Asymmetrical Information

From the desk of Jane Galt:

Swen Swenson's on the tail

Swen Swenson's on the tail of the global warming people. All I can say is, I wouldn't want him after me.

From the desk of Jane Galt:

Others talk of their Amazon

Others talk of their Amazon wishlists. Faugh! Here's my wishlist, and it's got one item on it. But it's a goodie.

From the desk of Jane Galt:

KrugmanWatch Paul Krugman has a

KrugmanWatch

Paul Krugman has a column today that's levelheaded and doesn't even mention Bush. He points out that the market dropped on the news of 5.8% growth, and takes us through why that isn't the fabulous news it might seem. He comes down pretty heavily on predictions of a "jobless recovery" over the next few quarters.

A couple of caveats: Paul Krugman wants there to be a jobless recovery over the next few quarters, not because he's a mean person, but because he'd like to see Democrats take the House and keep the Senate come November, and the only way that'll happen, it seems, is if the economy's hard on the swing voters. Which is not to say that Krugman's wrong; just that in evaluating his arguments, you have to discount for the possibility of wishful thinking.

Second, there are other reasons the market might have dropped, including fears that this means the Fed will raise interest rates. Still, the evidence that Krugman's right looks pretty good to me.

For my Republican readers who are getting a little panicky, grab a paper bag and calm down. Even if there is a jobless recovery, this doesn't necessarily mean that the Republicans are cooked. Dems held the House even though Clinton presided over a jobless recovery through the earliest part of his presidency, and no matter how jobless it is, it'll be well into its upswing by the time Bush is up for re-election. Plus, Tom Daschle isn't exactly looking like a strategic mastermind these days -- unless he can come up with something better than "Bush shouldn't have cut taxes, but of course I wouldn't undo the tax cut if you gave me more power", chances still look solid.

From the desk of Jane Galt:

Very nice bit of writing

Very nice bit of writing from William Quick:

I do subscribe to the theory of American exceptionalism - except I don't believe it's a theory. I think it proves and reproves itself with every passing year. The America I know and love has retained the exceptional malleability and resilience it possessed from the very beginning, but it has also kept the bright, gleaming core of its constitutional bedrock, the ever-living heart of the dream that is also the spirit and bones of the republic.

I love America without fear or irony, her past, her amazing present, her incalculable future. She retains the magical ability to touch all who wish to come to her, and with her touch, make them American too. How can you separate the ideas and ideals from the people who burnish them bright every day, and have since the Founders first plucked them from the American soul and put them to now-faded, wrinkled parchment?

So if I am asked, do I think we are better because we are American, I say yes. Yes, I do. Damned right I do.

Deep in your heart, don't you, too?

To each his own, of course. . . but I'm awfully glad I'm American. And no, it's not the consumer goods -- it's the fact that we're almost the only place in the world where anyone can become one of us just by embracing the idea of America. That's pretty damn neat, if you ask me.

From the desk of Jane Galt:

I know you already read

I know you already read him, but for the three readers who missed it, you must go read Steven Den Beste's piece on the implications of the shift from zero to non-zero games for biology, marketing and ideas right this instant!. It's brilliant.

From the desk of Jane Galt:

Got this juicy quote from

Got this juicy quote from The Corner:

Here's what Olivier Duhamel (a French Socialist and member of the European 'Parliament') had to say about France in the aftermath
of the first round of the Presidential vote:

"As far as our economy, health, culture and sport are concerned, we are among the most effective performers on the planet. As for our politics, we've gone back to a degenerate democracy of the kind you find in the United States, Austria or Italy."

By which I think he means that we let those pesky voters actually decide things.

From the desk of Jane Galt:

Tee-hee-hee-hee-hee. Judges on a rampage.

Tee-hee-hee-hee-hee. Judges on a rampage.

From the desk of Jane Galt:

Tee-hee. The life cycle of

Tee-hee. The life cycle of your weblog right here.

From the desk of Jane Galt:

You know how some people

You know how some people watch their counters for big turnovers? Well, as it happens, I was apparently my 100,000th visitor. Salud!

From the desk of Jane Galt:

If you've ever watched any

If you've ever watched any movie, you know that all arch-villains must reveal their evil plan to someone prior to executing it. Well, I'm a little short on time, so I'm just going to post it here, 'kay?

Evil Plan (tm)!

Your objective is simple: World Domination.

Your motive is a little bit more complex: Money

Stage One
To begin your plan, you must first seduce a news reporter. This will cause the world to sit up and take notice, stunned by your arrival. Who is this unholy menace? Where did they come from? And why do they look so good in a corporate suit?

Stage Two
Next, you will seize control of the Internet. This will cause countless hordes of computer programmers to flock to you, begging to do your every bidding. Your name will become synonymous with all that is wrong with the world, as lesser men whisper your name in terror.

Stage Three
Finally, you will unleash your armies of destruction, bringing about an end to sanity. This will all be done from a Warehouse, an excellent choice if we might say.

These three deeds will herald the end, and the citizens of this planet will have no choice but to elect you their new god.

Trust us, it'll all come together in the end.

Any fellow arch-villains looking for the handy service that helped me with my proposal can check it out here.

Those looking for my evil wardrobe planner, can seek help here.

Oh, and future subjects of my dark Realm who wish to get in with the winning side on the ground floor can drop a little -- membership application -- in the handy tip jar at left. Those who wish to apply for positions as minions or henchman should make their membership application extra enthusiastic, if you know what I'm saying.

From the desk of Jane Galt:

How do we pay tribute

How do we pay tribute to the heroes of Flight 93? The Weekly Standard's making a start.

From the desk of Jane Galt:

Someone's blogging from my alma

Someone's blogging from my alma mater. And it's great stuff on free trade, economics, and especially digital copyright.

From the desk of Mindles H. Dreck:

Times Audience Lame

Apparently, this is the best letter the Times can publish after Fritz Hollings' abysmal protectionist Op-Ed on the perils of Free Trade.

Don't you love the quote at the end of Hollings' piece?

Years ago, Akio Morita of Sony admonished third world nations that they had to develop strong manufacturing sectors to become nation states. Turning to me, he said, "Senator, that world power that loses its manufacturing capacity will cease to be a world power."

Hollings has been paying attention neither to manufacturing employment growth nor Japan.

Is it possible all the former "Letters to the Editor" writers (such as yours truly) have become bloggers?

From the desk of Jane Galt:

Very interesting comment from Dr.

Very interesting comment from Dr. Weevil:

Is the difference between controlled and uncontrolled guns like the difference between driving and flying? It is notorious that driving is far more dangerous than flying, but flying seems more dangerous because plane crashes, though rare, typically kill dozens or hundreds of people at once, while car crashes kill tens of thousands per year in the U.S. alone, but only one or two or five or six at a time.

Similarly, it seems to me pretty well established now that countries with strict gun control will, all other things being equal, lose more lives to gun crime, but mostly only one or two at a time, so that they may seem safer, even if they are not. At the same time, countries with widespread legal gun ownership, such as the U.S., Switzerland, and Israel, will see fewer citizens murdered overall, but it may well be that more of them will be in large-scale massacres, so that these countries will continue to seem more dangerous, while actually being safer.

There's a caveat: gun crime is lower in Europe. But in Europe, it's rising, even as laws get stricter; in America it's falling, even as they move towards a "Shall-issue" model (anyone not known to be a felon or seriously nuts is entitled to a concealed carry license). Switzerland has almost no gun crime even though every household is required to have a military rifle; Japan has almost no gun crime, and very strict gun laws (though with Japan it should be noted that Japan has almost no crime, partly because their police system is extremely illiberal, partly because of the way the society is set up, and partly because a lot of their crime is of the organized variety that integrates itself with the government and thus avoids prosecution).

Societies have a base rate of crime that is affected by a number of factors. The question is, holding everything else constant, does gun control raise or lower that rate?

The evidence that we seem to be getting, from looking at the change in the rate of violent crime following changes in gun laws, seems to be that gun control raises the rate. Gun control arguments make a logical progression from a false premise. They start with an imaginary world in which there are no guns. Yes, in that world, there would probably be fewer homicides. (There would probably not be fewer suicides -- the data's awfully bad) It's hard to kill someone with a knife or some such.

So gun control advocates imagine a straight line trend: more guns, more crime. If we imagine it as a graph, it would be a straight, upward sloping line.

This is based on a logical fallacy, which is that the population of those who would own guns if they were rare is a representative sample of the population who would own guns if they were plentiful. In other words, that if there are 1 million gun owners in the US, this group will be composed of the same percentages of different types of people as if there were 100 million gun owners. So that if there is a percentage of gun crime in the larger group, say one per thousand, the same percentage of crime will be found in the smaller group. Gun control thus cuts the number of crimes by whatever factor it by which it cuts the number of guns. This produces that straight line we graphed. However, this is demonstrably untrue.

There are three ways, in America, that we can imagine that guns would become rare: first, that they became very expensive for some reason; second, that they became illegal; and third, that they became extremely stigmatised.

In that case, assuming that the number of guns in the country will still be non-zero (and if you think it wouldn't, go take a look at Great Britain, with its near-total ban and relatively non-porous borders), who will own guns if they are expensive, illegal, or stigmatized? The answer in all three cases is the same: criminals. Criminals have a very high value for guns, because of their extreme usefulness in committing crimes. They have a demonstrated willingness to break the law. And they are (clearly) relatively immune to the kind of middle-class social stigma that would make guns unpopular.

Thus, there would be a very high initial rate of crime. However, as price, illegality, or stigma decreased, the population would change. Mixed in with the criminals would be non-criminals. So we would actually expect to see a curve that looks more like this:

But that's not the entire story either, because guns have both a crime-increasing and crime-decreasing effect. The possibility that their victims might be armed demonstrably has some effect on the propensity of criminals to commit violent crime (those who argue it doesn't are simply being stupid. If you were a criminal, would you respond to the probability that your victims might be armed? Of course you would. Criminals may not be the brightest bulbs on the Christmas tree, but they aren't immune to threat. For example, they avoid the police. The extent of the deterrance is a different question. But there is a deterrant effect.). This countervailing effect would put downward pressure on the curve.

Imagine the scenario. The criminals arm themselves early in the process, resulting in a crime spree. But as guns become more widely owned, the number of law-abiding citizens who have guns is increasing, while the number of criminals who have them is remaining fairly stable. As the curve moves to the right (increasing numbers of guns in the population), there is downward effect on the curve from the law-abiding citizens, whose guns criminals fear, while the upward effect is flat. So the curve starts moving downwards again. In other words, the curve will peak near the point where the majority of criminals who want guns have them, and the majority of law-abiding citizens do not. It will therefore look more like this:

So the question of whether gun control will decrease gun deaths relies on where we are in the curve: to the left of the peak, or to the right of it? If we're to the left, making guns harder to get will decrease homicides and other violent crime. If we're to the right, we'll largely take guns out of the hands of the law-abiding, and gun deaths will go up.

Evidence is that we're to the right of that curve maxima. Personally I doubt we could even get to the left. Europeans are getting their guns from the war-zones in the Balkans, despite tight gun control and border controls. The war on drugs has proved pretty conclusively that even when the governments are co-operating it's hard to keep out contraband; we'd have to take over Latin America to keep them from shipping us guns, and then there's Asia. . . and even if we magically managed to shut down every arms shipment, there's still our military depots, and the fact that a serviceable weapon can be manufactured from commonly available materials for a couple hundred bucks. Given the high value that a gun offers to criminals, it's hard to imagine how we could get to a point where they don't get their hands on them.

But don't trust the theory; check out John Lott's book, More Guns, Less Crime
and see for yourself whether the empirical data backs it up. If you savvy statistics, it's a good read. If you don't -- well, look at the headlines. Gun control isn't stopping criminals from getting guns in Europe, or in my hometown -- what about yours?

From the desk of Jane Galt:

Raghu's got some corrected numbers

Raghu's got some corrected numbers up -- not quite as startling, but still interesting. Go take a look.

From the desk of Jane Galt:

I don't know who the

I don't know who the guy behind Surveillance blog is. I don't know why he stopped blogging at the end of last month. But I do know that this is a damn fine post on the land mine treaty for which the press has beatified Princess Di.

From the desk of Jane Galt:

Loving Salon Technology today. This

Loving Salon Technology today.

This article points out that having an OS monoculture is a very big security hole. But don't look so smug, Anti-Microsofties; the Unix kernel is every bit as much of a threat as the Windows one -- perhaps more, because of the nature of the data stored on Unix machines. Can anyone say Sendmail?

From the desk of Jane Galt:

It turns out that the

It turns out that the German kid had his weapons legally -- at least 2 of the 4, anyway.

I think I'm going to win that bet with James.

From the desk of Jane Galt:

What do legos, your cells,

What do legos, your cells, and object oriented programming models have in common? Click here to find out.

From the desk of Mindles H. Dreck:

Let Them Eat Actuarial Tables

Last week brought a raft of articles about "Janitor's Insurance" or "Dead Peasant" insurance:

WSJ1 (requires subscription)
WSJ2
WSJ3
WSJ4
Houston Chronicle

I know the New York Times frowned on it as well, but I have no link. Sometimes I wonder whether their site search engine could find an anti-Bush Op-Ed, or a blogger against steel tariffs. The New York Sun also discussed it yesterday. This concept has been around for many years, so I find it both amusing and telling to see the papers pick it up all of a sudden this week.

Some of the coverage expresses outrage that a corporation could benefit from the death of an employee. While there are other reasonable objections to these programs, that particular bit of corporation paranoia falls wide of the mark.

Proceeds from life insurance are not taxable. Furthermore, a life insurance "wrapper" avoids taxation on funds building up inside a policy that ultimately fund the death benefit. Even if the policy is not held until the insured's death, the owner has taxes deferred until cancellation when this inside build-up is returned to the policy owner and taxed.

The more formal name for these "Dead Peasant"policies is Corporate-Owned (or Bank-Owned) life insurance ("COLI" or "BOLI"). Corporations and banks take advantage of the special tax status of life insurance to defer or eliminate taxation on invested assets. By purchasing insurance on a large population of people, this can amount to a substantial tax savings while the assets are still readily available. The policy confers significant tax advantages regardless of the mortality rate of employees.

State laws often require an "insurable interest" in the individual covered by the policy. I can't just look through the comments on this site and buy life insurance on the commenters. Likewise, a corporation can't just buy life insurance on anybody's life. Since the corporation has an interest in its employees well-being, the law has allowed companies to insure employees. In fact, banks often require that key employees have substantial life insurance (with the bank as loss payee) as part of a loan agreement.

First of all, companies need their employees alive, for obvious reasons. In fact, the law governing "insurable interest" actually recognizes that interest in allowing these transactions. Second, companies benefit from "COLI" or "BOLI" regardless of how fast or slow their employees die. The scope of a company's COLI program makes almost no difference to the company's interest in the employees well-being.

Finally, if this is so outrageous, why don't we mind that the government has a stake in rich people dying? In that case the state's interest is crystal clear - the faster rich folks die, the more government benefits through the estate tax. The government suffers no identifiable loss to offset, unlike those who must make due without an income producer.

The real issue is whether such a transaction should be sheltered from taxation. Actually, I would ask whether other company activities should be taxed prior to shareholder distribution even as these programs are not. Companies can also manipulate earnings to some degree with COLI, so this is another legitimate angle to the story.

BTW, I refuse to describe tax exemptions as subsidies, just as I disputed the Boxer-Corzine coalition for supervision of private property's description of 401k subsidies.

From the desk of Jane Galt:

Interesting article on the arms

Interesting article on the arms race between Senator Hollings' spyware brigade and their nemeses. It's mostly an interview with the owner of an ad-stop company, so there's a self-serving element to the comments; he dismisses concerns about the ways in which his software may cost other companies money with the assertion that they'll just have to find a different revenue model, that's all. But nonetheless interesting.

From the desk of Jane Galt:

In the interests of inter-blog

In the interests of inter-blog peace, Live From the WTC hereby offers this unilateral link to the hilarious Unqualified Offerings.

From the desk of Jane Galt:

The ever-brilliant Jonathan Rauch, meanwhile,

The ever-brilliant Jonathan Rauch, meanwhile, pens the simplest explanation for why the Palestinians continue terror: it works. Meanwhile, Brink Lindsay explores proposed long-term strategies for Israel. The Jane Galt conclusion: It's a big goddamn mess, folks.

From the desk of Jane Galt:

Jonathan Braue offers some sterling

Jonathan Braue offers some sterling advice for young protesters. Tee-hee.

From the desk of Jane Galt:

Eugene Volokh has this post

Eugene Volokh has this post on the root causes of school shootings. It's (of course) well thought out, but there are a couple of things that might bear further examination:

It's true that if teenagers couldn't get their hands on guns, it would be harder for them (though not impossible) to do such massive damage. I don't think that it's possible to stop someone who is bent on planning mass murder and suicide from getting guns, especially in a nation where there are 200-250 million guns. But it's true that if somehow this miracle could be worked, the problem of mass school shootings would diminish (though other problems might increase). Still, the availability of guns doesn't tell us why we've had mass school shootings in recent years, but not in the years before.

An acquaintance who should know informs me that the backup plan for the Columbine shooters was to blow up the school during assembly -- and that the evidence is that there's a high probability that they would have pulled it off. Killing everyone, instead of the tragic few who died. But I can't vouch for this.

I know of only one conjecture that is even slightly plausibly, and I stress that it is only a conjecture: What changed since the time of the first school shooting is that there's been a lot of media coverage of school shootings. Teenagers keenly resent their own insignificance; when they see someone being in the news -- even for committing an atrocity -- some of them begin to envy this person's fame. And some tiny fraction of those may even decide, against all reason, self-preservation, and decency to take the same path. The first mass school shooting was an essentially random event, but the media coverage that it triggered dramatically increased the probability of subsequent events of the same variety.

I am certainly not arguing that the media should be barred from covering school shootings. I am not even sure that as an ethical matter, the media should moderate their coverage.

But I think that if we're looking for a causal explanation for the advent of mass school shootings, the one that so far best fits the evidence -- the only one that shows a correlation, which is surely not sufficient for showing causation but is largely necessary to show it -- is this one.

I think that this is a huge factor. And while I too do not think that we should try to legislate coverage, I think that there is one thing that usefully could be done, without degrading the quality of coverage (IMHO) in the least: a voluntary media ban on reporting their names. Would it stop the killings? I have no idea. But I don't see how it could hurt -- and it ought to stop cold any little pipsqueak who thinks he'll go down in history in a blaze of glory.

From the desk of Jane Galt:

I love the big construction

I love the big construction machines. They put me in mind of dinosaurs.

In the early days it was the grapples, crawling over the pile to pick up fistfuls of steel in their enormous claws and deposit it on the trucks, like a prehistoric monster uprooting a tree and waving it around for effect.

Then there were the cranes, just towering over everything, graceful, elegant, enormous.

Now there are the cherry pickers, which are funny because the driver steers from the basket, suspended in the air behind the machine as it lumbers forward. And the excavators, clawing out enormous piles of dirt from the ground as they prepare it for new construction. The front loaders, carrying loads hither and thither. And any number of smaller machines, forklifts and bobcats and such. Like little baby dinosaurs, they manage to be cute even though they're a LOT bigger than I am. (And even though their operators would kill me if they heard me refer to them as "cute").

This site has to be one of the largest assemblages of working construction machines ever in this country -- like a mechanical Jurassic Park. And though now that it is hollowed out it looks, in scale, much as the pyramids must have done, down to the little city we've built for the workers (though ours is made of tents and trailers rather than mud huts, and we have (mostly) indoor plumbing). But the difference is that Pharoah had to use overseers with whips to grind his monument out of the muscles of the workers, killing many of them in the process. So far this job hasn't had a single fatality that I know of, an the men are paid upwards of $25 an hour, plus benefits, to do labor that's a lot easier, and less dangerous, than their peasant forbears. The raw muscle power that took all those lives has been replaced with machines that turn a day's labor into a minute's work, by one man comfortably ensconced in the cab of his mighty machine.

Ain't technology grand?

From the desk of Jane Galt:

Which brings me to another

Which brings me to another question: I get a hell of a lot of email from anti-war, anti-"warblogger" folks who don't like my ideas. The ones that are respectful, I answer privately. The ones that aren't, I junk or make fun of. But there's a common thread on which I wish to comment, which is that almost none of them can write.

Now, I want to say that I don't think that this is because far-leftists can't write -- God knows, the creative writing programs are stuffed with enough of them to disprove that theory. But the ones who can don't, at least to me. The ones who write to me display literary skills ranging from average to breathtakingly bad. Letters display the kind of orthographical and punctuational errors that one is supposed to have left behind by the tenth grade. I am not talking about people who use awkward phrasings, or make the occasional typo; Lord knows I'm on no high moral ground there (and don't think I don't know that I am about to get a stream of emails about every typographical error I make in this piece). I'm talking about paragraphs that have no logical beginning and no ending, but start and stop abruptly and at random, like third world trains. Continuous misspellings of common words that make me go back over and over again to re-read, until I figure out that they have substituted "to" for "too", "its" for "it's", "there" for "their", etc, and thereby inadvertently rendered the sentence almost, but not quite, totally incomprehensible. People who string together sentences with commas for pages at a time, until one begins to fear that their word processor is out of periods and the letter may never stop. People who apparently believe that a semi-colon is to the colon as semi-formal is to formal clothing. People who were apparently not familiarized with the subject-object convention of sentence construction in their formative years and pepper me with a stream of jolting sentence fragments. People who use the wrong word because it sounds something like the right one: tenative for tenacious, palpitate for vascillate, etc. And then there are the people whose essays are technically correct but so dull in their construction that they read like a third-grade essay on "What I did over summer vacation": Adjective-noun-verb. Noun-adjective-adverb. Adjective-noun-verb. It's enough to make one pound the keyboard screaming "don't they have any clauses where you come from?"

I won't even start on the people who think that the sarcastic "Did so! You're a big fat idiot!" verbal play of the high-school debate team is every bit as compelling in a political letter from a 52-year old computer programmer as it was when they triumphantly refuted "Resolved: The Cafeteria Will Serve Lima Beans and Lamb Patties Mondays, Wednesdays, and Fridays". Because most of my letter writers aren't like that. They're nice people. Serious people. Well-intentioned. But functionally semi-literate.

I don't mean to suggest that the right has some sort of God-given literary talent; there are any number of atrocious conservative, libertarian, and "warblogger" writers. But the anti-war left doesn't seem to have any answer to the near-omniscient topical mastery of a Steven Den Beste, the witty imagery of a James Lileks, the sharp financial insight of Mindles H. Dreck, or the individual talents any of another dozen bloggers I could name. These people can write. And the letters I get from conservatives, even when they're excoriating me (believe it or not, I get more than my share) are invariably well-spelled and rely on logic, not name-calling or "dead babies trump reason" type arguments.

So why can't the kids on the anti-war side, by and large, write?

Well, a compelling possibility is that I'm just not seeing them. Maybe I'm stuck in my little libertarian-right ghetto and I'm not getting the good stuff, just the trolling nutbags. So come on, talented heirs of Marx and Gandhi! Send me your stuff! I want to know where I'm going wrong.

I think that's part of it. But I think another part of it is that we've abandonned educating our children in favor of nurturing their delicate little psyches. Because I've had this argument a couple of times, and the semi-literate conservatives are always sheepish, a little ashamed, of their lack of writing talent. The left-wingers, on the other hand, are proud of it. "It's just a bunch of stupid rules! The important thing is the ideas, and people understand what I say just fine."

Wrong on both counts.

For one thing, rules are not stupid just because they are arbitrary. It does not matter, in some metaphysical sense, whether we drive on the right or the left side of the road; but it matters very much that we all do one or the other, because frankly, I can't afford any more car insurance than I already have. The rules of grammar are of course, somewhat arbitrary, but they are not therefore stupid; they are required for us to communicate with each other. If I say "Therefore house to the up pick go I keys" it matters not that this arrangement may be perfectly intelligible in Yoruba (I have no idea whether it is or not; it's an example); it violates the word-order rules upon which we have agreed in speaking English, and which allow us to sacrifice other complicated grammatical rules necessary to mark words in languages where word order is less rigid than in English. Surprise! The rules of English grammar, by and large, are there because they avoid ambiguity or redundancy. We gloss over these in spoken English because context and body language allow us to convey much of what poor sentence construction does not; moreover, it's real time, so if we build a sentence poorly the first time, and are not understood, we can correct the error. Writing is one shot; if your sentence isn't clear, the reader won't understand what you are saying. You must therefore take much more care to write clear, non-redundant, but unambiguous English -- and that means good grammar. You may think, for example, that the prohibition against splitting infinitives is an example of the power of petty tyrants, but in fact it exists for the very good reason that "to" is not only the infinitive marker in English, but also a preposition, and therefore improper placement can be very confusing.

Poorly constructed sentences, like poor spelling, take away the focus from the ideas and put it on the poor writing. Flawless prose is indeed "all about the ideas"; bad prose is all about the paragraph I had to read four times before I figured out what the writer was trying to say -- and the eight paragraphs I didn't read because I didn't want to bother wading through any more mistakes.

Anti-war people are certainly not the only people prone to this type of thinking. But politically, they are the most likely to embrace it. Witness "whole language" reading.

But enough of political carping -- let's all come together on the bipartisan goal of building a better, more grammatical future for our children. Turn off your spellchecker! Break out the OED! Strunk and White for everyone! Together, we can brave new future into the boldy go!

From the desk of Jane Galt:

READER ANDY FREEMAN writes: So

READER ANDY FREEMAN writes:

So my property has no time value. . . but I'll bet that they'd be peeved if I paid my taxes three days
late....

The recent Tahoe-Sierra decision states, in the sentence starting on the bottom of the second page continuing on the third.

"A permandent deprivation of all use is a taking of the parcel as a whole, but a temporary restriction causing a diminuition in value is not, for the property will recover value when the prohibition is lifted."

We're talking about a "temporary" restriction that lasted either 32 months (accoring to the majority) or 6 years (according to at least one of the dissents).

Paging anyone who teaches Finance 101. . .

From the desk of Jane Galt:

There's been a school shooting

There's been a school shooting in Germany. Buried in the story is this little tid-bit:

The shooting coincided with a debate in the German parliament Friday on tightening gun control legislation.

Germany already has strict laws governing the right to a gun, but experts say the country is awash with illegal weapons smuggled into the country from eastern Europe and the Balkans.

Those wishing to get hold of a hunting rifle must undergo checks which can last a year, while those wanting a gun for sport must be a member of a club and obtain a license from the police.

I'm willing to be we'll be seeing editorials on how this calls for stricter gun control -- if I can find a sucker to take the other side of that bet, that is.

From the desk of Jane Galt:

It is true: I'm mentioned

It is true: I'm mentioned by one of my heroes!

From the desk of Jane Galt:

Welcome, Mark Steyn readers! I'm

Welcome, Mark Steyn readers!

I'm afraid posts are a little bit thin on the ground; as you can see, I'm having a bit of trouble with my computer. But the post you're looking for is here. And if you like what you see, please do come back.

From the desk of Jane Galt:

Patrick Ruffini asks how come

Patrick Ruffini asks how come I'm not giving stock tips.

Well, first of all, that's not quite my area of expertise. (If I can be said to have an area of expertise.)

Secod of all, I'm Chicago-trained, so I subscribe to the notion that you can't beat the market in the long run.

Empirically, this is true. The stock market is so well traded that arbitrage opportunities vanish almost as soon as they appear; professional money managers who spend all their time researching companies, according to studies, earn back just about what it cost them, in economic terms, to find the information that allowed them to invest better. I'm not going to spend all my time researching the market, and I don't think I'm smarter than the people running the mutual funds that underperform the market. So I buy low-fee index funds (there are more sophisticated products that do the same thing with a superior return, but they take more money than I have to buy in). Of course there are problems with this approach; for one thing, when a stock joins an index like the S&P it's price jumps about 5-10%, so the assets are overpriced. But I would find this argument more compelling if all the active stock-pickers who pointed this out to me hadn't underperformed their indexes in both the boom and the bust.

And third of all, financial advice is serious and personal. I could say broad, true things: don't put all your money in equity; don't expect more than 3-5% annual real returns; don't invest more than 10% in the sector you work in, much less your company, even though it's "What you know" (you're not Peter Lynch, and he diversifies like hell); don't hold high-interest debt in order to buy securities of any sort unless their real yield is higher than your debt (it's not, in almost any case); don't base your investment decisions on what everyone else is doing; don't think you're a genius because you correctly picked on stock that did well. Monkeys throwing darts at the Wall Street Journal could hit one high-flyer.

In other words, act sensible and don't expect to get rich on the stock market. Allocate your assets between different securities and different industries. Don't put all your eggs in one basket.

But this isn't helpful, because you already know this, and you're ignoring it. You're plunging your net worth into things, hoping they'll go up and you can get rich and retire. You're holding credit card debt while you put money into a Roth IRA. You're not putting a sensible 40% into equity, even though retirement's only 20 years away, because bond returns are too low; you're putting it all into equity, and planning to switch into Munis when you're seventy. At least, if you're anything like the rest of America, that's what you're doing. So I'd be talking to myself.

If you don't know how to allocate assets, do a discounted cash flow, or estimate pre- and post- tax costs for a variety of time periods, get yourself a good financial planner. A good financial planner is one that doesn't sell you anything. He takes a fixed fee and tells you what to do with your money, spanks you gently for not saving enough, and helps you plan realistically for retirement. He helps you decide what sorts of investments, in what kinds of accounts, will maximize your post-tax income. And you pay for this advice, up front and through the nose.

A bad financial planner is cheap. He works for a firm that sells financial products, and therefore tries to foist on you whatever insurance/mutual fund/equity/debt product they have too much of. You will regret saving money this way when you are eating cat food because the Muni of the Month Fund tanked on you.

A good financial planner is recommended by someone you know well, someone prudent. Someone who is probably a little sheepish about how boring their retirement plan is.

But I won't give specific advice because first, it's not me, and second, the law of averages says that even if I'm brilliant, I'll be wrong a lot of the time and someone will lose money. So I'll stick to the tired-but-true platitudes that put everyone to sleep. You'll follow this advice -- or not. But at least you won't sue me for telling you to buy Yahoo at 200.

From the desk of Jane Galt:

Warning: Long, geeky rant I

Warning: Long, geeky rant

I have been witness to many a fine theological debate about the existance of hell, and I have always wondered why they were wasting their time on such a pointless question. Obviously, there is a hell, only those who staff it have added an "p desk" on the end to make it sound more professional.

So my computer at work hasn't functioned for two weeks. More specifically, we have had a series of problems with the internet connection. First, the internet software refused to acknowlege the modem that came with my computer.

I uninstalled and reinstalled the software

I uninstalled and reinstalled the modem drivers.

I tested the phone line.

I changed the phone cord.

I uninstalled the internet software, uninstalled the drivers, removed the card, cycled the CPU, reinstalled the card, and reinstalled the software.

I bought a new, external modem, and connected it to the serial port.

Nothing worked.

This process is called troubleshooting, wherein you test the easiest and most obvious solutions, and therefrom proceed, using the information gleaned from earlier steps, to the more complicated and unobvious ones.

I called the makers of the new modem, on the off chance I'd bought a dud. Nope -- the modem worked.

I called the people at AT&T, who lead me through an exhaustive series of tests, at the end of which we'd determined:

1) I could use dial-up networking to connect to the access point
2) I could not get any IP service from this point. No pinging, etc.
3) I could not then disconnect from the service.
4) Once I had made this non-functional dial-up networking connection, dial-up networking would not, in the future, recognize the modem as functional until I had gone into the modem setup, removed it, and added it back.

[At this point, I want to head off any pre-emptive strikes from the friends and strangers who are, even now, tabbing over to their email software to compose a missive the primary message of which is "Get a real operating system". I am sitting in a trailer, not at home, not in a nice corporate environment where I have ample time and resources to fix things. Where, pray tell, am I going to download the drivers to fix my Linux internet connection, given that I have the only internet connection on the site? More importantly, I'm not in charge of purchasing. While I am second to none in my loathing for Windows ME, this is what the Fates have handed me, and like all tragic heroes, I am powerless to move against them.]

Having determined all this, we reached a consensus that most probably my Windows ME installation was FUBAR, and needed to be redone. A consensus with which the chirpy chick at the computer maker's tech support wholeheartedly agreed; she arranged to send me three CD's that would format my hard drive, reinstall all the OEM software, and leave it as pristinely functional as the day it was purchased. This re-tooling is what I spent my day doing.

And the #@%! thing still doesn't work.

Now I can get an internet connection for five minutes or so (time varies). After which, I lose my connection. Can't ping, nothing. Disconnecting and reconnecting produces -- you guessed it -- the same hardware error I got before. But this time, if I reboot, I can re-establish a connection (this was not true before). Every single time, the same thing: connect, lose connection, reboot, connect, etc.

So I apply my troubleshooting skills.

Is it the internet software? Almost certainly not -- the software's been replaced. The modem is a USR Sportster, the most common kind, and though it's one of them newfangled V.92 thangs, it's common enough that AT&T would have logged a known error by now, or at least an alert. If it is some strange interaction (most unlikely -- there's the dial-up netowrking layer in between, which USR has certainly tested as it will be the primary use of their product) then AT&T is going to have to do some coding. It's complicated and non-obvious; leave it for now.

Could it be the modem? Even more unlikely. Resetting the modem and trying to reconnect doesn't work. If the modem were the problem, either resetting would work -- or rebooting wouldn't. There is no variance in the success and failure of the various stages of the abovementioned cycle, now repeated about 30 times for effect. While it's vaguely conceivable that Windows ME has a bug that causes it to irreparably crash Dial-Up Networking whenever it loses contact with a non-functioning modem, this would almost certainly be a widely known error.

Could it be the motherboard? The most likely solution (or the serial port, which is attached to the motherboard, so what's the difference?). I know -- why would it crash two separate modems? No idea. But given the prevalance of the problem across two modems, a reformatted hard drive, and numerous software reinstallations, the only place left to look is a central failure.

But don't try to explain that to the folks who made my computer.

I spoke with a charming young boy from Canada, who, like most such people, has no idea what the hell he's doing. He has been given a book full of procedures to try, based on teh general nature of the problem. The minute he gets a vague clue about what happens inside that box he spends his time talking about, he will either be promoted, or leave. Until then, he venerates the Book with the same textual rigidity as the most devout Orthodox Jew. He spent five minutes trying to get me to walk through the modem testing procedures with me before I managed to knock it into his head that:

1) The modem had been tested
2) The software was not only new, but the ISP connection was pre-installed and thus unlikely to be the source of the problem
3) The phone line was working fine.

He put me on hold to talk to his "colleague".

For those uninitiated in the Way of the Help Desk, that "colleague" isn't a colleague, it's his boss. Or a former help-desk "engineer" who can tell a NIC from a knick-nack and has thus been put somewhere safe, where the users can't get to him. After five minutes or so, my Canadian returned to tell me that he was pretty sure it was the modem.

I pointed out that if it were the modem, it wouldn't fix itself every time I rebooted -- or it would fix itself when I turned it off and on.

He put me on hold to talk to his "colleague".

I rebooted the machine for the 31st time to see if it would perform the same trick. It did.

He returned with the opinion that it was the phone line.

Now, given the intermittent nature of the problem, this was perhaps a natural guess, if you hadn't talked directly to the person who knew what was going on, rather than the nineteen-year old who didn't. I told him, as gently as possible, that it wasn't the phone line.

He argued.

I layed out, with impeccable logic, all the reasons it wasn't the phone line:

1) I just moved trailers. The problem occurred in both trailers. Also, the people who isntalled the phone line tested it.

2) The problem isn't intermittent; it's calibrated exactly to the boot cycle. Which does not affect the phone lines.

3) The phone line works.

4) The problem does not vary with the phone line -- there are two modems in our trailer, and neither works.

Did they test it for Data he asked, after another trip to the "colleague". I'm in Manhattan, not Saskatchewan. Asking someone two feet from the trunk if they tested the line for data is like asking if they tested it for French

He was puzzled. We had a brief seminar on the causes of line failure: interference, pinching or clipping, physical degradation, or cables sub-standard for data transmission. None of which is an issue when you are using a brand new phone line sitting smack on top of the entire, newly refurbished fiber-optic infrastructure for the World Trade Center/World Financial Center area, and you're the only damn person using the line.

I told him I wanted a technician.

He -- I know, I'm repeating myself -- put me on hold for another "colleague" session.

He came back and said "I know you don't want to hear this, but I really think it's the line."

Now, the geeks who have been following this will know how overwhelming was my urge to say, "I know you don't want to hear this, but I really think you're an idiot. Let me talk to the $%@# escalation engineer."

But I am a lady. All I said was, "Could I please speak with your colleague? Maybe we can straighten this out."

ANother hold session.

"No."

"But we're not getting anywhere. I think that if we can just talk. . . "

"Callers can't talk with the Level 3 people".

Sounds like a cult, doesn't it? And believe me, I spent my next two hold sessions awash with pleasure at the idea of the spaceship coming to pick up the faceless moron who insisted that my problems were in the phone line. Certainly, the structure was cultish. Ordinary people cannot talk with the God of the Computer. Only through the priest, Help Desk Tech Level One, can you communicate with His Holiness. Ordinary mortals would be blinded by His radiance and struck dumb by the mellifluous harmonies of His voice. On this Rockhead I build My church.

What gets me is that I know exactly what the little rat bastard was doing. He didn't want to talk to me because he'd have to stop cruising for naked pictures of Anna Kournikova and pay attention. So he tells this kid, who has absorbed nothing so far except blind obedience to the sacred precept that We Must Not Deviate From The Book, some stupid thing to get me off the line in the hopes that by the time I call back, he'll be off his shift. In order to do this, he has to make it someone else's problem. Having had the modem, the AT&T software, and the cables convincingly refuted, he fell back on the one thing I couldn't test myself: the goddamn phone line. I argued. I begged. Dammit, I almost wept. But no dice. I am not allowed to call back until I get Verizon to check the line they checked three days ago when they installed it. At which point, presumably, some other rat bastard will have some other reason why I'm not his problem. And the kid will go on thinking that the best way to deal with technology problems is not to figure out what's wrong, but to pass it off to someone else. So that when he has Ascended to Level 3, he too will be able to deliver cryptic non-solutions to his ignorant acolytes.

Some days, it just doesn't pay to get out of bed.

From the desk of Mindles H. Dreck:

Outcomes of the Paulos IPO Exercise

I ran 100 simulations of the Paulos IPO game mentioned below. Each player starts with $10,000 and plays the game for a number of weeks, randomly experiencing an IPO each week that has equal chances of going up 80% or falling 60%.

Because Steve Kuhn asked me whether I would like to be "the house" on this game, I looked at it from that point of view. So in this case, the house wins if the investor ends up with less than his original $10,000. Investor/player loses = house wins.

After 10 weeks, 87 of my 100 players have lost money, but one of the remaining players has a balance of $166,000. After 50 weeks, 97 players are out, but one of the remaining 3 has a balance of $41 million (gulp). After 100 weeks, the only player left had about $218,000. Our sole winner is the same guy who had $41 million at week 50, and $124 million at week 60, so he should have stopped. Everyone else is bust. Only after 100 weeks has the house turned a profit in aggregate ($1 million less the one player's winnings).

Here's a graphical representation showing the house's winning percentage (or the number of bust investors) vs. the largest balance of the remaining investors.

This dovetails perfectly with my earlier discussion about Niederhoffer and Taleb, or being long or short volatility. The house here is Niederhoffer, making good money almost all the time but going out of business every now and then. The players are Talebs, mostly bleeding to death but occasionally hitting it big.

And neither side is particularly interesting to me, although an investor in this theoretical game is doing a hell of a lot better than he could with a lottery ticket.

From the desk of Jane Galt:

There's a rumor afoot that

There's a rumor afoot that I'm mentioned in Mark Steyn's column today, which is unfortunately not on the web yet. I am waiting with bated breath to find out if I have been indeed honored by the Great White Hope from the Great White North.

From the desk of Mindles H. Dreck:

Counterintuitive

In discussion of the post below, Jonathan Gewirtz observes:

But you can reduce "path risk" by reducing bet size.....a participant in the experiment is likely to lose money if, as Paulos assumes, he bets his entire stake on each trade, because in that case it takes only a few losses in a brief sequence of trades effectively to wipe him out. But in real life you don’t have to bet that big. Your odds of long-term profitability are much better if you risk only a small fraction of your total capital on each trade. Bet-size optimization can't transform a losing game into a winning game, but you can blow up in a winning game if you bet too big. Small systematic variations in bet size can create enormous differences in end-state wealth in positive-expectation games.

True, but it doesn't improve the strategy, as you point out. However, the comment about "transforming a losing game" reminds me of Parrando's Paradox, which shows that you can actually combine two losing games into a winning game. How odd is that? John Allen Paulos has covered this one as well.

From the desk of Jane Galt:

More from the department of

More from the department of bad data: Movie Physics. A sample:

Although 9 mm sub machine guns such as the Uzi (which fires 600 rounds per minute) are popular in movies, everyone knows that real action heroes prefer .45 cal Mac 10's. These fire more powerful bullets at rates of 1000 rounds (in other words bullets) per minute. They have a 30-round magazine ( the long black thing that stores the bullets) and are by any measure a deadly weapon.

Movies are filled with scenes of good guys and bad guys blazing away for minutes at a time. Of course, no one is overly concerned with reloading or lack of ammunition, but then that's been true since the days of singing cowboys such as Roy Rogers who smiled a lot and engaged in friendly gunplay between musical numbers. So why would we bother to mention what is common knowledge? We can't help but be impressed by the weight of the matter.

First, let us point out that the 30-round magazine in a Mac 10 will be expended in a mere 1.8 seconds of sustained fire! If our shooter blazes away steadily for a total of only 3 minutes, his or her Mac 10 will spit out around 3000 chunks of lead at roughly 15 grams a piece. This amounts to 45 kilograms or a little less than 100 pounds of lead. And that doesn't account for the weight of the 3000 cartridge cases or 100 empty magazines scattered on the ground. Yes, 9 mm sub machine guns with slower firing rates would reduce weight problems, but it seems that real action heroes use Mac 10's, preferably one in each hand. We can't help asking where the side kicks are with wheel barrows to carry the ammo.

From the desk of Jane Galt:

The ever-brilliant Sophismata is busy

The ever-brilliant Sophismata is busy ripping apart silly media graphs to get at the useful data. Be sure to read through to the shocking conclusion about power-plant emissions, then read his next post to find out further secrets of our polluting ways. Meanwhile, those who like me fondly remember Little House on the Prairie books can read about the possible causes for the demise of those memorable swarms of locusts she wrote about -- a cloud of grasshoppers that stretched for 1,800 miles.

From the desk of Jane Galt:

I MET a traveller

I MET a traveller from an antique land
Who said:—Two vast and trunkless legs of stone
Stand in the desert. Near them on the sand,
Half sunk, a shatter'd visage lies, whose frown
And wrinkled lip and sneer of cold command
Tell that its sculptor well those passions read
Which yet survive, stamp'd on these lifeless things,
The hand that mock'd them and the heart that fed.
And on the pedestal these words appear:
"My name is Ozymandias, king of kings:
Look on my works, ye mighty, and despair!"
Nothing beside remains: round the decay
Of that colossal wreck, boundless and bare,
The lone and level sands stretch far away.

-- Perce Bysshe Shelley

From the desk of Jane Galt:

Via The Weigh In: Wow.

Via The Weigh In: Wow. Just -- wow.

From the desk of Jane Galt:

I have no idea what's

I have no idea what's wrong with my permalinks. It's blogger, not my template, so I can't even fix them. But anyone who's looking to permalink me -- tuck a /?/ between the janegalt.net part and the rest, it should work. We apologize for the inconvenience.

From the desk of Jane Galt:

Seems you can't see the

Seems you can't see the letter my dear Papa wrote to Barrons, so here it is (at least the part they excerpted)

When you evaluate the future of Social Security and the magnitude of the Social Security crisis ("Creating Complacency," Editorial Commentary, April 1, and "A Nobel Plan to Fix Social Security," Economic Beat, January 1), consider the size of the work force. The real question for the United States may not be the reduced Social Security contributions of the much smaller size of the workforce cohort behind them. It will more probably be the challenge of finding the workforce to tend the retired Baby Boomers and the workforce to carry on the work that the Baby Boomers are leaving.

There is a Social Security crisis only if the nation cannot maintain the jobs that now contribute to the FICA pool and cannot increase the numbers of people who tend to the needs of the retired population. Current levels of legal immigration cannot satisfy these projected needs. The nation would have to reject the strong pressures that will come to substitute immigrants for those domestic labor supply deficiencies. We already look to legal immigration to meet the needs that we have in many high-tech and health-care areas. Why won't we try to expand legal immigration to meet our needs in other service areas that will have employment gaps emerging as Baby Boomers retire?

FRANK MCARDLE
New York City

From the desk of Mindles H. Dreck:

Mending Lines

Something there is that loves a line. That something in human nature also loves central tendencies. In all sciences, hard and soft, we seek linear relationships and "mean reverting" patterns in all events, man-made or "natural."

In all likelihood, any asset allocation advice you have received is driven by a mean-variance analysis of the past behavior of the market over some period. Theories of global climate change revolve around the idea that a "true mean" temperature has been identified, and recent trends reflect a linear deviation from that mean temperature. In social sciences you hear of "cycles" of public thought or behavior, as if we swing back and forth like a pendulum over some identifiable center. One of the silliest example is Arthur Schlesinger's Cycles of American History, in which he posits a 15-year cycle from liberal to conservative in order to conveniently wish away Reagan (I have mentioned this book before).

Why should we be able to explain behavior around us this way? Did god command that all the world exhibit linear behavior and central tendencies? Should all phenomena exhibit "normal" distributions?

I think the reason we like to believe the world works this way is because it seems to provide a measure of certainty. We are not comfortable that the universe, and time itself may have no beginning or end, and we are not comfortable that certain behaviors exhibit something less than perfect randomness..and yet far from perfect predictability.

In truth, measures of central tendency can be useful to describe behavior, but often give the user a deceptive comfort that events will unfold in a neat pattern towards their expected result. THis is a big problem when attempting to predict the dollars and sense outcome of market behavior. In fact, one of the problems with Markowitz analysis, which is behind most asset allocation analysis, is that it doesn't describe the messy path an investment might take to its expected return. That path can dramatically alter the amount of money available at the end of the investment period. The more volatile the investment, the more true this is. (and some guy has written on this).

John Allen Paulos provides a good hypothetical example of this problem in his column "Average Riches, Likely Poverty", in which he describes playing a hot IPO market:

Hundreds of IPOs come out each year. In the first week after the stock comes out, the price is usually extremely volatile. It’s impossible to predict which direction the stock price will move, but assume that for half of the companies’ offerings the price will rise 80 percent during the first week and for half of the offerings the price will fall 60 percent during this period.

The investing scheme is simple: buy an IPO each Monday morning and sell it the following Friday afternoon. About half the time you’ll earn 80 percent in a week and half the time you’ll lose 60 percent in a week for an average gain of 10 percent per week — (80 percent – 60 percent)/2. Note to the mathematically savvy: in this instance, you are allowed to average percentages because of the 50/50 split.

Ten percent a week is an amazing average weekly gain, and it’s not difficult to determine that after a year of following this strategy, the average worth of an initial $10,000 investment is more than $1.4 million! Imagine the newspaper profiles of happy day traders, or week traders in this case, who sold their old cars and turned the proceeds into almost $1.5 million in a year.

But what is the most likely outcome if you were to adopt this scheme and the assumptions above held? The answer is that your $10,000 would likely be worth all of $1.95 at the end of a year! Half of all investors adopting such a scheme would have less than $1.95 remaining of their $10,000 nest egg.

It's actually worse than Paulos suggests, because at some level of investment - say $1,000, you don't have enough money to continue to invest in the next IPO (imagine calling your broker for $500 of a hot IPO...). For more than half of the investors, it results in "game over".

An article by Malcolm Gladwell in this week's New Yorker (no link available yet, but here's an abstract) takes on these ideas, in a way. It describes a hedge fund manager, Nassim Taleb, who has supposedly built his investment philosophy around the observation that large, random movements in the market happen more frequently than our analysis tools predict. In the article's words, market behavior has "fat tails" - there is higher frequency at the extreme's than a normal distribution implies. Options are conventionally priced using the Black-Scholes method, which assumes a more normal distribution to the potential price outcomes. Mr. Taleb's fat tails suggest that options covering extreme contingencies are therefore underpriced. He is long out-of-the-money options.

Unfortunately for Mr. Taleb, this means he loses money most of the time. Taleb is OK with this because he knows, when the shit hits the fan, he's gonna make a lot of money.

Gladwell contrasts Taleb with his mentor, of sorts, Victor Niederhoffer. Niederhoffer is famous for making piles of money, but ultimately blowing up two hedge funds by primarily selling options into a large market event. Niederhoffer makes money most days, but puts himself out of business when those "fat tails" kick in.

As readers, we are asked to consider whether we would want to have our money with Taleb, who "never blows up but can only bleed to death" and promises to make a pile when the market goes haywire; or with Niederhoffer, who has made money consistently, except on the two occasions he lost it all.

Options are like insurance. They provide a payout based on a contingency, charging a premium for the privilege. My first reaction is that nobody makes money buying insurance (Taleb) and very few people make money selling it (Niederhoffer). In fact, almost every non-life insurance company in the world loses money on its insurance activities. Most of them only make it back on the float (the invested premiums/reserves). AIG is famous for maintaining a 99% "combined ratio", which means it makes all of 1% of its premiums in profit on pure risk underwriting activities.

My second reaction is that just because you understand a phenomenon, doesn't mean you have found a way to make money consistently employing your understanding.

Path risk is the problem with both strategies, namely you may lose all your money before you win the big one with Taleb, and you may be wiped out by Niederhoffer. So both Niederhoffer and Taleb base their investment theories on the mispricing of risk on average across the market, but must deal with highly volatile specific "game over" outcomes along the way to their expected (average) result. You pays your money and...

I'm quite sure there is more to the investment strategies of Taleb and Niederhoffer than Gladwell indicates. But I'm also glad to see the mainstream press attacking these issues in a lucid way.

Hey, Megan asked me what I thought.

UPDATE: Since there are some readers still bewitched by expected values and underappreciative of the distribution of potential outcomes, let me offer a few jokes to illustrate the point:

Two actuaries are out hunting. The dogs flush a grouse who flies directly over the happy duo. The first actuary fires and misses 10 feet to the left. The second actuary fires and misses 10 feet to the right. They look at each other, smile, high five and say "Direct Hit!"

An actuary has his head in an oven and his feet frozen in a block of ice. "On average", he says, "I feel pretty good!"

From the desk of Jane Galt:

Krugmanwatch will be up tomorrow.

Krugmanwatch will be up tomorrow. I feel a deep need to play some hard core fetch-n-tug with the Beast.

From the desk of Jane Galt:

So I've been sitting on

So I've been sitting on the WTC site for seven months now, and it occurred to me today that it no longer looks like a grave. And though I know that there is, as the book says, a time to kill, and a time to heal; a time to break down, and a time to build up, it still makes me sad that it now looks like nothing more than the largest construction site in the world.

Every so often those of us who came in that first week play a game of "Do you remember?"

Do you remember how you had to drive through six or seven checkpoints, manned by soldiers with real guns, to get to the site?

. . . how it looked that first week, that unimaginably high tower of smoking rubble looming up between the buildings every time you turned a corner? How awful it was to look at it for the first time? And even more awful was the fact that it didn't look real -- we'd already seen too many movies that looked just like this to believe it in our hearts.

. . . how we worked 16, 18, 20 hours a day, every day? (I had two other jobs that I had to keep up while I worked at the site. Everyone else just stayed there trying to get control of things.) We felt terribly guilty when we finally went home.

. . . how we couldn't spend any money for weeks, even if we wanted to? The best restaurants in New York, the Red Cross, and several dozen movie stars were lined up six deep to feed us.

. . . how the cops demanded photo badges every time they stopped us, only we didn't have any such thing, so we ended up making them by hand with stuff we bought from Staples?

. . . how long it took to straighten out the pay records of the swarms of men who showed up and worked, some of them three or four days without sleep, before we lost hope?

. . . how the men were fine as long as they were working, but as soon as they left work they'd want to get drunk to forget -- and they wouldn't forget; they'd end up drunk and sobbing hysterically on the floor of the bar. Which wasn't embarassing because everyone else was crying too.

. . . how the machine operators would warn us not to look down as we crossed the site because of what we might see.

. . . how we had our own private little park off the river where we could spend fifteen minutes eating lunch, because no one was allowed south of Houston street. How silent the streets were, away from the site.

. . . how we merrily ignored the traffic rules (there wasn't any traffic!), zipping up one-way streets the wrong way and driving our little gators all over Manhattan. And kept getting stopped on our way home for forgetting that you couldn't just look both ways and motor on through the red light.

. . . how the National Guard was camped in Battery Park. With, I believe, a tank. And a lot of very nice, very young people from the Midwest. It breaks your heart to think of them trying to storm some beach somewhere.

. . . how our hearts stopped when we heard about the Anthrax letters. . . how sure we were that we would be the first ones exposed.

. . . how wrong it seemed when they really started clearing away the wreckage. It just seemed too soon to take away the husks of the buildings and the debris -- as if we were forgetting what had happened there.

For weeks after it happened I didn't even believe it -- not really. I worked in that building for years, on and off, and just a week before I'd been to the observation deck for the first time with some visiting relatives. Two weeks before, my then-boyfriend and I had met in the Cortland Street station, bought a cake at the coffee shop/bakery near 1 WTC, and gone to a friend's house in Battery Park City for cocktails and dinner. I could see every inch of the plaza -- the J. Crew where I bought my favorite plaid skirt; the escalator I used to take to Building Seven to visit one of our clients; the Citibank where I once spent almost an hour getting rid of some con-artist who must have thought I was fresh off the boat from hicktown; the Sephora where I first tried my favorite perfume -- oh, just everything. If you didn't know the building, you don't know what I'm talking about; if you did, you too can probably walk those stores with me in your mind, picking up some little thing on the way to your train, or windowshopping to kill a little time before drinks at Moran's or Tall Ships or Windows on the World. You can see the open space where the little carts were, especially the one that made those ridiculously good salads -- right next to the escalator to the PATH train, which rode to a client every day during the height of the Asian meltdown. And that stops my heart, because right now my trailer is right next to the place where that escalator used to be, and it's a couple of walls and a deep hole in the ground. Right outside my window is the cofferdam they're building so they can repair it.

For weeks I walked around the site trying to appreciate it. I wanted, as in the movies, a single moment when it all came crashing over me and I finally understood in my heart all that had been lost. I never got it. I had many, many moments when I cried -- the worst was when I saw those thousands "Missing" flyers papering Union Square, and every single flyer had a picture of a victim on one of the happiest days of their lives, looking radiant and expectant and utterly unable to imagine the kind of tragedy that had ended their lives. The oddest was when I was riding on the subway one night, and I was tired, and after Fulton Street the conductor said "Next Stop, Chambers Street" and I wondered, for a split second, why he wasn't stopping at the World Trade Center -- and realized for the first time that nothing would ever, ever be the same again.

So I still haven't comprehended it, in the sense of the word that means to develop full understanding. But I keep having these moments, like when I realize that I am sitting in a trailer, in a hole that contains nothing but the absence of two buildings, and that entirely unfamiliar objects in my line of sight are in fact the skeleton of a place that I did not particularly love when it was still around, but which was part of the fabric of my every day.

And if I am saddened by the loss of a couple of tons of steel and concrete, I know that I cannot imagine the continuing grief of the families of the victims.

The cleanup is almost done. There's one pile of debris left on the south side of the site; the rest of the workers have turned from removing to rebuilding. The subway and the PATH trains will be reinstalled (better than the original, if you listen to the workers), and new buildings will go up, and we'll move on. But, morbid as it might seem, I hope that we'll keep reminding each other what it was like in those first days. Partly because we owe it to the dead, and partly because we owe it to the living. But also because those of us who were alive on September 11, 2001 joined the generations of history who saw their world destroyed in a single hour, and I wouldn't like us to forget how much changed in that little span of time.

UPDATE: A reader sends this picture. I can't think of any better memorial.

From the desk of Jane Galt:

Okay, guys, little lesson in

Okay, guys, little lesson in international manners. It's fine when you boo the other team for trying to get in the way of your team's overwhelmingly well-deserved victory. It's very, very rude when you boo the other team's national anthem. I don't care if the other countries do it -- you're not living in another country, you're living in this one, and as long as you do I'll expect you to keep a civil tongue in your head. We are raising you to be decent human beings, not British football fans.

From the desk of Jane Galt:

You've heard my views on

You've heard my views on Social Security -- now listen to my Dad's (it's a letter to the editor -- first one on the page. I think you should be able to read it without a subscription). His ideas are interesting -- and it's a side of the issue that's rarely examined by the media.

From the desk of Jane Galt:

The Sarge points out that

The Sarge points out that there isn't any historical Palestinian nation: we invented it. Sarge, I love it when you make me laugh.

From the desk of Mindles H. Dreck:

Culture of Victimology Goes Too Far, part 342

Investment News headlines a story on lottery winners as follows:

Lotteries cast winners adrift without tools to cope with life-altering check

I'm glad to see we are finally turning attention to the great harm done by thrusting millions of dollars on the unenlightened.

In related news, legislators are putting the final touches on an aid package for the unfairly disadvantaged people who are born "too good looking". "After all", says one sympathetic congressman, we can't just push these stunning individuals out into society without giving them the tools and counseling necessary to cope with the constant attention forced on them by their good looks."

As "Investment News" is geared towards money managers, you can imagine why they might spin this as a travesty, but aren't we looking a bit too hard for a victim?

From the desk of Mindles H. Dreck:

Fromages a Krugman

I have rarely seen so many column-inches devoted to a European election as today. The WSJ and Times each have several editorials and news columns devoted to the French Election results, and even USA Today is giving it full coverage.

If there weren't as many varieties of leftism in France as there are cheeses, this wouldn't have happened. plus ca change...

In one of the more moldy columns on the subject, Paul Krugman tries his hand at equating Republicans with Le Pen, starting with the "guess who I'm describing" cliche used by fulminating didacts everywhere:

A slightly left-of-center candidate runs for president. In a rational world he would win easily. After all, his party has been running the country, with great success: unemployment is down, economic growth has accelerated, the sense of malaise that prevailed under the previous administration has evaporated.

But everything goes wrong. His moderation becomes a liability; denouncing the candidate's pro-market stance, left-wing candidates — who have no chance of winning, but are engaged in politics as theater — draw off crucial support. The candidate, though by every indication a very good human being, is not a natural campaigner; he has, say critics, "a professorial style" that seems "condescending and humorless" to many voters.

Hmmm. How about a re-write:

A slightly left-of-center economist seeks to win the Nobel Prize by making grand macroeconomic predictions. In a world he would describe as rational he would have won long ago. After all, his predictions have had great success: Japan deflated, Argentina has devalued and the sense of malaise that prevailed among the non supply-siders had significantly abated. He moves to Princeton to mingle with other laureates.

But everything goes wrong. His partisan anger over a close election becomes a liability; he tries his hand at re-writing elections results, slandering administration appointees and engaging in pseudo-economic punditry as theater, drawing off crucial support. Still no Nobel prize, and now, no Pulitzer either.

The candidate, though by every indication a very good human being, is not a natural political writer; he has, say critics, "a professorial style" that seems "condescending and humorless" to his remaining readers. And he has spent little time actually learning about politics, administration bios or, for that matter the proper application of monetary policy in an oil shock....

From the desk of Jane Galt:

I'm sorry that I can't

I'm sorry that I can't link to this, because it's extremely interesting -- a piece on the Wall Street Journal editorial page (subscription only -- go get one; it's a great investment) which suggests that China's growth in the last decade looked more like 3.6% than 7.6%. In other words, the slumbering giant which was widely prophesied to shove us off our throne as the world's largest economy was growing slower than we were.

The culprit? A combination of fudging at the provincial level, more fudging at the central government, and crude technical analysis. Or so the Op-Ed writer alleges, since the real problem is that we still don't know what the hell their GDP is. The writer, a professor of Economics, bases his estimate on several key indicators, pointing out that China's stagnant consumption, rising unemployment, moribund rural economy, and vast overcapacity are not consistent with the patterns observed in the other Asian tigers. The problem is, of course, that none of the other Asian tigers started with the same level of massive Communist-style production, so it's hard to know whether that pattern should apply. If unemployment was previously kept to zero by forcing everyone to keep a job even if they didn't want it, it should rise, even in a madly growing economy, as frictional unemployment is allowed to grow to its natural rate. And so on. (That's an example, by the way, not to be taken as an actual condition of the Chinese economy, about which I know no more than any other reasonably attentive reader of the WSJ).

Anyway, this is a very interesting development, and all should watch closely to see what other numbers come out to confirm or refute this hypothesis. Economics aside, the balance of power in the world over the next half-century will be very much affected by it.

From the desk of Jane Galt:

Leave it to the French

Leave it to the French to take to the streets in protest against -- themselves. At least the plurality of themselves who voted for Le Pen.

Many people are spendfing a lot of time today telling us that the Le Pen vote doesn't mean anything, or is "just a fluke". They're completely missing the point, which is that it's hilarious.

Of course he's not going to actually get elected -- as far as I could tell, his entire potential voter base was the 16% that launched him into the runoff. If he had a shot at running the country, then maybe it wouldn't be funny. (Or maybe it would be funnier. Since I don't think he'd have much of a shot of enacting the psychotic part of his agenda). But given that we can be pretty sure that Chirac will win -- well, breathes there a man with heart so dead that he could view that picture of all those shocked and hurt French voters that graced the front page of the morning papers without laughing until his morning coffee spurted out his nose?

From the desk of Jane Galt:

So Matt Welch and Ken

So Matt Welch and Ken Layne are really going to do it. Blogland's finest. . . I'm so proud. And you know, guys, if you need a New York correspondant, I'm here. I mean, right here. In New York. Which is very far from LA, and thus exotic. Like me. An exotic, New York foreign correspondant. And I have my own computer.

From the desk of Jane Galt:

It's here! It's here! It's

It's here! It's here! It's finally here! It's. . .

The Nash Equilibrium and the Coase Theorem: Two Great Tastes that Taste Great Together

A reader sends in this request for clarification on two important concepts: the Nash Equilibrium, and the Coase Theorem, authored by, respectively, John Nash and Ronald Coase, and who says you don’t go into academia to become famous?

I think I must have missed your explanation of comparative advantage, but I think I followed your explanation of CAFE. Now, here's another challenge for you. What is the relationship between Nash equilibrium and the Coase Theorem? I ask because I have been told that Nash equilibrium concerns situations that wind up being stable because any change makes at least some people worse off, and the Coase Theorem concerns situations where property gets used in some particular way (the use of the property is stable, in other words), no matter who initially owns it--because otherwise at least some people are worse off. I figure that even if there is not much connection, when you show why I might actually come to some understanding of both of those concepts. Thanks. And I liked your comments on "Jurismania."

And since you asked no nicely, and flattered me outrageously, I shall attempt to answer.

The Nash Equilibrium actually demonstrates how certain situations arrive at equilibrium at the point where neither party can make themselves better off given what the other party is already doing. This can be illustrated by taking a very simple case. Say there are two executives of a firm - call it Ronin Enterprises - who have some bad information they don’t want investors to know about. If they can get to the end of the quarter without investors finding out, they think they’ll be fine.

Now let’s suppose that these executives - call them Ken and Jeff - have large chunks of stock in the company. If either of them sells this large chunk of stock, it will trigger an investigation into the financials of the company. Once investors find out about the financial problems, the stock will be worthless. Creditors will descend. Congress will convene an investigation. General havoc will ensue, possibly including a Larry King special. No one wants that.

However, if they can hold out to the end of the quarter, they think that the situation will reverse itself and they can both cash out for a tidy sum.

So if one of them sells now and the other doesn’t, whoever sells will make a lot of money, while the other person is wiped out along with a once-proud firm. If both of them sell, they’ll both be wiped out. And if neither of them sells now, they both make money. We can chart the various possible outcomes like this (numbers are purely arbitrary and not meant to hold any relation to actual values of such stock as may have been held by any pair of executives named Ken and Jeff):

As you can see, if they both sell, it's a disaster. The best thing for all concerned -- the outcome that maximizes overall value -- is for both of them to hold their stock until the analysts go back to sleep.

But that's not what's going to happen.

Let's look at why. Let's say they both start out committed to not selling. In that case, they each get a return of 100 on their stock. 100 what? I hear you say. Millions of dollars, coupons good for one large soda with any purchase of a Superburger and Cross-cut Spicy Fries at Burger Boy -- it doesn't really matter 100 what. It's a model.

Anyway, so there they are, each grimly determined to sit on their stock and take their 100 when the time comes.

But then one of them notices that if he sells now, he could clear 200 soda coupons instead of 100. The little devil sitting on his shoulder says "Go ahead -- it's a dog-eat-dog world out there. You've got to look out for #1."

Perhaps at first he's committed to staying the course. But pretty soon all he can think about is those extra hundred sodas he could be drinking. His every waking moment is dominated by feverish images of all that sugary goodness pouring down some drain somewhere instead of into his throat.

And then the little devil speaks up. "Hey, Jeff," it says. "What if Ken sells?"

Jeff thinks about that. If Ken sells, he doesn't just lose those 100 extra sodas -- he loses the hundred he's already got. In fact, he's going to owe his investors an extra 300 sodas. He'll be working at Burger Boy for years to pay them all off. And they won't even let him work the Fry-O-Lator until he's been there for six months.

'Nuff said. Jeff sells like ice cream in August.

Now let's look at Ken's position. Maybe he was honorably determined to hold his stock until the deadline; maybe he was planning to do unto Jeff as Jeff just did unto him, only Jeff was a little quicker off the mark. Doesn't matter, because no matter what his intentions were, Ken is now looking at a long stretch down at Burger Boy making sodas for Jeff.

Now remember, while it might be better for him to pull them back to the position where both aren't selling, he can't do that -- only Jeff can choose whether or not Jeff sells. And given that Jeff is selling, there's only one thing that Ken can do to improve his position.

Ken sells too.

Now they're both down at Burger Boy getting fitted for paper hats. Ken's term before he pays off his debt is slightly shortened, at the expense of an equally long term for Jeff. Notice that this is the outcome that minimizes value; the total value of this outcome to the two participants is -500, versus -100 if one sells and one doesn't, and +200 if they both hold on.

It's also what's known as the Nash Equilibrium. It is the only outcome where neither participant can better their position by changing what he himself is already doing, given what the other participant is already doing.

Now let's travel six months forward in time, when Ken and Jeff are settling down to their new home at the Winnemaka State Correctional Facility. Unaware of the lingering resentments stemming from their stock market contretemps, the warden makes them roommates. And as they are unpacking, Jeff tries to leaven the dark mood in the cell by pulling out his portable turntable and playing one of his classic big band records.

Well, if there's anything that Ken hates more than double-crossing, back-stabbing business partners, it's big band music. The sound of clarinet music, frankly, makes him break out in hives. And there on the other side of the cell is Jeff, unpacking a couple of cubic feet of Ella Fitzgerald, Benny Goodman, and Duke Ellington. Let's just say that things are a little tense as the first bars of "Sing! Sing! Sing!" float through the reinforced-concrete halls of Cell Block C.

Now say that Ken, upon demanding to see the warden, finds that Jeff has a perfect right to listen to his big band records between the hours of 8 am and 8 pm, according to prison rules. Stone walls may not a prison make, but Jeff is allowed to transport Ken to his own personal vision of hell for 12 hours a day, and there is nothing he can do about it.

Or can he? Let us imagine that Ken's wife, in whom all of his non-stock wealth was vested, has lavishly funded his account at the prison commissary to the tune of $1000. It occurs to Ken, being the smooth-wheeler dealer that he is, that, much as it galls him to do so, he could pay Jeff not to play his music.

Now, we're told time and time again that such things as music are priceless, but this is not true, as you will find out very quickly if you attempt to take some from Tower Records without paying. If you'll follow the simple excercise below, you'll find that sooner or later, we can put a price on just about anything.

Think of something you hate, something you'd never, ever do, like -- eating a bug. Would you do it if I paid you a dollar? No, you say? Never? How about if I paid you a billion dollars? $1,000,0000,000 in the bank just for eating one, harmless little bug. A billion dollars could buy a lot of therapy. Now open up and let batman fly into the cave. . .

Most things, even silence, can be bought -- if the price is high enough.

So let's imagine that Jeff, although devoted to swing, is also devoted to Mars bars, his supply of which is inadequate due to a stingy wife. He realizes, privately, that for as little as $600 he would be willing to give up his swing records and content himself with the sound of roasted peanuts wrapped in luscious caramel and creamy milk chocolate crunchiing between his teeth.

Ken, on the other hand, just quit smoking and went on the Atkins diet. He'd be more than willing to fork over his entire commissary account for the privilege of not listening to one more rendition of "Chattanooga Choo-Choo".

What's the solution? Obviously Ken pays Jeff some sum between $600 and $1000 -- how much is a matter of negotiation between the two of them -- and the cell echoes with golden silence.

But what if Jeff didn't have the right to listen to his music? What if rather than saying that all inmates could listen to music from 8-8, the warden had said that they could do so only if they got their cellmate's permission? Suddenly Ken has all the power. What would the outcome be?

The outcome would be the same -- silence. Jeff isn't willing to pay Ken enough to be allowed to listen to Ella and Benny.

That's the heart of the Coase Theorem: regardless of who has the rights, common areas will end up being put to the highest-valued use.

Suddenly you're a little confused. What do you mean by highest valued? Jeff values his use of the common space to listen to music at $599 (the most, we assume, that he would be willing to pay to hear his music, given that he will sell his right to do so for $600), while Ken values his use, not listening to music at $1000. Silence wins because in the marketplace of the cell, with these two consumers, it has a higher value ($1000) than music ($599). And where there is a market for rights, the highest valued allocation of those rights wins.

Another way to look at it is to think of the right to pollute (in the broadest possible sense) as an asset. It doesn't matter who initially owns the asset; it will end up with the person who values it the most.

That's the beauty of the Coase Theorem. Think of any situation with conflicting rights: the environment, noise pollution, the right not to see leather pants on those who don't have the kind of body that makes leather pants attractive. It doesn't matter whether the polluter (chemical, noise, or visual) has the right to pollute, or you have the right not to be polluted; the outcome will be the same, because whoever values their outcome more will invariably win. It's a revolutionary idea.

It's also simplistic, as all revolutionary ideas are. For one thing, it assumes that there are no transaction costs, which is to say the costs, monetary and non-monetary, associated with doing a transaction on top of the fee exchanged. Let's take a form of negative externality with which we're all familiar: spam. I find spam so annoying that I would probably be willing to pay some amount of money to be left alone. But in order to do that I would have to find all the spammers and pay each of them to leave me alone, which might push my costs, in time and money, much higher than I would be willing to pay just to be free of daily exhortations to lose weight, grow hair, or sample the brand-new webcams of Barely Legal Teenage Girls.

It also assumes perfect enforcement. I might pay all those spammers just to find that they've moved their servers to Taiwan, changed their names by one letter, and resumed their torrent of unwanted invitations.

And it assumes that you're allowed to make a market. Much as I dislike the kid next door dealing crack in the yard, I might be willing to live with it for a percentage of the take. But the cops take a dim view of this sort of thing. And the EPA won't let me take money to let International Paper dump dioxins in my percentage of the water table.

Nor does it cope with the justice of the allocation of rights -- should I have to pay not to have some old fogey blasting "Rum and Coca Cola" into my ears at all hours? And conversely, shouldn't I be able to enjoy a little music now and again? Coase only tells us how things will be allocated; not, in some metaphysical way, how they should. That's worrysome, if you're the type of person who seeks metaphysical justice from the law.

Nonetheless, the Coase Theorem has changed the way economists view property rights and externalities sufficiently for them to give him a Nobel Prize for it. And well deserved, if you want my opinion, which I'm pretty sure nobody does.

So that is the Nash Equilibrium and the Coase Theorem. And to answer your question, gentle reader, there's really not much relationship between them, except that they're both named after Nobel Laureates, and they're both really cool. And, of course, that hopefully you now understand both of them.

From the desk of Jane Galt:

H.D. Miller says the solution

H.D. Miller says the solution for academic historians is to . . . quit whining and get a job.

From the desk of Mindles H. Dreck:

Terrorist Winter

click here to see the view from my office window on September 11 after the North Tower collapsed. Remember that it was a clear sunny day. The shapes are reflections from inside.

The picture was taken by a colleague.

From the desk of Mindles H. Dreck:

Uncharacteristic Entertainment Post

I have been meaning to say that I recommend you see "Monsoon Wedding" as soon as possible. See it in a theatre with a good sound system, so the music can drag you into the party atmosphere. It's been a long, long time since I had so much fun at the movies.

After you see it, you'll want the soundtrack. The composer says in the liner notes how he loves living in a time when it's "cool to be Indian." You will probably agree.

From the desk of Mindles H. Dreck:

Al Gore, Republican Double Agent

"Everybody tighten your belt" is not a powerful rallying cry. Telling everybody how much pain they are going to share is a hard way to get elected to the school board, let alone the Presidency. If you were trying to motivate a room full of unreformed alcoholics, would you start by describing withdrawal?

Gore comes out sighing in today's New York Times, accusing the administration of rejecting CAFE and Kyoto because of their allegiance to corporate interests. He also demonstrates that he's against energy in almost any presently affordable form - coal, oil or nuclear:

Instead, this administration's so-called Clean Skies initiative actually increases air pollution levels by allowing more toxic mercury, nitrogen oxide and sulfur emissions than does current law.... this administration is now investing less in energy innovation and conservation and more in corporate subsidies for oil exploration and extraction and nuclear power.

He also boosts the fortunes of junk scientists everywhere, blaming global warming (which, you will recall, forecasts a 0.5 to 1.5 degree average temperature increase over the next 50 to 100 years, depending on whom you believe) for the recent ice breakage in Antartica and April's "Bikinis in Boston." Never mind that the Larsen Shelf may have broken because of cooler temperatures refreezing melted fissures.

To be fair, he tries to dress this up as leadership:

We can return to the path of progress, on which we value economic growth that rewards innovation and productivity and meets the needs of our families and of national security. We can return to the days of record growth coupled with record improvement in the air we breathe. We can return to true leadership on the environment.

But "returning to the days of.." isn't the most progressive sounding riff, is it?

Gore describes himself as a "respectful steward". The Democrats don't need a steward, they need a leader that can describe a vision of the future that isn't all sacrifice and central control. Otherwise, they are stuck with a candidate who's...against bikinis in April. As Bugs Bunny says, what a moroon!

From the desk of Jane Galt:

If you like my banner,

If you like my banner, you're going to love this. And if you don't like that one, you probably like this one.

From the desk of Jane Galt:

If I can't find a

If I can't find a job doing anything else, James Rummel has a sure-fire way to get a job at Harvard.

From the desk of Jane Galt:

I just had to link

I just had to link to this post from No Watermelons Allowed. Here's why:

You look radiant tonight. You always do, as long as your body temperature is above absolute zero. You're radioactive too, but that's another post.

Anyone who's ever dated a scientist or an engineer knows exactly what I'm talking about. Go read it.

From the desk of Jane Galt:

Remember the Horowitz Poll? Well,

Remember the Horowitz Poll?

Well, now we have the Nunberg study. And I sense that I'm about to wade back into the hot water.

Edward Boyd has disputed the numbers that Nunberg generated, which purport to demonstrate that the media is actually biased against liberals. (Nunberg -- isn't that a great name? It generates images of clean, bare streets filled with hurrying figures in black, the air rent with the sound of clacking rosary beads. I bet he got a lot of flack when he was in grammar school. I'm in sympathy -- Reagan Argle-Bargle isn't the worst thing I've been called, by a long shot. But I digress.)

Myself, I don't doubt his numbers. It's his methodology I'm worried about. I don't know much about linguistics methods, so maybe I'm out on a limb here, but to this non-professional-statistician, it doesn't seem very useful.

Initially, Nunberg took 10 pols -- 5 from the left and 5 from the right -- and looked to see how often the lefties were labeled conservative while the righties were labeled liberal. (Oops -- that would be an interesting study, but the data might be a little weird. Scratch that and reverse it.):

On the liberal side were Senators Barbara Boxer, Paul Wellstone, Tom Harkin, and Ted Kennedy, and Representative Barney Frank, all with lifetime Americans for Democratic Action (ADA) ratings greater than 90 percent. On the conservative side were Senators Trent Lott and Jesse Helms, Attorney General John Ashcroft, and Representatives Dick Armey and Tom DeLay, all with lifetime ADA averages less than 15 percent. Then I looked to see how often each of those names occurred within seven words of "liberal" or "conservative," whichever was appropriate, a test that picks out ascriptions of political views with better than 85 percent accuracy.

This has a few problems. Nunberg identifies one of them:

It could be, of course, that the figures for people like Lott, DeLay, and Armey were skewed by the fact that they have leadership titles that might take the place of partisan labels in many stories. But the pattern is the same for other legislators. Substitute Richard Shelby or Strom Thurmond in the conservative group and the score for the group goes up a bit; substitute Jeff Sessions or Mitch McConnell and it goes down. Ditto the liberals -- inserting Ron Dellums would raise their score, inserting Nancy Pelosi would lower it

That's not a little error to introduce. By my count, four out of five of those Republicans have such titles, while Jesse Helms was until quite recently the chair of an important committee, the citing of which could easily push a conservative label out of reach of the search engine, especially since it was usually as a committee chair that Jesse Helms said something -- er -- quotable. So at least 80% of the Republican sample is prone to errors created by "Trent Lott, the Republican Senate Majority Leader who is well-known for his extreme conservative views". Obviously, the Dems could be prone to the same problem, except that they aren't the leadership, and the only one with a powerful committee chair is Ted Kennedy, who, as they say, needs no introduction.

Which means that by my (admittedly off-the-cuff) reading, 80-100% of the Republicans are prone to undersampling for this reason, vs. 0% of the Dems. Switching one member of those samples won't correct the discrepancy -- it would take at least two on each side. An easier way to control for the effect would be to extend the range to 12 words or some such, but Nunberg didn't do it -- possibly it would put too much of a strain on the search engine, or the feature isn't available. I don't have access to those 'spensive premium services since I graduated. Would it make a difference? I have no idea -- the only way to find out is to do the search.

More worrying is that he uses 10 people in 10 papers. It's too small a sample. It uses only one word (in his rebuttal of Boyd he extended the search a little, but it's still 2 or 3 words. Go read the papers and see if you can't find more labels than that in the first 10 minutes.). If you want to get good data this way, you have to cast a wide net -- otherwise it's too probable that you missed something.

Then there's the stuff that's -- well -- biased. Like what he says about interest groups:

Goldberg's other number involves one of those specious comparisons that critics of liberal media bias are prone to. In this case, he points out that "the Los Angeles Times ran only 98 stories about the Concerned Women for America and identified the group as conservative 28 times. But The LA Times ran more than 1,000 stories on the National Organization for Women and labeled NOW liberal only seven times."

But that's meretricious, in every sense of the term. Concerned Women of America is a self-identified conservative Christian group (it opposes, among other things, abortion, homosexual adoption, hate-crime legislation, the AmeriCorps volunteer program, and the teaching of "ill-conceived Darwinian theory" in the schools). Whereas NOW makes a point of rejecting explicitly partisan labels -- the appropriate description of the group is "feminist." To insist on labeling it as liberal would be to assume that to be pro-choice makes you by definition a liberal, by which criterion Goldberg ought to be equally indignant that the press doesn't use the "liberal" label for Christine Todd Whitman or Tom Ridge.

Ummm. . . I realize that Nunberg is writing for the American Prospect. But does he really think that the reason that conservatives call NOW liberal is that the organization is [insert whatever term you use to refer to those in favor of abortion rights; I can't take any more emails on the subject]? As opposed to the fact that they call for quasi-socialist economic reforms, for example? Or make strident public demands about how their membership should vote (when I was a member, we were of course free to choose our own path -- as long as that path was not Republican). So CWA is obviously conservative because "it opposes, among other things, abortion, homosexual adoption, hate-crime legislation, the AmeriCorps volunteer program, and the teaching of "ill-conceived Darwinian theory" in the schools". NOW is in favor of all those things --doesn't that make them liberal? Does NOW buy fundraising mailing lists off the Republican party or the National Review? You know the answer -- of course not, because NOW is liberal. Which is fine. But c'mon -- arguing about this only plays to those who think that Joe Lieberman's a conservative.

All of the examples are like this. He takes one position held by the group that isn't part of the DNC platform, such as the Sierra Club's flirtation with ZPG. He compares think-tanks like CATO, which are at odds with probably half or more of the RNC platform, and compares them to quasi-marxists like the Center for Justice in order to generate disproportionate labeling of the lefties, rather than comparing them with the social conservatives who are far more likely to draw the media's ire. Then there's one part that just confuses me:

Goldberg has made a speciality of risible comparisons like this one -- in Bias , he complains that the media routinely label Rush Limbaugh as a conservative talk show host, but don't label Rosie O'Donnell as a liberal TV talk show host. I mean, Rosie O'Donnell?? A serious critic would have chosen an example better suited to making the point -- comparing Limbaugh to someone like Michael Kinsley or James Carville, say.

I have no idea what the problem with Rosie O'Donnell is. I think they're quite comparable. They've both got large audiences, both of them run talk shows, both of them are pretty politically extreme (although O'Donnell's liberalism is a suburban, rich-person, polite kind of redistributionism), and I can't stand either one of them, at least in their incarnation as talk-show hosts. Neither Kinsely nore Carville, as far as I am aware, has a talk show. But I don't watch a lot of TV, and I don't own a radio.

Anyway, this is just carping -- except that saying that groups like the Sierra Club and NOW aren't liberal, and therefore there's no point in investigating any differential treatment, allows a fine bit of data mining. To wit, he leaves out of the sample all the groups where journalists get the data they put in the articles. How those groups get labeled is very important to how readers perceive that data. If we're told that "an environmental group" gave us one study, and "a right-wing activist" gave us the other study, it affects how we weigh the data. I have no idea whether Nunberg is not investigating more pols and interest groups in his sample because he suspects that his results wouldn't be to his liking, or because he can't afford it in time or money, or because it would be a pain in the tuchus. Whatever the reason, we've been given a small sample of pols hand-selected by Nunberg, on which is tested a limited number of variables, and we're told -- presto! -- there's no media bias.

Now, as I said when I was talking about the Horowitz Poll, I don't know whether there's media bias, or bias in the Academy. I suspect -- but I don't have data. So I don't know.

And after reading Nunberg's article, I still don't.

From the desk of Jane Galt:

Steve Kuhn says that those

Steve Kuhn says that those professional sports team owners are clearly a bunch of commie symps bent on undermining Our American Way of Life.

From the desk of Jane Galt:

So I've been thinking about

So I've been thinking about Venezuela's failed coup, though admittedly not very hard. And it strikes me that those who are trying to hang this one on the Bush administration aren't looking too closely at their own logic.

Now, I was a little surprised to see people on what I think of as my side of the political spectrum cheering a military coup, though as it was explained to me, they didn't support it because Chavez was a leftist, but because Chavez had indicated that he wasn't going to do any kind of democratic responding to the will of the people -- he was el Presidente, and they could kiss his proto-communist derriere. I will not comment on the correctness of this position, because I have insufficient data. But in general, Live from the WTC's editorial position on military coups is firmly against.

On the other hand, when what I generally think of as the other side of the political spectrum starts trying to hang this one on Bush, I equally suspect that politics are getting in the way of core values. Now, looking at what the Bush administration is being accused of, it is not of fomenting the coup; it's of green-lighting it. But what was the alternative? It's not like Chavez didn't know it was coming; it's just that the political breakdown made him powerless to act. So we coldn't even help the current government by informing Chavez of the danger. The only thing we could have done was sent military support. Which, of course, is precisely what the people who are screaming about the Bush government's aggressive foreign policy are against, at least when the elected government supports us. So I guess we're only supposed to intervene when it will hurt our interests. Now that's a winning foreign policy.

From the desk of Jane Galt:

From the Wall Street Journal:

From the Wall Street Journal:

Argentina Suspends Bank of Nova Scotia

Bank of Nova Scotia said Friday Argentina's central bank has suspended the operations of its Scotiabank Quilmes unit following the central bank's decision not to provide additional liquidity to the unit. Scotiabank Quilmes said in a written statement late Thursday it "lamented" the central bank's decision. In a news release Friday, Bank of Nova Scotia said, "The severe economic conditions and liquidity problems in the Argentine banking system and the inability of Scotiabank Quilmes to secure additional liquidity from the central bank have resulted in this announcement." The bank said it will provide support to the government "to help ensure this situation is dealt with properly, including maximizing returns to creditors and depositors, and safeguarding the interests of employees." The bank said it is fully provisioned in terms of exposure to Quilmes and therefore expects this latest move "will have no material financial impact." Argentina's central bank wants Scotiabank Quilmes to present a recapitalization plan by May 18. The central bank also said that, while most of Scotiabank Quilmes' operations will be suspended, clients can continue to use their credit cards and deposit and withdraw their monthly paychecks or their pension payments.

So Argentina is suspending the Bank of Nova Scotia for refusing to keep pouring money down the hole of Argentina's capital regime. I'm pretty sure that the Bank of Nova Scotia isn't heartbroken over this turn of events; I think it likely that other foreign banks will follow, causing a wave of bank failures that could touch off a bank run and drive the rest of Argentina's capital markets into further ruin. Which is why the government is currently trying to prevent people from withdrawing their money by fiat, which works by freezing Argentina's capital system in place -- which is to say that it works only until something changes, or the political pressure to let people at their money becomes too great, which is to say that it doesn't work for very long.

So Argentina has essentially destroyed their capital markets. The way they chose to devalue put most of the initial pain on the banks, by making them convert their loans and deposits at an artificially unfavorable exchange rate, and making up the capital deficits with special government bonds that are worth about as much as -- well, as other Argentinian government bonds, which is to say nothing. This spared the government the temporary political pain of telling the nation that everyone's savings were suddenly worth quite a bit less, but it guaranteed that the banking system and capital markets would bleed to death. The banks are undercapitalized, and no one in their right minds would pour any more money into the system -- except for the government, which doesn't have any more money to give. FDR got the capital to reconstruct our banking system with hog-wild government borrowing and raising taxes on the wealthy. Argentina can't borrow any money because no one's crazy enough to lend it any; and its tax rates are already very high, and raising them further would just do worse things to the economy. Plus no one in Argentina pays their taxes anyway, so why bother? In other words, the government is between the proverbial rock and the hard place. A very hard place.

Don't get me wrong; I don't think I would have done any better. The situation was politically impossible; any solution that would have worked economically would have caused the government to fall. But the result now is that their capital markets may not return for a decade or more. The collapse of the world economy and the internet bubble at the same time has left little taste in American banks for the speculative risk assessments that allowed such lavish capital influx into Latin America during the 1970's through the 1990's. With Argentina and Venezuela puncturing the illusion that Latin America had finally goten religion on the stable democracy thing, the banks will not soon forgive either country their excesses.

So who can help? The IMF? I'm not clear on what the IMF could actually do -- the banking system is only surviving now on the capital influx from foreign banks that is about to stop. The usually prescribed solution is fiscal austerity combined with slowly reinflating the money supply while restoring the salvageable banks to solvency. But the capital contraction, ironically, is combined with partly-expectation driven inflation, so inflating the money supply won't help things. Now usually inflation helps bad banking problems, because it keeps the borrowers solvent by eroding the value of their loans so that they can meet their payments. Except that the inflationary expectations in Argentina are of hyperinflation, which makes depositors want to withdraw their money and stick it into something more valuable. Like, say, changing it into singles and using it to economize on Kleenex. When the depositors withdraw their money, the banks fail, and all hell breaks loose. The IMF doesn't have enough money to stop a bank run that's cause by hyperinflationary expectations, rather than panic.

Normal bank runs are caused when people start to fear, rationally or not, that the bank won't have enough money to pay them off, so they run to get their money out while they can. If the bank has access to sufficient short term capital, it can pay off all the depositors who show up, which proves to the other depositors on the eighteen-block line that there's enough money there, so they get bored and go home. Meanwhile, after a few days the people who do take their money out realize that it makes an uncomfortable lump in the mattress, so they dig it out and take it back to the bank. Then the bank pays off its short term lender and everyone's happy.

A bank run caused by hyperinflationary prospects, on the other hand, is a product of the perfectly rational decision to transfer your savings into hard assets or other currencies in order to avoid having them eroded by inflation. In this case, the depositors will draw out as much as you pump in and the banks will still fail.

And any fiscal austerity program will run the same risk of riots that gave rise to the original stupid devaluation plan.

So I don't know what can be done. I don't think anyone does, because I have yet to see a single coherent plan for fixing Argentina, except for the WSJ's wacky, but beautifully simple, plan to dollarize the economy.

But at least Paul Krugman has something to write about besides the Bush Administraion.

From the desk of Jane Galt:

The interim CEO of Enron

The interim CEO of Enron is resigning "for the good of the company"

McMahon, 41, said he decided his resignation was necessary to help ensure Enron's successful reorganization into a mover of electricity and natural gas.

"I strongly believe that the best course for the Enron estate, its creditors and its employees is to use our core pipeline and electricity assets to create a new company apart from the litigation and diversions of bankruptcy," McMahon said.

"For that effort to have every chance of success, it became clear that outside leadership is required."

Now, which seems more likely: that McMahon thinks that the company and the shareholders will be better off if the CEO suddenly resigns in teh middle of a reorganization without a replacement in sight; or McMahon is running for the hills in the hope that people will forget that he was ever associated with this disaster? You decide.

From the desk of Jane Galt:

So why the hell is

So why the hell is Sgt. Stryker going around telling us he can't write and he's run out of things to say?

From the desk of Jane Galt:

Boy am I tired! Well,

Boy am I tired!

Well, aside from finding out that I have a doppelganger, I had an amazing time seeing the bloggers from the first bash -- the Illuminated Donkey, Nick Marsala, Amy Langfield (and her husband, who was most charming when I revealed my utter ignorance of his exalted position), and Raghu

I got to meet others whose blogs I read: the incomparable Walter Olsen, who was kind enough to donate much of his time to explaining the ins and outs of the legal aspects of an article I'm writing; Ravenwolf, who is as interesting in person as she is on the web, although I didn't get enough time to talk to almost anyone; Dr. Weevil, the arch-villain at the center of the Axis of Weevil; intrepid law student Lane McFadden; Orchid, who has the mind of a zillion-year old Zen monk in the body of a 23-year old hummingbird. . . oh, goodness, I'm so tired I can't even remember everyone I met, so if I've left you out, just drop me a note and remind me. Unlike some people I could name (the ones who kept me up long past my bedtime), I had to work today. Oh, and don't forget the newbies, like Steve Kuhn, who everyone has to read not only because he's interesting, but also because he does things like buying pizza for all the bloggers; Avram Grumer, who is new to me, anyway, and very smart and very interesting; the Political Hobbyist, who taught me a thing or two about Enron; and others I know I'm forgetting.

I wish I had been as charming as all the other bloggers -- I've spent a week almost entirely by myself in an echoing trailer and I'm afraid I was so overwhelmed by the experience of having real live people to talk to and real live drinks that I wouldn't let anyone else get a word in edgewise. But I hope they'll forgive me because it was so much fun. I feel rather like I just got off a roller coaster -- whee! Let's do it again RIGHT NOW!!! Which is Lane McFadden's job, and don't think we'll forget, either. To top this he's going to have to get Our Fearless Leader to come.

From the desk of Mindles H. Dreck:

Returned

It feels good to be home and see the family*. But I am so pleased to have met so many members of the West Coast blogging/journalism community! Anybody who suggests this is an antisocial activity really hasn't figured it out. The LA bloggers are a fun crew to hang out with, and certainly a change from my work life and suburban community.

I was thrilled to meet Virginia, and spotted only one weakness in the formidable Postrel armor - she refuses to believe that she looks like she has red hair in this picture:

Right. Well, she's blond in person, wears anything but "sensible shoes" (Ahem, Vodkaman) and brings along an interesting and funny husband Steve ("I'm not just here to carry the books") Postrel to boot.

Nobody made fun of the other Steve (Happyfunpundit) for his diminutive stature, except when he caused a total eclipse of the sun. I'm 6'3", so I'm not accustomed to being eye-to-eye with a leather jacket. Perhaps his size is an indication of his bottomless capacity for satire.

Matt, Emmanuelle and Ken, however, were really just as I pictured them (well, the pictures help). I suspect Ken, who looks fantastic in a tie, will not remember how he got my business card and wonder about the scrawl on it. Hey kids, get outta my yard!

Eugene Volokh comes closest to staying in blog mode in person. He constantly questions and theorizes in a socratic, law-prof. fashion. He cornered me after I'd had a few of those deadly margaritas, pursuing the evolutionary rationale of homosexuality. There's a mine field of a topic. Liquor causes my internal censors to just shut the mouth down, as it can't be trusted. I fear I failed to provide the requisite intellectual stimulation and he moved on. Nuts.

Kaus shook my hand during the blogger photo shoot, clearly wondering who on earth I was. Same for Scott Rubush. Ben Sullivan welcomed me like a long lost...lacrosse teammate. Despite my lack of baseball bona fides, Tony Pierce was able to treat me as a friend, for which I am truly grateful.

I've found that most everyone is more gentle in person than they are in print. Rand Simberg, whose name is to "redoubtable" as "gall" is to "unmitigated", is an attentive listener and quietly thoughtful conversationalist. I can say the same for MTZ first-linker Matt Welch and his wife, with whom I was able to grab some time the following night. I am expecially grateful to make the acquaintance of the optimistic and sincere Welch/Richard duo. You'll never meet better.

I am no closer to isolating the elusive blogger gene, however.

Those who moan about the deterioration of Western culture have not met the bloggers.

*Perhaps, Ken, I was less hungover than 3000 miles from home!

From the desk of Jane Galt:

Take that, anti-globos!

Take that, anti-globos!

From the desk of Jane Galt:

Blogfest rocked! Among the many

Blogfest rocked! Among the many exciting revelations -- Asparagirl and I are actually the same person, except she's five years younger. I've always wanted a doppelganger. . .

From the desk of Jane Galt:

There's an interview with a

There's an interview with a guy working for the RIAA side of the Supreme Court suit who says that the case poses serious constitutional issues about whether the court is justified in review, or is engaging in some activism. THat part is compelling.

His defense of the extended copyright terms (from 50 to 70 years after an author's death for private owners; from 75 to 95 years for corporations) isn't.

Putting aside the possible legal dangers of a broad Court decision, how do you think an Eldred victory in the Supreme Court would affect the world of ideas? What are the larger cultural dangers?

There will be fewer derivative works prepared from existing works, because there's much more of an incentive to create a derivative work if you can get an exclusive right from the copyright holder.

There would also be much less incentive to prepare new works. This is difficult to show empirically, but the congressional decision was [designed] to enlarge the period of copyright so that authors would have more incentive to create their works than they had before. It is difficult to show this empirically, but X years from now there will be more works prepared. This is consistent with the congressional viewpoint of the past 200 years.

That just can't be right.

Here's why:

You may remember a while back that I talked about discounting. Discounting is the financial calculation we perform to represent tomorrow's dollars in terms of todays. Now, for many reasons, a dollar today is worth more than that same dollar tomorrow: not only because of inflation, but because of the added risk that you might not get it, and because we are a species that does not like delayed gratification. Now, obviously the farther away that dollar is, the less it's worth.

Choosing an (extremely!) conservative discount rate of 5%, and assuming (totally incorrectly) that payments later will be worth as much as payments today (Mickey Mouse aside, most copyrighted works earn most of their money in the first few years they're out), and also assuming that authors die the day after they copyright their works (to give the most generous possible weight to those future payments), we can still see that this argument is ridiculous. Go look at the little table I made.

As you can see, this guy is arguing that private people would, in the ideal circumstances of a vanishingly low discount, and continuing payments at the same high level as their beginning earnings, make their decisions based on a marginal $117.40 instead of the $1816.87 they earned under the old terms, while corporations would fail to innovate because they wouldn't get an extra $33.70 on top of the $1945.92 they earned under the old system. Maybe there's one guy who really needs that hundred dollars 70 years after he's dead, but the rest of us will keep doing what we're doing, thanks.

From the desk of Jane Galt:

"Impress women!!! Gain 1-3 inches

"Impress women!!! Gain 1-3 inches NOW?"

Why would women be more impressed if I were 6'5 -- and why would I want them to be?

From the desk of Jane Galt:

There's a new study saying

There's a new study saying that power plants in the Ohio Valley are/will cause 6,000 additional annual deaths. However, there is no mention of how many additional deaths we'd get by cutting off power to all the people served by the plants.

From the desk of Jane Galt:

So Neale thinks that donating

So Neale thinks that donating to my tip jar is taking money away from the WTC victims.

Of course, you have to discount the fact that I have a tip jar, and am therefore prejudiced in favor of donations. Nonetheless:

First of all, as to profiteering, my monthly take from the tip jar works out to an hourly wage considerably less than that of the Bangladeshi garment workers who send all those people with too much body hair and too few inches of clothing with which to cover it into a tizzy.

Second of all, honestly, the WTC victims families don't need it. They're each going to get over a million dollars, tax free, which is either vastly more than the earnings power of the person they lost (not that I am trying to put a price on losing a loved one -- but that's not what the money is for. It's to help those devastated by the financial repercussions of losing that loved one, not to repay them for the loss of someone that no amount of money can replace) or less than the earnings power of the person they lost, in which case they don't need our help. All the money we donated is now helping such "victims" as residents of Tribeca who were traumatized by the event.

Now, of course I like getting tips. First of all, I'm addicted to three meals a day, and my loan officer likes to get a check each and every month. And second of all, it tells me that someone likes what I do enough to say "thanks" with some cold, hard cash. There is no higher compliment than to have someone give you money that they don't have to give because they value what you do.

But if you don't want to give me money -- if you think it's crass, or whatever -- don't give it to WTC relief. Find a charity that does something you like -- my personal choice is this private school voucher charity -- do your homework to make sure that the money goes where you think it goes, that it actually achieves what the charity claims it achieves, and that no more than 20-25% goes to administrative overhead. We owe it to the WTC families to honor their dead and remember forever their suffering. But we do not owe them any more money.

From the desk of Jane Galt:

Max Power asks what's your

Max Power asks what's your Sullivan number? I think mine's three. But then you know us MBA's -- we don't count so good.

From the desk of Jane Galt:

Steven Green is quoting Dorothy

Steven Green is quoting Dorothy Parker for poetry Wednesdays. Since I spent most of my college years plagued by the delusion that I could become the next Dorothy Parker (any college girls out there who may still be under this delusion, take note: not unless you're short, Jewish, and alchoholic. Also note that the closer you get to dying tragically alone, the less romantic this seems.) I feel that he is tramping on my turf. You don't see Jane Galt swapping margarita recipes, now do you?

Coda

There's little in taking or giving,
There's little in water or wine;
This living, this living, this living
Was never a project of mine.
Oh, hard is the struggle, and sparse is
The gain of the one at the top,
For art is a form of catharsis,
And love is a permanent flop,
And work is the province of cattle,
And rest's for a clam in a shell,
So I'm thinking of throwing the battle-
Would you kindly direct me to hell?

From the desk of Jane Galt:

So I get home from

So I get home from a long day at the construction site, and I hang up my hardhat and take off my boots, and log on to check my email. The first thing to greet me is a note from someone named zzzzlphyskkx wanting to know "WHY ARE YOU STILL LOOKING AT OUTDATED PORN?!"

All I want to know is, where the hell does someone named zzzzlphyskkx get the gall to criticize my taste in pornography?

From the desk of Mindles H. Dreck:

Off to La-La Land

I am flying to the West Coast today, and cannot attend the Friday night NY-area blogger bash.

However, rumor has it there is a West Coast gathering I can crash, and several of the Olympians (to your left in the links) are going to be there.

From the desk of Mindles H. Dreck:

The New York Sun

Unlike Asparagirl and Susanna, I was able to purchase a copy of The Sun yesterday morning in Jersey City. I also saw several copies available at Pier 11 on my way home.

What a treat! A newspaper made for me: Caroline Baum on economics, Ira Stoll on the front page and Glenn Reynolds as a featured columnist. I especially liked the concluding assessment of Justice White from Glenn:

The principal that laws should make sense is , in fact, a radical one. While is has a long way to go before it has occupied the field, it has made great strides since Justice White began championing it. Like White himself, it will produce decisions that sometimes look conservative and sometimes look liberal. But it is really a species of muscular skepticism that - like White himself - is not made for ideological pigeonholes.

We need a Byron White in the regulatory world, then maybe we could get some regulations that made sense.

From the desk of Jane Galt:

Doug Turnbull says the flat

Doug Turnbull says the flat tax wouldn't be any simpler:

In theory, a flat tax is slightly simpler than the current graduated tax rate system. But in practice, a flat tax would be exactly as complex as the current system. The difference between a flat tax and a graduated tax is in how, given a certain taxable income, you compute the amount of income tax owed. But that is the last, and simplest step in the tax filing process. One hundred percent of the complexity in the current system is in determining what your taxable income is. Once you have that number, you simply use the look-up tables to figure out what your income tax is. The only thing a flat tax would do would be to change the numbers in that look-up table.

In theory this is true; in practice, the people advocatig a flat tax today are advocating an entire package of reforms, called the "flat tax" for shorthand, which would eliminate all deductions except a generous standard deduction to keep the poor from paying too much tax. That's what would make the system so simple: no need to figure out your taxable income, because it's -- your income.

That's why I often say I'm in favor of a flat tax, even though I'm not against a mildly progressive tax system (I think the current system is too skewed; we're trending dangerously towards the majority, who pay no taxes, being able to vote themselves rich at the expense of the minority who do. Goodbye, invisible hand; hello, stagnation. But I digress). What I'm really in favor of is eliminating all deductions, including the mortgage interest deduction and the differential treatment of capital gains income (heresy!) and having a broader, flatter tax at a lower rate to keep the #%@! billionaires from advocating that I pay more tax.

From the desk of Jane Galt:

For all those screaming about

For all those screaming about the fact that options aren't recorded as an expense to corporations (both Warren Buffet and I agree with you that this is silly -- and if you think that's bad, you should see how they're valued in the models analysts build to value those corporations -- enough to make you faint) you want to know why corporations can get away with it?

Here's a hint: the government's involved.

From the desk of Mindles H. Dreck:

Old Posts Day

Two news items today follow up on things I posted on ages ago. I suppose this marks some sort of coming of age as a blogger.

First, the "Accutane Lawsuit" was filed. I discussed this on January 8. The mother of Charles Bishop claims taking Acne drug Accutane made him a suicide pilot:

Attorneys for Julia Bishop charge that Accutane, manufactured by Roche/Hoffmann-La Roche Inc., had severe psychiatric side effects on 15-year-old Charles Bishop. Bishop flew a single-engine plane into the 42-story Bank of America Plaza building in downtown Tampa on January 5, killing himself instantly. No one else was injured.

Brian Carnell, who has also discussed this, sent me the story. Considering the Osama-sympathetic note Bishop left, this sounds like a long shot. I don't believe the clinically depressed do that sort of thing.

Second, the Supreme court ruled on the simulated kiddie-porn issue I mentioned on February 13.

Sigh. Brian was all over this one too.

From the desk of Jane Galt:

Steven Den Beste thinks that

Steven Den Beste thinks that Warbloggerwatch is a troll.

I thought so too, at first, but after a couple of days when there didn't seem to be any punchline, I changed my mind.

Good trolls are self-sustaining. This one isn't -- we've all got better things to do. So Warbloggerwatch has to keep saying dumb things to get a rise out of us. If it's a troll, he's putting an uncommon amount of effort into it.

Oh, I admit, I enjoyed myself -- it's been a long time since I got into a good flame war. I'm really too old for them now (as aren't most people over the age of 21, one hopes), but it's like drinking yourself into a coma or committing spontaneous acts of juvenile idiocy -- you wouldn't want to make a habit of it, but once every few years won't hurt you.

But I've retired now. Actually, I didn't contribute much -- no time. And I had my fun, and now it's time to unclog the mailbox and go back to blogging.

But if I've been trolled, good on you. Perhaps I'm slipping.

From the desk of Jane Galt:

Notes and Asides So part

Notes and Asides

So part of the reason that I haven't been posting as much is that we've moved at work, and I don't have a phone or anything where I can dial up at lunch. But I do have some tasty pictures of my new digs:

my new office

the view from what we are currently calling the Veranda, though there is a movement afoot to rename it the "sun porch".

closer look at the view

Anyway, so until this move, I had been sharing my office with a nineteen year old. Like most persons of that age, she likes to listen to the kind of radio station that plays the same song eighty-seven times in a row until you have to smack yourself repeatedly in the head with a small hammer in order to dislodge it from your memory banks. Today, in my new abode, as the blessed silence was intermittently broken by the sound of my classic musical selections, I had the opportunity to reflect on what we may learn of the youth of America from their music.

We can learn much. Most importantly, we can learn to fear for them. If their music is anything to go by, theirs is a lost generation.

This thought first occurred to me as I sat through a Saturday-morning Infinite Loop-A-Thon of a song that I think may have been rap, or hip-hop, or perhaps pop – I’m afraid that in these degenerate days, the formal distinctions that we drew between these genres are somewhat blurred, not to say slovenly. At any rate. The song in question concerned a young man with many issues in life, issues which he could apparently only verbalize through growling subaudible imprecations about his desire to party, interspersed with the oft-articulated assertion that he “got what it takes to rock the mike right”. How little they have learned from our experience, I thought. A generation that grew up with the national tragedy of Vanilla Ice safely behind it should know that if you indeed have what it takes to rock the mike right, it’s the sort of thing that should go without saying. No need to draw attention to yourself. People will notice if the mike is right when you rock it. And if it isn’t right – well, then their opinion of you will not be improved if you continue to insist that it is..

Perhaps my thoughts would have stopped there if we had not had several more hours to go before we could switch to another song I’d already subliminally memorized. There is something of the camp sing-a-long flavor to listening to these top forty stations, except of course that I am forbidden to sing because the nineteen-year old somehow feels that my caterwauling is worse than that which is emerging from the radio.

Well, there I sat, continuing to muse upon this bard of the Bronx, thinking, “ahh, teenagers. He’ll soon learn not to allow his mouth to write checks that his ass can’t cash.” Upon saying as much to the aforementioned nineteen year old, however, I was informed that this particular hipster is not only on the downhill side of twenty, but also has several children to his credit. I think we can all agree that while a certain lingering in the golden tides of youth is acceptable, by the time you have fathered children with two separate women, one’s ability to charm with braggadocio has worn thin.

But no wonder they fail to learn from our experience. Their horizon of available emotions, to judge from their music, runs the gamut from A to B.

While even in those long-fled days when I was in the first flower of my youth, there was a somewhat limited repertoire of things which inspired our rock stars to burst into song, yet these children are narrower still, apparently incapable of imagining things outside a few, oft-repeated, tropes:

1) I like to party, and I’m going to do a lot of it.

2) I love some person who doesn’t know I’m alive, and my life would be perfect if only they would “get wi’ me”

3) Now that you’ve gotten wi’ me, my life is perfect, and I’m going to hold onto you forever.

4) I can’t believe things didn’t work out when I was so certain that everything was perfect and I was going to hold on to you forever.

5) You and that trashy thing you’re dating now can go to hell, because I wouldn’t take you back if you were hand-crafted in genuine fourteen carat gold by master craftsman at the Franklin Mint. I’m going to party!

6) I’ve met someone new, so you can just turn right around and walk out the door, because now that I have this new person, my life is perfect and I’m going to hold onto them forever.

From this, one can predict some dire things about the divorce and illegitimacy statistics in years to come. Not to mention the number of forty-something paunchy people wearing too much spandex who will someday be found trying to force their way into the hot new clubs with the tired claim that they’ve got what it takes to rock the mike right.

I can only assume that this lack of emotional depth in their music is the explanation for the latest song stuck in my head (honestly – don’t the DJ’s have enough space for more than five singles at a time on their shelves? Is there some charity to which we can donate in order to rectify the situation?). Its subject is a young man trapped at Stage 4 of the above emotional ouroboros, wandering the streets in an unhappy daze. Its catchy chorus line, which the nineteen year olds like to chime in on for a sort of harmonic stereo effect, is “Can’t believe that this is real/Do I really feel the way I feel?”

What have we done to our youth, dear readers? This am-I-hip-hop-am-I-rap? music has clearly stunted their spiritual and intellectual growth until they are unfit to become the leaders of the free world. I mean to say, how can we remain the world’s only superpower if these are the sorts of questions that occupy their minds? Look at the songs of a generation ago, grappling with issues of war, peace, inter-generational conflict, deep metaphysical questions, and the distressing aftereffects of poor quality control in the peyote factory. Two generations ago, singers not only faced down Hitler with a smile on their face and a song in their heart, but also attacked grammar, spelling, and the future of the transcontinental rail network, all while forcing anyone who wanted to dance to learn complicated partners routines. Compare this now to the newest generation. If their minds are unable to come to a definite decision as to whether what they are feeling is, yes, what they are actually feeling, how can we expect them to address complex balance-of-trade issues, much less create a really satisfactory low-calorie dessert? I tell you, reader, I have seen the future, and we should be afraid. If you have any doubts about the eventual collapse of the social security system, I invite you to spend ten minutes listening to your local teenybopper station. Then I advise you to get in your car and head for the hills.

From the desk of Jane Galt:

Sorry I haven't posted little

Sorry I haven't posted little chickadees -- I've been mucho busy with little things like taxes. But I'll try to get something up (including an exciting bit on The Nash Equilibrium and the Coase Theorem (my personal favorite theorem in economics) later today.

From the desk of Mindles H. Dreck:

Executive Compensation

The only thing that provokes more drooling from business journalists than an Enron-style scandal is executive compensation. Unfortunately, beyond the usual hysterical moaning about how much private companies paid their executives in bad times or times of bad performance, the press offers little clear thinking about performance-based pay. Beyond the potential riches, few have looked at the intrinsic problems with gross stock appreciation as a measure of executive performance.

There is no reason to think that competitive reality and company performance will magically line up so that compensation fluctuates entirely with performance (however you may define it). Furthermore, few analysts examine the deferral intrinsic in options: the time you realize your gain may not be the time you earned it. Regardless of timing, however, the most important question is: should executive compensation fluctuate because of extrinsic factors like market pricing levels?

The press tends to react with outrage when options are repriced lower. Often this is just a free pass for management, but in this environment, management may just be saying that the market went down, and the CEO is not responsible for a cyclical decline in market valuations. The line the press (and, more importantaly, shareholders) ought to take is that market-based repricing is good - and it ought to happen when the market goes up, too. It's absurd that shareholders should pay executives for happening to serve in a bull market.

A theoretically perfect (stock) performance-based pay scheme would offer payments tied directly to the margin of the company's stock outperformance of similar companies over an extended period of time. If you were to pay a new chief executive of Dell, you would want to pay him based on Dell's outperformance of companies like IBM and Gateway. Factors you would not want included would be the aggregate level of the stock market, the effect of the entire PC sector going up or down as the market looks at the sector's prognosis, etc. Why should our new CEO be paid for the effects of the market, or, for that matter, the price of copper, intel CPUs, Silicon, etc.? These things affect the whole industry, and have nothing to do with his performance as CEO.

Secondly, our new CEO's first year or two would enjoy the momentum of his predecessor. The first few quarters do not reflect as much of his contribution to the franchise value as the second and later years. Similarly, the condition in which he leaves the company will benefit or damage his predecessor.

In practical terms, you could deliver this by offering options based on a portfolio holding a long position in Dell and a short position of equal dollar value in the chosen competing companies. The portfolio only increases in value if the spread between Dell and the other companies increases. The market goes up, the market goes down, the PC sector fluctuates and it doesn't matter. The options vest (or the portfolio bets increase in magnitude) on a schedule that begins in earnest at the end of the new CEO's first year and extends beyond the end of his tenure. Payments commence from the portfolio after a year or two.

I believe this is more workable, more market- neutral and less open to manipulation than EVA-based compensation schemes. Furthermore, it requires no huge payments to intense and prickly consultants who have created fancy new terms for old-fashioned present value analysis, and would like you to overhaul your management information systems to calculate their proprietary performance coefficient. But that's just me.

What it does require is a willingness to use derivatives or maintain a short interest, and these, of course, are verboten, because so many people can't be bothered to understand such things. Besides, it's everybody's business how stockholders pay management, whether you have a stake in the company or not! Seriously, for some reason, a lot of people think this is a public (government regulatory/tax) issue, when it's really between shareholders, directors and management.

I heard on the radio today that New York City has ordered all decorative fountains shut off due to the water shortage. The Four Seasons Restaurant wanted to substitute champagne or wine for water at their own expense, but the city told them that would "send the wrong message". I guess there really are no such things as private transactions or private property if someone in power deems them conspicuous or wasteful.

Oh, and don't give me that crap about foreign CEO's being so willing to work for less. You ain't seen an expense account until you've seen a Japanese or German executive's perks.

From the desk of Mindles H. Dreck:

I See the Plot

I'm busy catching the Masters on Tivo (as I'm sure Fritz must be), otherwise I'd continue to watch the pure pissing match going on at the warbloggerwatch. Jeez. Unfortunately, there is not one shred of good-natured feeling remaining.

I appreciate Jane Galt's , Brian Carnell's and David Nieporent's efforts, but every second they spend in that nasty sinkhole means less quality stuff on Jane, Brian and David's blogs.

Then the antiwarbloggers will have won! I see it, I see their plot. I saw it first. Nobody else sees it. I am special, because I see the plan. The threads are visible only to me and those I choose to enlighten....

(Those last few sentences are sarcastic, in case anybody is wondering. Jane is ridiculously prolific, nobody can stop her...except maybe that new job.)

From the desk of Jane Galt:

James Ridgeway thinks that terrorism

James Ridgeway thinks that terrorism exclusions in insurance coverage are a plot by big, mean insurance companies to re-introduce redlining (the illegal practice of refusing to offer coverage in certain areas, or offering different coverage, because of their racial composition).

Where the insurance industry has been prevented from openly redlining areas it won't cover for racial reasons, terrorism is providing it an entirely new way of limiting or outright excluding inner-city areas, along with certain industries. Put cynically, it's another way for this huge, virtually unregulated segment of the financial services industry to make money off the September 11 attack by limiting policy holders to the cream of the crop and casting aside others on the grounds that they may be subject to terrorist attack.

In what amounts to a new national policy, big insurers (who are now part of an industry that includes banking, real estate, travel, and securities firms) issue terrorist exclusions on policies covering office buildings and businesses such as the chemical industry. But the exclusions reach down to small objects. The owner of two flutes, for example, in the West Village in New York City recently received a "Terrorism Exclusion" that read, "We will not pay for loss, destruction, damage, cost or expense to Covered Property occasioned by or happening through as a direct or indirect consequences of 'Act(s) of Terrorism.' "

For those of us who live in Manhattan, referring to the West Village as "the inner city" seems a little odd, given that most of us can't afford to live there, eat there, or even shop there. And no, I'm not being disingenuous -- after the dramatic opening, there is no further mention of any way in which this is going to affect the inner city, as distinct from the 99% of Manhattan south of 96th Street that is thoroughly gentrified.

Nor does Ridgeway seem to have a damn clue about insurance. The reason insurers won't offer terrorism insurance, especially in a fat, juicy target like New York City, is that the risk can't be quantified. Insurers can estimate how many houses will burn down, etc. in a given population and spread the risk accordingly. There's just no way to figure out what the risk of terrorist incidents is in New York City, because the only people who know that are the terrorists and they're not talking.

Think of it this way: would you be willing to bet, say, 5% of your annual income that a terrorist attack won't damage property in New York over the next year? Because I wouldn't bet one thin dime.

The insurance commission can talk all they want about forcing insureres to offer coverage, but what they'll get is what New Jersey got when it tried to pass a law forcing insurers to sell insurance for less than it cost them to provide it -- the insurers will leave. Insurance companies these days don't carry a lot of their own risk -- they sell a big portion of it to reinsurers like Swiss RE. Which nearly lost everything on the 9/11 disaster, and wouldn't touch terrorist reinsurance with a 10-foot pole. If you force insurance companies to offer terrorist insurance with their other coverage, they won't start writing terrorist policies; they'll stop writing all the others.

Perhaps Ridgeway thinks it's worth the moral victory. Me, I'd rather have the insurance.

From the desk of Mindles H. Dreck:

New Links, etc.

I have a new system of links, and some brand new links, on the left.

Don't take the sorting system too seriously, I placed most blogs randomly when I couldn't really decide whether there was any reason to associate them with one ancient city/community/mythological location or another. My knowledge of ancient civilizations is, frankly, ancient and mostly lost. Bjorn and Fredrik were the only easy ones, and somehow Stryker in Sparta sounds about right. Kroton is Pythagoras' home town, if you are wondering. I copped out and put my favorite woman bloggers in Themiskyra, home of the Amazons. Mycenae might have negative implications (i.e. "looking for trouble"), but I didn't put anybody there...yet.

Something had to be done. I am open to further suggestions or relocation requests.

Also, I've added some new links to old posts, and categorized them. The search command has moved to the top left, and the fonts have been fixed again.

I do have someone working on a more radical redesign, but he hasn't done anything yet.

From the desk of Mindles H. Dreck:

Human Rights Alert: Moussaoui Needs Connectivity

Lawyers for accused terrorist Zacarias Moussaoui filed a court motion Friday objecting to his "overly restrictive and oppressive" prison conditions, arguing he needs more space in his prison cell, computer equipment and greater access to legal counsel while he prepares for his criminal trial this fall.

Oh please. Computer equipment? Would he like some firearms as well? Suck eggs, Zac. Perhaps we ought to treat prisoners according to the conventions of the regimes they support. Sever some limbs, or behead him in public without a trial. Or shove the computer equipment up his posterior.

From the desk of Jane Galt:

Halt mir die Daumen!

Halt mir die Daumen!

From the desk of Jane Galt:

I've signed. Have you?

I've signed. Have you?

From the desk of Jane Galt:

Lileks is brilliant, as usual.

Lileks is brilliant, as usual. But he's got unfairly good material -- an Australian wackadoo who thinks that you get dengue fever in Afghanistan.

From the desk of Jane Galt:

Doug Turnbull has a simple

Doug Turnbull has a simple game theory analysis of the current Middle East situation that's really outstanding.

From the desk of Jane Galt:

Matthew Yglesias doesn't think so:

Matthew Yglesias doesn't think so:

Back to Sullivan, though. After sighting some those interesting left-wing spin deflating statistics, he makes the absurd claim that the current system is "downright punitive of success."You hear this kind of thing from conservatives all the time, but it seems to demonstrate a pretty weak grasp on the concept of punishment.

If I commit a crime, the government will punish me. The idea of the punishment is to make me worse off than I was before the crime, and thereby to dissuade people from committing crimes. If punishment just consisted in reducing the scale of the benefit for having done something, then that wouldn't really be a punishment at all, it would just be, well, like a kind of tax.

Consider -- suppose I robbed a bank of $1 million and then got caught. Making me pay a fine of any sum less than $1 million would be absurd. That's why in the real world bank robbers get sent to jail..

Yglesias is lexically confused. Whether or not a punishment is successful doesn't make it any more or less of a punishment -- the death penalty is still punitive, even if it doesn't deter crime. By conflating the reward for labor (the salary) with the tax he arrives at a net profit. But Uncle Sam didn't provide the salary; someone else did. Uncle Sam is only responsible for the punitive half; the fine we pay for the privilege of working.

Effectiveness is a separate issue. Is the income tax a successful deterrent to working? Absolutely on some level. I can attest to this from my own experience. My job prior to business school involved paid overtime. I could pretty much work as many hours as I liked, so I set my own overtime "bonus". For a while I worked like a dog. But as the marginal tax rates started kicking in, my $25/hour overtime rate (a miserly flat rate set by my former employers) got less and less. After a while, I was seeing less than $12.50 of that (welcome to New York!) and at 10:00 at night, began thinking, "you know, I could be home in bed right now", which is where I forthwith took myself. Without taxes, or with lower ones, I certainly would have worked more hours than I did; it's harder to pass up $25 than $11.25, even at 11PM. Progressive income taxes affect our marginal behavior: the decisions we make about working that extra hour, making that extra sales call, etc. The more progressive, the more they tend to discourage extra work.

Of course, this is not the linear relationship that some supply-side economists would have you believe. This is because people who work are always making the tradeoff between work and sleep (which economists call "leisure", for some reason). Now leisure, as a good, is strongly prone to something known as the income effect. The income effect says that the demand for some goods changes depending on the total income of the consumer. For example, few people eat Top Ramen every night after they leave college; the income effect is negative, which is to say that as income goes up, demand for the good goes down. Leisure has a positive income effect; the more income people have, the more leisure they want to consume. Unless you're a rich heir with a sinecure at a charitable trust with a jacuzzi and a T-1, consuming more leisure means performing less work. So lowering tax rates, by raising people's incomes, causes people to work less.

Seems counterintuitive, like some goddamn hippy propaganda, doesn't it? Let's look at an example. Say you're a computer programmer making 75K per annum with heavy overtime, of which you take home perhaps $39K, give or take. That's your budget. Now say your taxes are cut and you're suddenly taking home $50K. Do you work more overtime, because it's more lucrative, or less?

Depends. Maybe you want a BMW and this will put you over the top, so you'll work more. Or maybe you want to spend time with the kids, and you can already make expenses on $40K, so you'll work less. You can see that both outcomes are definite possibilities. The point being that neither the tax-cutters nor the tax-raisers have a simple, linear argument to make about their favorite tax effect. (Note: my personal belief is that to the extent that tax cutting takes money away from silly congressional projects, it has a net positive effect on the economy even if people don't work more hours.)

So there's conflicting evidence, both theoretical and empirical, on whether taxing labor actually deters it. But the only way that you can argue that it doesn't punish it is by adopting the position that all of your income belongs to Uncle Sam, and it's only because of his generosity that you're allowed to keep any of it.

From the desk of Jane Galt:

So analysts are panning AOL/Time

So analysts are panning AOL/Time Warner stock. As regular readers know, I've long been suspicious of the merger. Ho-hum, you heard it here first.

From the desk of Jane Galt:

The first objective, newsy article

The first objective, newsy article on blogging I've seen in a mainstream paper comes from The Irish Times.

Blogging has also embraced the innately interactive qualities of the internet that many professional media websites have failed to capture. While magazine and newspaper editors adapt awkwardly to a closer relationship with their readers, blog writers frequently incorporate readers' comments.

"The newspaper is a lecture. The Web is a conversation," says James Lileks, both a blogger and a Minneapolis Star Tribune columnist.

Similarly, the links among blogs create a dynamic environment in which a posting on one website leads another blogger to write and then another - and back and forth. For readers, the effect can be dizzying and exciting.

While most bloggers comment on news reported elsewhere, some do their own reporting. They can tell the world as fast as they can type what a corporate executive or politician has said. Even wire service reporters cannot beat them because the former must file copy to a news desk before it is published.

Yet the veracity of Web logs has still to be established. To the extent that bloggers report news, should they be trusted to the same degree as - or more, or less than - the traditional media? Readers will have to decide.

I try never to say anything that is false; if I do, I correct it when it's pointed out. Hopefully, y'all trust that even when I disagree with you, I'm at least being honest.

From the desk of Jane Galt:

So I'm taking an exam

So I'm taking an exam tomorrow (not a business school exam -- yes, I really did graduate) and I told one of the women at the office to "hold your thumbs for me". She looked at me as if I'd just grown another head. None of the other people in the office had ever heard of the practice (like crossing your fingers, except you hold your thumbs instead -- for luck) either. It seems to me I must have picked it up somewhere, but for the life of me, I can't figure out where. So if you've heard of the practice and it's regional or cultural or something, drop me a mail or use the comments box to let me know where the heck I got it from!

From the desk of Jane Galt:

City Journal has a moving

City Journal has a moving and well-thought out piece by Myron Magnet on what thoughts should go into choosing a monument worthy of the WTC dead.

From the desk of Jane Galt:

Eugene Volokh has a weblog!

Eugene Volokh has a weblog! And it's chock full of 2nd Amendment goodness!

From the desk of Jane Galt:

Well, except for Conrad Burns,

Well, except for Conrad Burns, who was the only senator to vote against a bill authorizing a lot of money and a standard system to clean up voting in federal elections so we don't have to live through another 2000. Among the key provisions:

¶If a person wants to vote but is not on the official list of eligible voters, the person must be allowed to cast a provisional ballot. The ballot would be counted if state or local officials confirmed that the person was eligible.

¶Voting places must be accessible to people with disabilities. Disabled voters, including those who are blind, must be allowed to cast secret ballots.

¶A new federal agency would be a clearinghouse for information on election technology and would set the maximum "error rates" for equipment used in counting ballots.

¶Before casting their ballots, voters must have some way to verify their selections, to change their ballots and to correct any errors.

But Jane, I hear you cry, I thought you were a libertarian! Well, yes, I am, but that doesn't mean that I think government is free. And there are some areas, like voting, where the government has to set the rules because otherwise, well, who will? Choose-your-own-adventure type systems just won't cut it in the new millenium. So I'm glad we're getting rid of those ridiculous punch-card machines and setting some guidelines, because I think in this age of increasingly precise campaigning, we may need them sooner than later.

From the desk of Jane Galt:

Welcome to Joe Katzman over

Welcome to Joe Katzman over at Winds of Change who's starting off strong with a piece on the economics of suicide bombing. Of course, he has to use some fudges, like estimating the reward as a percentage of GDP rather than by PPP (Purchasing Power Parity, which tries to compare per-capita income by measuring how much it would cost to purchase the same basket of goods in different countries) because as far as I'm aware, such figures aren't available. Anyway, a good read, and I encourage you to go over and check it out.

From the desk of Mindles H. Dreck:

Rapid Droppings Busted

In case you were wondering, my right column is out of commission due to a Blogger snafu (it crashed and deleted my history and publishing when I upgraded to Blogger Pro). If it weren't, I would surely quote Happyfunpundit:

Hot on the heels of the controversial French bestseller "L'Effroyable Imposture" (The Frightening Fraud), which claims that no aircraft hit the Penatagon on Sept. 11, comes a new German book by Dieter Hauff (formerly of the musical group "Autobahn") which claims that "L'Effroyable Imposture" never existed.

Hauff's essential thesis is that the book was never written, published, or sold, and existed only in the imaginations of the French media. Chapter One opens thus:

Nobody is that stupid, not even the French intelligentsia. Naturally, I haven't read the book, since it doesn't exist

From the desk of Mindles H. Dreck:

Make Love Not War

Bonobos, or pygmy chimpanzees, live in the equatorial rain forests of Congo, and have an extraordinarily happy existence.

And why? Because in bonobo society, the females are dominant. Just light dominance, so that it is more like a co-dominance, or equality between the sexes.

Maureen Dowd still thinks less male dominance would solve all the world's problems. This is her second recent column on the subject. Last time, she indicated Enron wouldn't have happened in a less male-dominated organization. As I objected in my Estrogenron post, Dowd's gender-benders place high expectations on women. What happens when women don't bring infinite peace and justice?

The "light dominance" of the Bonobo? We aspire to that level of civilization? How does she know they are "extraordinarily happy"? Well, apart from the constant sex:

And sex among bonobos is reminiscent of the Kamasutra. It's not just male-female -- they have same-gender sex, oral sex, masturbation, group sex. Like humans, they have face-to-face intercourse, making scientists wonder if they're more emotionally intimate than other animals. In zoos, the average bonobo initiates sexual contact every 1 1/2 hours.

Somehow, unlike Dowd, I don't think a switch to female dominance among humans would create this atmosphere. Hey, I could be wrong.

Dowd's complaint relates to a supposed male fear of powerful women, relayed to her by an easily-intimidated erstwhile suitor (and poor judge of "critical faculties"):

Men, he told me, prefer women who seem malleable and overawed. He said I would never find a mate, because if there's one thing men fear, it's a woman who uses her critical faculties. Will she be critical of absolutely everything?

...On a "60 Minutes" report on the book Sunday, Lesley Stahl talked to two young women who go to Harvard Business School. They agreed that while they are the perfect age to start families, it was not so easy to find the right mates.

Men, apparently, learn early to protect their eggshell egos from high-achieving women.

The girls said they hid the fact that they go to Harvard from guys they meet, because it's the kiss of death. "The H-bomb," they call it.

This may be true of the general population, but it isn't true of me or a lot of men I know. Conventional wisdom complains that men get bored of women. I find that to be particularly true when the women in question don't have their own lives. A high achiever can often make her abilities a powerful element of her most durable attractions. Virginia Postrel , who pointed out this latest Dowd, seems to concur.

If a woman is discriminating and judgemental, doesn't that make her affection a greater prize? Isn't "malleable and overawed" boring? Look at all the male fantasies in Hollywood movies and on TV shows (from West Wing to Everybody Loves Raymond). Women are constantly taking charge of their relationships with..well..less acute men. The James Bond-style gender roles seem to be the exception more than the rule these days.

The hard evidence cited in this article describes women trading off their peak fertility years with their careers. I don't think this has anything to do with alleged male intimidation by achievers. It has to do with childbirth realities, outdated workplace practices and in some cases, childrearing preferences.

From the desk of Jane Galt:

One of the holy grails

One of the holy grails of finance is finding a compensation package that will overcome what’s known as the agency problem.

The agency problem is the fancy economic term for what most of us already knew intuitively; what benefits the stockholders doesn’t necessarily benefit management. For example, I can think of many executives I’ve worked with on “re-engineering” projects, who, if they wanted to be honest about what would make their department work better, would “re-engineer” themselves right out the door and let somebody competent take over. Somehow, however, it was always one of their minions, usually one they didn’t like too well, who was found to be superfluous. There are all sorts of ways in which this agency problem affects managers actions to the detriment of their shareholders, but one of the most widely known is in compensation.

If you know anyone in corporate sales, you probably already know of the hilarious shenanigans in which the sales force engages in order to meet their quotas. The purchasing manager at my old job was good for 10K or so of thoroughly bogus orders at the end of the month or the quarter to help our sales reps meet their quotas; in return they gave us a little extra off our regular purchases. These orders were invariably cancelled, after a decent interval, due to the whims of our fictitious clients. None of this was good for the companies for whom these sales reps worked; it benefited only the sales force.

But trying to prevent these gymnastics has proved futile. Change the quota from orders to sales and they’ll ship the stuff out and have it “returned”, incurring shipping charges both ways; change sales to “final sales” and they’ll leave, because no one’s willing to have their income that dependant on the whims of people they don’t know. This applies even more to executives, who have much more power to manipulate matters so that they keep their job.

Now, being say, the CFO, is inherently riskier than being a clerk in accounting. It may not seem like it, but really, at the lowest level of a corporation, all you have to do in many jobs is show up on time and breathe. Even the most incompetent CFO gets made responsible for a lot of stuff, some of it out of his control, and not all of which can be blamed on his subordinates. If enough things go wrong, he’ll be fired. This is why most senior executives spend so little of their time doing anything that looks like work to the clerks in accounting, and so much of their time sucking up to the board.

So executives do anything in their power to minimize that risk. Often, this makes them unwilling to make risky but high-expected value choices, because a bad bet could cost them their jobs. At other times, such as when the company is on the rocks, it makes them prone to shoot the moon on highly speculative ventures because, what the hell, they’re going to lose their job anyway, so why not plunge all the firm’s assets into that deep-sea titanium mining venture and hope they strike it rich? Entire consultancies, like Stern Stewart, have evolved around various metrics for structuring compensation so that the managers either get rich with the shareholders, or go down with the ship.

One of the original ideas was the bonus, predicated on performance. Of course, you can’t just say “performance”; you have to give a metric, or a combination of them, that dictates what performance is. And there’s the rub. They tried all sorts of things. If revenue growth was used, you got revenue growth – but much of that revenue was unprofitable, as the executives slashed margins to move product. Tell them to cut costs, and they’d stop making stuff to sell. Tell them they had to improve net income, and games were played with the financial statements to maximize net income.

So what became popular? Stock price. Seemed perfect; put the bulk of an executive’s compensation in company stock, and watch those incentives align!

Well, not quite.

First of all, notice that all those managers made out like bandits in the recent bull market, even though they probably contributed little to its root causes, such as good monetary policy and the conviction of the American public that they’d finally found a sure thing. (Although probably a lot of them helped found their company’s 401K, so perhaps we should give them some of the credit.)

Second of all, stock prices are. . . ahem. . . not immune to manipulation. No! I hear your stricken cry, Tell me it isn’t so, Jane! Say it ain’t so! But I’m afraid I cannot, my little chickadees. Stock prices do not represent some platonic ideal of the actual, true, total current and future value of the company; they represent the market’s idea of that value, which is something very different. Thus, they can be manipulated.

If you’ve wondered why all the Enron executives seemed to have such outsized amounts of stock given in consideration for doing nothing but sitting in meetings all day talking about what a great company Enron was, this is why. And if you’ve wondered why they played all those games with the company’s income, this is also why.

Share price is determined in large part by analysts. Analysts like certain things in certain types of companies. In Enron’s case, they liked things like rapid growth, both in asset base and earnings. They liked them a lot. So much, in fact, that the executives knew that unless they continued to produce this growth, the next time the analysts went up on the mountain where God delivers the share prices to them on stone tablets, the burning bush would deliver a punishing verdict that would send Enron’s stock price, and hence the executives’ incomes, falling.

Now, the first time they fudged the numebrs, it probably seemed innocuous; just smoothing out a little dip this quarter. The problem is, the more quarters the rising income went on, the more the analysts grew to expect it, and the worse the punishment if they failed to deliver. Thus the ever-expanding web of deception that has now ensnared us all in a gray future of mediocre returns and endless congressional hearings on exciting topics like foreign earnings deductions. But I digress.

We’re now seeing more and more such items hit the headlines; Xerox is the latest perp, and the charges are a predictable mélange of little accounting fudges here and there which together conspired to wildly misrepresent the state of the company’s earnings. Which brings up two interesting points.

The first is that economists and financial wizards got it wrong. The best minds of a generation convinced themselves, to some extent, that the law of unintended consequences would not apply to something as obvious as stock-based compensation. It’s a healthy reminder that no matter how good an economic idea seems, we should always try to figure out how we’d manipulate the system, if it were us.

The second is that it’s easy for us all to say that we wouldn’t have done the same thing in the place of those Enron executives. And from the safety of my little closet on the Upper West Side that’s an easy call; no one’s yet offered me hundreds of millions worth of stock for ranting at you guys all week. But try to think of it another way: if you could have half your income taken away unless you delivered a growing number of whatever it is you make, be it computer programs or payroll reports, every single quarter, you’d be pretty desperate to make that number grow, wouldn’t you? When you hit the natural limits of your ability to produce those programs or reports, and it was a choice between lying to the bean counters or telling your wife to cancel that vacation to the Bahamas and plan on spending the week re-painting the house, it might not be so hard to convince yourself that a little fudging, just this once, wouldn’t hurt.

So it’s back to the drawing board on executive compensation. Which is the beauty of capitalism, really. We got it wrong this time. It may take us a few more tries to get it right. But we don’t expect to set up the perfect system once and for all; capitalism is just the system for finding the perfect system. So when something goes wrong, the almost-instant response is “we’re working on it”.

Update
Paul Orwin had an excellent post a few weeks ago on another angle of the whole Enron scandal, upon which I touched lightly: analysts expectations for growth. In particular, he talks about the difference between exponential and linear growth, and the trouble that arises when analysts' expectations of the former run into the more likely actuality of the latter. (Note: Paul posted this in the comments, but some of you don't read the comments, and you really should check it out. g is a magical thing.

From the desk of Mindles H. Dreck:

Just call me Richie Rich

Now I know what it feels like to enjoy a perma-link from Instapundit. I'm looking forward to raking in the bucks from the hapless victims of my war crimes.

I also notice Glenn's link to this article. It concludes with a statement from Henry Hyde (R. - Telecom) that makes the International Criminal Court's problem clear. It only works to prosecute the innocent, or those with some sort of conscience or concern for the international community:

"The United States must begin now to implement policies to protect against the unintended consequences that will flow from establishment of the ICC," he (Hyde) said.
"The ICC is more likely to hinder than help efforts to prevent genocide, war crimes and crimes against humanity," Mr. Hyde said, noting that "dictators with the blood of thousands on their hands will scoff at the threat."

This goes back to my Game Theory post - if the ICC has limited teeth, which is likely given its limited enforcement power and practical jurisdiction, the threat power of developed and democratic nations will be decreased, with no comparable decrease to that of thugocracies and terrorist nations. When and if military action becomes necessary, peacekeepers and agents of the ICC will be constrained while the cruelest war crimes perpetrators will not. A formula for...well..quagmire.

From the desk of Mindles H. Dreck:

Oh How Marvelously Quirky and Quixotic!

My great uncle and godfather had a way of praising with faint damn, to mix up the old cliche. Once, when he was staying with me and working on a book, he noticed that I was not shod. "Oh, I think it's wonderful how informal you two are, wearing your bare feet around the house!" You didn't have to be a mind-reader to see just how "wonderful" he considered my exposed hobbit-feet.

Felicity Barringer achieves a similar tone covering the launching of the New York Sun for the New York Times. Since the Sun's managing editor is the well-known creator of Smartertimes, Ira Stoll, and the Sun's editorial voice will certainly stand in contrast to the Gray Lady, I can imagine the deafening harrumphing of old farts at the Times as the Sun's first issue goes to press.

Paper and Editor to Tilt at Liberal Windmills

reads the headline. Not too subtle. Pretenses of objectivity be damned!

On the business side, he and his circulation director hope his new newspaper, The New York Sun, will pick up 1,000 paying customers a month in a city whose English-language dailies have lost an average of 600 daily newspaper customers a month in the past decade.

If it succeeds, The Sun, which will make its first appearance next Tuesday, will have a paid circulation of 8,000 by the end of the year, with more to come. At 8,000, it would have the same circulation as another city daily, American Metal Market.

How pathetic, how small! How..amusing. But they have dug up some dirt on publisher Seth Lipsky:

Mr. Goldberg, who succeeded Mr. Lipsky as editor of The Forward in May 2000, when the heirs of the socialist founders dismissed Mr. Lipsky, said that "the accusation against him here from both the ownership and most of the readership was that a slim factoid would be made into a major debate."

Mr. Goldberg continued, "It would say `Jewish Community Divided' when one person objected to something."

But, he said, Mr. Lipsky's "Pickwickian charm, his oddballness" disarm his natural antagonists.

"Pickwickian", "oddballness", how charming!

With something like 1,300 charter subscribers, according to The Sun's circulation director, profitability will take "several years," Mr. Lipsky said.

Other observers are less optimistic. "It's going to lose a lot of money for a long time," said Mr. Stern. "Forever. But guess what? I don't think that's the defining issue. Lipsky will put out one terrific product. Which may be the dividend his investors really want."

In other words, it's a money-pit motivated by marginalized, yet entertaining ideologues. Nice objective reportage, Ms. Barringer! I'm surprised I haven't seen a missive on this from Ira Stoll.

Who is this model of probity "Mr. Stern"? He appears nowhere else in the article. Is it a pseudonym for the paternal judgement of the Times, or is he a real person? I'd ask the Times to edit their own work better but that might be pickwickian or quixotic of me. Anyway,I think all these oddball lapses in objectivity and small editorial mistakes are so charming and...winsome.

From the desk of Jane Galt:

Next Friday is the Big

Next Friday is the Big Apple Blog Bash, sponsored by Orchid and Asparagirl. Be there or Be square.

From the desk of Jane Galt:

Sorry I haven't blogged today,

Sorry I haven't blogged today, but it's been busy here at the ranch. So the only thing I have to put up today is a bit from a dead tree Newsweek article that I can't seem to find online. Seems there's a Princeton professor who thinks that oil production will peak between 2004 and 2008, a conclusion he reaches using a controversial combination of statistics and geology. This method correctly predicted the US production peak in teh 1970's, though it's not clear whether this was luck or legit.

So what happens if it's true? Well, of course, the price of oil goes up. (Duh!) In the short run. The only country currently producing less than they can pump (according to Newsweek) is Saudi Arabia, so there's not a lot of slack in the supply.

But we'll adjust. We'll conserve, we'll rely more heavily on alternative sources, and as we use them more, the price will drop. Perhaps not to the price of hydrocarbons; I don't know what the numbers are. If we don't adjust quickly enough, we'll take a hit in productivity.

But you know what? Our parents and grandparents lived relatively fulfilled lives with a lot less GDP than we have now. I'm not saying it won't hurt, and I'm certainly not one of those "let's go live in the trees" idiots. But if production does start to fall, it will be a gradual process, enough to give the economy time to slowly adjust to a less-hydrocarbon intense system. Far less jarring than a Kyoto or similar; a slow, steady, price increase that pushes us into different energy sources as the rising price of oil makes them cost-efficient. Anyway, there's not much point worrying about it -- other than in the "hey, what can we invent that would help us use less oil" sense. Moping won't help, and doesn't quite seem called for on the evidence anyway.

From the desk of Jane Galt:

This article by John Scalzi

This article by John Scalzi compares blogger traffic unfavorably to print's wider audience:

So: My personal site: 3,000 readers at best. My other work: 1,000,000 readers, for a ratio of 1 to 333 (I don't include my corporate work in this, since I have no way of tracking how many people see that). My site is going to have become a lot more popular before it even begins to rival my reach in conventional online and offline media. Or, to present another perspective on the matter: My recent "I Hate Your Politics" column was avidly linked to on blogs and other sites, even "charting" on MIT's Blogdex for a few days. Total visits over two weeks: 10,000 or so. One of the people who read it was the editor of the Willamette Week alt-newsweekly ,who bought it to reprint in his paper. Total readership: 85,000. Eight times as many people will be exposed to it in print than saw it on the Web in two weeks.
And so it goes with others. Sullivan crows about the potential of 'blogs, but does so in Wired (circ: 500,000). His presence on the Web is dwarfed by his reach in the New York Times and the other places he writes to make scratch. Joshua Micha Marshall, one of the few liberal 'bloggers with any popularity, gets vastly more readers every time he's published in Salon or the New York Post. James Lileks immensely popular site's readership is dwarfed by the public for his "Backfence" column in the Minneapolis Star-Tribune. Their reasons for writing on the Web are their own -- but it's not because they were looking for a larger audience than what they already had.

Well, sure, if you count my flipping past the Style page on the way to the business section being 'exposed' to it. I don't read the articles; I don't even read the headlines. Occasionally I pass a page number as I whizz past. This is exposure only in the EPA sense, where you've been 'exposed' to a substance if you once rode on a subway train next to someone who worked at a plant where it was used thirty years ago and might therefore have a molecule or two on his clothes.

When someone comes to my blog, it's because they're looking to read something I have to say. Either they sought the site out, or they followed a link that interests them. Either, way, they're actually reading something I wrote. How many Salon readers read my article on Microsoft? Probably a fair number; certainly more than read my blog. But you can't count their whole circulation as my audience.

Update Scalzi writes to say that he addressed this in his next day's piece, which I didn't have time to read.

But I should note that I wasn't trying to negate his point about readership; there's no doubt that a piece in a mainstream source gets more eyeballs than this one. Rather, I was trying to refine it, to point out that there are questions of both quantity and quality in trying to compare the two numbers.

From the desk of Mindles H. Dreck:

Econoblog - visit!

A group of economics and finance-minded bloggers are experimenting with the group-blog idea over at:

From the desk of Jane Galt:

If this is true, Janet

If this is true, Janet Reno has about as much chance of winning Florida as I have of catching a ride on the next space shuttle: Elian Gonzalez's father may have requested asylum and been turned down.

From the desk of Mindles H. Dreck:

Reuters on blogs

Yahoo! News - Political Chat Becomes Barroom Brawl on the Web.

From the desk of Mindles H. Dreck:

Weblog Liability

Courtesy of Robert Crawford, I just learned of this dubious lawsuit:

When Dan Resler complained last May on the Aquatic Plant Digest about a bad experience he had with PetsWarehouse.com, he didn't know it would cost him $4,150. Nor did he know he'd become a symbol of the right to speak one's mind on the Internet.

Now Resler, as well as the others named in a lawsuit filed by the PetsWarehouse.com owner, is just that - living, breathing proof that what you say online can come back to haunt you.

So this Resler fellow complains about his service experience from an on-line pet supply vendor, others chime in with their own and they all get sued.

You can read more about it at the APD Defense Fund site, and read the initial complaint here. Here are the original "libelous" comments to which the plaintiff objected:

"Thinking of buying plants from Pet Warehouse? Don't. What is crappy is their service! And they're maybe even A bit dishonest."

31. Defendant Resler's e-mail was responded to by over thirty (30) individual e-mails sent to Aquatic-Plants@actwin.com during the period from May 15, 2001 through May 23, 2001 accusing the plaintiff of:

"as a source for purchasing plants, they do not have a good reputation" (Defendant Jared Weinberger-May 21, 2001)

"But you don't have to take my word as the last word on their horrible service. Feeling lucky? Go ahead - try them out yourselves. After all, it's only your time and money, right?" (Defendant Dan Resler-May 18, 2001)

"They claim to fill 90% of the orders. Well I can tell everyone it's more like 20%. Or less. If at all." (Defendant Thomas BarrMay 17, 2001)

"G[E]iven the continual flow of negative comments about PetSwarehouse that I've read for nearly two years on this list, I've decided to add a warning (and figure this is better than simply removing them." (Defendant WeinbergerMay 18, 2001)

"Remember petSWEARhouse, buy their plants and you'll be swearing!" (May 22, 2001)

"I believe they call that deceptive advertising. Or bait-and-switch. Take your pick." (Defendant Sean Carney-May 16, 2001)

The lawsuit speaks for itself. The plaintiff may see libel in these comments, but there is clearly something he doesn't see - suing your target demographic is a horrible idea. If it was, every PC vendor in the world would be suing CNET and other similar review/opinion boards. It sounds like a desparate cry from the dying. I don't have a lot of hope for petswearhouse.com. In fact, I can't seem to find their site...

Another reason the large PC vendors aren't suing is because of this California ruling against ComputerXpress setting a precedent against suing for "opinion", which bulletin boards are presumed to be.

Do bloggers think that Weblogs will enjoy the same protection as bulletin boards? Given the famous phrase "fact-checking your ass", can weblogs make such a claim? If the sole basis of protection is the presumption of opinion in a bulletin-board format, there may be less protection for a maintained weblog.

I worry that a weblog will be a test case for this.

Do a search if you're interested in this. It's been slashdotted, etc. My sense of the material I've seen is that the case has grown and become a nightmare for all. Hmmm, When's the last time that happened with litigation?

From the desk of Jane Galt:

Stressed about your impending doom?

Stressed about your impending doom? Go enjoy some deep thoughts on life's only sure thing, from someone who ought to know.

From the desk of Jane Galt:

Don't forget to check out

Don't forget to check out EconoBlog with the new, improved link box at left! Add it to your daily routine -- it'll make you taller, smarter, and make your teeth at least three shades lighter! Guaranteed.

From the desk of Jane Galt:

The latest Paul Krugman column

The latest Paul Krugman column is a prime example of what I love about Professor Krugman.

Yes, you heard me right. In many ways, Krugman is a most loveable economist. His column embodies the finest of them. Despite my issues with the slanted economics of his recent New York Times columns, I still think he is perhaps the greatest popular economics writer of our era, although Michael Lewis makes that contest a close finish. (Notice: both Democrats. Live from the WTC is a non-partisan institution. Speaking of which, what the hell is Grover Norquist thinking? But I digress.)

He begins with a punchy lead that gets the blood racing:

In 1973 an Arab embargo sent oil prices soaring, and a global recession followed. In 1979 the Iranian revolution provoked a second surge in oil prices, and another global recession.

Are we now at risk of a third oil crisis? I wish I could say no, but I can't.

He moves quickly to a clear, interesting explanation of what happens, and prefaces his opinion about the still-mysterious events of 1979 with an admission that, hey, it’s just his opinion:

Economists have never reached a consensus about what happened in 1979, but my interpretation is that it was similar to the recent California electricity crisis. In both cases the key was the combination of a tight market and demand that wasn't very responsive to price. Under those circumstances, individual producers — power companies in California, oil-producing countries in 1979 — have a lot of market power. That is, it is in each producer's interest to cut back production to drive prices higher. The result is a price surge, even though there is no real capacity shortage.

I take slight issue with this interpretation. My father, who do to his connections to both the heavy construction industry and the EPA, has more than a passing interest in the subject, tells me that the real constraints on the system were plants that, economist suspicions aside, really did have to go down for scheduled maintenance. They went down during hours when usage was slack (and hence prices lower) because the alternative was going down when usage was peaking, and disaster would have ensued. He tells me that the other major price pressure came from the fact that so much of the power was flowing from British Columbian hydro-power, and if California hadn’t paid those prices, BC would have taken their power and gone home. Not a popular topic of discussion for those who wish to blame the crisis on deregulation, because of course the US government has no power to do anything about the rapacious profiteers over at BC Hydro (BC monkey, where are you?), so screaming about it won’t do the activists any good. I don’t have any way to independently verify this, except by my faith in my father’s veracity. (My father is also, I might add, a Democrat. Jane Galt was what you might term “a bi-partisan effort”.)

Now, normally I would take strenuous issue with his central assertion, which he returns to throughout the rest of the column: that you can actually reach an equilibrium where individual producers cut back to push the price up. Remember the free rider problem? The problem with cartels is that there’s always the incentive to cheat, producing a little more to “free ride” off everyone else’s production restraints. Unless there’s a highly disciplined central market maker whose production is so great as to swamp the price effects of extra production by other producers, this quickly reduces the effectiveness of the cartel. It’s something OPEC has been fighting its entire existence, which, IMHO, is the reason we’re not currently paying $10 a gallon. (Okay, one of the reasons; fuel efficiency and US Marine Corps efficiency being the other main ones.)

However, in this case, Paul Krugman has pre-empted a heavy attack of the snits by stating up front that this is his opinion. I have a different one, which I happen to think is correct. But his theory isn’t wing-nut wrong; time and/or more rigorous analysis than is afforded by a couple of column inches will prove which of us is correct.

Anyway, I highly recommend it, as it’s chock full of interesting ideas. They may not be right, of course, but they’re well argued and ample food for thought to last you until Friday.

From the desk of Jane Galt:

The Boston Globe is alleging

The Boston Globe is alleging that Israeli soldiers shot one of their reporters, despite the fact that he was clearly labeled as a journalist. Though the reporter didn't actually see who shot him, he says that Israelis were the only ones in the area with guns.

Now, I know that there have been times when most of us would like to shoot a Globe reporter. Nonetheless, if this is true, Israel's going to have some 'splaining to do.

From the desk of Jane Galt:

They're laying off 7,000 people

They're laying off 7,000 people (WSJ.COM subscription required), which is about a quarter of their global workforce. The lawsuits are expanding to cover the investment banks such as Merrill and JP Morgan that did deals with them. The Enron lawsuits could destroy more wealth than the company did.

From the desk of Jane Galt:

To my contributors (you know

To my contributors (you know who you are!) I hope that this means the blog's helping some of you do something -- even just pass a spare ten minutes.

From the desk of Jane Galt:

Jurismania has an interesting

Jurismania has an interesting premise for a book written by a lawyer: that we’re expecting too much of the law. Interestingly, Campos criticizes all the major modern schools of legal theory (except, perhaps the law and economics folks, who of course focus more on the negative side – what law can’t do – than on positive expectations of what it can.) It’s the first such book I’ve read in a long time that offered no easy clues as to the politics of the author, which is extremely refreshing.

Campos’ central theory is that the most visible aspects of the law occupy what he terms “legal equilibrium zones” – areas where logical analysis is insufficient to say definitively which side is right. He points out that the vast majority of cases, both criminal and civil, settle or are dropped long before they reach a courtroom. The more clear it is which side is at fault, the more likely a case is to settle, because the losing side is usually aware of the weakness of their case. The ones that reach the courtroom, therefore, are by definition the ones in which both sides feel that they can make a valid argument.

Campos extends this theory to cover the major public policy debates into which judges have attempted to insert themselves. He highlights in particular abortion, pointing out that each side is totally convinced of the correctness of its argument – and equally convinced that if the other side would just listen, they could convince them to join their side. One of the most clarifying examples in the book is an abortion example, where he quotes a woman, pro-choice, who is convinced that if she could just show pictures of women who’d died from coat-hanger abortions to her opponents, they’d come around, seemingly totally unaware that her opponents feel the same way about the pictures of aborted fetuses they’ve seen.

Ultimately, the legal intervention in these equilibrium zones seems to have been startlingly ineffective; we are still re-fighting the battles over segregation, abortion, and other passionately argued issues that judges were attempting to settle decisively by fiat.

I’ve highlighted some major aspects of the book, but for a fairly thin tome it has both rich detail and dense arguments. While for all I know, all these ideas are old hat to lawyers, for the rest of us it provides a fascinating and provocative disquisition on the role of law in our society, argued at a much higher level than popular polemics such as The Death of Common Sense

From the desk of Jane Galt:

Via Arnold Kling: Dave Winer

Via Arnold Kling: Dave Winer says Weblogs will surpass the New York Times as a source of news. Of course, some might say that they already have. . .

From the desk of Jane Galt:

Thanks to the Banana Counting

Thanks to the Banana Counting Monkey for the heads up on this fascinating article regarding a study that I had read about, but to which I had not paid much attention. The study produced results that implied that people will use up their own wealth if by doing so they can reduce the wealth of others, even those less off, even more:

I think it shows two important insights into human nature. First, humans are intensely competitive. This means that winning, in some way, is far more important than prospering. That is why four individuals spent money to reduce other peoples' wealth.

Those who lost money wanted to reduce the gap between how much they had and how much money others had.

The winners wanted to do the opposite and increase the gap they enjoyed compared with the others.

Another interpretation could be that people regard social status as significantly more important than economic status. So, even when it cost people some of their wealth, they feel it is sufficiently important in order to reduce the status of the others by comparison.

Still, another explanation could be that this simply illustrates the existence of envy in everyone, whether rich or poor, and envious people will simply want to hurt other people, including those less fortunate.

The professors put forward yet-another motive, that of self-defence.

They speculated the "plutocrats" (or rich ones) expected the "plebeians" (or poorer ones) to be jealous and aim to destroy their wealth. They felt that pre-emptive retaliation before that occurred would preserve their rank.

Similarly, the plebeians would have opted to reduce the wealth of the plutocrats pre-emptively, out of concern that if they did not do so they would be left way behind as time wore on.

Whatever the explanation, the experiment is clearly contrary to economic theories by Adam Smith and others. It also explains the "tall poppy" syndrome of cutting off the top of the tallest poppy so the field is the same height.

It also explains why public policies that are obviously damaging economically can still be hugely popular among voters. And probably always will be.

So this implies that what the free marketers have been complaining about may well be true -- that their opponents are motivated as much by envy (on their own behalf, or that of others) as by any belief in the efficacy of their proposals.

But I think that the comment about Adam Smith betrays a slight, common misunderstanding of capitalism. Capitalism is not like physics, a way to describe universal laws; it is a system, one that seems to work better than any other system. This does not mean that it will produce ideal results; only that it is more likely to produce efficient results, and to successfully harness wealth-destroying urges, than are other systems. So these results are not inconsistent with Adam Smith; they are, rather, outside the scope of his work. (Or so I would argue.)

This sort of misunderstanding is also why so many on the left seem to believe that capitalism celebrates, or even causes, greed. Rather, it harnesses it to produce optimal outcomes for the greatest number of people. There are certainly failures in the system: free riders, moral hazard and agency problems, and negative externalities, to name a few. Only silly people claim that there are not failures; but looking at those failures without reference to the costs of fixing them, or switching to another system, is the downfall of the left. As insistence that every single thing the market ever comes up with is good (except, apparently, porn) is the downfall of the right.

So the question should be not, "Is Adam Smith wrong?" but (if the study is vindicated) "How might we set up systems that mitigate this?"

From the desk of Mindles H. Dreck:

Silly and Unnecessary

Courtesy of Joanne Jacobs here is Yahoo! Groups : warbloggerwatch, committed to document Sullivan, Reynolds, et. al.'s "crimes against humanity":

When the smoke clears and bodies are counted the evidence of their crimes against humanity will be will be preserved here.

And in countless caches all around the net...

Total entries = 1. Then again, I suppose that if the contributors believe that posting on the web can be a "crime against humanity" there may not be too much volume here.

UPDATE: I have been named in the second post as a potential war criminal. You know what's interesting? I have focused very, very little of my commentary on the issues this fellow is addressing. Looking back at recent posts, I see a short link to the weapons found at Arafat's compound and this post, which criticizes the idea that weblog-posting can constitute a crime against humanity and ridicules the idea that Instapundit's posts aren't somehow being "recorded". I guess linking Reynolds, and espousing non-war-related views that he and I may have in common is enough.

I don't actually agree with Glenn on Saudi Arabia, although I am appalled by that countries lack of freedoms and hostile population. Just to throw a controversial nugget into that argument - don't you think it was bin Laden's wet dream to have the U.S. act against his former home state?

From the desk of Mindles H. Dreck:

Advice, Paternalism and Liability

I read with amusement Alex Berenson's article in the NY Times today on giving 401k advice (Investment Counseling From the Real Pros). He manages to conjure up the spectacle of Fastow and Skilling providing 401k advice, and then tops it with Hillary Clinton*, Bush and Toricelli leading investment seminars (pork bellies, baseball teams, demutualizing thrifts!). Berenson makes, with style, the very real point that both the government and employers may be ill-suited to provide investment advice.

The truth is that employers and government would provide only the most warmed-over pablum for investment advice. Remember that any tale of misery among your employees would be grounds for a lawsuit. The fact is that companies turn this function over to the 401k providers and they are thrilled to do so. Paternalism isn't just unattractive, its dangerous. As for government providing advice, there are two bad choices - the "investment method" used for the social security surplus (throw it in below-market treasury obligations) or the untested "death by committee" method. This involves a series of blue-ribbon panels compromising on asset allocation choices and then eliminating 90% of the stocks and bonds traded in the United States for one political reason or another.

Then of course there's the Corzine-Boxer plan to force you to sell out of your best stocks diversify your holdings and the Kucinich plan to kill the corporate debt market make corporate retirement plans the senior creditor in an insolvency.

401k providers already give the bulk of the investment advice, with the rest being obtained by outside advisors and informally through friends and research. The amazing thing is that the largest fund balance your likely to see in any given corporate 401k is the money fund. People are risk-averse, or suffer from inertia. They like their cash. So, employers and government, step up if you want to a) advise them to be more aggressive or b) guaranty their future spending power?

[sound of crickets chirping]

Like I said, paternalism is both unattractive and dangerous.

*By the way, if there is anybody out there who thinks those futures profits weren't an attempt at a bribe, I have a handsome antique bridge to sell you, and it comes with a complimentary subscription to the Wall Street Journal so you can mint easy money in the futures market to cover the installment payments.

From the desk of Jane Galt:

Dave Walser was kind enough

Dave Walser was kind enough to forward this hilarious e-mail, which demonstrates that if lotteries are indeed a regressive tax on those who can't do math, political activism is a regressive levy on those who flunked Micro 101.

From: Date: Sat, 6 Apr 2002 20:58:52 -0700 To: Subject: Let's Do it!!

I hear we are going to hit close to $3.00 a gallon by the summer. This makes no sense to any but the oil companies as the spot price of oil has hardly changed. Want gasoline prices to come down? We need to take some intelligent, united action. Phillip Hollsworth, offered this good idea: This makes MUCH MORE SENSE than the "don't buy gas on a certain day" campaign that was going around last April or May! The oil companies just laughed at that because they knew we wouldn't continue to "hurt"
ourselves by refusing to buy gas, or curtail our driving. It was more of an inconvenience to us than it was a problem for them. BUT, whoever thought of this idea, has come up with a plan that really might work.

Please read it and join with us if you agree! By now you're probably thinking gasoline priced at about $1.50 is super cheap. Me too! It is currently $1.97 for regular unleaded in my town (California). Now that the oil companies and the OPEC nations have conditioned us to think that the cost of a gallon of gas is CHEAP at $1.50- $1.75, we need to take aggressive action to teach them that BUYERS control the marketplace....not sellers. With the price of gasoline going up more each day, we consumers need to take action. The only way we are going to see the price of gas come down is if we hit someone in the pocketbook by not purchasing THEIR gas! And, we can do that WITHOUT
hurting or limiting ourselves. How? Since we all rely on our cars, we can't just stop buying gas. But we CAN have an impact on gas prices if we all act together to force a price war. Here's the idea: For the rest of this year, DON"T purchase ANY gasoline from the two biggest companies (which now are one), EXXON and MOBIL. If they are not selling any gas, they will be inclined to reduce their prices. If they reduce their prices, the other companies will have to follow suit. But to have an impact, we need to reach literally millions of Exxon and Mobil gas buyers. It's really simple to do!!

Now, don't whimp out on me at this point...keep reading and I'll explain how simple it is to reach millions of people!! I am sending this note to about thirty people. If each of
you send it to at least ten more (30 x 10 = 300)... and those 300 send it to at least ten more (300 x 10 = 3,000) ... and so on, by the time the message reaches the sixth generation of people, we will have reached over THREE MILLION consumers! If those three million get excited and pass this on to ten friends each, then 30 million people will have been contacted! If it goes one level further, you guessed it..... THREE HUNDRED MILLION PEOPLE!!! Again,all you have to do is send this to 10 people. That's all. (If you don't understand how we can reach 300 million and all you have to do is send this to 10 people.... well, let's face it, you just aren't a mathematician. But I am... so trust me on this one).

How long would all that take? If each of us sends this email out to ten more people within one day of receipt, all 300 MILLION people could conceivably be contacted within the next 8 days!!! I'll bet you didn't think you and I had that much potential, did you? Acting together we can make a difference. If this makes sense to you, please pass this message on. PLEASE HOLD OUT UNTIL THEY LOWER THEIR PRICES AND KEEP THEM DOWN.

THIS CAN REALLY WORK! YOU KNOW THEY LOVE HOLIDAYS AND SUMMER TRAVELERS.

Let's not spoil our enjoyment with silly facts, like the spot price of oil being up 25%. Let's just savor the idea of a mathematician who plans to reach 300 million of the 270 million people in the United States with an exponential email chain that magically never goes to the same mailbox twice.

And of course there's the economics.

The Demon Twins, Exxon and Mobil, have about 40% of the market share in the Eastern states; let's assume that this is on the order of their market share in the other states. Call it 30%.

Now, the market for gasoline is efficient; it's a commodity that's priced very close to the cost of selling it. How do I know this, you ask? Why, because my grandfather owns a gas station. And trust me, they don't make their money selling gas.

So this boycott takes 30% of a commodity out of the market. What happens then, class? That's right; the price goes up.

And in this scenario, Exxon and Mobil are so bereft that they decide to sell their gasoline at a loss. Negative, Ghost Rider. . . pattern is full. Exxon and Mobil do one of three things:

1) Stockpile gasoline until consumers are desperate, and then sell it at a price higher than what you're currently paying, but lower than what the other stations have to charge
2) Start a new company -- call it Noxxelibom -- and sell all gasoline under that label.
3) Shutter their stations and sell their gasoline to other suppliers who aren't on the boycott.

Probably some combination of the three. Result -- higher prices for consumers! Less transparency!

Let's do it!!!

From the desk of Jane Galt:

My mother, who just found

My mother, who just found out that Geraldo Rivera drives a Bentley:

"He seems to have a rich but confused fantasy life -- he can't decide whether he's a Puerto Rican up from the streets, or an English Lord down from the castle."

From the desk of Jane Galt:

Volumes have been written on

Volumes have been written on the dehumanizing madness of war, yet writers are curiously silent on the soul-searing dreariness of the New York City subways.

Before I went to Chicago, there was no one as passionate in their defense of public transportation of me. Then I bought a car, and realized that while you may get frustrated when stuck in traffic with a million other people all trying to go to exactly the same place as you, at least you don't have to smell them.

It starts with the passive-aggressive, slow-normal civil service morons at the token window whose motto seems to be "I have to sit here for eight hours? Then you do too." Who wait until the train pulls into the station to give you, in return for the two dollars you have just handed them because you forgot your $%*! MetroCard at home again, one token and ten nickels so that they can watch you frantically try to scoop all ten out of the coin pit with one hand while juggling coffee, briefcase, and newspaper in the other, to the tuneful sigh of the car brakes as your train pulls out of the station. That leaden demeanor, so suggestive of the inbred trailer people in a certain sort of Southern opus, no doubt disguises untold mirth as they transfer all the barely-supressed rage of their existance to you, along with, of course, the one token and nine nickels you have just strew across the grimy concrete floor in your desperate attempt to get them out of the divot in time to make your train.

It is only added to by the engineer who will stare out his little window at you for ten minutes as the train sits in the station, but never, ever move to open the doors because, I can only imagine, of the dangers of explosive decompression should the doors be released once they have been engaged.

And oh, the passengers.

The ones who don't shower.

The ones who have eight children under the age of six strung across an entire seat bench, forcing you to stand the entire way home.

The ones who are carrying all their household goods on their seasonal migration from Bay Ridge to Riverdale, smacking you in the face with a bag or box every time the train moves.

And the NYC subways must have the largest concentration of hostile fat people on earth. They take up one, two, three seats, and spread their elbows wide to get more room. And if you try to grab a seat between two of them, they get mean. I have spent more time trying to keep my sliver of a seat while some three-hundred pound woman whose unhappiness with her life has spilled over to a more generalized hatred of all life, uses her considerable weight to try to force me onto the floor. And the indignation! Before I went to grad school, a woman whose lavish poundage was spilled across three and a half seats on the 1/9 had the nerve to look at me, squeezed into the half seat left between her and another space hog, and angrily declare "I paid for this seat!"

I am not one to make fun of fat people. First of all, as a friend pointed out, we can't all hit the Pick Six in the genetic lotto. Second of all, if I spend much more time sitting in a trailer 12 hours a day, I'll be one of them. And third of all, I don't pick fights with people who are bigger than me. But something in me snapped that day. I looked right at her and said "Oh? Did you pay for 2?"

I'm never rude to strangers. I tell you, reader, this is what the subway does to you.

I'll never forget when I moved back to New York from Philly. Now Philadelphia is just a laid-back kind of town. I never got stressed on SEPTA. So there I was, standing patiently in line for tokens (yes, dear reader, this was before MetroCard), and just as I got to the front of the line, a woman walked up to the front and started a line going the other way. I said "excuse me, but the line starts here."

She tossed her head. "The line starts wherever I'm standing."

I swear to God, I would have kicked her right in the head if it hadn't been for that baby she was holding.

This is what I'm telling you: the New York City subway system can take a perfectly polite girl from a good school and turn her into a nasty, violent radical.

And why do I bring this up?

Because the other day, as I got on the train, I spied a seat. Like any good New Yorker, I made my way over to it. And as I was sitting down -- my knees creased, my derriere rapidly descending towards the seat -- a guy snaked in behind me, shoved me up, and grabbed the seat.

I got a look at him as I was forced to stand up. Forties, male, healthy looking. And apparently not at all ashamed at having manhandled a woman out of the way to get a subway seat.

So this kid -- fifteen, sixteen, black, certainly not as wealthy or educated as the Upper West Side liberal (I'm guessing, from the Gore/Lieberman sticker on his briefcase), gets up and offers me his seat. I thanked him, and demurred -- I'm perfectly capable of standing; no reason for him to give up his seat. He gently but firmly took my arm and made me take the seat, and then began berating the seat-thief. "Why you shove her, man? That's a lady! You don't go around shoving no ladies!" First the thief tried to ignore him; then he began trying to justify himself. To my enormous surprise, a couple of guys nearby, who had been studiously ignoring it a few minutes before, told him to shut up.

There wasn't quite a happy ending. He didn't give the kid the ill-gotten seat.

But it just goes to show you: people can be heroic, even in the darkest depths of the MTA. And maybe teenagers aren't quite as bad off as we think.

From the desk of Jane Galt:

So Mindles and I have

So Mindles and I have put together an experiment. It's called EconoBlog, and you can see the link-button to your left.

The purpose of the blog is this: When we write a post that focuses on economics, we'll put up a blurb to let you know the subject over at EconoBlog.

We're trying to get other bloggers involved, so if you have a blog, and post on any of the following subjects semi-regularly, drop me a line and we'll consider adding you:

Economics
Finance
Game Theory
General Business
Corporate Strategy
Accounting
Regulatory Issues (as relates to business)

Remember, this isn't a blog where you have to write original material; it's a clearinghouse for people to find posts on various topics of economic interest. I hope that readers will stop by, and I hope that writers will let us know if they're interested in joining.

From the desk of Mindles H. Dreck:

Bourgeoisophobes

Blogger is down, disabling my "Rapid Droppings" column, hence the short posts. Here is an interesting article from David Brooks -Among the Bourgeoisophobes.

Of all the great creeds of the 19th century, pretty much the only one still thriving is this one, bourgeoisophobia. Marxism is dead. Freudianism is dead. Social Darwinism is dead, along with all those theories about racial purity that grew up around it. But the emotions and reactions that Flaubert, Stendhal, and all the others articulated in the 1830s are still with us, bigger than ever. In fact, bourgeoisophobia, which has flowered variously and spread to places as diverse as Baghdad, Ramallah, and Beijing, is the major reactionary creed of our age.

This is because today, in much of the world's eyes, two peoples--the Americans and the Jews--have emerged as the great exemplars of undeserved success. Americans and Israelis, in this view, are the money-mad molochs of the earth, the vulgarizers of morals, corrupters of culture, and proselytizers of idolatrous values.

Among the Bourgeoisophobes
Why the Europeans and Arabs, each in their own way, hate America and Israel.

From the desk of Mindles H. Dreck:

Quelle Simplisme

There never seems to be much point in quotingInstaPundit.Com, since anyone who comes hear has read it already. Nonetheless, I think he makes an important point here:

It's easier, I suppose, to be enthusiastic about a legal regime when you don't see it as constraining your actions in any important way.

This is like some people I know who think it's immoral to complain about the income tax, because it helps the less fortunate. Then, without batting an eye, they'll explain that they bought all new living room furniture and charged it as an office expense because "who'll know where it's going?" This infuriates my wife -- but I note that it allows its practitioners to enjoy the warm glow of altruism while not having to pay the price. I think something similar is going on at the EU.

If I had a dime for every sanctimonious wealth redistributor living in a rent-controlled apartment; every SUV-driver lamenting our failure to ratify Kyoto; every academic with an ambitious corporate regulation agenda who simultaneously defends the professorate's right (see Cornel West) to do whatever they damn please with their tenured positions; every married moralizer having an affair on the side; every celebrity barking on a talk show about how we must change our energy usage while their stretch limo idles outside; every fascist dictator preaching fundamentalism while living a life of outrageous decadence; every European or Scandinavian preaching about racism,wealth redistribution and the Palestinian cause to America while exploiting guestworkers from the Middle East and pinching immigration into their corpulent welfare state to a trickle....

Well, I'd have enough dimes to start my own think tank. It was ever thus. Man's greatest failing is a desire to tell everyone else how to live even as he seeks to maximize his own freedom.

Hey, it's easier to get a cab on Park Avenue during a recession.

From the desk of Mindles H. Dreck:

Aussie Explanation

I refuse to hear any criticism of American Culture from the Brits, because of the damn Teletubbies (as I've said before).

Now it's time to put the aussies on that list. Becuase of the friggin' Wiggles. Only seen the damn tape about 100 times. It redefines insipid. It makes Barney look like Marilyn Manson.

Tim Blair's got some splainin' to do.

From the desk of Mindles H. Dreck:

Weapons From Arafat's Compound?

Just a few..

From the desk of Jane Galt:

Whew! The CAFE debate is

Whew! The CAFE debate is still raging: for those interested in further exploration of the topic, a good place to check is The Cato Institute -- or just search Google on CAFE and "rebound effect" together.

Now I'm going to try to explain why fuel economy standards by themselves don't work very well; in order to do so, I want to introduce you to a concept called Price Elasticity of Demand.

Actually, I'm sure a lot of you have already met this concept; it was in bold type on the page of the book that left an ugly crease in your face when you fell asleep on it the night before your Econ 101 midterm. Rather an obscure, stuffy old fellow, Price Elasticity of Demand. But important. Don't worry, we'll try to make it as painless as possible - I promise I won't even try to explain how we calculate the bastard. Just the basics.

Let's start with the demand curve, a representation of how prices work that's so obvious you smack your forehead and wish you'd thought of it. Check out the simple graph below. On the Y axis we show price. On the X axis, the quantity demanded at a given price. They are labeled, for your reading pleasure, P for Price, and Q for Quantity.

Now, as you would expect, the amount of most things that we demand changes with the price. No matter how much you want a triple-mocha half-skim latte, you won't be buying many of them if the Starbucks manager jacks up the price to $30 a pop. Similarly, if the guy down at Tri-State Mercedes drops the price on the SL500 to $5, you'll want a lot more of them than you do right now. Hell, everyone in the family pick one out! Your demand will be limited only by your available driveway space.

All of which is a long way of stating the obvious: when the price of something is higher, we want to buy less of it. When the price drops, we want to buy more. That's why the demand curve, which is what this graph shows, slopes downward: because quantity demanded varies inversely with price. The higher the price, the lower the demand, and vice versa.

Price elasticity is a way of describing how much it varies. When we say that something is highly elastic, we mean that a small percentage change in price produces a big change in the quantity we demand. The bigger the item is as a percentage of your budget, the more likely this is to be true; few people will go out of their way to get 3% off on toothpicks, but most will when they're shopping for that Mercedes. . .

Now, the more elastic demand for something is, the flatter the demand curve, so that something which is highly elastic has a very flat curve, like this one:

Conversely, there are products that are extremely inelastic. Big changes in price produce very small changes in demand. Remember shopping for textbooks in college? Remember how it felt to come out of the bookstore with all those heavy tomes you were never, ever going to read again? Like being robbed at gunpoint by a disaffected 19-year old librarian with a mohawk, that's what. Your professors told you to get this edition of this book by the 1st of September. You didn't have the option of waiting until the December sales; nor would your professor allow you to substitute another Calculus text, no matter how hard you argued it was "just as good". And if you'd actually bought your Microeconomics textbook, instead of just borrowing it from the library one night and trying to osmose the knowlege inside by sticking it under your pillow, you would have known that your demand was highly inelastic. No matter how low a price the bookstore set, you weren't going to buy 3 copies of Remembrance of Things Past. And no matter how high they set the price, you were going to buy one copy because otherwise you'd flunk the course. The bookstore responded to the market by jacking up the rates to levels that would make loan sharks blush. You responded by paying the freight and calling home to ask Mom and Dad for more cash.

This chart shows what a highly inelastic demand curve looks like. It's very steep, because big changes in price don't produce much change at all in the quantity demanded.

Now, if your demand were perfectly inelastic, that curve would be a straight line -- no matter what the price, you'd buy exactly the same amount. There are few items that are perfectly inelastic; after all, if they raise the price of textbooks to $10,000 a pop, your parents might decide that a bright future awaits you in air conditioning repair school. There are some, however: coffins, for example. They're pretty much one to a customer; you're not going to suddenly buy three just because they're on sale. Nor can you really do without in this age of lavish funerals and tight (although apparently not tight enough) government regulation. So your demand for coffins would be a vertical line described by the formula Q=1. Like this:

So that's an overview of Price Elasticity of Demand. You'll now know what the Economist is talking about. If you read the Economist. And if you don’t, you should.

Now Jane, I hear you say, you’ve just bored the hell out of me for fifteen minutes I’ll never get back, when I thought you were going to talk about something I really care about – like Corporate Average Fuel Efficiency. How about changing the topic to something fun and exciting like that?

Patience, my children. I am getting there.

Price elasticity turns out to be very important for discussing the debate over CAFÉ versus a gas tax. Here’s why: how effective CAFÉ is, compared to the gas tax, depends on how elastic the demand is. You wouldn’t think that demand for gasoline would be very elastic. But it turns out to be when you think about it not in terms of gasoline, but in terms of the Price Per Mile Traveled (PPMT).

If PPMT is not very elastic, than CAFÉ will work almost as well as a tax at reducing overall fuel consumption. This seems counterintuitive to many people, but let’s look at what happens to the PPMT when we institute CAFÉ versus a gas tax. With CAFÉ, the price of the car goes up (and its safety and performance go down, but that’s another argument). But the Price Per Mile Traveled Goes Down. Let’s compare a 3 mpg increase in fuel efficiency to a 30 cent increase in the gas tax:

As you can see, the price per mile traveled goes up with the gas tax, but down with the increase in fuel efficiency. Now, as we just learned, when the price of something goes down, the quantity consumed goes up. We’re used to thinking in terms of the price of gasoline, which hasn’t changed. But if we realize that the consumers are actually consuming mileage, not gas, then we can see that CAFÉ inevitably increases the mileage consumed. This is called the “rebound effect”

Now, how much mileage increases depends on – let’s not always see the same hands – yes, that’s right, price elasticity. I’ve thrown together some charts that show consumption functions for high, medium, and low elasticity, depending on the price per mile. (Anyone who cares to know my ham-fisted methodology may email and I will explain it. These numbers are NOT intended to be representative of any real world, actual demand for mileage; they’re just for illustration.)

As you can see, if demand is very elastic, a change in the gas tax produces a big decrease in consumption – while raising the fuel economy of the car they’re driving produces a big increase in consumption, so that there’s a huge difference in how much gas they use between taxing and making vehicles more fuel efficient, even if the overall cost to the consumer is the same.

Conversely, if elasticity is low, then it doesn’t make much difference which you choose; people won’t drive much more if mileage is cheaper; and they won’t drive much less if it’s more expensive. CAFÉ may actually make a better choice here.

So which is it?

Well, in the short run, demand is pretty inelastic; you’re not going to skip a trip to the grocery store because gas is too expensive. But over the medium and long term, it’s pretty elastic; people make travel and commuting decisions based on how much it will cost. The rebound effect eats between 20-30% of the gain in fuel efficiency.

Well, that’s not so bad, you might say.

Ah, but that’s not the full story. Congestion eats even more of the conservation – you don’t get that 27.5 mpg when you’re stuck in traffic with all the other people who decided to take a drive because it’s a nice day.

Cars are made less safe. There are two ways to increase fuel efficiency: decrease acceleration power, or decrease the weight of the vehicle. Both cause more accidents – and more deaths.

Cars stalled in traffic cause more pollution than cars on the open road.

Roads need more maintenance.

Etc.

So why do we have CAFÉ? Because it’s a hidden cost, that’s why. People say they’re in favor of CAFÉ because it’s easy. What they’re really saying is that they don’t want to tell people that they have to make hard choices; they’d rather add $3,000 to the price of their cars, and increase their risk of accidents, and impose all those other hidden costs, without telling them. This is the exact opposite of what economists are supposed to be for: open, transparent markets.

Unless, of course, you think the proles don’t know what’s good for them.

From the desk of Mindles H. Dreck:

Video Games Sending the World to Hell in a Handbasket

We are raising a generation of screen vegetables insensitive to violence on a grand scale. These computer games kids play indoctrinate them in anarchy and violence to the population. The rules of the games are based entirely on violence, theft and coercion. Over time our children will be so used to these rules that the real violence of the world will not affect them, and they will come to believe that computer-game rules are the road to success. Something has to be done.

I am speaking, of course, of the "Sim" games, such as SimCity and SimPark. Pay attention to what your children are doing. Did you realize that in these games there is no private property? Everything is centrally planned. Just think, our children will grow up indoctrinated into communist central planning, a system responsible for more deaths than the World Wars combined! Our children will take state-sponsored violence, theft and terrorism for granted.

I yearn for the good old days when kids just rescued friends and shot up evil totalitarian aliens. Now they are the evil totalitarian aliens.

The computer game charts are in fact dominated by a completely different genre: what are called "god-games," or simulators, in which the player manages a complex system of interacting agents.

Should we really encourage our children to play god? What's next - sim global climate management? SimAirport Security? SimNationalized Telecommunications and Broadband Provider? SimIntellectual Property-Protecting Computer Vendors? Stop them now, before it's too late.

Note to Alex Beam - aimez-vous sarcasm? check with Bjorn on this post.

UPDATE: Lemony Snicket Jr. tells me Sim City 3000 has private property. There's a lesson here - we always fear what we don't understand...

From the desk of Mindles H. Dreck:

Public Note

Two things you may have been wondering about:

1) Ever since my main PC blew up again, I've been having trouble with email, etc. In particular, when my wife gets email, for some reason my email is removed from the server. So I missed a whole bunch of emails and only found out late last night. Thanks for your comments and emails, I'm not dissing you.

2) I don't have FTP so I haven't been able to clean up a variety of things on the site since I fixed and narrowed the center column.

Also, I notice that blogspot sites are available but Blogger itself is not (the bookmarklets work, its the site that is unavailable -??)

From the desk of Jane Galt:

This is dreadful: a WaPo

This is dreadful: a WaPo columnist looked up the email domains of people who sent her angry letters and sent copies of the letters to their employers. I mean it isn't illegal; it isn't even, strictly speaking, unethical. It's just in horrendously bad taste -- an adult temper tantrum.

From the desk of Jane Galt:

Death and Taxes Mindles Dreck

Death and Taxes

Mindles Dreck has two excellent posts on silly taxes: the tax on sin, and the tax on dying.

From the desk of Mindles H. Dreck:

Preparing for Lomborg in the Book Club

If you are planning to participate in Andrew Sullivan's book club on the Skeptical Environmentalist, here are some useful links:

Against:
Anti-Lomborg, compiled by pie-throwing lunatic Mark Lynas
Grist Magazine
Blog-style compilation by Jim Norton
Union of Concerned Scientists
Danish colleagues that don't like Lomborg

Lomborg's replies:
on his website
reply to Scientific American he had to remove from his website

Favorable
The Economist Review of TSE.
Cato Institute
Dartmouth Review
Electricity Daily
Spiked

Also, look for Ron Bailey's piece in the May Reason, which isn't available online yet. Let me know if you find other interesting links that you think I should post.

UPDATE: Ron Bailey's articles should be found here.

From the desk of Mindles H. Dreck:

Death and Taxes

As an aside to the post below on sin taxes, I would like to make another observation about government's strange relationship with personal tragedy.

Larry Silverstein has a 99-year lease on the World Trade Center. By any reasonable definition (not just accountint treatment) that constitutes something like ownership. It amazes me that everybody wants to get involved in what is built on the site, but nobody wants to breach the idea of buying the lease back. In a sense, there is a large community, at least in New York, that wants to exercise eminent domain, but doesn't want to pay for it. The tragic deaths of the tenants somehow allow them to sidestep the public acquisition of property.

Given that so many in government feel that a proper way to honor the newly dead is to take half of the property they have accumulated (and paid taxes on) over a lifetime, I suppose that isn't so surprising.

Through the miracle of caching (since this material is not on the Lileks site right now), I can quote Lileks on this subject. He speaks not only with the vivid colors we have come to know, but from his own family's experience.

. I was reading in my paper today about a Minnesota Congressthing who wants to halt the forthcoming changes in the estate tax to fund the usual raft of programs, and I had to stuff cotton in my ears to keep the blood from shooting across the room. They always make it sound as though they’re shaving a few mil off the corpse of some dead plutocrat whose belly swells like Boss Tweed in a Nast cartoon, and whose carcass will spew gold coins if they just make the right incision. They are either stupid - no surprise - or lying, which is also not a stunner.

Coming from a family with a small business, I know exactly what I’m talking about. I always enjoy the arguments presented in favor of liquidating our business:

1. It prevents the formation of economic aristocracies. Yes, like the Kennedys and Rockefellers, pertinent examples of which sit in Washington and devise new ways to relieve me of my property. They’re correct, of course; all tremble at the mighty Lileks Empire, which someday might grow to TWO convenience stores and grind the meek timid midnight milk-seeker beneath our pitiless heel.

2. It’s a way of giving back to the society that made the formation of the estate possible. My father has paid income taxes, Social Security taxes, state taxes, county taxes, unemployment taxes, license taxes, exise taxes, and capital gains taxes; obviously, this parasite must be squeezed once more just to even the score. I would note that my father’s three and a half years in WW2, during which he was paid about a buck fifty, would seem to redress that whole debt-to-society thing, but I am clearly thinking with my heart, not my head.

3. It’s economic justice. Yes, it’s always fair to benefit Theoretical Citizen A by requiring a company to liquidate assets and fire Actual Citizens B, C and D.

4. Smart companies plan for this sort of thing! Please. First of all, you can “plan” by having special life-insurance policies set up to handle what you hope will be the final bill in 20 years, but A) that’s money that could go into the business, and B) things change. Tax laws change, businesses thrive, cities grow, neighborhoods change, land that once was cheap industrial property ten miles from town is now residential with 10X value. The people who love estate taxes usually abhor sprawl - well, many a family has looked at their estate tax bill, looked at the family farmland that now sits on the edge of town, and said screw it - sell it to the highest bidding developer and put up McMansions.

Bloody goniffs.

There’s no self-interest at work here - I don’t want a dime of my parents’ estate. Just want the family business to survive, that’s all. If you please, guv’nor. I got me cap in hand. If you could just flog us lightly, we’d be ever in your debt.

The truly wealthy don't pay most of the estate tax (protestations in favor notwithstanding). They put their assets in charitable foundations that keep the halfwit offspring gainfully employed at substantial pay in perpetuity, with enough foundation resources to give away that they are invited to every charity dinner on the $25,000 per night New York circuit. Or, if they prefer, they can take home a congressman's salary and still vacation on an immense family compound in Palm Beach or Cape Cod. Gregg Easterbrook says eliminating the estate tax will socially ossify the U.S. like Europe. I'd say the dynastic foundations come pretty close as it is.

Update: Eric points out this article by Bruce Bartlett which, in turn, references Ira Stoll's typically acerbic take on the subject:

So, on the one hand, Mr. Buffett proclaims that as a matter of national policy, there should be a society "in which success is based on merit rather than inheritance." And he says that choosing Olympic athletes by choosing eldest sons is "absolute folly." Yet he himself chooses his eldest son to succeed him as chairman of the venture that is probably most important to him personally, Berkshire Hathaway.

From the desk of Mindles H. Dreck:

Sin Taxes

Last night I was storing up links for a behavioral finance post (prospect theory). Among other things, I ran into several links on State Lotteries.

Today on NPR, I hear about Massachusetts raising the cigarette tax again. So, off I go to look at studies on sin taxes in general (I consider lotteries at least a cousin to sin taxes in practice). I was all set to post about how ridiculously dependent our states are on "sin" revenues, and how ironic it is that local governments are sucking the very same teat the tort lawyers are squeezing in every court room in the land.

Then I ran across this World Bank presentation on tobacco taxes (bandwidth required). Holy Ill-Gotten Gains, Batman! Did you realize that Greece gets 9% of its total government revenues from tobacco taxes? Turkey and the Ukraine get 11%.

The arguments in favor, made in this presentation are:

Production, distribution and sales can be closely supervised by the government

Demand is price-inelastic...

Things that are price-inelastic are typically life necessities (water, emergency healthcare) or addictive. The presentation also points out the regressive nature of the tax, and provides hints on maintaining a monopoly (i.e. avoiding smuggling).

This kind of adds new meaning to the phrase "big government makes me sick".

Incidentally, I don't buy the idea that smokers are paying for their healthcare burden. There is as much evidence that they save us money by dying earlier and not claiming other entitlements. More to come.

From the desk of Jane Galt:

Chalk one up for the

Chalk one up for the record companies.

From the desk of Jane Galt:

Steven Den Beste, William Quick,

Steven Den Beste, William Quick, and now Andrew Olmsted (to name just a few) are blogging about the perils of blogdom's bacteria-like growth rates over the last several months, and the difficulty of getting noticed. I average somewhere around a thousand hits a day now, though my traffic is what I'd call a highly volatile commodity. That's oh, about a thousand more than I thought I'd get if I started this, so I'm content.

To new bloggers I'd say first read Andrew Olmsted's solid advice; find something that you know well, and talk about it. You don't have to be Den Beste and know everything (how does he do it?); you don't even have to be the most knowlegable person on any one thing -- Mindles Dreck knows more about finance, and Arnold Kling about economics, than I do -- they're professionals who've been at it longer. My core competency (I think) is that I can explain things to people who don't share my interest in, or knowlege about, the subject. So don't think that if you're not a hyperexpert on something you can't have great material. Tal G.'s been picked up because he's got the geography -- a front-row seat to the middle eastern conflict. Fritz Schrank knows how government works from an insider's perspective. UK Transport Guy just knows everything there is to know about -- transportation in the UK. So whatever it is you like to talk about, probably there's someone out there who wants to listen if you have something interesting to say.

Second, don't despair. I blogged for three weeks and got just about no traffic; quit for a while, and started up again. I still had no traffic. Then I got the one-two punch almost two months in: Our Fearless Leader linked me because I wrote a letter about Cornel West; and Samizdata liked my corporate tax piece and spread it around. My traffic has grown slowly ever since, all though there were some discontinuous jumps along the way. I don't publicize even to the extent of emailing authors of other blogs; I figure I'll get out there if it's meant to be. Just keep writing. You will not get anywhere unless you write regularly, especially when you're trying to build traffic. If you don't enjoy doing it just to see what clever things you've said to yourself, then blogging may not be for you.

Third, on emailing and asking for links: I don't mind it, but I don't link anyone just to link them. I do link things that strike my fancy, offer something I haven't heard before, or on which I have something to say. Unfortunately, there's no way to predict when the magic will happen. Anyone who emails me, and whose blog isn't raving nuts (there have been a few) gets added to a folder that I cruise periodically to look for newbies. I do try to link people who don't get read as much, or are new. But my email is reaching the overwhelming level -- not the Instapundit levels, but 30-50 a day makes it hard to respond to everyone. I have a 60-hour a week job, an active job search, and a furry creature that wants to be taken care of each evening. If I got an email from you and didn't mail back, it's not because I'm evil -- it's because I'm maxed out. The only way I can keep blogging is that I read six pages a minute and type 80+ WPM. So unfortunately, I can't link everyone who writes me, or even write a reasoned reply. But I do read it, and feel free to keep sending it. If you've written something you think I'd have something to say about, send the link along; I'll take a look. But like everyone else, I'm being crushed by the sheer weight of blogs out there; what used to take me a combined hour at wakeup, breakfast, lunch, and after dinner, would now take me all day if I tried to track all the good blogs. So the best advice I can give you is just to keep plugging.

From the desk of Jane Galt:

I know I linked him

I know I linked him yesterday, but he's chock full o'goodness: the Kolkata Libertarian has a really outstanding piece on bribery:

Bribery is the direct result of a closed economy. It springs up wherever transactions are non-transparent and the rule of law is neither defined nor enforced. It thrives when the total cost that people must incur to go the "legal" route, is greater than the cost they have to incur for making "extra-legal" arrangements. To "fix" the problem requires the understanding that this is a "generational" issue, one that cannot be wished away, even by politicians of great vision.

From the desk of Jane Galt:

Via Slotman: OnlineJournal is alleging

Via Slotman: OnlineJournal is alleging that there's a smoking gun scandal involving Taiwan and the Bush White House. Which makes me wonder -- no, not WWCD -- what it takes to be an "Online Contributing Editor" these days, since the piece reminds me of nothing so much as those badly mimeographed newsletters you used to see from groups like the South Street Coalition for Democratic Peace Initiatives and Quakers United to End World Hunger Now! (QUEWHN, pronounced "Que - When") back in my undergraduate days. There's the confused repetition mistaken for dramatic emphasis:

Carl Ford, as a "key player" in Cassidy and Associates, was paid from this secret slush fund, and is said to have played a "pivotal role," as Bush's appointed assistant secretary of defense for intelligence and research, in convincing Bush to allow the $4billion sale of sophisticated arms to Taiwan.

Carl Ford, as a "key player" in Cassidy and Associates, was directly involved (in addition to the covert money they received from the Taiwanese slush fund) in acknowledged, contracted PR work for Taiwan interests. Again, the one of the specific goals was to influence America to sell Taiwan $4 billion worth of sophisticated arms.

Carl Ford, a GW Bush appointee to a very influential position, while a "key player" for Cassidy and Associates, had already been involved in another lobbying scandal in Taiwan. This scandal included Cassidy's attempts to cover up the identities of those companies and lobbyists providing public-relations and lobbying services for Taiwan . . .

Carl Ford was a "key player" in the Washington PR firm, Cassidy and Associates, which contracted with Taiwanese organizations to represent Taiwan's interests in Washington. Cassidy and Associates also received money from the secret Taiwanese slush fund, the purpose of which was to covertly influence other countries' politics.

Cassidy and Associates received millions from this Taiwanese secret slush fund. Carl Ford, described as a "key player" at Cassidy, in turn donated millions of dollars to the GW Bush presidential campaign and to the Republican National Committee.

All of which adds up to the following points, using Newsletter technique #2: Accentuate the Obvious.
1) Carl Ford was a lobbyist for Taiwan.
2) Carl Ford was paid for lobbying.
3) The Taiwanese used money to do this. (I don't know how the editor is using the term "slush fund", but given that all the Taiwanese seem to have known about it, and it didn't buy anything illegal here, it can't be the commonly accepted one.")
4) Carl Ford, while lobbying, pushed initiatives that would benefit his clients.
5) Letters were drafted and lunches were bought.
6) Carl Ford later became Assistant Secretary of Defense.
7) Carl Ford was a "key player" at his firm. We are left to wonder whether he ever won any "Team Leadership Excellence" or "TQM Ninja" awards at his other jobs, or indeed was even made "Burger Boy Employee of the Month".

All of this said in a tone that implies that no one in the history of the world has ever been asked to bear such felonious perfidy. I can smell the ink and feel the purple smears infiltrating my fingertips. The source for every piece of information that's actual information, and not the Seattle WTO protestor echo chamber? According to the BBC:

Colonel Liu is thought to have fled Taiwan in September 2000 amid allegations he embezzled US$5.5m from the slush fund. He is still on the run.

The only other English language source, the Taipei Times, has more information and less hysteria:

Lee allegedly used the funds to strengthen Taiwan's diplomatic ties, pay for research in international affairs and send presents to his subordinates, the reports said. The reports also said funds went to the Taiwan Research Institute, a think tank founded by Lee.

They also don't seem to think it's a slush fund.

I won't elaborate the style used on the other Dark Minion, James Kelly, except to sum up the charges thusly: Kelly headed The Pacific Forum. The Taiwanese donated to it. DEATH TO THE CAPITALIST IMPERIALIST SLUGS WHO STOLE THE ELECTION. With this material, the online contributing editor produces this:

How bad is it going to be for America, thanks to these two Bush appointees' covert actions on behalf of the Taiwanese government? These Bush appointees, in the headlines of an important Taipei newspaper, are reported to be "tainted lobbyists." Tainted. Bush-appointed American officials are said to be tainted.

What will be the American political fall-out from these tainted Bush-appointed officials? Consider this: The current Taiwanese presidential senior advisor, Yao Chia-wen, who recently came to the Washington for two days of meetings with U.S. think tanks and congressional aides to find out what the fallout will be from this scandal, received in these meetings the message, "Fear what is to come." Think-tank scholars voiced concern that as new names are made public, those who speak out in favor of Taiwan may be suspected of having "sold out" as potential recipients of some of the NT$3.5 billion in money allegedly set aside in two secret slush funds intended to buy political favors overseas. The fears of the Washington congressional aids and think-tank personnel is that if anyone in any way represents Taiwan's agenda, they will become "radioactive" and a Washington pariah.

How will this impact the U.S.-Taiwan relations? Terribly. It already has. The revelations have damaged Taiwan-American relations, even forcing Taiwan to suspend some programs: "The exposures of such secret payments to key US politicians by the island's National Security Bureau (NSB) in the past week by Hong Kong and Taiwan media has damaged Taiwan's image and hurt its exchanges with the United States, according to government officials and analysts. 'The exposure of these secret funds of the NSB has created a big problem to our diplomatic work,' said Foreign Minister Eugene Chien yesterday. Taiwan's deputy representative to the US, Mr Tsai Ming-hsien, admitted that a number of semi-official and official exchange programmes between Taiwan and the US have been suspended."

And I thought I abused italics. How about this:

How bad is it going to be for Online Journal, thanks to this online contributing editor's semi-literate actions on behalf of the Anti-Bushies? This contributing online editor, in the words of an important (if woefully underappreciated and more importantly, undercompensated) weblogger, is reported to be "dumb as a bag of hammers." Dumb. An OnlineJournal Online Contributing Editor is said to be dumb.

What will be the fall-out from this dumb article?

How about canning the Online Contributing Editor for a blogger with a copy of Strunk and White? I could make a few suggestions. . .

From the desk of Jane Galt:

Via Richard Bennett comes this

Via Richard Bennett comes this wackadoo, on the subject of reparations:

Still, I must admit that the reparations lawsuits filed in federal court last week impressed me with their strategy. They aren't going after the government, but after the corporations - a bank, a railroad and an insurance company - that were enriched by the unpaid labors of slaves.

If private companies were doing the paying, then reparations would be more acceptable to many Americans. Granted, the lawsuits face all kinds of legal obstacles - statute-of-limitations problems, the difficulty of defining the class to be compensated, the argument that these companies did nothing illegal, since slavery was legal at the time.

A colleague of mine made a convincing argument that these and others companies should be made to pay up. The U.S. economy is like Enron, she said, a structure that in its reliance on slavery first and on the devaluing of black labor later is an economy built on business gimickry, accounting fraud and illusion. And at last the whole scam is being exposed.

"We are an incredible overhead that they never had to pay," she said. "And they owe us."

I'm still convinced that, with or without reparations, African Americans will have to make it on their own, just as most of the progress they've made so far has been accomplished on their own. Many of the challenges they face are as much about culture, self-image and attitude as they are about money.

But forcing these corporations to throw their history with slavery - and their books - open to the public could be revealing and even titillating. And, like Enron, they should be quaking in their boots.

Bankrupting companies with class action suits, 100 years later, for something that was legal at the time -- yessirree, that's a recipe for economic success. You know what would be even better -- if we could do this to people. Grandpa get taken for a ride by some slick talker? Who care's if he's dead -- sue his grandson! Justice knows no time limit.

Of course, it might be a little nerve wracking for those of us who can't be sure that Great-great grandpa didn't piss off someone, somewhere. You might even argue that it would discourage people from productive economic behavior, such as earning money or investing for the future, for fear that any assets they accumulated could be snatched at any time by a jury. Some lackwit without the vision to jump on the breast implant bandwagon might say that infinitely increasing the amount of unforseeable risk in our economy would be a total unmitigated disaster, but that's just sour grapes. What's important here is the dialogue, the communication.

I'm sorry, but the fact that a columnist at a widely circulated newspaper, no matter how poor in quality, could not only entertain such a wholly stupid notion for any longer than it takes to wonder how effective it would be to sue you for your ancestors' mistakes (something the columnist evidently did wonder about, as shown by the column's more intelligent lead paragraphs), but base an entire column around it, goes to show that there are some people who should not be taught to type until they prove they can add. It's the English major "Words are just the same as physical objects" idiocy that allows people with mediocre verbal skills and no intellectual curiousity to pass off fallacies that barely provide enough material for a bon mot as Deep Thought among others similarly afflicted. It's the parlor pinko sensibility that imagines that corporations have a gigantic money pit in the basement from which they dole only sparing rations to the proles, and that any regulation, lawsuit, or tax just forces them to take a little more money out of the pit, rather than the pockets of the shareholders, customers, and employees to whom all added costs eventually flow. The kind of mentality that gets angry when this is pointed out, as if one were only saying it because one hates the poor people to whom that money rightfully belongs.

In other words, it doesn't deserve the dignity of a response. But hell, I've got some stress to work out.

From the desk of Jane Galt:

No one messes with Moore

No one messes with Moore better than Farber.

From the desk of Jane Galt:

Microsoft's president is resigning after

Microsoft's president is resigning after a little over a year, allegedly to start his own company. Like Nixon left office to get some personal space.

From the desk of Mindles H. Dreck:

De-Krugging, blogdirections etc.

While I was wining and dining the most beautiful and erudite curator to be interviewed but not quoted in the New York Times last night, "Jane Galt" took on the Krugman comments below in detail. I'm proud to say I threw a small assist her way, but she took the ball and ran the remaining 99 yards.

I have been feeling quite inadequate as a blogger lately. I've been thoroughly pre-empted by newcomers with faster fingers and (I allow myself to think) more time on their able hands. Den Beste and Jane Galt have me beat on the long form, and Vodkapundit leaves me in the dust on the shorter form. The good news for me is business has picked up. The bad news is I've been blurting out a few ill-formed comments and letting others do the heavy lifting.

Nonetheless, I've been rewarded with a growing audience, now up to 500-600 unique visitors a day (that's on non-Reynolds days). Thank you very much indeed for that. I will find a way to reward that in my dwindling "spare" time.

A new site design is coming. I'm actually having someone else -with a sense of space, proportion and advanced HTML - work on it. I'm hoping to solve the seemingly contradictory problem of scaleable fonts (for certain devoted nearsighted readers) and an aesthetically pleasing default appearance. We shall see. Strangely, I often find the site re-designs inspire me to more ambitious posting.

I see movements in the blogosphere similar to maturing industries: community blogging (consolidation) and specialization (niche companies). One of the theories about the net was that it would allow specialized expertise to act in a consolidated way because of linking, essentially. Therefore this tendency might take a different path. And yet I notice Stryker's got two contributors, Samizdata's contributors are growing, and even the hyperblogger had a guest entry. So we see consolidation around specialized interests or expertise, such as military experience (and solid, direct writing) or transcontinental rational libertarianism.

There are few blogging consolidations around econ/business/behavioral finance fields yet. Perhaps that is where this should go. In some small way, that's what I did by tossing small nuggets at Jane Galt so she could turn them into a four-course meal.

From the desk of Jane Galt:

Edward Boyd continues some of

Edward Boyd continues some of Patrick Ruffini's ad-hoc research into media bias, this time on the word "bi-partisan". Which apparently means "Republicans who act like Democrats".

From the desk of Jane Galt:

I'm trying to get my

I'm trying to get my subscription to the New York Sun (and may I suggest that my New York based readers do same?) but their web site doesn't offer such an option -- not even an email address to subscribe. It's so. . . 20th Century.

From the desk of Jane Galt:

Now that's one sorry searcher:

Now that's one sorry searcher:

I got a hit from http://search.lycos.com/main/default.asp?lpv=1&query=ny democratic socialists&first=11&page=more&ca

From the desk of Jane Galt:

Michael Moore just found out

Michael Moore just found out the hard way why we can't make corporations use the same accounting for tax purposes that we do for financial statements: because earnings ain't the same thing as cash on hand. Think he'll learn anything about economics from this? Or think he'll find some way to blame it on a big corporation?

Don't think too hard: he already has. This is all really his publisher's fault. It wasn't Michael Moore's responsibility to read some boring old contract and plan his cash flow accordingly; it's his publisher's responsibility to keep him solvent.

And it's your responsibility not to laugh so hard that you fall out of your chair and give rise to a workman's comp claim.

From the desk of Jane Galt:

A lot of people seem

A lot of people seem to be angry about the Alex Beam column on blogs. Personally, I just don't care. Of course, he doesn't make fun of me, so I'm sure that's easy to say -- but honestly, who cares what he thinks? I don't even think that he's particularly "threatened" or mean-spirited; I think he wrote the column because, well, making fun of other people is fun. Since I do a fair bit of it myself, I can hardly pass judgement. And at least this column is funny, unlike most of the "bloggers are losers" ones.

UPDATE: I just read the email he sent to James Lileks. It's rude, and I don't get it. I mean, I've only ever written one column (unless you count the gossip column and other sundries for my school paper), so perhaps I don't understand the finer points of journalism, but I wouldn't ever email anyone that way. What's the point? You're guaranteed a rude reply and 0 useful information. So now I've moved Beam from the "gadfly" category to the "bizarro" group.

On the plus side, it seems I may possibly have been mentioned by Our Most High Priest. I have heart palpitations. Self-referential echo chamber, Mr. Beam? It could turn into sonic death rays if you're not careful.

From the desk of Jane Galt:

Go enjoy Business 2.0's suggestions

Go enjoy Business 2.0's suggestions for some accounting metrics we need, like, now.

From the desk of Mindles H. Dreck:

A Problem of Proportion

Paul Krugman:

The long-run actuarial shortfall of Social Security is less than half the revenue that will be lost due to last year's tax cut. The common perception that the tax cut was no big deal, but that Social Security faces a terrible crisis, is completely upside down. But the powerful forces that want to dismantle Social Security won't take yes for an answer; they insist that the system is doomed.

Two questions:

1) If 0.5X is "not a big deal", why is X a huge deal, requiring pundit gnashing of teeth and vast right-wing conspiracies against lunatic former economists?

2) Aren't all Ponzi schemes doomed?

Social Security isn't a savings plan, it's a wealth transfer scheme (one again, all Ponzi schemes are wealth transfer vehicles) that varies in scope based on demographics. The transferees receive a stable/fixed amount per capita, the transferors pay a variable amount per capita. Only when we recognize it for what it is, will we be able to resolve its proper place in this government.

God forbid someone should oppose a wealth transfer scheme masquerading as a national savings plan. How immoral.

UPDATE: yeah, acute readers noticed I mixed up the numbers the first time. So much for posting early in the morning.

From the desk of Jane Galt:

A preview of the report

A preview of the report on what made the WTC towers fall and what could have been done. Seems the answer is: not much. Sprinkler pipes were cut; fireproofing isn't made to withstand a 586 mph impact. There's an argument for not clustering the stairways so tightly -- but putting stairs somewhere other than the core would mean substituting windowed offices for concrete caves, and has serious structural implications. The deadpan description is heart-rending:

The impact of the plane, which had been traveling as fast as 586 miles an hour, was so great that it gathered office material like a snowplow and apparently forced it toward the northeast corner of the building. Parts of the plane came to rest there and others punctured the far wall, soaring as far as six blocks to the north before hitting the ground near the intersection of Murray and Church Streets.

A fuel-fed fireball emerged from three sides of the tower and consumed roughly one-third of the estimated 10,000 gallons on the plane. Some of the rest flowed down the face of the building and into elevator shafts and stairwells. What remained burned ferociously, setting acres of office space afire as well as the plane's cargo.

The incredible energy generated by this blaze was estimated to be three to five gigawatts at its peak. A typical nuclear power plant generates about one gigawatt. All of that energy was converted to deadly heat that began weakening the steel.

But the tower did not fall immediately. Preliminary calculations by the engineering team have revealed that the tight spandrel connections, built to resist the wind, gave the building a remarkable ability to redistribute loads from severed columns to those that remained intact.

This rearrangement was so efficient, the calculations show, that stresses on columns no more than 20 feet from the hole punched in the tower's face were barely higher than what they were before the impact. Like a horse with a bum leg, the buildings, though wounded, still stood.

But the fires continued to burn. Black smoke poured from shattered windows on floor after floor, fresh oxygen sucked in from the gaping holes caused by the impacts. In the northeast corner of the south tower's 80th floor, where office furniture had been shoved by the plane, the fire burned so hot that a stream of molten metal began to pour over the side like a flaming waterfall.

The apparent source of this waterfall: molten aluminum from the jet's wings and fuselage, which had also piled up in that corner. Within minutes, portions of the 80th floor began to give way, as evidenced by horizontal lines of dust blowing out the side of the building. Seconds later, near the heavily damaged southeasterly portion of this same floor, close to where the aircraft had entered, exterior columns began to buckle.

Fifty-six minutes and 10 seconds after it was hit, the top of the south tower tilted horribly, to the east and then to the south, and initiated the collapse of the entire tower, floor upon floor.

Unfolding at a slower pace, the disaster at the north tower will require study before it can be explained in such detail.

From the desk of Mindles H. Dreck:

Bloggers Bite The Press

In recent coverage of the blogging "phenomenon", the mainstream press has taken pains to point out that webloggers can't survive without real reporters. They are right, of course. Bloggers mostly dissect the news, relying on hard news outlets and ribbing the punditry. I'm sympathetic to the journalists' complaint that bloggers criticize the press incessantly even as they are parasitic (or symbiotic, depending on your point of view) with mainstream news outlets.

I must admit to some journalist antipathy myself. Less because I think the press is biased in a Bernard Goldberg sense, but because behind so many stories there is someone with an axe to grind. Sometimes it's the reporter his/herself, but more often it is the subject. Reporters can get caught up in a tenuous grand morality tale, even as something more prosaic (and less newsworthy) is happening.

Two stories appearing in the papers recently illustrate my point.

First, you can't have missed all the gushing coverage of Bill Gross, the undisputed king of the bond management hill. He recently made some scathing comments about GE's increasing leverage, temporarily rocking the debt markets and precipitating a 6% fall in GE's stock. Smelling an Enron, The Times' Kenneth Gilpin ,Gretchen Morgenson and Alex Berenson lapped it up. Lots of other press, including the Wall Street Journal did the same.

Bill Gross actively manages $290 Billion in bond investments. GE is one of the largest corporate debt issuers. By definition, Gross has a position on GE paper, and corporate debt in general. For all I know his concerns about GE are 100% genuine, but don't the reporters telling his story have an obligation to look at his interest in this? In fact, Gross has a reputation for "talking position" on the street. Some of this talk is envy, but the journalist's job is to be skeptical, right? To at least mention it, or consider the possibility? But they didn't. They swallowed his story hook, line and sinker. Holman Jenkins , on the Journal Op-Ed page, is the only columnist I've seen that even mentions the potential conflicts.

Whether these reporters were simply used isn't clear. But you can't argue that they aren't ripe for it. It's reasonable, if not mandatory, to ask who benefits from these market moves.

Another example relates to a lawsuit against Arthur Andersen. Long before Enron came to light, Andersen got in trouble for auditing the books of a Ponzi scheme known as the "Baptist Foundation of Arizona". New investors' money was used to create the impression of returns to early investors, the twist being it was a religious organization doing the scamming. Andersen agreed to settle their liability with a whopping $217 million that was supposed to be paid by April 15. Even though the Andersen's captive insurer has $700 million in assets, it has announced that it will not make this payment, citing the enormous claims certain to come of current litigation and investigations against it - Enron-related, of course.

This is actually a simple, required action on the company's part. An insurance company measures its solvency by looking at its liabilities, which include estimates of future claims against its assets. Given the size and scope of the Enron investigation, there is no way that Professional Services Insurance Co. (PSIC) has enough assets (investments plus reinsurance coverage) to pay all of its potential liabilities. The proper thing to do is declare insolvency, and allow the competing claims on its assets to be determined by a court or trustee in a fair manner. In fact, there is a small silver lining in the fact that it is a Bermuda insolvency, which means the reinsurance can be claimed up front and the claims dealt with in a relatively efficient manner (compared to the U.S., where it takes forever). So claimants should get some money fairly soon.

The truth is, it would be a terrible fiduciary decision to give the BFA claimants the settlement even as the Enron liabilities are well known. No court or court-appointed trustee would do such a thing, because the Enron claimants would be all over them in a New York minute.

However, when the press gets hold of it, it is all about 77-year old victims of BFA being ripped off yet again by Andersen. The press sees a grand morality tale and writes about that. In doing so, they become a tool for the prosecutors and plaintiffs lawyers, who would like to take their entire award and impair PSIC's ability to pay other claimants.

The reporters linked above have become a servant to one side of a story. They may do it out of bias, or, as in the BFA case, the story may just be totally uninteresting when viewed objectively ("accountant's insurer does legally appropriate thing - film at 11"). So they are biased towards the most neatly packaged narrative. Which, as you all know, is usually not the whole truth.

I admire the reporting profession, and I love my news. I notice this sort of thing all the time, though, and that's what makes me so damn cynical about the press. Perhaps we like opinion so much because we're not sure objective news exists.

Notice I didn't say "anymore" at the end.

From the desk of Jane Galt:

Mindles Dreck demonstrates that the

Mindles Dreck demonstrates that the EU has got it just backwards about how to build an entity to rival the United States -- they think you build up the jargon and the pretty buildings, and the actual entity will just sort of follow from that. But he's funny.

From the desk of Mindles H. Dreck:

"Mindles H. Dreck"

Your author goes by the pseudonym "Mindles H. Dreck". The name was given by an angry commenter on my blog (prior to the move here). The "H" stands for "Hedonist", the "S" to bring it all together went missing. You can find the origins in the comments on this post, and my reaction here.

I don't actually want to go by a pseudonym. I feel internet discourse is more civilized when we don't. Unfortunately, I have found it necessary to employ one in order to keep clear separation between my work life and my commentary here. Many bloggers know who I am, but I request that they observe the pseudonym (or at least call me 'Megan's co-blogger'). I toyed with ANOTHER Pseudonym before my detractor came along and dropped a better Nom de Plume.

I'm in the money management business. I have a Degrees in International Relations and Finance. I lived in Japan and Switzerland in "cultural/language immersion" programs when I was in high school and college. I also went to music school for two trimesters in between semesters in college. I'm interested in organizational behavior and technology as well as finance. I run, I play golf, and I wield a mean shoe.

I grew up in a family of new deal liberals. My first political statement was a McGovern tee-shirt. I was preconditioned to detest Reagan when he came to office. His success, my time in Switzerland, my job waiting tables in college and my foreign policy studies in graduate school all conspired to create a sea-change in my political views, at least on the economy and foreign policy. This much is probably obvious in these pages.

From the desk of Jane Galt:

The middle east is falling

The middle east is falling apart. Two of the world's three major monotheistic religions had a big holiday. Business scandals left and right.

So can someone tell me why my copy of Newsweek has The Big He on the cover? It's not like he's breaking news, guys . . . three months down the road, he'll still be pretty much the same ex-president he is today. Couldn't ya wait for a slow news week?

From the desk of Jane Galt:

I know he's already been

I know he's already been linked by Our Fearless Leader, so this is superfluous -- but damn, he deserves a link. This is a blogger in Israel reporting firsthand what's going on.

From the desk of Jane Galt:

A friend sent me these.

A friend sent me these. I have no idea if they're valid, but if they are, we may all be needing them soon:

A few handy Arabic phrases translated to English -- in case you're ever kidnapped by terrorists.

AKBAR KHALI-KILI HAFTIR LOFTAN.= Thank you for showing me your marvelous gun.

FEKR GABUL CARDAN DAVAT RAEH GUSH DIVAR.= I am delighted to accept your kind invitation to lie down on the floor with my arms above my head and my legs apart.

SHOMAEH FIKR TAMOMEH GEH GOFTEK BANDE.= I agree with everything you have ever said or thought in your life.

AUTO ARRAREGH DVATEMAN MAMO SEPAHEH-HAST.= It is exceptionally kind of you to allow me to travel in the trunk of your car.

FASHAL-EH TUPEHMAN NA DEGAT MANO GOFTAM CHEESHAYEH MOHEMA RAJEBEH KESHAVAREHMAN.= If you will do me the kindness of not harming my genital appendages I will gladly reciprocate by betraying my country in public.

KHREL JEPAHEH MANEH VA JAYEII AMRKAHEY.= I will tell you the names and addresses of many American spies travelling as reporters.

BALLI, BALLI, BALLI!= Whatever you say!

MATERNIER GHERMEZ AHLIEH, GORBAN.= The red blindfold would be lovely, excellency.

TIKEH NUNEH BA OB KHRELEH BEZORG VA KHRUBE GOYAST INO BERGERAM.= The water-soaked bread crumbs are delicious, thank you. I must have the recipe.

BA BODENEH SHEERELL TEEGZ.= Truly, I would rather be a hostage to your greatly esteemed self than to spend a fortnight upon the person of Cheryl Tiegs.

From the desk of Jane Galt:

Thank God for Yahoo! Even

Thank God for Yahoo!

Even those of us who are cooped up on this gorgeous day can get the pitch-by-pitch on Yankees Opening Day here, with automatic refresh every 45 seconds so you don't miss anything -- or get carpal tunnel from clicking the "refresh" button.

From the desk of Jane Galt:

The Kolkata Libertarian has a

The Kolkata Libertarian has a must-read piece on the history and probable future of Indian governance. I don't have anything to add; just go read it.

From the desk of Mindles H. Dreck:

Dated 3/31, but Sounds Like April Fool's

Read this discussion on The appropriate appearance of Brussels in the EUobserver and see if you can figure it out..

A group of intellectuals attended the two brainstorming sessions to discuss the expectations, needs, and functions of Brussels as a capital of Europe. The general feeling was that the local Brussels population was not adequately consulted during the implementation of construction projects. Although no examples are given in the report, members of l'Association du Quartier Léopold (AQL) believe that the decision to tear down the old station building next to the European Parliament is a clear case of the wishes of local residents being ignored.

Who needs examples when you have a general feeling? When in doubt, pull out the "ignoring the wishes of the indigenous peoples" card.

Furthermore, there was a shared view that, for the visitor to Brussels, the buildings of the European Quarter were "unpleasant and ugly" and nobody likes to go there after office hours. Most people at the meeting agreed that more should be done to construct a beautiful, attractive and lively European Quarter reminiscent of the identity that the EU is trying to create. "It is clear that buildings and urban planning for the European Institutions cannot be considered just a supply of office space, isolated from other forms of symbolic representation and communication," says the report.

No, no. They should represent the very essence of the EU which is (representatives were unable to agree on remainder of this sentence, also indigenous populations, the workers who actually have to be in these buildings during non-after hours, were not consulted). Also, not the important ratchet up from "general feeling" to "shared view". These are significant signifiers.

The Italian writer and philosopher Umberto Eco talked of a "soft" European capital, which would "be more like a server put in the centre of a network than like the root of a tree". Explaining his server analogy, Mr Eco says that many servers are important because they connect several computers, but the server does not dictate the policy of any of the computers that it connects.

Mr Eco's ideology concentrates on Brussels culture rather than buildings: "In the perspective of a multi-lingual, multi-religious, multi-ethnic Europe, Brussels should become the centre where diversities are not eliminated, but rather exalted and harmonised. Once again I insist that such a project has nothing to do with 'hardware' problems but 'soft' ones." Mr Eco says that Brussels does not need a monument like the Empire State building or the Coliseum. "That is hard stuff," says the writer.

Other "soft" ideas included reconstrucitng downtown Brussels to function like a tropical ecosystem or a "really good Italian espresso machine". At this point the French delegation walked out. When all is calm, they agree, at least, thay they don't want anything that looks like New York. And we should bring in a few more public intellectuals to drive the point home.

On the other hand, Dutch architect and winner of the Pritzker Prize 2000 favours Brussels as a "hard capital". In his contribution to the discussion, Mr Koolhaas argues that the buildings of the European institutions should reflect the highest quality and the best ability, which is not the case today. Mr Koolhaas says: "Brussels today is a European capital by default, a curious aesthetic landscape, sometimes generic and sometimes of such a scale that you can only talk about megalomania. In this condition it is unable to articulate any idea about Europe."

Well, then, its unanimous. Nobody can articulate a clear idea about Europe - except that it ain't the States. Well maybe if we can't agree, we can get the buildings to talk for us. Damn the cost, we must have talking buildings!

The European Commission does not believe that the "soft" ideas of Umberto Eco and the "hard" ideas of Rem Koolhaas are mutually exclusive. "In one case it would mean more cultural networking functions, in another it would mean more buildings, monuments, and physical objects," says the report, adding that a particular mix of soft and hard "ingredients" is necessary both for representing a particular idea about the European capital and for its realisation in Brussels.

Well, color me impressed with your ability to juggle contradictory ideas in your head, if not in physical reality. Or is this an argument about porn?

The Commission report calls for greater "international urban and architectural competitions" for the allocation of new projects in the European Quarter, and a more effective and transparent way of addressing both the qualitative and technical aspects of future locations for buildings.

Like price, proximity to transportation, availability.....?

OK. We got, "soft and hard", "not like the Empire State Building", "articulate" and "like a computer network". Everybody clear on that?

Oops - we forgot to consult the locals again.

From the desk of Jane Galt:

I see looking over my

I see looking over my posts that I somehow failed to upload the image that goes with this translation, so here it is:

It seems even more appropriate today. Happy Easter, everyone.

From the desk of Jane Galt:

The Dark Empire may have

The Dark Empire may have Instapundit.

They may have USS Clueless.

They may have "59% of female liberal arts graduates".

But they missed one.

They'll never get the English-lit loving, poetry spouting, libertarian leaning, economics explaining, whirlwind that is Live From the WTC.

(Unless they ask. Why didn't they ask?)

From the desk of Mindles H. Dreck:

Nationalize Microsoft

I can't use other people's computers anymore, and I can't fix my recurring PC failures.

It is time for the government to step in. I call for immediate takeover of Microsoft by the federal government. I believe this could resolve both the impending social security crisis and my XP installation.

A company this powerful cannot continue to exist in private hands. There is a growing cry for bigger government in these post 9.11 days. I hear it every time I get together with my closest friends. We need to legislate standards for operability and stability of software so that I can spend more time blogging and less time re-formatting.

It is also time to take action against the Vast Right Wing Conspiracy (VRWO). An organization that can victimize Paul Krugman can only be a few steps from your door. No one is safe.

Folks, it's the only way. Just ask Bjorn Staerk.