Live from the WTC has received a coveted 4.5 stars from the most excellent John and Antonio (unfortunately, no permalink, but that's okay because you should read the whole thing anyway). Guys, when I said that I loved Europeans, I most especially meant ones who say nice things about me.
Blogger's down. I'm waiting for the day when my host, my comments, my stats, and my blogging software are all working at the same time for more than a couple of hours. Then it's me for a bottle of Dom and a copy of the Critical Review!
What is up with the WTC cough? I've been sitting across from the Pile for six months now, and given that my asthma already had a nice head start, if anyone's got it, it should be me. But my asthma's about what you would expect if I was sitting on any construction site, even one where only 100% organic dirt from dispossessed Third World workers was floating around in the air. I'm waiting for Michael Fumento or someone to give me the straight talk on what's going on.
A friend emails from Europe to ask why I'm bashing Europeans. The email is somewhat inebriated, so I won't print the contents or the author's name. But you ought to know better, Marc. I love Europeans, even when they show up unannounced for a two-week stay, plying me with more wine than a woman of my age should drink and filling my apartment with a permacloud of noxious Gauloise sans filtres smoke that makes me wonder how the French knew when they were being gassed in WWI. I adore drunk Norwegians, uptight Germans, supercilious Polkas, and even the occasional British public school boy, in all their many splendored charms. I live for Spaniards who host 3-month house parties, and Austrians whose idea of a good time is a fifteen-mile hike. I even maintain a soft spot in my heart for earnest Swedish socialists for whom lagom is a form of Nirvana, and short Swiss bankers who throw things when they're drunk. I love you all.
Of course, I wish that you would stop calling me to complain that McDonalds is taking over the world, as if we'd sent the marines in to establish this commercial beachhead, and instead, if you wish to get rid of our fast food restaurants, try the simple expedient of persuading your compatriots to stop eating there. I occasionally dream that you will make up your minds between complaining (while you are here) that everything is much better in Europe, and complaining (while you are there) about the taxes, cost of living, and unavailability of certain consumer goods in the erstwhile paradise you have chosen to call home. Once in a while, I permit myself the faint hope that your countrymen who complain about Americans abroad might start the ball rolling by smiling at us and asking how we like their country, rather than using each brief encounter as an opportunity to educate us on the perils of American capitalism, bankruptcy of American culture, or the horrible excesses of the American penal system. In extremis, I range into wild flights of fancy where those who complain that Americans can't speak their languages, do not greet our attempts to do so with a contemptuous sniff, and reply in English. But these are the minor pecadilloes that family members love about each other. And I do adore you as individuals. It's your governments I can't stand.
The European Union? It's more like the Grammar School Gulag, from the petty authoritarianism to the sentimentalist politics of need that would replace physical reality with fairyland. They return generosity with animosity, and violence with craven cowardice. They perpetuate an aristocracy of pull in the name of the people. They abet the worst tyrannies in the world just because it makes them feel larger next to us, and call this "I am so a big boy!" tantrum sophistication. And they do it all on the dime of the American taxpayer.
When you see your friends making a disastrous mistake with their lives, you can't just sit there. It's time for some tough love. I know from experience that you aren't like your politicians -- so why the hell are you voting for these yahoos? It's time for y'all to check into the Hotel Reality. If you want to be a superpower, you're going to have to start acting like one, and that means taking some responsibility for your own Geopolitical Future. I'm doing this for your own good -- I want the best for you. But you have to take the first step by admitting that you have a problem.
Via OpinionJournal comes this tale of a man who shot the armed men who were trying to rob the video store where his son worked. The police seem to be behaving with uncommon sense:
From his DeLand home Tuesday, Shockey recalled the events. The door burst open and two men rushed in. Ski masks covered their faces. One brandished a rifle and both were shouting violent, obscenity-laced threats."They made it clear that they would kill us," Shockey said. . . .
The gunman first pointed the rifle at Robert Shockey and then at an employee, identified only as Brian. While the rifle was pointed at the young employee, Shockey reached for the pistol tucked in his belt against the small of his back. He drew the weapon.
"I shouted, "Freeze!" he said. The man with the rifle--standing only about 6 feet away--turned and pointed it at Shockey. . . .
Detectives say Shockey fired at least two shots, hitting the gunman once in the throat and once in the chest. The man detectives say was an accomplice then reached for the rifle, so Shockey fired again, hitting him in the chest.
Robber James Franklin Wince died; his alleged accomplice, Darius Bennett, is charged with his murder. As for Shockley, "He is going to get the good-citizenship award," says a sheriff's department spokesman.
Chalk one up for moral order. Contrast this to Britain, where if you shoot an armed robber, you're at fault -- and watch them wonder why their crime rates are rising while ours fall.
Eve Tushnet's Questions for Objectivists is chock full of thorny philisophical arguments. There may not be any definitive answers -- but, oh, such interesting questions!
I have to say, I really like the Democrat's new bumper sticker. No, that's not a prelude to some sarcastic comment -- I just think it's a cute design. I may get one to stick on my bumper, just so I can watch my sister the social conservative hop up and down like the Energizer bunny on a handful of Crystal Meth -- but not unless they drop the price below $25.
Yes, that's right -- I'm still getting the Democratic party emails. Thanks to whatever kind soul signed me up for their mailing list. This week: Bush is trying to help pharmaceutical companies kill our babies, and the Evil Trent Lott is unfairly holding up Democratic proposals after the Dems bent over backwards to make sure that Grand Wizard Pickering got a fair hearing.
Follow up to my post below: Are professional journalists paranoid about us because we're harsher to them than we are to each other? Must think about this. . .
William Quick asks where all the journalist angst about the Blogosphere is coming from. Well, the vanity answer is that we're so darn challenging and fresh that those sad old hacks feel threatened. But I think there might be a simpler reason: Google. Google loves us. It can't get enough of us. And so when those journalists Google themselves, guess who pops up early and often, making fun of their deathless prose? Because we form so much of the criticism they see, we come to seem much more threatening than we really are, though much less so than most of us would probably like to be.
One of the core reasons that governments and taxation come into being is what’s known as the Free Rider Problem. As the name implies, the Free Rider Problem comes into being when it is impossible to keep others from enjoying the benefits of a public good, which tempts them to try to get by without paying as much as that item is worth to them. The classic example of this is the military. We all want a safe country; however, once the borders are defended, it’s impossible to keep everyone inside those borders from enjoying the benefits of the added security – we can’t issue those who pay for the defense a special tag that tells enemy soldiers not to shoot them. We have to tax to pay for this, because otherwise people will be tempted to free ride on the generosity of others, and we’ll all end up with less military than we want.
Another classic example of the free rider problem is this weblog. You’ll note it has a tip jar on the side. Yet, curiously, not everyone uses it. Just remember – if you’re not a part of the solution, you’re part of the problem.
Anyway. Europe’s public health system has been free riding on America’s for years. (Even if this is old ground for you, bear with me – I’m going somewhere with this, and not just to another telling point about European perfidy, either) Because the government is pretty much the sole purchaser in many or most European nations, they exert enormous pricing pressure on pharmaceuticals and other medical technology. Faced with the choice of offering European countries sweetheart deals or selling nothing there at all, providers end up selling their wares in Europe at prices quite close to their Marginal Cost, which is to say the cost of the extra stuff, from electricity to raw materials, that it takes to produce one additional unit of product.
Lefties in America have been screaming about this for years – screaming, that is, that we are allowing our evil Pharmaceutical Giants to charge outrageous prices for their products, when prices in Europe show that the actual price of the product is really much lower.
If you haven’t picked out the problem with this argument already, it’s that the lefties have forgotten one little thing: the ENORMOUS cost of developing drugs. The average drug has to make $500 million to earn back all the R&D costs, not only for itself but for the 999 other compounds that didn’t work.
This R&D is a Fixed Cost -- it doesn’t change depending on how much product you produce. Because of this, (most) drugs have a high fixed cost, but a low marginal cost. This is what makes it possible for drug companies to sell to Europe at low prices near their marginal cost. Anything they make above marginal cost is essentially gravy.
But they’ve got to make up that R&D cost somewhere; otherwise, shareholders will pull out their money and sink it something more profitable – like changing their money into singles and using it to economize on toilet paper. And guess where they get that money for the research costs? That’s right – right here in the good old USA. You’re paying through the nose for your blood pressure meds so that the French can have cheap Viagra. They’re not only jamming us with the “Oops, I missed the schoolbus” school of military operations – they’re getting lucky on your dime.
So the next time someone tells you that nationalized health care will solve our problems, and points to lower health care costs elsewhere, ask what they think those costs would look like if we weren’t subsidizing their drugs. Prepare for a drooling stare – or if you’re sparring with someone who’s been through this wringer before, a misinformed soundbite, of which the speaker understands not a word, about the “absurdly high” Return on Assets (ROA) in the pharmaceutical industry.
ROA is the percentage of the value of a firm's assets that it earns back every year. To take a simple example: if I have a bakery, with equipment valued at $100, and I make $10 a year, my ROA is $10/$100 or 10%. Clear? In fact, it’s true that pharmaceutical companies have an absurd ROA, but the reason isn’t that the pirates of the boardroom are greedily grabbing all our money so they can throw it all on that gazillion-foot table and roll around in it like Demi Moore in Indecent Proposal (and if you’ve ever seen what the average corporate boardmember looks like, you’ll be awfully glad they don’t). The reason is that the main assets of the pharmaceutical companies, their patents, are not counted as assets under the rules of financial accounting, unless they’ve been purchased from another firm (there are good reasons for not counting the patents, but it does skew the books). This makes the assets on the balance sheet of your average pharma company much lower than they actually are. Let’s imagine that for some reason, I only show $10 worth of ovens and such on the bakery’s books -- suddenly my ROA is $10/$10, or 100%. Lowering the asset total makes a huge difference.
But I digress. What I meant to talk about, when I began this, is the broader question that I have been pondering over the last few days: is Europe free-riding on America’s growth?
One of the mysteries, after all, for free marketeers, is why Europe’s growth isn’t much lower than it is. History teaches, after all, that excessively regulated societies are generally stagnant, yet Europe has managed respectable, if not stellar, growth.
Now, there are three basic ways that you can increase growth in an economy: you can increase one of the inputs, either capital or labor, or you can increase the productivity of your inputs. In the demographically declining European nations, labor isn’t increasing at all -- in fact, often the labor force is getting smaller, for reasons I discussed elsewhere. Capital flows are, but far more capital pours into the US than into Europe – that’s one of the prime reasons for the decline of the Euro against the dollar. And then we get to productivity.
Productivity isn’t as high in most European nations as it in the US. And though it’s been growing, it hasn’t been growing as fast as that in the US, leading to a relative decline in European living standards against those in America. Now, broadly, productivity growth can come from two places: technology, and structural changes in the economy. Most economists, outside the French “What is the socially just thing for my numbers to say?” school, agree that the structural changes in the European economies have been, currency integration aside, mostly in the wrong direction. So we have to look to technological innovation for productivity growth. And where does that come from, boys and girls?
That’s right – the lion’s share of the original invention comes from the US, with the price and engineering refinements emerging mostly from Asia. Now, technology doesn’t have quite the same free rider problem, although the EU is a little more generous with patent violations than we are. But in a broader sense, they are free riding on our entrepreneurial economy. We bear the social costs of creative destruction, and get all the benefits; they get some of the benefits, without the costs. Yet the relationship is fundamentally parasitic: we could get along quite well in every sense without Europe (we would not be better off; trade, after all, is beneficial to all parties, and Europe does do some innovation. But we would still cruise along quite nicely without them.), while without more vibrant economies to export innovation to it, Europe would stagnate or even experience absolute decline.
So the next time one of your friends starts waxing lyrical about how much better life would be if America were more like Europe, tell them they have to trade in their PC for a Minitel before they’re allowed to talk about it.
Looks like Louis Rukeyser will finally be exiting stage left from Wall Street Week. I confess that I've never cared much for his corpse-like pallor or monatonic delivery, and his guests seem to confirm the efficient markets theory that says no one beats the market over the long run. So I'm not too sad -- but my mother, like the millions of her generation who've watched the pallid prophet religiously, is going to be bereft.
As predicted by many, the EU is preparing to level sanctions against the United States over the steel tariffs. These sanctions will be targeted at products from states that benefit from the tariffs. I find this interesting for two reasons:
The EU is a net importer of steel. US tariffs don't hurt the EU; on the contrary, they drive prices down in the outside free market.
Also, there could be no more effective way to fuel the strength of the protectionist forces that brought us the steel tariffs then to target them with sanctions. Broad sanctions might have had the countervailing effect of creating another large interest group in the US with a vested interest in the removal of tariffs; targeted sanctions will only harden the resolve of a group already enraged by the way Europe's political and media elite have behaved in the War on Terror. Was the purpose of the sanctions to get the tariffs, lifted, or just piss us off?
Note that I'm not arguing that the EU doesn't have a right to enact sanctions (all right, I am kind of arguing that, but I'm not arguing that someone doesn't have the right to retaliate) just that this is a damn poor way to go about it.
Andrew Olmstead reacts to the much-blogged Jonah Goldberg column calling for a "return to horror" by posting a site I haven't seen for a while, but should have. Every one of us should watch this movie ever so often, so that we don't forget what this War on Terror stuff is really all about.
Excercise for the class: whatever your opinion on Israel -- watch that movie, and then ask yourself if you'd take whatever solution you think the other side should accept.
I love James Lileks, except that pieces like this from the Michael Moore screed give me an inferiority complex so massive that the only way I can work it out is by becoming sheriff of a small Southern town on television and using my power to bullyrag and batter until all who know me cower at the sight of my looming shadow:
There’s Moore in a nutshell. We have “the masses,” that big doughy heap of sodden proles, heads bent from their daily lashing by The Man, wondering if they’ll have enough left over after they’ve paid off Consolidated Coal and Gruel so they can pool pennies with the rest of the tenants of State Housing Block 432 and buy a copy of Moore’s book - they say a light shines from the pages when you open it! Brother Sam was reading it at the Borders before the police beat him with clubs for browsing, and now he can cure your chilblains just by describing the book’s typeface!
I'll get you one day, Mr. Lileks. Then we'll see who doesn't get asked to the Winter Wonderland dance . . .
Extremely interesting debate on the future of European defense over at Jonathan Braue's blog. He's responding to credible allegations that for all our complaining that the Europeans don't defend themselves, the reason they don't is that we don't want them to.
I remember in the 80's at the height of "Japan's going to own the whole wide world because of Just-in-Time" hysteria, people (I think I may have been one of them) used to fulminate about how much money we saved Japan by defending their region -- without seeming to be aware that the reason we did this is that we'd written it into their constitution that their military couldn't leave Japanese shores. So I'm keenly alive to the danger that I'm wrong about Europe.
But I don't think that I am. If Europe were serious, they'd be contributing cash. They'd be doing serious defense tech. Their forces, even at current small sizes, would expect to actually do something other than show up. The European military right now is about one step above the Beefeaters or the Swiss Guards in terms of actual usefulness in defense. Maybe it is our fault, in the same way that it was our fault for creating a welfare system that subsidized anti-social behavior, in no small part in a rather unattractive hope that by buying off the (then smaller) underclass we could keep them from rioting. But it is also the fault of the people who choose to live on the dole rather than taking the responsibility for becoming adults.
The hegemonic argument is that we "forced" Europe to give up its own viable military force by threatening to leave NATO. This is circular. If Europe's military force were viable, why would it need NATO? The purpose of the organization, after all, was to deter Russia from invading a Europe too fragmented, and weakened by war, to defend itself against the Soviet military machine. The countries most in danger of this now aren't in NATO -- and won't be, because Western Europe doesn't want to extend the same safety net to the Balkans that we gave them, because they fear destabilizing the peace they enjoy, and don't wish to pay the extra freight to extend it to others. 9-11 has shown us that the usefulness of NATO is coming to an end -- the threat it was meant to defend against no longer exists, and the threats it could counter, it won't. So why continue it?
I have a feeling we won't, much longer. And I confess that when NATO does end (or is gutted so that it no longer means much) I will take a certain deep satisfaction in seeing the Europeans who have been whining about the American military try to cope financially, militarily, and diplomatically, with its absence.
Via Dailypundit: Looks like the Democrats are pinning their electoral hopes on raising taxes to pay down the debt (or so says the Gray Lady, though I'd bet that some of those taxes go to key constituent groups as well).
Five gets you twelve that Paul Krugman, who is on record elsewhere (his work on the Asia crisis, for example) saying that raising taxes to balance the budget is a bad thing for fragile economies, finds some reason to endorse this.
I'm about 2/3 of the way through the legal essays (I'm reading two books: one in which insiders discuss how they conducted the campaign and post-election campaign; the other a compendium of legal essays on the Florida dispute). So far, the most decisive point I've gleaned is that legal writing is harder to understand than I thought.
My reading strategy, when I attack a topic I don't understand very well, is to read a bunch of books on the topic and attempt to absorb, as if by osmosis, what I'd call the operating environment of the topic. It's hard to read eighteenth century literature until you've read enough of it that you can occupy the world of the work without conscious effort; the same holds true of economics, or technical writing, or anything else more difficult than a regency romance -- and even then, in 150 years or so people will be laboring mightily to immerse themselves in the fantasy world of the 20th century American female.
Right now I've got five or six books I'm reading on various legal topics, and while I don't think I'm going to turn into a legal expert, I'm hoping that at the end I'll be sufficiently comfortable in the legal operating environment to comfortably assimilate arguments as they're made by legal academics. (My, that sounds arrogant, doesn't it? I'm not suggesting that I'll be able to correctly resolve them -- just wrassle 'em a little).
So it's slow going for me -- I'm considerably under four pages a minute, since I have to keep re-reading. But I have gleaned some interesting points. One of the most interesting so far is just how badly Gore shot himself in the foot with his strategy. (Don't think I started this to bash on Gore. But Gore had the more active, and of course, less successful, strategy in the Florida dispute, so it lends itself more readily to commentary.)
I'm about to get shouted at again, but I think that it's obvious to everyone, no matter what you think of the merits of the position, that each side in the dispute took the position most likely to benefit them. Bush, of course, wanted the recounts stopped. Gore wanted them conducted in such a way as to get many votes for him, while systematically excluding counties where either the Democratic party did not control the counting process, or Republicans were the majority of the voters, and therefore likely to be the majority of the votes gained from any recount. The Florida Supreme Court's first decision told Gore, in effect, to go ahead. This made it extremely hard for honest observers to argue that the Florida court was not being nakedly partisan.
It also made it extremely hard for the Supreme Court to ignore what was going on. If Gore had requested a statewide recount, he not only might have won (this contention is apparently not as clear as the New York Times would have you believe), but also would probably have slid under the radar of the Supreme Court -- no matter how partisan you think the justices were, they would not have reversed a ruling just because it favored Gore. The Gore team instead chose to contest only in counties where it thought it might win. But rationally, this couldn't stand. Other than Palm Beach, there weren't specific allegations of error in other counties; counting only where it would glean for one candidate was a naked attempt to alter the totals in the state. It undercut Gore's argument about "Counting every vote" in the public, and made it almost certain that the Court would put a stop to it.
That first ruling from the Florida Court also hurt the Gore campaign in extending the certification deadline to November 26th -- because it put off the Supreme Court review until there was not time to conduct the statewide recount that the Supreme Court probably would have had to accept. Recall that the Court ruled, 7-2, that the recount as formulated by the 2nd Florida ruling, was unconstitutional. With good reason; the way the count had been conducted, and the standards were formulated, favored Democratic votes over Republican votes. The 5-4 split was not over whether the recount was acceptable -- it wasn't -- but whether there was time to send it back to fashion a uniform standard and perform a recount. Democrats understandably regret that the recount wasn't attempted, but practically speaking, the outcome would have been the same, because the statewide recount couldn't have been completed under any new standard, and 7 justices of the Supreme Court had said that you couldn't do a partial recount. So while it might have been better for the Court to send it back, ultimately it was a moot point.
If, on the other hand, Gore had asked for a statewide count, or the Florida court had ordered one with uniform standards, the Supreme Court would have passed. Enough votes might have been found to throw the contest to Congress, and some legislators might have found it impossible to vote against the popular vote. No one knows what would have happened -- but it's clear that Gore threw away his best shot at the presidency by adopting the cynical, "pragmatic" approach.
Hard though it may be to feel on this cold, wet, and thoroughly miserable day, it is the first of Spring. And as you know, one of the many Jane Galt mottoes is "A Poem for Every Occasion, No Matter How Slight":
Earliest Spring
TOSSING his mane of snows in wildest eddies and tangles, Lion-like March cometh in, hoarse, with tempestuous breath, Through all the moaning chimneys, and 'thwart all the hollows and angles Round the shuddering house, threating of winter and death.
But in my heart I feel the life of the wood and the meadow Thrilling the pulses that own kindred with fibres that lift Bud and blade to the sunward, within the inscrutable shadow, Deep in the oak's chill core, under the gathering drift.
Nay, to earth's life in mine some prescience, or dream, or desire (How shall I name it aright?) comes for a moment and goes— Rapture of life ineffable, perfect—as if in the brier, Leafless there by my door, trembled a sense of the rose.
I love this man: Tony Woodlief on why people shouldn't talk about taking other people out unless they are capable of doing the taking. This blog is reliably hilarious -- read the whole thing. And as someone who freely admits that I rely on other people, usually burly males, to do any taking out that must be done, I hereby resolve to avoid talking about how "we" should take out Sadaam Hussein. (But I still think our fine boys and girls in the armed forces should smack him flatter than Calista Flockhart. I hope that's allowed.)
All right, I'm now going to shamelessly plug for a cause near and dear to my heart: the University of Chicago GSB Follies, a show put on by the grad students. I was one of the producers last year, bringing the world such memorable hits as "Down, down, down went the Nasdaq" (to the tune of "The Trolley Song" from Meet Me in St. Louis) and "Oops! We Admitted All Men" (to the tune of that Brittany Spears Oops song that I hate -- but ours was funny).
It costs a surprising amount to put on a show, especially when the University considers the business school students to be a lower form of life and charges for the tiniest of services. Usually this is made up in corporate contributions, but due to the recession, contributions are down 95%. The show is threatened with death after 25 years. So if you've got a buck or two to spare, and you want to put a smile on the face of some students who are $100,000 in hock (and 60% of whom are unemployed), click through this link and donate. I imagine few of you will -- but the Chicago alums had better, or I'm going to know the reason why. And the rest of you would be giving a little rest to some very stressed students. Plus if you live in the area, you could think about buying tickets to what actually is a pretty good show, even if you don't go to the business school.
I think it's a great idea. Those who've been following my opinion on the 2000 elections know that I am extremely suspicious of partisans on either side fudging the criteria we use to decide elections in order to benefit one side or the other. Set up the criteria in advance, proof it against interference by either party when their ox gets gored, and let the thing run. Sounds like a huge improvement on the current system -- which is why we can be sure it'll never pass.
Invites me, Janegalt, to meet other singles just like me! I seriously doubt that there are other singles just like me. And if there are, who would want to meet them?
On Sept. 15, federal agents transporting suspected terrorist Zacarias Moussaoui from his Minneapolis jail cell to a New York detention center made a detour, stopping first at the burning wreckage of the World Trade Center.
According to the government's written record of the conversation, Mr. Moussaoui eyed the disaster scene and had this to say: "F -- you, f -- America." Then he laughed, according to the record, taken from officers who accompanied Mr. Moussaoui that day.
We're collecting emergency numbers from the workers today. One guy came in here and said he didn't have a number to give us. Parents? Raised in an orphanage. Girlfriend? Nope. Exasperated, the girl taking the forms asked him "Well, who would care if you died or got hurt?" (She didn't say it in a nasty way; he was dithering). He looked doubtful, then said, "Well, I guess I could get you the number for my next door neighbor."
Goldman says it's laying off more people, and other banks expect to follow suit:
Guy Moszkowski, a financial-services analyst with Salomon Smith Barney, said that while Goldman is among the last firms to actually reduce its head count, it is almost certain most brokerage houses will continue to make cuts this year. "I would say the staffing picture isn't going to turn up unless there's a dramatic pickup in business," he added, noting the woes that now plague many firms will stall the recovery.
Wall Street has so far this year logged $76.2 billion in merger and acquisition business, less than half of the $167.9 billion it had done this time last year. "It's been a real anemic quarter, and it's still waiting to be resuscitated," says Richard Peterson, chief market strategist at Thomson Financial in New York.
Equity-related activity, including initial public offerings, is doing better, up about 3% this year to date to $46.5 billion, according to Thomson, although such activity still is sharply down from the same period in 2000. The issuance of U.S. corporate debt has slipped 4% to $156.4 billion.
Why is this significant? Well, aside from the number of newly-minted MBAs this is going to unleash on a previously unsuspecting public, it means that most of the activity in the market reflects changes in the prices of existing assets, rather than new investment. Now consider this: the Dow hit a high for the year yesterday, pulling closer to the all-time high for the index.
A little note on stock valuation: at a (very) simple level, the valuation of a stock should reflect
1) The probable future value of its earnings which are hard to estimate accurately beyond the fairly short term, but which we can derive by taking future earnings and multiplying by an estimated growth rate. 2) A discount for inflation Inflation makes a dollar today worth more than the same dollar a year from now; at 10% inflation, for example, that Year One dollar only has the purchasing power of $9.09 in today's dollars. There is a formula for discounting future earnings by the expected inflation rate. Because of this, the farther out earnings are, the less they affect the value of the stock. 3) Adjustment for risk You should be willing to pay less for $100 worth of stock than you are for $100 worth of not-too-tisky debt, because the company might go belly up and you'd be last in line for a payout.
Other factors of course intrude, but broadly, the price of stocks should fluctuate around a trendline reflecting investors best assessment of that risk-adjusted, inflation discounted cash flow value. This is simple, of course (I'm sure the professionals, if such are reading my little effort, are cringing at my simplification) but broadly true.
Now, there aren't many deals being done, which means that there isn't much public investment in new money-making schemes, either for existing companies or new companies going public. What deals are being done seem to be being financed by debt. So any increase in the value of the market should reflect an increase in investors assessment of the earnings prospects of these stocks. So lets look at our three criteria:
1) Are earnings prospects higher than they were a year ago? Maybe. Then we were heading into a recession, now we seem to be heading out. But valuations are approaching the peaks. Is a realistic assessment of earnings prospects really as high as the rosy evaluations of the boom's peak? -- especially with the War on Terrorism taking assets from wealth-producing uses and moving them to assets that are destroyed as soon as they're used? (This is not to say that we shouldn't do this -- only that the removal of resources from the wealth-creating sectors of society should be reflected in our estimates of future growth). I think we're also going to see a productivity slowdown because of increased security, particularly airport security. So I don't think that we can look to earnings growth for an explanation.
2) Is inflation permanently lower? Remember that after a year at 10% inflation, a Year One dollar only has the purchasing power of $9.09 of today's dollars. However, if you lower the inflation to 5%, it's worth $9.52. 10 years out, the difference is even more powerful: $3.85 at 10%, $6.13 at 5%. So lowering inflation can affect prices powerfully.
The problem is that when you lower inflation, you also have to lower your expectations for future cash flows, because some of those flows come from higher prices you were able to charge due to inflation. On the other hand, you also have lower interest rates on your debt, which raises your earnings. . . the point being that it's not a simple calculation. For our purposes, it's enough to say that lowering inflation has positive growth effects. But expectations for inflation were already low last year. Today's low interest rates reflect the Fed's rate cutting (or in other words, the price of money) not the long term inflation expectations for the economy. So I don't think we can look to inflation expectations either.
3) Has the risk proposition changed since last year? Three words: Osama Bin Laden. I don't think so.
So what this tells us is, in my opinion, that the current markets reflect investors churning securities at prices that reflect still-unrealistic expectations of the economy, while they wait for a take-off that I don't think will come short of further speculative boom. Partly, I think this has to do with who's in the market: baby boomers who need equity appreciation to retire. They can't cash out at a loss (or think they can't) because that means trading in the condo in Florida for an apartment in Minneapolis and 20 hours a week at the A&P. Because they invest in both stocks, and mutual funds that have to invest whatever the boomers pump in, they're setting a sort of floor on prices. While stability sounds like a fine thing, there are many problems. Among the ones I've heard floated is that this may price out young investors; that it prevents new equity investment by setting a floor at which it doesn't make sense to do IPO's; that it could be setting the stage for a period like the 20 years prior to 1982, when real returns were negative; and of course, that when those boomers do cash out the crash will be disastrous. The interesting question is how long boomers will watch the market stagnate before they start looking for other options.
That's not the only explanation, of course -- anyone who wants to tell you that there's only one explanation for anything that happens in the market is trying to sell you something. Nor does it mean you shouldn't invest in equities. Current idea (worth approximately what you pay for it) if this broad stasis in the markets continues, start looking into whatever stock-picking strategies made money in the 60's and 70's. Those who do learn from history may be doomed to repeat it anyway.
Can't seem to find the post (may have been eaten by blogger problems) but I did say at one point that the Michael Moore book signing imbroglio was a symptom of his tendency to view incidents which tend to prove his cosmic insignifigance in the lives of most Americans as proof instead of a vast conspiracy devoted to keeping Michael Moore down. Via Matt Welch comes an article showing that I was right. You (should have) heard it here first!
I miss that first morning smoke with a hot cup of coffee. That Camel after a big dinner, when there's still some Cabernet left in the glass. And did I mention those after-sex cigarettes? Do you know what non-smokers do after sex? We lay there and cuddle. Let me tell you, that is not all it's cracked up to be.
I think the hardest thing about quitting smoking was not the nicotine withdrawal (no more painful than a middling tough diet) -- it's that most of the best things that ever happened to me happened when I had a cigarette in my hand. It's not any particular time of day that I miss smoking, it's the moments: the perfect evening dress, waiting on a windy evening in autumn with your coat wrapped tight around you, and most of all the end of a hot summer afternoon as day trickles into dusk . . . they have lost some of their luster without that little piece of fire cupped in your hand. It's been three years since I had a cigarette and I still can't pass a certain kind of stoop on a certain kind of street without thinking, God, I'd like to stop there and smoke awhile.
It's a hard thing to quit after ten years. When you stop, you're not just bidding farewell to contemptuous sniffs and a dry hack; you're letting go of that Dash-and-Lilly claim on immortality. So before you quit, Emily, have a smoke for us. And for all those who have reluctantly relinquished their favorite vices, or perhaps didn't give vice enough of a chance, I hereby command you to go and read this most excellent book. It's a compilation of works by a number of damn fine writers, including Mark Twain, Charles Bukowski, Henry Miller, Vladimir Nabokov, Spalding Gray, and Dorothy Parker, that offers tribute to the peccadilloes we regret.
I was right about Krugman. He concedes that we can't pay for that prescription drug benefit he was shilling for all summer, but that's not because of the recession, or because it would stack enormous costs on an already unstable system -- no, it's the tax cut. That $300 you got last year crippled Medicare.
To be fair, Krugman admits that what he's asking for requires bigger government. But let's not be too fair -- Krugman's been shilling for the equally stupid Democratic plan for years now.
Let's go over one more time what happens to your Social Security and Medicare money after they take it from you:
1) Your employer sends it to the Social Security Administration 2) The SSA loans it to the government in exchange for a bond. 3) The government spends the hell out of it on something. The government is not a person. There is no bank, money market account, or mutual fund where it sticks the money it takes for a rainy day.
Now let's look at what happens when the Social Security Administration outlays start to exceed its intake from taxes:
1) The Social Security administration cashes in its bonds 2) The government gives the SSA the cash. 3) To raise the extra cash, on top of its ordinary budget, it either raises taxes, cuts spending, or borrows the money.
The government will already have spent the money on something, because the government doesn' t have any legal alternative. Any money it raises has to be spent. As I pointed out above, there is no government savings.
Ah, but Democrats will say that paying down the debt will help. Well, yes it will, but only by making it easier for the government to raise taxes, cut spending, or borrow the money. Lowering the interest payments doesn't erase the enormous gaps between what the SSA will be taking in, and what it will be paying out. Lowered interests rates may help the economy grow somewhat, but not $13,000,000,000,000 worth, which is the size of the total unfunded liability of Social Security and Medicare right now. And tax cuts, particularly cuts in the corporate rate, might do as well or better depending on who you ask.
Overall, though, one of Krugman's better efforts; he's merely one sided, instead of duplicitous and shady. I award him the coveted one star, a full one star improvement over his last column.
What does Jane Galt think? Well, if you've been reading, you know that Jane Galt thinks most mergers don't work very well. This one isn't going to establish a monopoly -- there's still Dell out there. Cost savings are often hard to realize, and those that are usually get eaten by the merger costs. No cospecialized assets here. Overall, five gets you seven we see a decline in shareholder value over the next two years. A good indication that the market suspects the same thing is that the stock has followed the usual pattern of stocks after a merger is announced: the buyer (HP) is down, while the seller (Compaq) is up, indicating that the market expects the buyer to get the worst of the deal while the Compaq shareholders walk away with a nice windfall.
I've just looked at the little blurb on Krugman's Tuesday column, and it's about the fact that Medicare cuts are forcing doctors to get rid of their Medicare patients. Without looking at the content of the article (I guess you'll have to trust me on that), I will make an incredible prediction: somehow, this is the fault of the Bush administration, rather than the laws of supply and demand.
Seems friend Noam (no relation to the ex-boy) will be speaking at USF today. Here's a tasty quote to start the blood pressure off.
Chomsky, the noted MIT linguistics professor who is best known for his scathing critiques of U.S. foreign policy, says the United States itself was practicing terrorism when it bombed Afghanistan and forced the Taliban from power. And it was terrorism, Chomsky says, when President Bush -- without publicly providing conclusive proof, and without going to an international court of law -- decided he wanted Osama bin Laden "dead or alive."
"By the U.S. definition, those are textbook illustrations of international terrorism, which is the use of force or violence to attain political ends (and) the targeting of civilians through intimidation and fear," Chomsky said in a weekend phone interview from his Massachusetts home, before flying to the Bay Area to make a weeklong series of talks.
Yup, Noam, that's what pissed us off. It's not the deliberate targeting of civilians (although apparently, Chomsky thinks that deliberate targeting isn't when civilians are the only people you're going after; it's when you target a regime that builds military targets near housing projects). No, the reason we're mad is that Bin Laden didn't visit an International Court of Law first.
Question for the legalists out there: does that make the 72 virgins Fruit of the Poison Tree?
Via Kevin Holtzberry comes this hilarious tale of a young man apparently too stupid to live, who when he meets a girl he likes, immediately rushes to the public weblog he operates under his own name to record his hopes for sexual consummation, a practice not helped by his previously recorded inadequacies in that area. But the remedy offered is a little extreme.
"A little humiliated," she said. "I mean, what if people realize I went out with this loser?"
"It's not like you were married for five years and then discovered it."
"I suppose," she said. "There should be a law about these people with web diaries or they should all wear identifying clothing or something, so that innocent bystanders who don't need some perverse kind of public fame can know to steer clear."
"Your story is safe with me," I said. Joe, or Joel, or whatever he wants to call himself, shall live in perpetuity in the Mercury archives. If he thinks he's inadequate now...
This is how it starts: the special blogger patch. . . then the ghettos. . . and finally the camps. When they came for the software companies I said nothing, because I was not a software company. . . when they came for the fair use pirates, I said nothing, because I did not use content. . . when they came for the code makers, I said nothing, because I had nothing to hide. . . and when they came for me, there was no one left to speak.
THE NY TIMES EDITORIAL BOARD, not very surprisingly, has come out against "intelligent design" quacks in Ohio. Conservative bloggers should recall that while liberals such as myself have various anti-trade, anti-war loons lurking somewhere to our left, that the American right has some dubious characters in it as well. Plus, America being a pretty conservative country, the threat from, say, anti-evolution fanatics is significantly more real than that posed by assorted left-wing academics who are increasingly becoming jokes on their own campuses.
While I'm the first to lampoon the various crackpots on the left, from Pat Buchanan to Harry Browne, I wouldn't go so far as to call intelligent design advocates quacks, even if I don't think such material belongs in the high school science curriculum. And I take issue with the idea that anti-evolution people pose a serious threat. I think that liberals perceive such a threat because they see. . . well, pretty much no columns on media bias in, say, the Grey Lady, while there are a number of columns implying that the Rev. Falwell is but a short step away from running the White House by remote control. We're all prone to assume that the number of media reports we see on various phenomena reflect their frequency and probability of the events; such assumptions are unconscious, which is why people are so shocked to find, for example, that the number of accidental gunshot deaths of children under fourteen is smaller than the number of accidental drownings. The shootings show up in the news; the drownings don't.
Evolution, despite the NYT's hysteria on the subject, is not going anywhere. The legislatures won't allow it; if they did, the state courts wouldn't allow it, and if they did, the Supreme Court wouldn't allow it. End of story. The occasional nativity scene on a village square is not a harbinger of the new Inquisition.
The nine states seeking tougher antitrust penalties against Microsoft Corp. are renewing their efforts to force Microsoft to release the source code for Internet Explorer.
"Internet Explorer, your honor, is the fruit of Microsoft's statutory violations," said Brendan Sullivan, the lead attorney for the nine states that have refused to settle with Microsoft. "And it should be denied them."
No, Microsoft's market share may have been the result of their statutory violations (though not, as I wrote, the ones that the court let stand), but the code itself is not a result of those violations, though the location of some of the API's may or may not violate anti-trust law.
Mr. Sullivan said forcing the company to give up its blueprints for Explorer, which now dominates the Web browser market after a bitter battle with rival Netscape, would provide "fertile ground for nascent competitors."
Exactly! Because one of the best ways to encourage innovation is to make sure people know that the government may seize the fruits of your labors at any time and hand them to your competitors.
I'm currently reading a couple of books on the 2000 election, so stand by for a bunch of posts on the subject over the next few days. My first impression is this: vanishingly few people are objective about the election. Stop a minute and look deep into your heart and ask yourself: if the case were Bush v. Gore (Bush narrowly loses the initial count), does the deal you think the other side should have accepted look fair to you if it's turned around and offered to your side?
Republicans, if a Secretary of State who had served in the Gore election campaign used the most restrictive reading of the law possible to halt recounts that might have favored George Bush, would you think that was fair?
Democrats, if a state court filled with Jeb Bush appointees and not a single Democrat had rigged things so that
1) Recounts were done only in heavily Republican counties 2) With Canvassing Boards dominated by Republicans 3) The ballots were examined by three person committees on which two people were Republicans, one Democrat, so that a Republican always cast the deciding vote 4) The recount used the broadest possible standard to allow those Republicans, if they wished, to count every paper fault or smudge as a vote 5) The court ordered a statewide count that would include Democratic dominated counties only when it would have been too late for those counties to get their results in.
Would you think justice was being done?
Awww, come on guys, there's no one here but us chickens. . . that deal you were offering doesn't look so gosh-darn fair, does it?
I get the feeling that many of the people involved wanted to behave honorably, but were afraid to allow the other side any leeway for fear that they would behave dishonorably. For example, it's been suggested that Katherine Harris should have recused herself. Perhaps she should have. But Democrats, if it were you, and the recusal would have left the process in the hands of a Republican that you couldn't trust to be non-partisan, would you do it? Spare me the theatrics, of course you wouldn't. In her case, I suspect that Katherine Harris was somewhat partisan, but I also suspect that she was afraid to leave the process in the hands of Democratic canvassing board that was equally partisan, judging from the routine 2/1 splits on the ballots. And the Florida Supreme Court was afraid to leave the process in the hands of a Secretary of State who they felt had acted in a partisan manner.
The problem with this is that it's hard to restrain the other side without helping your own; and once you've excercised "restraint", the temptation is overwhelming to give your side just a little nudge to help them out. In handing the canvassing boards an unprecedentedly broad standard for which subjective judgements were required, the Florida Supreme Court moved beyond restraining the Secretary of State to something that looked suspiciously like trying to rig the rules in favor of their candidate, allowing canvassing boards dominated by the members of one party to scrounge for every last vote. An assessment which even Democratic members of the Supreme court appeared to agree with, which is why they voted 7-2 that the system set up by the Florida Supreme Court was unconstitutional. And before you start fuming that the Supreme Court didn't have the authority to rule on state law, this is a common misconception, but untrue; because it's a Federal Election, the legislature's statutory power comes from the US Constitution, not the Florida state constitution. The Florida Court can no more abrogate this than the Alabama court can overturn Roe v. Wade.
The point being that the election was such a mess because neither side could trust the other to do a fair job, a distrust which was eminently justified by the behavior of both sides. And (now you'll accuse me of being partisan, but I can't help that) this is why hand recounts should not have been done.
Actually, there are several reasons that they shouldn't have been done. The first is that punch cards are notoriously delicate things, especially the perforated ones used by election machines. Those cards are only meant to survive a couple of runs through the machines before they are so degraded as to reduce, rather than increase, the probability of approximating the right results. Try this experiment, if you can. Get one of those punch cards, unperforated. Pack it and unpack it a few times; drive it 400 miles in a truck; handle it repeatedly; then leave it lying around your house for a few days. After this, check the card to see who you "voted" for in the 2000 election. Programmers I know who used to work with the things (some of them Democrats) guarantee you'll have cast at least a couple of ballots unwittingly.
The second is that there was no hope of producing a result that both sides saw as legitimate. And Democrats will pardon me, but which would you think was more unfair: a ballot of accidentally poor design costing you votes, or a recount conducted by Republican party hacks costing you votes? The cure was worse than the disease.
Third, the error most amenable to correction was the first time voters who spoiled their ballot by voting for Gore and then writing in his name on the second page under the "other" space. This error is easy to identify, agree upon, and repair. It also wasn't part of the recount: overvotes were excluded.
Fourth, you don't want to establish a precedent for allowing courts to change the rules of an election after the votes have been cast. No matter how much you wanted this particular result, imagine how you'd feel in four years time if, say, the Texas courts got to set the standard by which the Democratic candidate was elected or unelected? Because there didn't seem to be any way of establishing a non-partisan procedure, it was vitally important that the state adhere strictly to procedures established before anyone knew who would benefit from them. This is why Katherine Harris' decision, partisan as it may have been, was closer to right than that of the Florida Supreme Court, however well they might have meant. In an age of ever-closer presidential elections, letting the Florida Supreme Court do a choose-your-own-standards excercise, when they knew that the standard they set would tend to benefit a particular candidate (the statewide standard which should have been less partisan, was put in place too late to actually finish the recount in Republican counties), would have been a disaster. Democrats may not think so now, but five gets you ten that the same people content to rely on the wisdom of an all-Democratic court would be the first to cry foul when it was their own ox being gored.
I don't mean to minimize just concerns about people whose votes weren't counted. I just think that the effort to count every last vote is a value subordinate to the effort to ensure that elections are governed by principle of the rule of law, which says that you can't change the rules after the fact. Otherwise, we risk returning to the delightful practices of the old style city machines in which every vote might be counted, but the outcome was pre-determined by which gang controlled the election boards. Only with strict, fair standards, does every vote truly count.
Tracy Byrnes in the Wall Street Journal on serving on the audit committee:
The history of the audit committee is a bit grim. For a long time, getting put on the audit committee has been akin to being a pledge in a fraternity who had to scrub toilets and spend hours sitting naked on ice blocks before he become a brother. While we assume new board members don't have to swallow goldfish to be initiated, many still have to spend time on the audit committee. The job has most often been seen as hazing rather than an honor.
But the Enron debacle has changed all that. Now the audit committee isn't an ice block, it's a hot seat. Moreover, its role has become of utmost importance to investors worried about aggressive numbers crunching.
Investors now must be active in making sure that audit committees are up to the job of overseeing a world gone mad about accounting.
Tee-hee! The article also notes that new rules will require board committee members to be financially literate. Next: members of the press required to be economically literate before they make pronouncements about potential policy changes.
The Professor posts a heartfelt defense of Russell Yates. I myself have wondered why everyone was so quick to pile on the guy. Okay, I don't share his religious beliefs, and the decisions he made turned out to be disastrously wrong -- not unlike many personal decisions I myself have made, and persisted in, in the face of evidence that others found compelling. It's easy to look at it from outside and say, "I would have gotten her help", "I would have made sure she wouldn't get pregnant again", "I would have helped more around the house", "I would have noticed". Yeah, sure you would. Because we all know how easy it is to get people with serious problems to deal with them, which is why none of us have friends or loved ones who've, say, OD'd on drugs. And we all know how easy most men find it to stay abstinent, never in the heat of passion convincing themselves that this one time couldn't hurt, which is why we don't have 1.5 million abortions every year, a greater number of surprise! babies, and the most embarassing presidential scandal in history. And we all know how willing we are when we have a demanding job and five kids to add the full time care of the house and a mentally ill adult to the docket with a happy smile, which is why our relationships don't waste time on fights about household duties, and we wouldn't stick our parents in any nursing home when they'd be happier having their diapers changed by us. And we all know how easy we would find it to pull the trigger on someone we'd loved for 10 years and say, "Yup, hopelessly insane. Stick her in the bin -- I'll visit on Sundays".
I probably wouldn't like Russell Yates if I met him, and he didn't show up too well when he was tested. But then, the majority of us don't. The majority of us aren't heroic people who instantly know what to do when their life is catastrophically upturned, and flawlessly execute on that knowlege. The guy was stuck between a rock and a hard place, and he seems to have been somewhat obtuse, but everyone seems to forget that he had absolutely no idea that this was going to happen. He didn't think he was risking the execution of his kids; he thought he was muddling through a life that had become extraordinarily onerous.
Many of the op-ed columnists glibly excoriating him now will have the pleasure in the future of dealing with a parent with Alzheimers. They should think of what they've said about him each and every time they have to make hard decisions about what to do with someone who formed the center of their universe, who isn't themselves anymore. Will none of their decisions be self-serving, instead of in the best interest of the patient? Will they never give themselves false hope, because they can't bear the alternative? Will they turn themselves into perfect martyrs for someone else's illness? I'm not saying Russell Yates did the best he could; I have no idea what went on in his head. But neither do the people writing about him.
Mark Byron takes an interesting whack at some unanswerable questions. I don't have any answers either, but I agree that deciding there is no God because you wouldn't run the world this way if you happened to be omniscient, omnipotent, and immortal, is silly, as is the related folly of deciding that God believes that whatever beliefs you find comfortable/enjoyable/convenient are okay. (Not that I have any particular insight into the mind of God, but I firmly believe that if such a thing is to be gained, it will come at the expense of long study and careful reasoning, not by starting from the premise that it has to agree with whatever political/philisophical/spiritual beliefs you adopted, casually or not, in college. In other words, if you start from the premise that any theology you pick has to be pro-choice, or gay-friendly, or culturally conservative, or involve no kooky rituals or funny clothes or untoward demands on your time, you're not looking for insight into the mind of God, you're looking for validation.)
All right, Moonbeam, call me when the shuttle lands. . .
A reader thoughtfully sends along this excerpt from OpinionJournal:
Sometimes, though, the mental-health lobby goes completely off the rails. The Minneapolis Star Tribune reports on the case of Abu Kassim Jeilani, a 28-year-old man whom police fatally shot on Sunday. As this chronology shows, a policeman had spotted Jeilani walking down a Minneapolis street carrying a machete and a crowbar. He called the police department's crisis intervention team, which was on the scene in two minutes. Jeilani ignored orders to drop the weapons, and police twice tried unsuccessfully to immobilize him with a stun gun before resorting to bullets.
The response of "some mental health professionals," the Star Tribune reports, is to say that the police never should have bothered Jeilani. Instead, a "mental health specialist" should have rushed to the scene--to confront a man with a machete. "We don't think it should be [in] the police hands. . . . It should be in the mental health hands," Theresa Carufel, of the Friends of Barbara Schneider Foundation, tells the paper. "We would love to replace the police." (Barbara Schneider was fatally shot by Minneapolis police in 2000 when she came at them with a knife and called them the "Satan squad.")
I know that the Friends of Barbara Schneider mean well, but they're a perfect example of the perils of hidden costs in Public Policy. To wit: the Friends of Barbara Schneider assume (probably correctly) that the tragedy of her death could have been averted if the policeman had not fired. However, they ignore the probability that in this case we would have the Friends of John Jacobs, Erwin Melville, and Tania Jones, the police officers or innocent bystanders that the knife-wielding psychotic killed, to contend with. Mental illness is tragic. Clearly, we all hope that there are better ways to contain a crazy person with a weapon than shooting them. But risking the lives of innocent bystanders, or even police [I say this from no lack of regard for the lives of policemen, but because we pay them to take risks, to a certain extent, with their lives in order to protect the rest of us] is no more appropriate than shooting to kill when there's the possibility of talking someone down. However, when people like the Friends of Barbara Schneider talk, we never hear about poor John, Erwin, and Tania, who didn't die -- only the woman who did. The costs of alternative action are hidden because they were averted by the action that did.
This is how we get a great deal of regulation in this country. Take an example you may or may not be aware of -- fuel efficiency. While some of the costs, like higher car prices, are visible (although not, due to the byzantine methods car manufacturers use to shake every last dime out of our pockets, visible enough), others, like safety, are not. Reputable data seems to suggest that the mandated increases in CAFE standards currently cause an additional 5,000 deaths a year. This cost is not explicit, because no one death can be pinned on the weight of the metal in the car (higher fuel efficiency = lighter cars = less metal = more deaths. And before you tell me that this is due to SUV's, the rise in death, according to my sources, is the same in accidents involving two small cars as it is in accidents involving a small car and a truck. He also says that there hasn't been a significant rise in collisions between trucks (SUV's) and cars because the shift to SUV's has been marked by a decline in the number of other light trucks.) Nonetheless, the cost is there, and if it were made explicit (most people seem unaware of the tradeoff), we might have a very different national opinion on fuel standards.
Or take another classic example, the FDA. If a bunch of people die from taking a drug the FDA has approved, the FDA gets in big-assed trouble. If a bunch of people die because the FDA was slow to approve a drug, the FDA gets in less trouble. If a bunch of people die because a drug was never invented because having the FDA makes drug development prohibitively expensive, the FDA gets in no trouble at all. This makes the FDA extraordinarily risk averse. This is not to say that we shouldn't have the FDA (that's another argument) but that because we don't examine these hidden costs -- and in this case, it's pretty hard to examine drugs that weren't invented -- we may well be producing sub-optimal outcomes.
It's fine to ask the police to check their procedures for dealing with the mentally ill. But saying that we should let someone deranged wander around with a machete while we wait for the mental health professional -- that's just nuts.
If you managed not to snooze through opportunity costs and highly co-specialized assets, you're going to be really excited by No Watermelons Allowed, which has a nifty piece on electricity reserve margins that is a fairly brief, extremely interesting, and somewhat unnerving look at issues we might face this summer. Plus it disses Ralph Nader, so you know you'll love it.
