the presentation of the argument was very imprecise. He specifically did not like the lack of mathematical precision that he likes. He has a Ph.D in math, so this isn't surprising. But he found that the argument was just muddled and invaluable.

What's surprising to me is that he found it so confusing while I found it to be crystal clear. And it makes me wonder if the reason I find it be clear is because I've been reading a lot of economics lately. Is it clear to me because I have started to build my background in econ? If so, then Arnold is in trouble. Because this is a chapter in his book Learning Economics. This is supposed to be a book that explains economics to the economically illiterate. But if it requires some base level of economic understanding in order to make sense, then it will struggle to achieve its goal.

Or maybe it's not me and my (ridiculously small) predisposition to economics that allows me to see clarity where my friend sees confusion. Maybe my friend is just easily confused. Or maybe he's got some other bias that makes it hard for him to perceive this clearly. Or maybe I've got a bias that allows me see clarity where there is actually none. I really hope that it's not the last part. But if it is, I also really hope that I can find someone to straighten me out.

Cringley at it again

Robert X is still concerned with VoIP and I'm still unconcerned. First, tunnelling data is NOT hard. It's trivially easy. In fact, an entire programming model has been built up around tunnelling data. Web Services is nothing more than programatic API's that can easily traverse firewalls... ok, it's quite a bit more than that, but it's that also. I simply do not see any way in which this problem can exist without it being a problem for every other (much higher) bandwidth user.

I'm also really surprised that Cringely is dissatisfied with 9.5Mbits/s of bandwidth. Personally, as someone who has used bittorrent to download content, I don't see it as much different than scheduling a show on my TiVo. If I schedule a show for two days from now on the TiVo, it's going to take 48 hours before the show is fully downloaded. If I start a bittorrent download, it will probably be finished much sooner. If I'm expecting to watch the program immediately, then of course, it's going to feel glacial if it takes 12 hours. So some level of expectation management needs to be met. In other words, distribution of content via bittorrent needs to be thought of exactly the same way as scheduling a recording a few days from now. If the mechanisms for dealing with this look the same, I suspect that will help manage the expectation of users.

The Good Old Days of VoIP

Cringely is worried that VoIP's days may be numbered. He expands on some of the criticisms in the 2nd half of this article.

I'm not convinced, although I'm fairly certain that he has a poor quality ISP. I'm unconvinced because VoIP's network requirements are not that demanding. If 3rd party VoIP is broken, then just about everything else should be broken, too. VoIP requires hardly any bandwidth at all. Vonage (at it's highest quality setting) requires a 90Kbits/s (11KBytes/s) connection. This is roughly twice the speed of the fastest telephone modems. Every single broadband internet provider advertises with much more bandwidth than that. The consequence of this is that if VoIP stops working well over broadband, then just about everything will stop working well over broadband. At which point, broadband providers are really high priced compared to cheap analog internet service.

Of course, the counter argument is that VoIP needs good latency, not high bandwidth. So it's not just how many packets you can receive at any one time, it's how long it took for specific packets to get to you. If this is not clear, the classic example that compares bandwidth to latency is a station wagon full of back up tapes versus a regular modem. The station wagon, filled with tapes, can transport terabytes of data. If it takes 1 hour to ship 10 TBytes using the station wagon, that's 277 MBytes/s of bandwidth. But the latency is 1 hour. If you're talking on the phone to someone on network that has one hour latency, it's going to take an hour after you say "Hello" before the other party hears you. At that point it doesn't matter how much bandwidth you have. What matters is the latency. In comparison to the station wagon, you might look at a regular computer modem, which only has 7KBytes/s (56Kbits/s) of bandwidth, but the latency is probably only about 30-40 milliseconds. The argument is that VoIP requires more bandwidth than a normal modem can provide, but a latency signature of about the same as a normal modem.

And this is where Cringley's argument starts to gain traction (only to eventually lose it). His argument is that the ISPs can easily manipulate the network to ensure that there's little or no latency for their VoIP offering and not give any latency guarantees to 3rd party VoIP (e.g. Vonage, Skype, Packet8, etc). By not giving latency guarantees to 3rd party VoIP, all of those packets get classified behind the ISP's VoIP. So it's possible that hundreds of ISP VoIP packets will get passed before a single 3rd party packet gets passed, dramatically increasing the latency of the 3rd party packet.

This argument loses traction because it assumes that the ISP packets will push out the 3rd party packets, which is true only if those packets exist AND if there isn't sufficient additional bandwidth to service those packets. Think of it this way. We're in line to get on the bus. Some customers have priority passes and get to go to the front of the line at any bus stop (these are the low latency customers). But I don't have this pass, so I have to hope that there's a seat available after they get on. If there is a seat available (e.g. there's enough bandwidth) then they get on the bus and I get on the bus and we both have the same latency to get to our destination. The only time this is a problem is if someone in front of me takes the last seat on the bus. At which point there isn't enough bandwidth to take me, and my latency is worse because I have to wait for the next bus.

This is the way it works with VoIP. In order for ISP VoIP to push out 3rd party VoIP, the available bandwidth has to be so low that we both can't use it at the same time. It also assumes that there are going to be lots and lots of high priority packets which will force 3rd party VoIP to the back of the line. This last part is dubious when you compare the price of cableco provided VoIP to 3rd party VoIP.

My local cableco VoIP offering is $39.99/mo. Compared to Vonage's equivalent offering of $24.99/mo, that makes Vonage nearly 40% cheaper! I don't see how the cableco is going to get enough customers to enable their VoIP offering to push out the 3rd parties. And even if they do get enough traffic to push me to the back of the line, they're going to have to lower their current bandwidth so that I'm not the only thing pushed to the back of the line - everything is. In which case they'll probably lose more broadband customers than they gain in VoIP customers.

I don't see this as a market that the cableco can force its way into by playing networking tricks... but I could be wrong. If I am let me know how.