A intellectual problem I've been having recently

It used to be intuitive to me that there was a difference between state government control, federal government control and the private market. But that intuitive difference is having trouble when I think about it too much. For example, in South Carolina we do not have enough interests to really fight against full on regulatory capture. So in certain cases the government sets the rules to help the current economic winners in bills which the current economic winners' lobbyists probably wrote. So functionally, what is the difference.

Another conundrum. I have to eat. I have to eat food. There is probably some level of food buying that at a minimum I have to do in order to survive. How is that fundamentally different from a tax? I have to pay taxes because the penalties are worse than paying them, and as with eating. . .

Isn't this the case with a number of economic goods. Electricity for example. Theoretically I could go without and live in the woods in a tent, though how I'd pay the property taxes and keep my marriage going I don't know, but really there isn't a choice between paying and not paying for electricity. I get the power from a local monopoly. Why is that not a tax?

And so on to health care, which would be a tax if I could figure out how in my budget there was money for it.


I was just reading Delong

He quotes a post by Karl Smith who in a humble manner confesses that he does not understand how economists such as John Cochrane believe that a fiscal stimulus cannot effect aggregate demand. Brad Delong says that the problem is that Cochrane has believed this for years and it should be noted that no matter Cochrane's genius in other issues of economics he is completely out of his mind on this issue.

My problem has to do with trying to understand how someone could believe that deficit spending or could not in the right circumstance have an expansionary effect. You either have to believe that people have infinite time horizons, perfect information (which in part goes along with infinite time horizons) or that directed infusions of money into the economy taken from another area are washed out like taking a drop of water from one end of the pool and placing it on the other end.

Delong says that the misconception could occur because they are taking the savings investment identity as more than it really is which is a short hand for a much more complicated behavior. In the current conditions or at least the conditions we saw a couple of months ago you would have to have had your head under the rock to believe that the identity perfectly described the actual behavior of the economy.


Odd Thought About Red Dawn

I've never seen Red Dawn. But I have seen enough references to get a basic understanding of the plot and a sudden thought has occurred to me. If there were some type of invasion from some outside source, the first thing I imagine that conservatives in their current mood would do is to find the nearest liberal and shoot them. Of course not all liberals are unarmed but still.

I can imagine a seen in the woods of a couple of partisans in the woods after the tanks have rolled through burning the town. They're the couple that prudently fled rather than fight the onslaught that killed everyone else. I can see them around the camp fire.

Partisan 1: This wouldn't have happened if the gays didn't do their thing.

Partisan 2: I'm not sure that has a hell of a lot to do with out situation.

Partisan 1: Your one of those commie Obama supporters.

Partisan 2: Yeah I supported him, he disappointed me right and left but hell I generally hope the president does what right.

Partisan 1: That's it. (Pulls gun from holster and shoots Partisan 2)

Obviously this is bad writing and pretty piss poor dialogue. But the general Idea won't leave my mind.


Ah Healthcare

I don't have health care. Or I should say I don't have health care that would be useful to me outside of an emergency. I could of course find myself in an emergency room where I would be treated for whatever horrific issue caused me to be there, but in general, I don't go to the doctor because I can't afford it. I can't afford to get my wisdom teeth out. I could if I went to Charleston and went to the medical school where I would pay for a dentist to tell me that yes my wisdom teeth need to come out and then I could go to the surgeon who would take them out and the whole thing would cost probably around $500 not including gas to get to Charleston. I don't have $500. And so if Megan McCardle wants to privileged folks who haven't been born before me then then I hope to god she ends up on the street without real financial help at some point so that she can actually understand the world.


Republican Failure

One thing I’ve never understood about the Republican strategy is how limited the analysis of their situation is. In 93 they were riding a shift in voting habits in the south and west. Pure rejection could work because they were up against a president whose popularity was in the toilet in the area that they needed to pick up. Now, not so much.

It is generally better, in my mind, to think of American politics as pre-election coalition building. Where in other countries the coalition will be made at the top after the election when the various parties come together in order to form a government. In the US though each party has a pretty well set base of members. Its only when certain events come about that the coalitions will shift. The Civil Rights movement and Roe V Wade are two of them that helped the republicans. Not because there was a majority pushback on those policies but because if you can keep a certain part of the your coalition and add others then your going to build a larger party. The Civil Rights movement pushed the south into the republican column because of the history of race based voting in the south. The reaction to Roe V Wade, I believe, was an attempt to peel off disaffected evangelicals and Catholics by the republicans and an attempt to solidify Democrats amongst women.

That taking of the south is problematic historically for any party. The democrats were unable to produce consistent vote majorities for a number of years because the political culture in the south is so different from much of the other country. Only with the advent of the great depression which allowed for much of the differences between the south and the north to disappear under the rug for a while allowed the democrats to create consistently large voting blocks.

Unless the republicans can figure out a way to appeal to groups outside of the south without giving a chance for the democrats to be competitive they are in for a long minority.

One thing to think about, the republicans have never been able to take the south to the extent that the democrats did for so many years. Does that make it actually harder for Republicans to create broader coalitions outside of the south? If your party is made up of hard core revanchists in the south without a total lock on their votes can you move away without alienating them?


That last post sucked

And it did.

The main point is that possible options for power are constrained by the particular structure of power that exists. In an autocracy that path to power is total agreement in public with the autocrat. In an Oligarchy the path to power is to agree with the objectives of the oligarchs. In a system that constrains power to two groups the path to power is to align yourself and your views with one of those two parties.

Our system constrains us to two parties because of how we elect people. First of all we elect individuals rather than representatives of a party. Though of course we also do that. The old joke about yellow dog democrats is a testament to the power of voting for party rather than individual, but as William Jefferson found sometimes it is not enough to just be part of the right party.

The other reason that we are constrained to two parties is that we have a plurality voting system. That is probably the worst form of voting if you want to accurately reflect majoritarian (this word is misspelled) interest.


Does anyone care part II

Looking back at the previous post I think one thing I haven't really made clear is the extent to which the shape of the governing regime impacts thinking. It is always natural for people to pick a side because it gives a sense of social acceptability and power. If your side is up then you have some kind of reflected power from the fact that your group is in power. The fact that you agree with the views of your group makes you an insider in that group. Of course it doesn't necessarily have to be that you agree with your group you just have to be a part of it.

In the United States we vote for individuals with whoever gets the most votes even if they aren't in the majority wins. This necessitates a system where two people face off. If you have three and all three get somewhere around 33 percent then you have a problem in terms of legitimacy. So in general a race will have two people.

Its also true that it costs money to run for office. One of the main reasons is that you have to brand yourself. Tom Jode is a working class guy who gets your problems. It doesn't matter if its true it just has to sell. If you get to put a letter next to your name like an R or a D then a lot of symbolic branding gets to occur without the candidate ever spending a dime. It also gives the candidate a ready made platform of issues. Some of those issues the candidate will care about, others, he or she will not care about. But if you really got them down and asked them they would tell you they cared and they probably would agree that that position on that issue is the correct on. Not because they care or because they have thought about it much but because they have decided that they exist within a group and want to be as much a part of that group as possible.

Most people do this. Most people when they join a group do not merely sign their name on the dotted line. They really invest themselves. There is also the contrary action that when someone finds themselves in full agreement on one issue with a group, even if they previously disliked that group, they will become more likely to agree with the other issues that group holds. Group identity becomes a kind of feedback loop. When that loop is stable then there isn't much chance for another group of grab members of other groups.

When that loop gets cut though interesting things can happen. Why is it that the Republican party became Anti-Abortion. When Roe v. Wade happened there were anti abortion members of both parties. There are two groups though that could most be swayed by this issue that were in the democratic column. Catholics, particularly Irish Catholics in the north. And Evangelicals in the south. There were votes to be had by going anti abortion. And this worked very well for a while. The problem is that having a solid south as part of your voting base is a double edged sword. Over time taking the Anti Abortion issue did nothing for Catholics, they still tend to vote overwhelmingly for democrats, but it did help, along with a number of other issues, take the south.

The reason that the South is a Double edged sword is because the political culture of the south is different from the north in particularly antithetical ways. The South and North have defined themselves so much off of each other that even though most of the issues that once animated that defining no longer exist they still reflexively do so. Some of this has to do with an urban rural split where the south is much more rural than the north and therefore has a lot of very different interests.

If the United States had a different voting system or even a different constitution that did not devolve so much power to the states and localities we would have very different parties. There is nothing that links pro-choice policy with protectionism or free trade.

If the United states had a proportional voting system where people voted for parties rather than people and if a party got 5 percent of the vote then they got a person in the parliament, we would have a radically different split between the right and left. You would have a trade union party that would join with whoever gave them control over trade union policy and the feminist party that would join with whoever if it gave them control over women's issues and so on. More people would have much more idiosyncratic views of issues then exists now in the United States.

So in the United states where we vote for individuals who represent one of two parties the range of opinions represented in the political system is going to be much smaller in general than in another type of system. Issues that rise up on the radar screen can be liked or disliked but will have unclear relationships to actual voting behavior. Polls then don't mean much and never will.


Does anyone care about the bailouts

Poll have always been weird for me because they exist as a kind of pseudo information. People love to say that the American People care about the environment because polls show that most people will say that the environment is one of their big issues. But have you ever seen an exit poll where the environment was the big issue in how people voted. Does the more environmental candidate do better at the polls as a matter of course?

Why have republican made a fetish out rhetorical denunciations of Abortion and describe the dirty whores who kill the poor, desperate children. Because in a national election a good percentage people will vote on that issue over every other issue. I have a friend who may be more liberal than me but will tend to vote for republicans because they are as she says it "pro life".

Now the only reason that that is a tenable position is because a large percentage of people who are pro-choice are either only going to vote for democrats or won't vote on the issue because they don't think that their access to abortion will be compromised.

So when you see this poll

and then you see this one.

It makes you think that the denunciations of AIG may not be that important politically.

Of course its also true that no one thinks that repubs will handle it any better.


What the Hell is Going on With AIG

I have talked to a couple of people recently who have expressed surprise at all of the new information coming out about the counter parties that AIG is paying money out to. I was actually surprised that people where surprised since I had understood that the entire point of bailing out AIG was to actually bail out all of the banks. For example, normally in an insurance agreement, say when you get insurance on your car, the insurance company does not specifically need to have the money that could be paid out to you tied to your policy. What they do have to have is enough money so that if a certain number of policies came due at the same time then they could pay them all off. Normally there is not much chance of this happening but the government regulates the process so that there is enough cash on hand so that there normally isn't a problem.

What actually happens though, most of the time, is rather than have that much free cash lying around, an insurance company will buy insurance on its own policies so that if a huge catastrophe did happen one insurance company wouldn't be on the hook for all of the policies. This was a problem after 9/11. Many insurance companies called reinsurers came calling to the government to be bailed out because they had never considered that there was the chance that that catastrophic of an event could happen. The actuary tables don't normally consider suicide bombers, though I'm sure they do now.

Well AIG's Financial Products division had a lot of fun selling insurance to multiple other companies to cover their loans. The reason that all of the banks wanted this insurance was to make sure that the capital requirements set up in their countries regulations where covered. A capitol requirement is basically a requirement that you have enough liquid assets i.e. an asset you can sell easily on hand in a particular ratio to your liabilities or whatever money you owe to someone else. Basically you need have half the value of your liabilities in liquid assets. Or some other ratio it depends on the country.

Normally they wouldn't be allowed to do this because any old insurance on a bond or loan doesn't necessarily mean that it will be paid out. AIG, though, at the time had a Triple A rating from Moodys, the rating company. How Moodys calculates their ratings is unknown to me but there are normally very few companies that have a Triple A rating, having one means that you can borrow money at extremely low rates because everyone believes that you will always be able to pay it off. It also means that if you offer insurance on something it is considered to no longer be a risk and instead can be considered capital.

The insurance contracts that AIG was offering also, because this was all a way for the banks to get around normal capitol requirements, had clauses in them that said that if AIG lost its triple A rating then it would have to begin paying out in order to satisfy the capitol requirements that had been satisfied by the very fact that AIG had a Triple A rating. Right before the United States took over AIG, AIG lost its triple A rating.

Remember how when a company normally sells insurance on something it is supposed to have the money on hand to pay off a certain number of the contracts in case of catastrophe? Well these insurance contracts where called Credit Default Swaps. In the Financial Services Modernization Act of 1999 there was language in the bill that said essentially that there would be no regulation of CDS's. This means that there was no regulation of, well capital requirements on CDS's. Thus, there was no money to pay off these contracts when they came due. The ironic thing is that AIG's credit rating was lowered in large part because of all of these CDS's and because their credit rating was lowered they didn't have the money to pay out all of the CDS contracts.

The ENTIRE REASON WE BAILED OUT AIG was because of the other banks. If they all of a sudden lost all of their capitol because AIG died then they would flood the market with assets in order to recapitalize. If they did that then banks not even involved with this stuff would see their own asset pools fall in value, possibly making the entire banking sector insolvent.

And all of this is why even though I believe that the people who ran AIG into the ground need to drawn and quartered, and by that I mean that need to have their limbs pulled in all different directions until their joints all snap and then they need to be cut into four different pieces, it was neccessary to bail out AIG.

For Elliot Spitzer to be walking around saying that it is horrible that banks are getting money from the AIG bailout, well that was the damn point of the whole bailout. To be upset about it now seems odd.

The Bonuses on the other hand, that is a different story.



There's something

I've been reading recently about the bonuses being paid out to some of the people at AIG. And I read this.

American International Group Inc. will pay $450 million in bonuses to employees in its financial products unit. That division was at the heart of AIG's collapse last fall, which compelled the U.S. government to provide $173.3 billion in aid to keep it running.

Now theoretically you could argue that you need these people to fix the mess that they caused. But I'm actually getting tired of the idea that the only people on earth who understand this stuff are the people who work on wall street. This isn't the creation of Quantum Mechanics where even though the initial math wasn't particularly hard, you have to get over non deterministic causality. This is math, particular math, but math non the less. Give some damn good math people some books, tell them that they have a couple of weeks and then let them go at it. I can't imagine that its that difficult. Lots of people do this stuff they are not magical unicorns prancing through the fucking liquor forest.

And then I hear this.

Chief Executive Edward Liddy told Treasury Secretary Timothy Geithner in a letter dated Saturday that the next payments to employees of the financial products unit -- whose woes caused massive losses at the giant insurer -- are due on Sunday, and added "quite frankly, AIG's hands are tied."

There are people out there called lawyers who from my understanding can twist the law into all sorts of fun shapes. Use them. If you don't it indicates that you don't want to.

This stuff makes me so angry that the hair on the back of my head and arms stands up, rippling like the god damn African savanna. If I could I'd get these people chained and make them walk a fucking Gauntlet.


Fun Idea

Hell isn't other people, heaven isn't either, both, yourself.

By that I mean, imagine all eternity surrounded by yourself. Say 50 copies.

Wife Quote #1

We are not in a game show called "All logic, all the time".



And another thing

I'm curious as to why anyone would think that they could make it in the market? The idea is that the market prices information. There are enough people out there that understand what is going on to create arbitrages that should smooth out any differentials in information pricing. So the only way that you could make money in the market would be through dividends and not through price increases of the stock. A price increase in the stock would indicate new information coming into the market. New information means that no one had that information before hand because it wasn't already priced in. (This thinking works for any asset) So any expectation of a price increase in the stock is can't be based on actual information only on the expectation of future information.

Update: Obviously the stock market does go up but my question is how that happens particularly and how is it that anyone expects to make money from it?


Idea about markets

Why is that we have people who stand on the floor of a physical stock exchange in order to buy and sell things? Why do we call someone who physically houses the stock certificates in large filing cabinets to call someone else to buy or sell a stock or some other kind of asset? Furthermore, why do we get people who do not understand the market to invest in it?

Growing up everyone said that you needed to be invested in the stock market because that was the way that you created wealth. A stock is some type of nominal ownership in a company that actually confers no ownership of the company and furthermore protects you from any risk, if the company fails, except of course whatever money you put up. I have never looked at a company balance sheet. I'm sure if I ever did I might be able to make heads or tails of it but I've never actually looked at one. Why then should I own stock. I obviously have no knowledge of any individual company that would tell me if buying some nominal piece of it is a good idea.

Bonds are debt. If you buy a bond, then you have loaned someone money. Or actually you've bought the bond from someone who in a chain of ownership lent someone money. You didn't loan anyone money except in some metaphysical way. We'll say for accounting purposes that you loaned someone money. Again, when a company releases a bond at a particular interest rate, you need to know if the interest rate matches up with the risk that the company will not pay back the loan.

Once again, I've never looked at a balance sheet. There should be no reason for me ever to buy a particular bond. But we tell everyone that they should be invested, when they are older, in bonds because bonds are something.

I don't think that I'm unique. I don't think that most people who have invested in their 401(k)'s even know why a 401(k) is called a 401(k). (Has to do with the section of the tax code that allows you to put money away tax free until you take it out past a certain age). Why do should people put there money in something that they have no understanding of. Why should they pay someone else who claims to have knowledge of these things to invest for them. They can't exactly judge the correctness of the person they're paying's decision. So they look for proxies like how much money they are making. And if another person is making more money then they'll go to them even if the reason that the other person is making more money is because they are taking on more risk.

We have a cultural tale about bridges and the wisdom of jumping off of them visa vi that actions popularity but apparently when it comes to handing over your money with the promise made that you will get more back, we think bridges must not be very high up.

But really the whole point of this is to ask, if the money going into the system is only being judged on the basis of how much money it makes in so far as the average investor is not particularly good at judging risk, and in so far as that's the money's judge then that's the final judge. It doesn't matter that the people who make the particular decisions have better knowledge of the risks. They will ignore that because the thems that control the money control what information is most important. Lets also note that the people who we say have knowledge, don't appear to actually have pertinent knowledge. Which makes it seem, if the determining factor in where the money goes is who gives the biggest return within reason (and its amazing how elastic within reason can be) then the market is naturally bubbulicious. The rise of individual investor apart from profession doesn't lead to more information in the market, it leads to less because actual information gets swamped by one concern, who will make me the most money.


Rush Limbaugh

I think it is very interesting that the President has decided to make Rush Limbaugh the face of the republican party. Obama got it started when he said that the Republicans could not just listen to Limbaugh and expect to get things done. Emanuel comes out today on Meet the Press and says,
He's asked for President Obama and called for President Obama to fail. That's his view. And that's what he has enunciated. And whenever a Republican criticize him, they have to run back and apologize to him, and say they were misunderstood.

This is a deliberate strategy. I remember back in 94 when everyone seemed to think that the Republicans were the greatest force on earth. Rush was held up as part of a movement of very very angry white men. Falling Down was discussed as an important movie. A movie where a bespectacled flat topped middle manager in his too short tie finally snapping deciding that because he couldn't get what he wanted at the fast food joint, well he just needed to shoot some shit. Or something like that.

Then, this was all seen as part of the zeitgeist, we were rushing with a wave. Now? Well the world is a little different. Not as liberal as I'd like. Not as pulled back from the time when the nightly news talked about a rising men's rights movement as if it were something that included all men rather than really a bunch of middle class white men who just didn't feel that they had enough power in this world. Not as far from the necessity of pleasing the bankers, traders, and other masters of universe who "create the wealth of the world". But this isn't an era when the Democratic Speaker of the House loses his race because people are afraid that their guns are going to get taken away.

But Rush Limbaugh is nothing if not consistent.

The most curious part of his speech is when he says that "a couple of prominent conservative but Beltway establishment media types . . . [have begun] to write on the concept that the era of Reagan is over" and the crowd booed.

You can take that statement to mean a couple different things. The best way, in my mind, is that the political coalition that Reagan built does not exist anymore. Union workers tired of people telling them how the live are not a large enough cohort to decide elections. The movement of white southerners into the Republican column has been completed and the movement of white northerners in the Democratic column has begun. The rise of Hispanics as an election deciding cohort is rising. Just as the there is no reason to believe that FDR's coalition could exist for 30 years, Union members, southerners and urban workers, there is no reason to think that a coalition that Reagan built in 1984 would continue to be relevant in 2008.

Or you could take it mean that the timeless wisdom of cartoon Reagan will never die. Which is what Limbaugh and the crowd decided. That is what I find fascinating. Generally a political movement is built on two things. Solutions to temporal problems and a large enough group of people who think that those solutions fit their view of the problems. Reagan beat Carter because the democratic party was split and because Reagan promised that the world would be better if government got off of everyone's backs. What that meant to people, I think is this, taxes where indexed to inflation and so had risen by a bit during the seventies in nominal terms even though their real burden probably hadn't. The economy sucked because Paul Volcker killed it. There is a very good argument to be made that he needed to in order to kill inflation but that doesn't help the average person who lost their job.

Second the social order was changing. Black people were not being kept from sight and mind. Median wages hadn't increased since 1973; all of a sudden there were all of these women in the work place who you couldn't hit on; and horror of horrors some of them made more money. Wives came home and said that maybe they shouldn't do all the work around the house after coming home from work, and even worse some of them said that maybe they should go their separate ways. Who had infected the world and made this topsy turvy mileu? Liberals, damn liberals. They kept saying this and that. Them and the damn lawyers always suing good people.

Then, the economy improved, somewhat. Tax cuts worked. (This irrespective of the fact that Volcker lowered the interest rates and that that had a much more profound influence on the economy.) The temporal problem was solved. Women and Black people kept being visible but it didn't hurt as much.

But really, this was only a portion of the electorate who felt this way and feels that way. Most people just try and muddle through. They don't hold very strong political views, and will vote for whoever they feel will make things better. I don't believe that we can say that the totality of Reagan's victory or the republican's victory in 94 can be generated from this view. But we can about the base.

The people who man the phone banks and show up every election including the primaries. These people believe. Tax cuts solves all. Smaller government, which can't have a root other than "God damn civil rights act" is the key. (It may for particular individuals, idea's can become unmoored from their root, but the genesis, if we are to believe conservatives themselves, who root their movement in Barry Goldwater's 1964 election, was anti civil rights. Of course it could also be said that the true root of small government is 19th century robber barons, but I'm not sure that has as much salience to the electoral cohort that elected Reagan and the modern Republicans.) But that is madness for a political party to act this way. A group, if it wants, can languish, writing in obscure journals hoping that someday the world will return to them but they guarantee then that their views will have only a mild chance to gain actual influence. Hell, look at the libertarians.

This is now not the time when the body politic views tax cuts as the solution to a problem. People are not so stupid as to not remember the last round of tax cuts. That sure didn't seem to help. There has actually never been a large cohort for genuinely smaller government. People might say that they agree with the phrase "smaller government is good" but they don't mean it. If there has never been a large voting cohort for getting rid of the army, getting rid of medicare, getting rid of medicaid and social security, then there has never been a large voting cohort in support of smaller government. There was a cohort for that message at a particular time but no actual cohort for that reality.

So for the folks at CPAC and Limbaugh to believe that the solution to today's problems are the same as the solutions to yesterdays problems, I say have fun. And please Limbaugh embrace your role as leader of the Republican Party. It'll be a good day for the Democrats.


Good quote from my wife

You left your Schlitz on the spice rack.

Corridor of Shame

Obama's been pretty good at the whole political theater game. See Ty'Sheoma Bethea, from Dillon, SC. Young girl writes well written letter with good rhetoric for Obama to help fix the dilapidated, run down, schools that she and many students in rural South Carolina attend. This shouldn't be something new in the news since it was mentioned at least thirty to forty times during the Democratic Primary in South Carolina. But, well, we can't expect the world to really pay attention to the situation of the poor in South Carolina. Rural people are all dumb crackers who vote republican, especially in the south, except when their not.

In 24 hour news though, it seems that the right has turned into a ADD afflicted 12 year old. There exists a young girl who is being used as a political prop, destroy her. She's black no one will see her as sympathetic. Yeah, write the article. Let's see, HA HA, she thinks Obama is Santa Clause.

But if your going to write an article about how she really didn't need to ask for money because the people of Dillon, simultaneously don't care about the schools, because they didn't pass a bond resolution in 1974, but have actually fixed the problem because they passed a bond resolution in 2007 don't ignore the fact that they haven't gotten any of the money. I know that would destroy the entire thesis of your article but that's what facts do.

The entire article rests on the premise that people don't care about facts, which may actually be the normal reader of the Washington Times. But if anyone where to actually look at the facts, if anyone did a casual google search on the issue and found this;

then it might begin to make sense that a child took the time to ask the president for help, because its not like anyone else has been able to.


I use "and such" too much

I'm mildly curious if any one else uses that phrase rather than etc which from my experience is little used.


Quitting Smoking

I am quitting smoking. And as this is the third or fourth time I've tried, I've come to expect a couple of different things. The first is the constant desire for something. Food satisfies it for a second, water too. But it instantly comes back and so your off for a constant gnawing desire for nothing. The Actual act of smoking, drawing quick droughts of smoke into my lungs, isn't that appealing right now. Nicotine gum isn't that appealing. Nicotine isn't that appealing. But my body with a quiet humming feeling wants something. Its annoying. Don't smoke kids, its fun but a pain to quit.


When Mormons Attack

Why is it that no religion can send to my door someone who knows the finer points of the religion. If I've already told you that I'm agnostic, please don't use personal statement to convince me. If I ask about exactly how the relationship of the father and son is, don't tell me that because the father is the father and the son is the son then the son is god. That doesn't say anything other than that familial relationships create kinship. If I ask how, if Joseph Smith was a prophet, how he says something completely new about metaphysics that no other admitted prophet has said and ask why that is don't give me non answers.

I didn't bring up polygamy because I knew they had a pat answer for that because that would be something they are expecting. And please, the fruit, i.e. the religion I believe in is good, therefore Joseph Smith was good is a meaningless answer.


Band of horses

Everyone should read this

TN state representative has introduced a bill requiring that every fetus aborted should have a death certificate. Aunt B at Tiny Cat Pants has written the funny.

It’s really hard, when looking at the legislation Campfield is trying to get passed, as a whole, to not get a sense of my vagina as some ancient, sacred thing–like the Ark of the Covenant in Raiders of the Lost Ark–that Campfield is trying to keep closed except under special ritual circumstances in order to keep it from melting the flesh off people.

How sacred is my vagina?

It is so sacred that parents should be able to keep their children from learning about what it does in school (HB0811). So taboo that advertisements for it should be subject to a 25% sales tax (HB0809) and that, if you want to look at it, you should be charged an “amusement tax” (HB0810). So mysterious and full of danger is my vagina that we must forbid kids from even learning that there are other things you can do with it besides have babies (HB0821).

Go read the entire thing

Hat tip Echidne

The problem of Political Labels

Ross Douthat at the Alantic has an odd post about possible realignments of the our two political parties in reference to a number of posts about a liberal libertarian alliance. He says,
What could happen, instead, is a bigger-tent liberalism - somewhat chastened, perhaps, by some big-government failures in the Obama era - that makes libertarian intellectuals feel welcome, engages them in conversations about smarter regulations and more efficient tax policy, and generally woos them away from their culturally-dissonant alliance with people who attend megachurches and Sarah Palin rallies. This would make for a smarter left-of-center in the short run, but I think in the long run it would be pernicious. It would further the Democratic Party's transformation into a closed circle of brainy meritocrats, and push the Republican Party in a yet more anti-intellectual direction. And it would produce an elite consensus more impervious to structural critiques, and a right-wing populism more incapable of providing them. The Democratic Party would hold power more often, and become more sclerotic as a result; the GOP would take office less often, and behave more recklessly on those rare occasions when it did manage to seize the reins of state.

I'm confused by his use of the word populism. The right does have a rhetorical set that constantly inveighs against a so called elite. But it cannot be said that the republicans are truly populist because very few of their policies can be said to be truly populist. Entitlement reform for example under Bush took the form of privatizing social security. That would a massive wealth transfer from the middle class to the financial class. The details never got sorted out but I assume that there would have been a menu of options to invest in with the inclusion of all of the normal fees that mutual funds and such charge for their services.

But the largest problem seems to be a misunderstanding of the voter coalition that the Republican Party has constructed. If we look at the 2004 election, people who made less than $50,000 voted for Kerry way above Bush by 55 to 44. People who made more than $50,000 voted for Bush above Kerry by 56 to 43.

But if what we are talking about is really just a style not an actual voting coalition nor an actual set of policies, then I'm not sure what the point is.

My suspicion though is that Ross has conveniently forgotten about everyone who isn't white. For example even though many people argued that Bush had some sort of rapport with Hispanics he still lost them as a cohort, 53 to 44. His win was entirely based on an middle class and up coalition of whites.


Things I'd like to know

What did letters and words look like before I could read?

The Work of the Government

One thing I don't think many people realize is that our economy is not and never has been a natural creation. Our economy is the result of hundreds and hundreds of accumulated decisions by government and individuals over hundreds of years. There is no such thing as a corporation in the wild. There have never been ditties sung about watching the corporations and the antelopes play and not because that phrase doesn't scan.

There is no reason to think that changing the particular features of our economy is in itself wrong. There is no reason to privilege the decisions made 50 or 100 years ago over decisions that could be made today. Today a self styled Burkian conservative would say that the decisions made 100 years ago have obviously sustained themselves in a way that isn't too bad and we have no idea what the totality of effects will be on decisions made today. To which I say, ok we'll think hard before acting. But it doesn't take years of thinking in order to decide that something doesn't work. Burkeians also says that because the information flow is asymmetric, we know and can know more about the effects of an action taken 100 hundred years ago then we do and can about the future effects of an action taken today, that we should be very, very careful about taking action.

That argument though is generally used to say that we should do very little to change our world. That we should be paralyzed by our inability to "know" the future. Andrew Sullivan normally describes himself as a Burkeian conservative. As a gay man though he has a personal interest in changing marriage to include him. He is very quick to make arguments that the change that would happen would be a good change. His arguments and his quickness to believe that the changes would not be horrible while at the same time arguing that we should be very careful to the point of inaction on other issues seems to point to self interest as the deciding factor in actually believing what gets to change and what we need to keep the same. Of course this is true about most of humanity. If something benefits me then I don't want it to change. As the Upton Sinclair said, "It is difficult to get a man to understand something, when his salary depends upon his not understanding it." Or in other words a person will very quickly say that his personal interest and his inclination agree. It is no great shock to see that the constituency for the government doing very little greatly increased during the civil rights movement. What the government was doing was not in the perceived interest of a lot of white people. Feminism was and is not in the perceived interest of men. Why is the republican parties largest constituency white men? Because government action to increase the power of black people and women is fundamentally against the perceived self interest of white men. They comfort themselves by saying that they are not against equality for women and black people they just don't want the government to do anything about it.

People don't generally like change unless they can see how that change helps them. Even people who might be substantively helped by a particular change will argue against that change if it changes their relation to people lower then them in power. People like to say that economics isn't zero sum. Power actually is zero sum.


Swaps and Such

After talking a couple of people who had read my previous post I believe I need to explain a couple more things as relates to credit default swaps.

To maybe explain a little bit better, a general swap is when I make a contract with someone else to give them say 100 dollars a month for two years. If in those two years an asset that I'm holding loses value then I can call in the swap, depending on the particular features of the contract, so that you pay me the original value of the asset and I give you the asset. So in a credit default swap the underlying asset is a bond and the loss of value is defined as a default on the bond. There are a couple of other features of credit default swaps such as automatic reworking of the terms of the swap if the bond is downgraded or the bond yield rises, which means that demand for the bond is down possibly due to fears that it will default.

The largest problem as I explained in the last post was that you don't have to own the underlying asset. Multiple swaps can be placed in relation to one bond, inflating the downside risk of a particular default. Probably the best thing to do for swaps is to make it so that if you create one then you have to own the underlying asset. Then only one swap can exist per asset. Other basic regulations are that there has to be an exchange like a stock exchange where these swaps are sold. If all of the deals are whats called over the counter then knowing the size of the market and the valuation of risk in the economy in real time is much more difficult. One thing that is freezing the banks is the lack of information on what everyone owns and what the actual risk is.


So what is the point of "Liquid Assets"

In my previous post I clumsily laid out some ideas which are either wrong or blindly obvious to a first year econ student. My main point was that it seems that cash flow and time horizons are very important for thinking about how people view money at the micro level. It might be fine to look at the total amount of a loan and see whether it is rational for someone to take that loan. But in general when people say that looking at total values is the best thing to do they are using the word should. At times it seems that people think that should has the same logical force as is.

But back to the main point. What seems to be the case in the housing boom and bust is a policy of easy money over an extended period of time when easy money was a bad policy. After 2001 there was an immense stimulus put into the economy by a combination of low interest rates from the fed, large tax cuts for the wealthy, and a lack of suitable investment opportunities. Microsoft kept enormous amounts of cash on hand for years in part because of their regulatory difficulties but also because, as they kept saying, that they didn't have suitable places to invest. That is in part the reason that they were able to release the original Xbox and treat it as a trial run, in order to understand the gaming console market.

With so much money shifting around, and with most equities performing horribly, bond yields at historical lows there had to be somewhere to park all this money to get a decent return. In comes credit default swaps. A credit default swap simply is a contract between two entities that essentially insures the value of a bond or security in case of default. So if I own a bond I can pay you some amount of money over time and if the bond defaults then I give you the bond and you pay me face value of the bond. Or if I don't actually own the bond you can give me the face value minus the market value of the bond. Lets say the market value on a 5 million dollar bond is 15 percent of face value and I don't own the bond, then you would pay me 5,000,000-(.15*5,000,000) or 5,000,000-750,000.

In the first case where I actually own the bond then a Credit default swap is a hedge against default. In the second it is a speculation on the default risk of a particular entity. Since you don't have to own the underlying asset that the CDS then that market is inherently inflationary. I can sell multiple CDS's on the same debt if I believe that the risk of default is low. If the risk is misjudged and mispriced then things like Lehman brothers and AIG happen.

Now what in the world does this have to do with the Mortgage backed securities market. When a bank or mortgage company originates loans it doesn't keep them on their books normally. What they do is throw them all into a trust and sells shares on that trust. This is normally thought of as a good thing because it makes an illiquid asset, a house, into a liquid asset and gives the bank more capitol to produce more loans. The shares are normally broken down on the basis of payment schedules. A total amount of money comes into the trust from payments on the mortgages. You first pay the AAA security holders who receive the least return. Then you pay the BBB holders and then the CCC holders. Each receives a higher payment due the higher risk of not receiving a payment. These are normally considered safe because of general stability of the housing market and the fact that housing defaults were primarily considered a function of the mortgage minus the value of the house. Considering that general housing prices where rising then the total risk of default should be low enough for the pricing of risk.

Now part of the problem is the complete shenanigans going on in the market where BBB tranches where being repackaged as aaa bbb and ccc tranches. But the largest problem is that everyone lost their mind when pricing risk. The total CDS market was sitting at around 60 trillion dollars thats $60,000,000,000,000. The total world economy in 2007 was 54 trillion dollars. That is to say there wasn't enough money in the world to cover all of the credit default swaps. Remember that the swaps where also only covering a certain percentage of total outstanding debt in the world because thousands of people could have a swap on one bond.

If the total value of swaps on 1% of bonds worth $1 is $100,000 then a one percent default rate is a thousand dollars. The risk profile of the total market is hugely magnified.

Other factors to consider are the tax decrease to zero on housing sales around 2000 which significantly changed the yield curve for a buyer and seller combined with the absurd run up in housing prices created incredible liquidity in the housing market.

How does this post and the last one work together. All of the factors involving CDS's and MBS's created a cheap loan environment which allowed for increased liquidity in the housing market making it possible for speculation to occur in a traditionally speculation free environment. Combine that with the limited time horizon of most buyers and sensitivity not to total price but cash flow considerations. It should not be suprising that not only where housing prices becoming absurd but that a fundamental mispricing of risk on both the institutional investor side and the home buyer (which we should actually expect) where the main factors.



Liquid Assets

Keynesian economics tells a couple of very important things. Many of his basic points have already been talked about and talked about. Mainly, that when total demand falls and the fed overnight rate falls to zero then a very sick cycle develops. Total demand falls and so supply contracts, which causes a further erosion of demand, which. . .

The thing that is not talked about as much his his idea of employment as it actually exists. The economic theory of the time said that people would withhold their labor if there was a fall in real wages. This is absurd because people don't stop working when inflation goes up. Of course if inflation is very high then people will begin to argue for increased wages and may stop working at a particular place if they can find a better wage at another place. But people react when their personal basket of goods goes up in price. People are very sensitive to increases in prices of food and fuel. They are less sensitive to the cost of say televisions. It seems that people think of their personal money supply as important in so far as it procures them what they've come to expect in terms of goods and services.

Access to cheap credit should be looked on as part of the individual money supply. It has to be paid back but most people think of that as a cash flow issue. I have x number of dollars coming to me every two weeks, if I get a loan for y value which has a pay back of z every month then the loan calculation becomes 2x-z=d if d satisfies my normal expectation of a basket of goods and the utility of the good y buys plus the basket of goods that d buys is higher than the total utility of the of x over a given time frame then it makes sense to take loan y and cash flow d. If credit is cheap and, in the case of many of the house loans taken out oddly cheap, then d will be high.

The problem of basing this on housing prices is two fold. First houses are a illiquid asset. Its not easy to sell or buy a house. Second no one thinks in terms of thirty years. No one. I'm 26, I've changed so much over my life time that I don't know who I'll be at 56, nor do I know what my cash flow will be. So if I were to get a thirty year loan my basic time horizon would probably be at maximum 5 years. y+d if credit is cheap will always have more utility then x for 5 years.

But even this is complicated by the aforementioned fact that houses are an illiquid asset. If the house that Y bought ceases to have the utility it once had because for example I move somewhere else in the country due to getting another job then the utility of y+d may be lower than 2x.

The problem if further complicated by the ability to trade equity for credit on a house. Giving that to everyone is like credit card crack. You still have the utility of what y bought and some fraction of y. Basically you still have a house and a cash flow of d+c where c is the credit from the house. d+c may actually be higher than 2x. But this is only sustainable over the short term. But like I said I don't think anyone thinks of anything over the long term.

Now some people might say that I'm being foolish in saying that people don't think long term. How for example could 401k's exist. I'd say that the actual calculation is if x minus contributions to a 401k satisfies the desire for a basket of goods then people will save. If not then they will not.

I'll write more on this later.


Michael Phelps and Pot

Leon Lott, the Richland County SC Sheriff, has come out saying that the police are investigating if any charges should be filed against Phelps due to the recent pictures of him face down on a bright red bong. Now I'm sure that Lott is doing this because it gets his name in the papers for a couple of days and then this will die a quiet death. I can't see the prosecutor's office going along with this unless the entire reason that they are investigating is because the solicitor has asked them to.

And all over the airwaves I heard people decrying Phelps and his effect on the children. Apparently, if you take a lot of money from advertisers then you are automatically a role model for children. I don't know if this is in the contract that you sign but its at least implied, somewhere by someone. But didn't we get passed this sometime ten years ago that the guy who's face is selling you sneakers might not be the best human being in the world. Kids don't buy Air Jordans because they want to be as consistent in their marriage as Jordan was but because the ad said they might be able to play basketball like him. The selling point for anything Michael Phelps sells is that he's a freakish human being in the water. At no point does anyone who see's him hawking a product think well if I smoke pott then I'll be a good swimmer. There is no causation and even kids as young as five get that.

Basically I'm saying who cares. He smoked a bong. That's all that will be provable in court. There's no evidence of what was in the bong. And who cares anyway. He smoked pot. Lots of people have smoked pot. None of them then ran over a girl on a tricycle. God this is dumb.

Left Behind

If any of my non existent readers has read the horrible dreck that is the Left Behind series, and if you got past the first one you are either a better man than I or just horribly, horribly in need of words on a page, any words, any words will do, needs to read Slackavists wonderful page by page takedown of the book.

Right now he's going through the movie. But check the archives.

Music for Today

Ethics and Such

This Post doesn't have an explicit policy point and is just a musing on the different ways people think about things.

In general it seems the arguments about health classes and primarily sexual education are misstated on both sides. The conservatives generally it seems believe that to teach about sex will lead young people to have sex and if we just paper over it then every one will go back to having Archie and Betty dates at the local soda shop rather than schlep off to the bridge, ingesting drugs, and engage in sex those conservatives wish they had had when they were young. Or something like that.

Liberals wonder what all the fuss is about because its not like teenagers learn about sex from other people as a concept but rather decide that they want to do things with those of the opposite or same sex that they haven't done before even if they aren't quite sure what it is they want to do. Once they have done it they will realize that it was perfectly fun and should try and do that again and again and again. Better that they have condoms because God knows we can't stop all of them.

The problem is that Health Class is the modern form of the old Ethics class. Health is held up as the necessary condition for happiness. If a person does what the health class tells them then they will be happy. Liberals generally don't see this as an ethics class because they buy into the the basic presupposition. Not that any liberal would say that Health by itself is happiness but that yes to be healthy is better for happiness than to be unhealthy so doing these things is better than doing other things. Ethics is the science of correct action, thus this is ethics.

Conservatives on the other hand don't really believe that health is a good in the same way that say being saved by Jesus is a good. And that good health is in no way a necessary condition for the true good. They then do not have a concern for the possible consequences of sex such as STD's and pregnancy because teenagers shouldn't be having sex in the first place. If they do and the girl gets pregnant then everything is fixed if they get married.

Liberals argue that this is madness if you actually look at what happens when teenagers get married too soon or a girl gets pregnant when she is a teenager. Conservatives say that the facts need to be changed. If they didn't have sex then none of this would be a problem.

So the problem seems to be that liberals don't believe that health class is an ethics class when it is, while conservatives have a completely different conception of ethics.

If we had actual ethics classes in school then health would merely be a subset of that the general ethical teachings. It would be subordinated underneath the actual teaching of true ethics. This is why conservatives believe that schools should teach the bible.


A lot of Talking Going On

The 600+ pages to stimulus legislation is being pored over as we speak by anyone and everyone looking to either get a piece of their's or to decry whatever they can that is in the bill.

To wit.
But even before the president stepped into the meeting, Republican leaders in the House asked their members during a closed-door meeting on Tuesday to oppose the recovery plan unless significant adjustments are made before the bill comes up for a vote on Wednesday. They said they would ask Mr. Obama to urge House Speaker Nancy Pelosi, Democrat of California, to make changes to legislation that they believe includes wasteful spending.

“The Democrat bill won’t stimulate anything but more government and more debt,” Mr. Pence said before meeting with Mr. Obama. “The slow and wasteful spending in the House Democrat bill is a disservice to millions of Americans who want to see this Congress take immediate action to get this economy moving again.”

The White House has signaled its willingness to make at least some changes, with Mr. Obama on Monday urging Democrats to strike the portion of the legislation that calls for spending $200 million on family planning for low-income people. But it remained an open question how much the president would be willing to change the signature proposal of his term, which could also create a conflict with Ms. Pelosi and other Democrats.

No Republican is going to vote for this bill because contraception funding isn't in the bill. You are going to get a couple of people in the senate but to even believe that the crazy, mouth breathers in the house have any goal other than the fling poo is to ignore the last 14 years. It is very simple, the republicans do not believe that cooperating with the democrats is in their political interest, that is all full stop. They probably actually believe that spending money Keynesian style will hurt their economy. I mean didn't their smart friend from the Heritage Society say that evil Roosevelt prolonged the Great Depression with all his programs.

This is Disturbing

I'm first of all unsure why this man needed to be arrested in the first place but I am damn sure that the use of a taser was in no way justified by what he was doing. The officer seemed to know the guy. What the hell was he really going to do.


Spanish Flu Forgotten, more like 1890-1920

Matthew Yglesias asks why the Spanish Flu doesn't have any salience in our historical memory. The answer probably has a lot to do with the fact that there is very little remembered about that time period at all. There is very little mentioned about the rise of the FDA. How many people really know what McKinley even ran on other than that he sat on a porch and ,due to the fevered imagination of Karl Rove, that Mark Hanna was his campaign adviser? The 1912 Election is generally considered to be a three way race between Taft, Roosevelt, and Wilson but that perennial vote getter Debbs was also in that race. Does anyone remember from high school history the panic of 1907? Does anyone talk about the collapse of commodity prices after the first world war that put the south and Midwest into a recession? Does anyone even remember that Coolidge said that agriculture was a sick industry during the supposedly roaring twenties?

The real reason that none of this is remembered is two fold. First there are very few people alive to talk about it and no one when they were alive wanted to talk about it because, after that comes the great depression and WWII. The place where modern American history begins, irrespective of the massive changes in American Life that happened before that.

Things No American Should Ever Forget

Old But Still Awesome

Quick Thought

Why can't Democrat's in South Carolina get elected state wide? Is Lexington too spread out to canvas regularly?

Because not everyone has seen this

Any Actual Arguments?

Does anyone have an actual argument for why gays can't get married. Most of the arguments I've heard are more like underpants gnome arguments.

1. Gays get married
2. ?
3. Civilization collapses or something

Most of the argument centers around damaging the "institution of marriage" which before the debate came across my radar I didn't know existed. I knew marriage existed, otherwise I wouldn't be married, but I didn't know that there was an institution called marriage. Does it have a building? Hell does it even have a particular set of rules that apply to everyone. I keep going back to the old saying that you can't ever tell what its like inside of someone else's marriage. Some rules that seem inviolate for me are not for others. Marriages continue to exist after infidelity, madness, hell some marriages probably continue to exist even though both people in them are gay and of the opposite sex.

Marriage seems to be something between two people who decide to make their own rules. Even if you look at the traditional church vows there is a lot of wiggle room inside all those vows as to how they will actually be kept.

So where is this institution?

The other argument is that we'll be changing the traditional definition of marriage. I don't particularly understand why we should be so concerned about a words definition. Many words have changed definition. Awful used to mean full of awe, now means really bad. I mean if someone got up and screamed that pizza was and inviolate word and needed to be chained to one thing for all time most people who just stare quizzically at them wondering if there was anything else nuts that the person was going to say.

But the counter argument might be that pizza is not an important word. Marriage is an important word. Are we then arguing that society is based on words and language and nothing more stable? That its merely a collective agreement amongst individuals? If that's the case then there is no good reason that we can't change the shared consensus in particular ways. Its all subjective anyway if its just a shared consensus.

But marriage, my imaginary arguer argues, was instituted by God, it's in genesis. (I guess this is where the institution of marriage nonsense comes from but it seems that if an institution in this case is just something instituted the the arguer is really piggybacking a lot on the rhetorical power of the word institution which in my mind at least has a lot of buildings associated with it) Of course the normal counter argument to that is that the bible shows that someone can be married to many people even though there is only one favorite at a time. Serial polygamy. The counter argument to that I've heard is that most of the examples of polygamy, such as Abraham taking another wife and then having to send her away at the jealousy of his first wife shows that polygamy is bad. But here we get back to the problem of the utilitarian effects of different forms of marriage which just goes back to my original question, what awful effects would gay marriage have?

Dear Lord

Has it come to this. Has Catholicism really reached this point. I understand the idea that we should possibly worry about certain concepts being diluted by the frequent use of them in unnecessary ways, but really. This is just linguistic fanaticism. That facebook call's the linking of one profile to another friending does in no sense indicate that the individual "friending" believe that their is any necessary link between the pushing of button and the actual fact of having or gaining a friend. AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAARGH

UPDATE: Well I should probably read the articles a little bit closer before going off. I don't know why there was a news report on this, just as I don't know why the Pope really thought this was an important thing to say.