30 July 2008

Continuing the Argument on Oil Prices: Fisking Public Citizen's Tyson Slocum

I've been meaning to try to keep my posts shorter, but this one isn't going to promote that trend. This post is an outgrowth of a long argument between yours truly and Gingerbaker, another regular at Ed Brayton's Dispatches blog. In a nutshell, Gingerbaker thinks I'm either naive or a "corporofascist" because I think increased demand is the primary cause of the last few year's increase in oil prices, and I think he's a silly conspiracy theorist because he believes its primarily caused by oil companies manipulating the market. It would take far too much space here to recount all the points of disagreement, but Ginger thinks I should read congressional testimony of Public Citizen's Tyson Slocum ( that gives evidence for oil company manipulation. As I noted in our argument, I don't doubt oil companies try to manipulate, so I'm sure it's not hard to find evidence of wrongdoing; I just doubt that the nefarious schemes of oil company execs could double the price of oil in two years. The odds of me being convinced by a report from Public Citizen--an organization that is reflexively anti-free markets because they think markets benefit corporations and harm consumers, exactly the opposite of what Adam Smith believed--is about the same as Richard Dawkin being led to an altar call by a Jack Chick tract. But I demanded that Ginger actually give me a source, rather than continue to make unsupported assertions, so it's only right that I actually look at it, rather than continue to bash it without reading it first.

First eyebrow raising claim:
At least $30 of the current $115 of a barrel of oil (or about 70 cents of a gallon of gasoline) is pure speculation, unrelated to supply and demand fundamentals.
Hooollly Cow! And what's his evidence for this? Well, I struggled to find it it. I did find this:
A recent bipartisan U.S. Senate investigation summed up the negative impacts on oil prices with this shift towards unregulated energy trading speculation:
.Several analysts have estimated that speculative purchases of oil futures have added as much as $20–$25 per barrel to the current price of crude oil...
Sooo....which analysts? Who? I have a deep fear that there is a bit of circularity going on here. Slocum--an analyst--claims speculation is causing the price increases, a Senate comittee mentions that in its report, then Slocum uses their report as evidence of his initial claim. OK, honestly I can't say that's going on, and I'll admit that it's not exactly fair to suggest it. But doesn't Slocum have some reponsiblity to give us real sources? I mean, he is giving congressional testimony and citing congressional testimony--even if he's not citing himself it's circular and doesn't get the reader back to any actual evidence or cite a reliable report.

Maybe it's not appropriate to ask that all this appear in congressional testimony (I think it is appropriate to so ask, but I'll play devil's advocate here); the fact remains that Gingerbaker wanted me to be convinced by this. He cited it as evidence, but it isn't evidence, doesn't have any evidence, so it's at least fair for me to critique it on that level.

Second, there's lots of worry about mergers.
In just the last few years, mergers between giant oil companies—such as Exxon and Mobil, Chevron and Texaco, Conoco and Phillips—have resulted in just a few companies controlling a significant amount of America’s gasoline, squelching competition. And the mergers continue unabated as the big just keep getting bigger.
Slocum appears to have been raised on Galbraith: "Big is bad!" "Firms can get so large they're no longer subject to market forces." Of course no economist I've read or met believes this anymore. If the struggles of GM, Ford, and Chrysler aren't proof that being big doesn't make you bulletproof, then nothing is.

But now I'm puzzled. Is the problem of high prices caused by mergers or by speculation? There's a Carnival Cruise Lines boat full of people doing "speculation" (what the less ideologically inclined call the futures market) who don't work for any of the oil firms. In fact one of the complaints in here is that investment firms are getting in on the act. I'll just leave aside the fact that Slocum obviously doesn't understand the purpose and value of futures markets, and leave it at the complaint that at the very beginning he's made two different claims. While they're not mutually exclusive, he doesn't tie them together for his audience.

Then there's:
five oil companies are reaping the largest profits in history.
Record profits, record profits, record profit. The mere fact of making record profits when prices are high is proof beyond a reasonable doubt of guilt, right? But Slocum completely misses the obvious--if you merge two profitable firms, they ought to make record profits! If they don't the merger was probably a damn mistake. Sure, higher prices played a big role in the record profits, but assuming the merger doesn't increase costs, they would have had record profits even if the price of gas had stayed the same. That's real simple math, but Slocum misses it.

And the charging of higher prices is not in itself evidence of wrongdoing. If demand for oil increases, what should an oil company do, raise prices or pump more oil? In fact they will raise prices first, an appropriate response because it signals to what would otherwise be oblivious oil consumers that demand has risen, so they can decide how to respond. This is a key point made by Hayek in his classic, "The Use of Knowledge in Society," but the role of prices as signals to consumers is still little understood. As prices rise, the return to oil companies increases, so more is pumped. I went to school in Bakersfield, California, and folks there were happy when the price of gas went up because people got called back to work to turn the pumps on. Often that brings the price back down, but lately it hasn't. Why not? Some people accuse the oil firms of hoarding the oil in the ground, as though they have a responsibility to pump it out as fast as possible. But in contrast to the popular belief that American businesses can't see beyond the next quarterly statement, oil firms are trying to maximize the long-term return on the oil in the ground. Pumping it out as quickly as possible now would be financially irresponsible, and from the social standpoint wouldn't do us any long-term good.

And when demand does increase, it would be socially irresponsible not to raise prices, because prices help ration the oil by intensity of demand. If I see the price go up by 25 cents a gallon, it tells me that some people want that gas enough to pay more for it than we did yesterday, and then I have to decide whether I want it as bad or not. If the price increase causes me to not drive to the city for Thai food this weekend, it's evidence that prices served their role of directing resources to their highest valued use. Slocum trots out the old trope that:
most [Ameriicans] lack the financial resources to make such investments [like insulating their homes] or lack access to alternatives to driving in their car.
This is simply false. Take me, for example: It's not uncommon for us to take two or three trips a day to the store, we drive our daughter the 5 blocks to swim practice, my wife drives the 1/2 mile to her work, and I drive the 1 1/2 miles to my work. We could easily change--and to some extent have--and we live in one of the classic no-public-transportation towns. Consumers are actually much more clever at figuring out ways to adapt than Slocum gives them credit for, but this is classic Ralph Nader/Public Citizen type stuff, 'standing up" for consumers while actually holding a vicious disdain for the intelligence of consumers.

The next puzzler:
oil companies are spending more money buying back their own stock then they are on investing in their ageing infrastructure
Slocum doesn't bother to explain why this matters. Perhaps he thinks it's self-evident, but I don't. If a company thought it could maximize it's profits by investing in infrastructure, they would do so, right? If they don't, then obviously they don't think their firm needs that investment. Now, who would I trust to make a better decision on that, the company's CEO or someone working for a public interest group? The CEO has a better incentive to use the business's funds wisely. They don't always, obviously, but what are the odds that outsiders with an ax to grind will, on average, do better? At any rate, Slocum comes dangerously close to suggesting the government ought to regulate such internal business decisions, a recipe for hamstringing the economy without benefiting anyone.

Now, get this one, which shows that Slocum should never--NEVER!--be your company's CEO.
The industry has plenty of incentive to intentionally keep refining markets tight. ExxonMobil’s new CEO told The Wall Street Journal that even though American fuel consumption will continue growing for the next decade, his company has no plans to build new refineries:
Exxon Mobil Corp. says it believes that, by 2030, hybrid gasoline-and-electric cars and light trucks will account for nearly 30% of new-vehicle sales in the U.S. and Canada. That surge is part of a broader shift toward fuel efficiency that Exxon thinks will cause fuel consumption by North American cars and light trucks to peak around 2020—and then start to fall. “For that reason, we wouldn’t build a grassroots refinery” in the U.S., Rex Tillerson, Exxon’s chairman and chief executive, said in a recent interview. Exxon has continued to expand the capacity of its existing refineries. But building a new refinery from scratch, Exxon believes, would be bad for long-term business.
Two points. First, there's the oft-repeated concern that "no new refineries are being built," often trotted out by asshat right-wingers who think high fuel prices are caused by environmentalists. Nice to see left and right come together on something /sarcasm]. But the companies are expanding their current refineries' capacity, because that's a whole hell of a lot more cost effective than building a new one.

Second, Slocum totally glosses over Exxon Mobile's reason for not building a new refinery; they expect fuel efficient cars to negate the need by 2020. Slocum wants Exxon Mobile to invest billions in a refinery that, by the time it could be up and running, would be useful for less than a decade! What kind of fucking moron would suggest that? One who's gone to Vegas to play roulette with other people's money and has his head so far up his ass he can't see where the ball is landing. And consider the effect if Slocum got a magic wish and each of these firms had a new refinery up and running tomorrow: if it brought gas prices back down to under $2, who would buy a more fuel-efficient car? Exxon-Mobile's refusal to expand refinery production too much is not only a good business decision, it's one that should have environmentalists jumping for joy. (And what are the odds someone working for Public Citizen isn't an environmentalist?)

Next is this, which may have a logic I'm too simple to grasp:
As a result of this strategy of keeping refining capacity tight, energy traders in New York are pushing the price of gasoline higher, and then trading the price of crude oil up to follow gasoline:
Well, I really don't know. But I wonder who's storing all that crude that's not being refined? I'd like to see the storage costs on billions of barrels of crude.

It gets weirder, really:
The U.S. Federal Trade Commission found evidence of anti-competitive practices in the physical refined product market in its March 2001 Midwest Gasoline Price Investigation:
An executive of [one] company made clear that he would rather sell less gasoline and earn a higher margin on each gallon sold than sell more gasoline and earn a lower margin. Another employee of this firm raised concerns about oversupplying the market and thereby reducing the high market prices.
OK, first, one firm's decision to try to keep prices high is not an anti-competitive practice; it's an anti-profit practice. And Slocum only cites one company here. Second, the preference to sell less for more, rather than more for less, is not an anti-competitive pratice--it's just a fuckin' preference! Slocum claims "evidence" (his word) of anti-competitive practices, but he doesn't actually provide evidence that it happened, just that at least one oil exec would like it to happen.

That's only about half of the testimony. The rest is primarily Public Citizen's 5 point plan for reform. It contains much I disagree with, such as how anti-trust law in the U.S. ought to be interepreted, greater regulation and oversight of energy trading markets. It also, however, contains details of the big oil companies nefarious schemes to jigger the market and make more money. Some of them I'll take as evidentiary, such as "In August 2004, a Shell Oil subsidiary agreed to pay $7.8 million to settle allegations of oil market manipulation." Businesses often settle when they're guilty, to avoid paying more, so I have no reason to doubt those specific types of claims. But others are less compelling:
In August 2007, Oil giant BP admitted in a filing to the Securities and Exchange Commission that “The US Commodity Futures Trading Commission and the US Department of Justice are currently investigating various aspects of BP’s commodity trading activities,
All BP has admitted is that they're being investigated, not that they've done anything wrong. Unless Slocum is willing to leave the left-wing of American politics and join the Constitution-hating right-wing, he might want to hang onto that "innocent until proven guilty" ideal.

And then there's this little gem, listed under "Latest Trading Trick: Energy Infrastructure Affiliate Abuse."
n 2003, Morgan Stanley teamed up with Apache Corp to buy 26 oil and gas fields from Shell for $500 million, of which Morgan Stanley put up $300 million in exchange for a portion of the production over the next four years, which it used to supplement its energy trading desk.
Admittedly I'm no expert on the energy industry, but what's the issue here? Slocum makes no attempt to explain what's wrong with an investment firm making a deal to put up 3/5 of the sale price in exchange for "a portion of the production." Isn't that a normal business practice, or am I way off here? Or is the problem that they're using their portion of the oil production to supplement their energy trading division? Why? I admit I could be missing something here, but this sounds like completely legitimate business activity to me, and Slocum makes no effort to explain why it isn't. What I have quoted is 100% of his comment on that topic.

In summary, this is about what I expected from Public Citizen: long on outrage and careful use of leading phrases (speculation, rather than futures markets), and short on supporting evidence and basic economic and business understanding. These ideological groups exist on both sides of the political spectrum, and their common failing is that their "research" is backwards: they've reached their conclusion and then they cherry pick and misinterpret facts until they have a mass of text that seems to support their arguments.

Ginger would probably say I've done the same thing: concluded the market is at work and tried to justify it. Given the way blog debates develop, it wouldn't be an unreasonable assumption. However I have been following this issue for a while, I am equipped with a knowledge of economics, and I look up things when I don't know. For example, in reviewing this testimony, I realized that I had no idea why businesses buy back their own stock, so I looked it up. Turns out it's not an underhanded business practice (unless the CEO is trying to pump up his own earnings, apparently, but that's not what's claimed here), but is sometimes the most productive use of a company's cash on hand. See, rather than assume what stock buybacks meant, I read up on it so I would understand. If I had found that it really was a dark and devious practice that harmed consumers, I would have had to adjust my views.

Finally, I couldn't possibly address every claim in a 20 page document, so it will be easy to attack me by saying, "but what about this." If anyone wants to, go ahead. Just don't think it's likely to be a telling blow: I'm perfectly capable of re-reading the testimony again (and again), in order to address any other issue brought up in it.

But I have my doubts Ginger will be convinced. I did this more for myself, so I'd know I hadn't ducked a challenge, not assuming he'd find my logic so compelling that he'd suddenly reverse course, admit my genius, and start a fanclub. I'm not that conceited. But once people have committed to an assumption that the other side is evil (the corporations, that is, not me), they're generally impervious to logic.

29 July 2008

House Apologizes for Slavery

The U.S. House of Representatives has passed a non-binding resolution apologizing for slavery and Jim Crow. The poll question is: Is this pointless symbolic politics, or a long overdue statement that has real meaning?

Caught With His Hand in the Till?

Alaska Senator Ted Stevens (R) has been indicted for illegally receiving more than a quarter million dollars in gifts from an Alaska firm run by a "personal friend" of Stevens.

I believe in innocent until proven guilty, but that doesn't mean I can't make odds on whether he'll be found guilty. I say 3-1 he's found guilty of those charges, or cops to lesser ones.

Arlen Specter says he's always found Stevens to be "impeccably honest." Methinks he is about to be pecked.

Does Monetary Theory Apply to Voting?

J. M. Keynes argued that economic slumps come about due to a decrease in spending--a deficit of demand. Consequently, In response, Milton Friedman argued that people's spending was fairly constant (that people spend a fairly constant proportion of their income). This has important economic policy implications, of course: if spending isn't the cause of economic problems, government can't fill in the gap with deficit spending, and Keynsian fiscal policy will be ineffective.

One of the factors within that lack of effectiveness is how people will respond to explicitly temporary fiscal policies. I.e., according to Friedman, people will ignore a temporary tax cut, rather than spending more in response to it. Only perceived permanent changes in net income lead to spending changes.

Early today I was continuing my argument on Dispatches about oil prices, specifically rebutting the claim that oil prices dropped prior to the 2004 election (which was proferred as evidence that oil companies can manipulate prices at will; my evidence rebutting it is found here).

But I suddenly wondered what effect an oil price decrease right before an election would have. There is clear evidence that public perceptions of the state of the economy affect presidential elections. It's also clear that the timing of the perception is important--the economy was reviving in 1992 before the November election, but the public hadn't felt the impact yet. Had the economy revived in late spring/early summer, rather than mid-late summer, George H.W. Bush might have won re-election. That probably would have meant no Clinton, and probably would have meant no W as well. Sigh.

But gasoline prices are quite evident, much more obvious than the signs of a recovering economy, so let's assume timing isn't an issue with them. My question is, then:
Does the public's tendency to not react to temporary tax decreases by increasing spending indicate that they will fail to change their likely vote in response to what they perceive as a temporary decrease in gas prices?
Let's assume a simplified polity where gas prices are the only political issue, and that lower prices mean more votes for the incumbent party. Are voters going to calculate whether they expect the price increase to be temporary or (relatively) long-term, and will that calculation then determine their vote?

I suspect so, but off the top of my head I don't know of any research that's specifically tied that aspect of Friedman to voting behavior.

My Latest Policy Brief and More

My latest policy brief, "Strong and Competitive: The American Economy in the Free Trade Era," written for the Institute for Social Policy and Understanding, is now available online. An economist might notice that I defend free trade without ever mentioning comparative advantage, but my handlers worried that it is too complex a read for most of their supporters anyway. I've yet to figure out how to simply and intuitivey explain comparative advantage, although I've seen some valiant attempts. I think such an explanation would be a great boon to the world.

My next policy brief, due out in October, I believe, will be on the presidential election. I'm not sure yet what I'll say.

I've also received the proofs for my latest political science journal article, "A Primer on Applying to the Liberal Arts College," which will be appearing in the October issue of PS: Political Science and Politics. You can see my name in the table of contents here. It's advice for writing a good application for new PhDs who are applying for a job at a liberal arts college. It's based on my experience running a job search, in which the applicants' overwhelming lack of understanding of the job market and hiring process became abundantly clear. That is, they were just as clueless about how to write a good letter of application as I was when I finished my PhD. My friend, Jim, who just proofread the final copy for me, agreed that he also didn't understand the importance of the cover letter until after sitting on a hiring committee. This isn't an especially intellectual work, but I think it should help a few job candidates. Unfortunately it probably won't be available online for a year or so.

I have other projects on tap, too. My friend, Jeff has finally sent me moe current data on patents granted and R&D in the US, Taiwan, and Korea, so with luck we can finish our long-in-process article on that causes of the development of intellectual property rights regimes in developing countries, and I am working with my chemist friend, Michael on a paper comparing the benefits of the dollar coin vs. the paper dollar. He initially wrote it as a quickie paper in grad school, and recently found out that it's been floating around in influential circles, but they can't make use of it because it's not a peer-reviewed article. Our goal is to change that, which requires some upgrading of the paper, but I think we'll have a completed version by spring '09.

Efficiency Rules, mostly

I've been posting quite a bit on economics lately, and was engaged in yet another heated economics debates on Ed Brayton's blog. I left my email address on one comment there, inviting people to contact me that way if they had more questions. Two did, and one of them asked where I stood on various regulations to keep corporations from abusing people. That's a good question, although I don't love the way it's phrased, because that's still a question I struggle with.

Economics is primarily about efficiency, and efficiency is a damn good thing because it allows us to maximize the ratio of benefits to costs, thus maximizing wealth. And wealth, particularly having a wealthy society, is a great thing. We in the western world are wealthier than people in the developing countries, so we can afford clean safe water, good food, medical care, better housing, books, travel, and all the other things that make our lives good.

But efficiency is just one value, and contra Plato, not all values are commensurate. It's not just that efficiency doesn't necessarily distribute wealth evenly (as long as we all continue to become wealthier, it's little harm to me that others are wealthier yet--absolute, rather than comparative, well-being, is the proper standard), it's that efficiency may at times place much too little value on individual humans.

So given that all regulations are market-distorting, yet markets may not respect humans as much as I like, when is regulation ok? It's not always easy to answer.

For example, if there is an oversupply of labor, workers become dispensable, and subject to very abusive treatment. This is the real story behind Sinclair's The Jungle, not that he realized it. Massive levels of immigration resulted in a tremendous oversupply of unskilled labor looking for factory jobs, with the consequence that none of them had much market value. Although it's guaranteed that the government regulation will be inefficient, I don't mind regulations about workplace safety and treatment of employees in such a case.

And as much as I am skeptical of nationalized health care, it does seem to me that government can be an effective insurer of last resort in cases of traumatic health care problems. Should the fact that no one's devised an economically efficient way of providing health insurance for someone who's never going to work again but will have have mounting medical bills throughout their life mean they should be left to die?

Although I'm a staunch free marketer, I do recognize that efficiency is not the only meaningful value we should try to achieve in our society. So I do support some regulation not justified by efficiency, particularly to support those who really do have no hope of supporting themselves anymore. But I also think that efficiency as a value is under-rated by too many people--after all, it's what provides the wealth that allows us to set efficiency aside and "waste" it on people who need it but can't earn it.

28 July 2008

Are Oil Prices Inflationary?

A commentor on Ed Brayton's blog claims that the recent high oil prices are "hyperinflation of a commodity." Of course it's not hyperinflation by any reasonable measure. Oil prices have roughly doubled--a 100% increase--in the last two years. In Germany, following WWI, they experienced inflation of around 300-400% per month. In several south American countries in the 1980s, the inflation rates were between 2,000 and 12,000% per year.

If 100% is "hyper," then I guess my first experience with hyperinflation was back in the '70s when the price of Bazooka Bubble Gum increased from 1 cent per piece to 2 cents.

The issue of real interest, however, is whether it is proper to call the increase in oil prices inflation? The commentor is not the only one to effectively call all price increases inflation, and a quick google search shows any number of articles linking oil prices and inflation.

Being influenced by the Austrian school, I dislike using the term inflation to refer to price increases caused by changes in supply or demand. Nothing is inflated there, because the real market value of the goods are being revealed by the price increases.

Inflation, proper, is the consequence of an increase in the money supply, an increase that is too great to be soaked up by increased production. Assuming, for example, that production is fixed, and no more can be produced. Then assume that overnight the money supply doubles. Since no more could be produced, prices would double. But goods would not be twice as valuable--the price increase would not reflect any increase in the value of the goods.

I think it is important to distinguish between the two types of price increases because they represent fundamentally different phenomena, and the appropriate response to each is fundamentally different. The proper response to real price increases is to conserve and purchase less, while the proper response to inflation is to reduce the money supply (as Fed Chair Paul Volcker did so successfully in 1981-2).

Furthermore, a rise in oil prices, even though it may cause an increase in costs for oil-dependent businesses, cannot cause an overall rise in prices unless the supply of money also increases. Because if the cost of oil goes up, and the supply of money remains fixed, then after buying oil (assume, for the moment, they buy the same amount), consumers have less money left over to buy other goods than they did before the price increase. If the price of something else--plastic containers, for example--also goes up because the price of oil goes up, they have again less money than before left over for other purchases. If all prices go up, consumers will have to purchase less. If consumers purchase less, goods will go unsold, and their prices must fall.

This is where politics and economics meet. Confusing the two causes of price increases leads to confusion about the proper political response. The appropriate political response to inflation is to reduce the money supply, while the appropriate political response to real price increases is to inform the public that it is real, and to disseminate information about ways to reduce their usage. Disseminating information is one of the things governments can do well.

Another appropriate action would be to improve the economic education in our elementary and high schools. The commentor on Dispatches accused me of an ad hominem attack on K-12 education. Far from being an ad hominem--I didn't accuse teachers of being stupid or lazy--I was just pointing out the regrettable fact that we don't teach much economics before college, and I think it's a disservice to our children. Supply and demand effects are easy to teach, and particularly appropriate to elementary school as they can be demonstrated with fun classroom activities. As long as most Americans think price controls are an effective cost to price increases (whether real or inflationary), that free trade makes us poorer, that subsidies help the economy, and that businesses can charge as much as they want, we'll never have have good economic policies. And, unfortunately, both our presidential candidates are true men of the masses on this score.

26 July 2008

Perpetual Economic Ignorance

CNN.com has a story about biofuels, featuring a cross-country trip using biodiesel. There's no comment about the economic impact of biofuels on food prices, but there is this priceless gem, showing that 200 years after Adam Smith wrote The Wealth of Nations, that very few people understand economics.
About $333 billion exited the United States in 2007 due to the purchase of oil, according to Scahill, illustrating the high cost of importing foreign energy. Biofuel is produced and sold in the United States -- which keeps money from those transactions circulating inside the U.S. economy.
Yes, old fashioned mercantilist thinking. And the unavoidable logical implication is that every country will be better off if it produced everything it needed for itself.

Surely, if every country would be better off if it was wholly self-sufficient, so would each state in the U.S. And if each state is, surely each county would be. And if each county would be, surely each municipality would be. And if each municipality would be, surely each family would be. In other words, I should start growing my own biodiesel--after all roughly $2,000 per year exits my household economy.

It may be objected that I'm making false analogies, that a family is not like a country. But both Adam Smith and Frederic Bastiat thought that, in economic matters, they were alike. And more to the point, I'd challenge anyone to make a compelling argument explaining at which of those political boundaries the economic logic changes from trade to self-sufficiency.

25 July 2008


Today and tomorrow, and I can't go.

11th Annual Michigan Brewers Guild Festival.:July 26 & 27.
Around 3,000 people are expected at this festival that offers a chance to taste-test over 200 Michigan-brewed beers, in a wide variety of styles. Live entertainment.

It's almost like heaven, except as we know,

"In heaven there is no beer,
that's why we drink it here.
And when we are gone from here,
all our friends will be drinking all our beer."

Tragedy of the Commons Symposium

The announcement for the Tragedy of the Commons Symposium went out Wednesday around noon. I have since received 5 registrations for the 40 available spaces.

My ideal is that we fill up quickly and have a good number of people we have to decline, so that my college president is impressed by the demand and agrees to fund another one in the future. Just like certain luxury items, I'm trying to create a strategic undersupply. Of course that will backfire badly if I stall at 25 registrations!

But I also have locked in my last panelist, Michael Kaplowtiz of Michigan State University's Environmental Studies Department. As soon as I get his name up on the conference page, you can view the full list of participants.

24 July 2008

Life Gets in the Way of Blogging

Not being a professional blogger, I often find it difficult to blog regularly. Never more so than now. My home computer--a decrepit Mac--no longer allows me to log into blogger.com. 5 mornings a week I spend 3 hours at swim practice/lessons for my little mermaid daughters, plus the weekly swim meets. My summer on-line class takes an inordinate amount of time because it's a new subject matter for me, and has occasionally kept me in my office until midnight. And I've been working on the Tragedy of the Commons Symposium (which looks to be coming along fine). On top of that I've been going to physical therapy 3 days a week to try to fix my rotator cuffs. And I got stuck on a committee to hire a director of pre-med and biological sciences, despite my obvious lack of qualifications.

Still, life can't be made up of excuses. There's always time, if you're willing to make it. But I've decided not to decline my social engagements, either. Last weekend it was the annual extended family camping trip (lots o' rain, and the ceiling of my tent failed at 4 a.m.). Today it's dinner and hours of beer at my friend Jim's house. This Saturday after the swim meet it's the county fair.

So, just in case you wonder why I've slowed down, in case you've been aching for more words of wisdom from me, there's your answer. Clearly less blogging (especially by me) isn't going to reduce the level of happiness and well-being in the world, so we'll all manage to survive somehow.

Chuck Norris, Constitutional Scholar

As someone who has spent considerable time studying constitutional law, I am just plain sick and tired of right-wing blowhards who think they know the “real” meaning of the Constitution. In this respect, at least, left-wing blowhards are marginally less obnoxious, because they’re more likely to make their claims in terms of what they would “like” the Constitution to mean. It is only the right-wingers who are convinced they know the objective truth of the Constitution, it’s original meaning, and it’s so obnoxiously offensive because they’re so often wildly and foolishly wrong. Case in point, the noted Constitutional scholar Chuck Norris on the Constitution and the size of Congress.
We have more representatives than we need, and more than the Constitution requires…
What many might not realize is that there is nothing ultimately sacred about the present number of congressmen and congresswomen we have in the House of Representatives….The Constitution requires and endeavors to assure fairness and equity by requiring at least one representative per state, two senators per state and representation in the electoral college. (At the other extreme, it states that “The number of representatives shall not exceed one for every 30,000.”) So why not go with the lower amount? It seems to me that in our day, in both House and Senate, fewer representatives by area would be more reasonable and effective than more representatives by population.
…The U.S. doesn’t need a new reapportionment act to raise the number of representatives, but a return to the Constitution to reduce the number of representatives in pursuit of creating more equitable regions or districts. Personally, I believe, just as we have one governor per state, we should consider reducing Congress to on representative and two senators per state (the minimal constitutional requirements).
The first sentence contains two claims, one normative and one objective. The normative claim is that we have more representatives than we need. This claim relies on a rejection of the political value of equal representation. In fact Norris explicitly rejects equal representation of citizens in favor of equal representation of states. This is a legitimate, if debatable claim. The Continental Congress was based on equal representation of states, and the small states tried to install that principle in the Constitution, partially succeeding as the Senate is based on equal representation of states, rather than of citizens. Whether it would be wise to base both chambers of Congress on equal state representation is debatable, but not ultimately a testable question, so I will grant Norris that claim and focus on the objective claim in that sentence, that we have more Representatives than the Constitution requires.

Of course the Constitution does not require any specific number, so Norris has made a statement that is true in reference to absolute numbers. But what exactly does the Constitution require? The relevant clause is in Article I, section two:
Representatives . . . shall be apportioned among the several States which may be included within this Union according to their respective numbers [and] each State shall have at Least one Representative;
Norris places great weight on the “each State shall have at Least one Representative” phrase, treating that as constitutionally sufficient for any and every state, which is a gross misinterpretation. The clause merely sets a minimum number of Representatives for the least populated states, to ensure that no state is denied representation in the House. It does not describe a satisfactory minimum for all states because the preceding phrase says, “Representatives…shall be apportioned among the several States…according to their respective numbers.” That is, Representatives are apportioned by population of the states. If each state had but one Representative, they would not be apportioned by population at all. So Norris’s implication that the Constitution does not require more than 1 Representative per state is badly mistaken. The principle embedded here is the principle of equality of representation, a political value institutionalized as a Constitutional principle. By logical extension then, the Constitution requires a sufficient number of Representatives to properly apportion them among the states so that citizens are equally represented.

But do we, nevertheless, have more than is required, as Norris claims? Since the requirement is equal representation of people, we can simply see if that principle is met—that is, if Representatives’ constituencies are equal , the principle is met; if unequal, the principle is not met. (The equality need not be perfect. The problem of marginal representatives is intractable, as it is unlikely that the number of Representatives will ever be a simple divisor of the total population.) As it turns out, the current number of Representatives is not more than is required, and has, in fact, become—arguably—less than constitutionally required. As equal representation (equal constituency size) is required, and each state must have at least 1 representative, the effective maximum constituency size is equal to the population of the smallest state. (The minimum constituency size is 30,000: Norris cites the Constitution correctly, where it says, “The number of representatives shall not exceed one for every 30,000.)

So all we need to do is ask whether any constituencies exceed the maximum size, as determined by the population of the least populous state? That number is currently set by Wyoming’s approximately 515,000 residents (according to the U.S. Census Bureau’s 2006 estimate). The population of the U.S. as of 2000 was about 281 ½ million (the current population is over 3 million, but as districts are determined by the decennial census, any malapportionment occurring as a result of mid-decade population shifts are not constitutionally problematic. Note that Wyoming’s 2000 population was 494,000, so by using the higher Wyoming figure, and the lower U.S. figure, I am estimating conservatively). Dividing the population by the number of districts, we get
281,500,000/435= 647,126.

That is, the average district size (as of 2000) was roughly 132,000 more than the maximum size needed to ensure constitutionally required equal protection—about 25% too large!

This will only get worse following the 2000 census. Extrapolating Wyoming’s population growth (a gain of 26,000 people from 2000-2006, so we can generously grant them another 30,000 in the remaining years of the decade), and assuming the U.S. population does not increase from its current estimate of about 300 million, the maximum allowable size for the next reapportionment will be 545,000, while the average size will be almost 690,000—that is, 26% too large even using unrealistically generous estimates (more likely it will be around 30% too large).

This is, I believe, an unprecedented event in U.S. history. Prior to 1911, Congress regularly raised the number of Representatives in response to a growing population and the addition of new states. In 1911 they fixed the number at the present 435, on the reasonable basis that the larger the House grew, the more unwieldy it became in its operations. At that time, Idaho, Nevada, Utah, and Montana had only 1 Representative each (and further research is necessary before I can say whether they were over or under represented at the time). Only after that, as the population grew while the House remained fixed, was there real potential for this problem, and as we can guess from the numbers shown, it is a fairly recent problem (again, further research could establish when it began).

I am unaware that any lawsuits have yet been filed targeted at this issue. But contrary to Norris’s claim, a large state like California is actually under-represented in Congress, and has, I believe, a reasonable claim to more Representatives, which could only be met by an increase in the size of the House. Perhaps the Supreme Court would reject the argument, on the grounds that 25% is not too large a discrepancy, but they could only do so by rebutting their own arguments in Baker v. Carr and succeeding cases, where such a large discrepancy in size would have been vigorously rejected. But assuming they would do so, there has to be some limit to the malapportionment that the Court would not accept, whether it be 30%, 40%, etc.

In sum, Chuck Norris’s absurd constitutional claim does not stand up to the most casual analysis—we do not have more Representatives than the Constitution requires, but too few. But Norris reveals his real agenda with his claim that:
I don’t only think there are too many cooks in Congress’ kitchen nowadays, but the numbers are stacked in discriminatory ways. For example, if California represents a larger liberal voice with its 53 representatives, what chance or how fair is it for smaller more conservative states who have between one and 5 representatives and votes in the House?
So Norris thinks it’s unfair that California, with 60 times as many people as Wyoming or North Dakota, gets more representation. In fact he not only opposed equal representation of people, his real goal isn’t even equal representation of states—he wants disproportionate representation for his ideology! Imagine how conservatives would respond if a liberal said there ought to be more representation for liberals because conservatives keep winning too many elections, and badly misinterpreted the Constitution to justify the argument. The conservatives would rip the liberal to shreds for hating America, and that’s the appropriate response to Chuck Norris.

Chuck, why do you hate America?

But, to put the topper on it, Norris either misunderstands California, or is flatly lying to his readers. He suggests that California’s 53 representatives all represent “a liberal voice.” But 18 of those 53, about 1/3, are Republicans. California is not monolithically liberal (even though it is clearly predominantly Democratic these days). But since when has a partisan hack—of any stripe—let facts get in the way of trying to pervert our system for their own ideological benefit?

16 July 2008

Obama Acts Presidential

Barack Obama has announced that next month he will go to the Middle East, with stops in Israel, Jordan, and....the West Bank, where he'll meet with Palestinian leaders (he'll also go to Germany, France and the UK). This follows his minor miscue in which he expressed his support for an undivided Jerusalem as the capital of Israel, which he later "clarified," saying he suported Israeli-Palestinian negotiations over Israel's future.

It might seem strange to leave the campaign trail at such a crucial time, or perhaps evidence that he thinks he's got the election all wrapped up. But in fact this trip is a campaign event--it's crucial for Obama to appear presidential, as well as to bolster his weak foreign policy credentials. And taking such a trip for the purpose of appearing presidential should not be derided. The public wants their candidates to appear presidential, so effectively you can't become president unless you act like one. I think it's a strong political move on Obama's part.

I also think it's a good move because he is likely to win, and he doesn't have enough foreign policy experience. Consequently he needs to get over to the Middle East, get his feet on the ground, and meet the major players. If Obama has paid attention to the presidencies of Clinton and Bush, he'll understand that, like it or not, foreign affairs usually dominates a presidency and distracts the executive from all the domestic issues that are his personal interests. Of course there's a great danger in the trip as well. The wrong comments about the Palestinian-Israel issue could lose the support of important voting blocs or paint him as too naive to be trusted with the job.

In political science, we see a continuum between pure spectacle and pure policy. Truman's Marshall Plan could be called pure policy, while Bush's stunt on the aircraft carrier was pure spectacle. As a campaign event, Obama's trip has a heavy dose of spectacle, but as a potential learning experience for our likely next chief diplomat, the policy aspect is significant and could ultimately trump the spectacle aspect. That can only happen if Obama knows how to ask the right questions and how to listen. I sincerely hope that he does.

14 July 2008

Can John McCain Win?

That's the question I've been pondering lately. I've been ignoring the polls, which I don't think will mean a lot until after the post-convention bounces, if any, have diminished, and thinking about historical factors, and for the most part they're not in John McCain's favor.

1. One historical factor is that we rarely elect sitting senators to the White House, and none since 1968, but since Obama's a sitting senator, too, we have to throw this one out the window. Whoever wins the election will make history on this count.

2. A second factor is the difficulty of a member of the same party replacing a very unpopular president. Only about 1/3 of the populace approves of the job Bush is doing, and McCain, being the candidate of that president's party, is inevitably seen by many as a continuation of the same. It's not fair, and I don't even think it's accurate, but it happens nonetheless, and it makes winning the election an uphill climb for McCain regardless of any other advantages he might have.

3. A third factor is McCain's age, which actually affects the race in two distinct ways. First, Johh McCain would be the oldest elected president ever. Of course we've broken that record before, most recently with Reagan, but it's obviously a rare thing, and it does seem the American public doesn't generally want presidents who are too old. All other things being equal, this might not be too big a hurdled, but other things aren't equal, because, second, we would be going back a generation, which is, if not unprecedented, exceedingly rare. We have now had two baby boomer presidents in a row, and the liklihood of stepping back to a pre-baby boom president is highly unlikely. The U.S. is, in many ways, a country that has traditionally looked forward, rather than backward, and this general disinclination to revisit future generations to select our presidents is but one example of that.

4. A fourth factor is that McCain is seen as an inisder, while Obama is seen as an outsider (and we can't plausibly both criticize him for lack of experience and claim he's an insider). Every president from Jimmy Carter on, excluding the first President Bush who won on the coattails of a very popular predecessor, has been an outsider, and has trumpeted that fact. Obama may be less of an outsider than Carter or Clinton, but McCain can't possibly compete on this angle--he is the establishment, at a time when we don't like establishment figures. (As to the wisdom of electing outsiders, I beg to differ with my fellow citizens.)

5. Fifth, incumbent presidents don't win when the economy is weak, nor does the person from the same party who would succeed them. It matters not if Phil Gramm is right that we are not in a recession--a majority of Americans believe we are, and their votes will be determined by their own beliefs, not Phil Gramm's. (And could Gramm possibly have done a better job of reinforcing the public perception of the Republican Party as out of touch on economic matters, with his claim that we're just a nation of whiners--my neighbor is on a six week layoff because of the slump in truck sales, and I don't think his financial concerns are merely hypothetical.)

6. Sixth, fundraising matters. It's not true that the biggest winner always wins, but there is a strong correlation, because the person who can spend the most is generally able to define the issues and candidate attributes most successfully. The fundraising differential is probably a function of the other factors listed, but it has electoral effects of its own. And while it's more than just a little bit legitimate to critique Obama for reneging on his pledge to accept public financing, I just don't think that issue will have legs--Republicans never successfully critique the Democrats for having too much money because they are, far more than the Democrats, the party of the wealthy. And as things stand, Obama has raised around 280 million to McCain's 111 million, a stunning differential.

7. Finally, the religious right has been essential in the victories of Republican presidents since Ronald Reagan (and, actually, beginning with Jimmy Carter before him). Despite McCain's promises to elect "strict constructionist" judges who will overturn Roe v. Wade, and in spite of being the graduation speaker at Jerry Falwell's Liberty University, religious conservatives have not warmed up to McCain. James Dobson, for one, has said he wouldn't vote for McCain, and my religious conservative mother is very unhappy with his candidacy as well. The question is whether religious conservatives' devout belief in voting will overcome their McCain disdain. If not, look for Obama to pick up Virginia or Colorado--states McCain can't win without.

So can McCain overcome all that to win? I wouldn't bet on it. Keep in mind two things, however. First, campaigns do matter. In the equilibirium situation where both candidates run good campaigns, all the other factors determine the outcome, but if one candidate runs a bad campaign (cough, Dukakis!, cough). But so far McCain has shown the tendency to run the weaker campaign, mostly because he can't resist making jokes that are inappropriate in the particular context (but thank God he has a sense of humor). And Obama has seemed to move on relatively unscathed from what would seem devestating blows, particularly the Jeremiah Wright business. Republicans can justifiably wonder why the scandal isn't sticking, but for my part I'm glad it hasn't, as such scandals have never stuck on the Republicans before. (Let's face it, if Wright had suggested nuking the State Department, he would have been crucified by the right wing, unlike Pat Robertson, who actually did say it and suffered almost no fallout--the patriotism stuff has been a one-sided game for far too long.)

Second, it still remains to be seen whether there are enough moderates and liberals who won't vote for a black man to keep Obama from winning. I personally believe not (and, of course, an Obama loss would not be conclusive evidence, as there are other reasons to oppose him), and I expect that an Obama victory this fall will prove it.

In summary, McCain's only chance is a huge Obama misstep, or to find a scandal that will stick. It's not impossible, but at this point it sure doesn't seem likely.

12 July 2008

Tony Snow Dies

Tony Snow, former newsperson and White House press secretary, has succumbed to cancer. He seemed a decent man, although I rarely agreed with him.

But it reminds me that when he announced the return of his cancer a year ago, George Bush's response confirmed a suspicion I had had for a while. Bush's response was, "Tony's going to whip this."

Snow had cancer in his liver. With contemporary treatments, you have a decent shot at living longer than he did, but you are not going to whip it. And I realized that George Bush is either a magical thinker--just saying it will make it so--or he's completely unconcerned about the reality, and is only focused on perception.

I thought at the time that it was actually an egregiously cavalier response to what was effectively a death sentence. And I also thought that this has been the whole operational method of the Bush White House, all that matters is what we say, not what you think you saw.

It's a horribly inept way to make public and foreign policy, and probably explains 90%+ of this administration's failures.

It puts me in mind of the great Groucho Marx quote: "Who are you going to believe, me or your own eyes?"

11 July 2008

Bad Economics in Literature I: Isaac Asimov

I like to read fiction, including, at times, some really cheap crappy stuff that doesn't require me to think (Hello, Dean Koontz). But, of course, I can't help thinking anyway, especially when the author says something inane. For example, in one novel Tom Clancy has a Governor of some state running for the Senate to improve his chances at the presidency, when anyone who's paid even casual attention to U.S. politics should know that we normally elect governors, not senators (not this year will be the first time in 48 years we've put a senator in the executive seat).

So here I begin a short series on bad economics in well-known novels, choosing as my first target, the esteemed science fiction author Isaac Asimov's I, Robot, a book I have re-read several times, and whose quality should never be judged by the execrable movie of the same name.

As Asimov is universally considered to be a genius, he must know everything about everything, right? Unfortunately not.

In the last chapter of I, Robot, the Earth has been divided into 4 economic/political regions, and it is the "machines" (supercomputers) that are managing the Earth's economy. As Asimov develops the idea, the machines are perfect calculators with perfect information, and consequently they make perfect decisions that keeps the Earth's economy humming along smoothly and efficiently.

This information is developed only sketchily, in just a copule of sentences:
"The Earth's Economy is stable, and will remain stable, because it is based upon the decisions of calculating machines...The population of Earth knows that there will be no unemployment, no overproduction or shortages."
Given the era in which Asimov was writing (the book was published in 1950), this misunderstanding of economics as merely a technical process of avoiding surpluses and shortages--a process that could be handled by a central planner with sufficient information--is understandable. On the one hand, the Walrasian approach to economics focuses on a system in equilibrium, where the allocation of resources is merely a mathematical problem--that is, Asimov's concept is, at heart, consonant with the great tradition of neoclassical economics. But more practically, the industrial revolution led to much larger firms than had been seen in the preindustrial era, and it was not uncommon to interpret this as evidence that eventually all production would be brought under one central authority. [Francis, oops, I mean] Edward Bellamy's Looking Backward, 2000-1887 (published in 1888) contains perhaps the premier statement of this belief.
[T]he absorption of business by ever larger monopolies continued…The railroads had gone on combining till a few great syndicates controlled every rail in the land. In manufactories, every important staple was controlled by a syndicate…Then a struggle, resulting in a still greater consolidation, ensued…
…The movement toward the conduct of business by larger and larger aggregations of capital, the tendency toward monopolies, which had been so desperately and vainly resisted, was recognized at last, in its true significance, as a process which only needed to complete its logical evolution to open a golden future to humanity.
Early in the last century the evolution was completed by the final consolidation of the entire capital of the nation. The industry and commerce of the country…were intrusted to a single syndicate representing the people, to be conducted in the common interest for the common profit. The nation, that is to say, organized as the one great business corporation in which all other corporations were absorbed…the final monopoly in which all previous and lesser monopolies were swallowed up…
While Bellamy was a utopian (who didn't recognize the problem of linear projection) the most influential American economist of the mid-10th century, John Kenneth Galbraith, was only slightly less enthusiastic about the inevitability of central planning. In other words, despite being a futurist, Asimov was clearly a product of his times. But his static and purely technical view of economics as merely the planning of how to use resources misses both the reality and the beauty of markets.

So why is Asimov wrong? One argument we can eliminate is Hayek's claim that the information needed for such planning would be too great and the ability to analyize insufficient, because Hayek was assuming human efforts, whereas Asimov is assuming "thinking machines" nearly limitless in their capacity--as such a fair critique must assume, however unrealistically, the theoretical existence of such machines, able to efficiently organize an equilibrium system (even in the absence of prices although one take on Hayek is that they would have too much information, which would diminish the quality of their decision-making). Perhaps we should also eliminate the claim that no centrally planned system will operate efficiently because managers lack profit incentives. While that may be true of humans, who never do seem to reach the socialist ideal of "from everyone according to their abilities," Asimov's "Three Laws of Robotics" force the robots to take care of humans as well as they can, so perhaps the thinking machines built-in sense of purpose would satisfactorily eliminate the need for financial incentives.

Ultimately, Asimov's thinking machines will fail because their economic approach is too static, to reliant on a Walrasian general equilibrium. And while every microeconomics course still taught today instills in economists the usefulness of equilibrium analyses, we know that it is not an accurate model of markets, which are actually tremendously dynamic.

The dynamic view of markets is most strongly associated with the Austrian economists (von Mises, Hayek, etc.), who wholly rejected the equilibrium approach, believing that we need to focus on the actions of individuals rather than the state of systems. But by far the most famous explanation of market dynamism came from Joseph Schumpeter (not generally considered Austrian, but a student of noted Austrian Eugen von Bohm-Bawerk at the University of Vienna). Schumpeter, Capitalism, Socialism and Democracy, coined the phrase "creative destruction." Here is Schumpeter's explanation of the dynamic:
Capitalism, then, is by nature a form or method of economic change, (emphasis added) and not only never is but never can be stationary. And this evolutionary character of the capitalist process is not merely due to the fact that economic life goes on in a social and natural environment which changes and by its changes alters the data of economic action...The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers' goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.
This, then, is why Asimov is wrong: he missed the real driving factor of economic development; creativity. Every new product that takes the market by storm is the product of some creative person's vision. So are the 90% of new products that do not take the market by storm, and that is the key--nobody can predict what products people will want, until people reveal their preferences by buying those products.

The calculating machines would be no more capable of predicting what new products people would want because there is no available information that will tell us what they want! The world of Asimov's machines would be a world without fax machines, waffle-soled running shoes, ipods, cell phones, pet rocks, labradoodles, carbon fiber golf clubs, antilock brakes, transformers toys, McDonald's happy meals, and essentially anything else that was created after Asimov wrote.

Asimov may have preferred a future where perfect rational calculators made all our economic decisions, but I prefer a world in which shortages do occur, because suddenly everyone wants a Cabbage Patch doll for Christmas, and surpluses, because it turns out nobody did want Crystal Pepsi.

Price Elasticity of Demand for Oil

For a number of years, as oil prices went u, Americans complained relentlessly but made few to no changes in their driving habits. Some people interpreted this as meaning that oil was rather special in that demand was inelastic. I have even seen oil called an "inelastic good," which technically speaking is incorrect (demand can be elastic, but goods can't, unless we're discussing rubber bands). It does, however, get the point across.

The claimed consequence of oil's alleged demand inelasticity was that it was necessary for government to regulate it more strictly. Even if we accept the assumption that oil is a special good in that sense--or to make the claim even stronger, state it as accepting that demand for oil reveals a market failure--it doesn't follow that government regulation will be superior. The claim of inelastic demand for oil is essentially a claim that price signals have failed, but since government regulation lacks price signals, there can be no assumption that regulation would be superior. It would suffer from the same flaw, but to an even greater degree, because at least in the market the price exists, however weak it's signalling effect, whereas in government regulation the price almost completely disappears.

This may not seem intuitive to those who haven't read the socialist planning literature. But in a nutshell, consider the case of a group who goes out for dinner and agrees beforehand to split the check evently; the direct link between benefit and cost is broken, so each has incentive to consume more than they otherwise would. Now assume that you or I have collected advance payments for this group, and are going to use those funds to pay for a variety of different things for that group, of which the dinner is only one component. The diners will not see the check. At that point there is no price signal, no connection at all between cost and benefit, and the diners will certainly not be as efficient in their menu choices as they would when paying for themselves. That is effectively what government regulation of oil would do, so the odds are that it would be at least as inefficient as a failed market, and quite probably more so.

But I was never convinced that the demand for oil was inelastic. I did at times wonder if maybe it was, but given that greater elasticity is the norm for most goods, I couldn't believe oil was different without an explanation for why it would be different. Parsimony required it. The explanation I heard most often related to the physical infrastructure of the U.S.--the way we have built our cities makes it too hard to shift away from driving. Having lived in L.A., where it is prohibitively time consuming to get around on mass transit, I thought this explanation had some degree of plausibility. But on those occasions when I drove between Los Angeles and San Francisco, I realized the claim didn't hold up. People could have flown between the cities, and more quickly than they could drive (even counting transit and airport time). This suggested they werent taking advantage of opportunities to avoid driving even when they were available, so price inelasticity itself wasn't the problem. (Interestingly, it also meant that the price of gast plus the cost of their time was less than the cost of an airline ticket.)

It seemed more plausible, then, that oil was actually much cheaper than we believed it was, a point supported by the difference between our expressed preferences and our revealed preferences. That while we naturally complained about price increases, gas was still too cheap to affect our behavior. Imagine, for example, if beef was 50 cents a bottle (in 2008 dollars), but next year doubled to $1 a bottle. All of us beer drinkers would certainly grumble, but I doubt it would put much dent in or consumption.

Even at $3 a gallon, a price that had doubled in just a couple of years, very few people changed their driving behavior, although the grumbling had grown louder. Part of the issue was certainly that few of us expected the price to remain that high, but that only explains why we didn't trade in our SUVs for Ford Fiestas; it doesn't explain why there still wasn't much reduction in actual miles driven.

Somewhere between $3.50 and $4 per gallon, however, we seem to have finally reached a point where we can see the elasticity of our demand kicking in. It's not always apparent, as I still see an incredible amount of traffic on the streets of my small town, and my own bad habit of taking about 3 car trips a day hasn't changed. But usually by this time in the year I would have been to my mother's house, about 80 miles away, three or four times, but this year I have only gone once, and not yet once this summer. And of course people are beginning to buy fewer trucks and sport utility vehicles--my neighbor who builds parts for Ford trucks is on a 6 week layoff.

But the idea for this post came about through a chance conversation at my physical therapist's office, one of those little incidents that make you realize how impossible it is for any central planner to have all the relevant information. The PT assistant lives at one of the many beautiful lakes in our county, and she offhandedly commented on what a nice summer it has been out there, much quieter than usual. "Quieter?" I asked. "Oh, yes, almost no motorboats and jet skis this summer."

The lake is only 15 minutes from our town, and there are a few thousand people living along the lake itself, so it's surely not the cost of getting of course there that's deterring boaters; it's the operating costs of the watercraft.

And there you have it. The market works. But nobody ever said it would be painless.

09 July 2008

How Much Did the Founders Quote the Bible?

[Much of this is a repost of my comment on Ed Brayton's blog.]

Ed Brayton recently wrote yet another post on the claim the Bible had a large political influence on the Founders of the United States, in response to a Worldnet Daily article by a Tom Flannery. Jon Rowe at Positive Liberty also posted a rebuttal of Flannery's column.

I'd seen this claim about the majority of Founding era citations being to the Bible before, of course, and at one time had seen the claim that the source was research by the American Political Science Association (APSA). A claim like that demonstrates, before any other analysis is done, the speaker's foolishness, as the APSA is just an organization of political scientists that hosts meetings and publishes journals--it is not itself a research organization.

But that led me to wonder what American Political Science Review (APSR) article was the source of the claim. I put about half an hour into figuring it out, didn't, then forgot about it. But a commentor on Brayton's blog, a helpful chap posting as "Somerville," gave the full citation, which is a 1984 article by Donald S. Lutz (Thank you, S!), and I immediately downloaded the paper from JStor and took a close look at it.

First, here's Flannery's claim, verbatim:

Indeed, of the 15,000 political writings of the men who crafted the Constitution, the source they quoted most frequently in expressing their political beliefs was the Bible. A whopping 34 percent of their political quotes came straight out of the Book they hailed as the inspired Word of God.
Like many others, Flannery doesn't have the decency to provide even a hint of a source. Perhaps he is no more aware of it than I was, and is just repeating words he heard from somewhere else. But there is no doubt that the APSR article by Lutz is the source, because both the "15,000 writings" and the "34% of quotes were from the Bible" are found in that article. So Flannery is right, no? No.

To begin, the actual topic of the article is not biblical influence on the Founders, but, as the title says with admirable clarity, "The Relative Influence of European Writers on Late Eighteenth-Century American Political Thought." I recognized the subject immediately, having had to endure a dreadful American Politics seminar in grad school where we were forced to endure Louis Hartz's The Liberal Tradition in America, as well as writings by Bernard Bailyln, J.G.A. Pocock, Joyce Appleby and other historians of the founding era, all of which hastened my shift of focii to political economy and evolutionary theory. In a nutshell, the debate is about whether the Founders were classical liberals, influenced primarily by Locke, or republicans, influenced more by Michael Harrington and others. And that is what Lutz is writing about. Unless we want to take the highly dubious step of calling the author (or authors) of the Bible "European writers," his primary interest is explicitly not the Bible.

But of course it's possible that in writing about X, the author dropped a juicy little reference to Y in the article, so let's explore Flannery's claim more closely. In a nutshell, his claim is that 34% of the references found in 15,000 political documents of the founding era were biblical references. But here's how Lutz describes his research methods.

Approximately ten years ago this author set out...to read comprehensively the political writings of Americans published between 1760 and 1805...Reviewing an estimated 15,000 items, and reading closely some 2,200 items with explicitly political content, we identified and rated those with the most significant and coherent theoretical content. Included were all books, pamphlets, newspaper articles, and monographs printed for public consumption...The resulting sample has 916 items...
So Flannery's claim begins with a serious inaccuracy--Lutz only reviewed 15,000 items, he didn't actually count the citations from 15,000 items. Then he read a sample of 2,200 of those items closely, and further reduced his sample. The sample he actually used comprised 916 document--quite a long way from 15,000. In fact Flannery is off by more than an order of magnitude, a pretty serious methodological error.

The claim that "34%" of citations were to the Bible is correct. But it is also incomplete. It was not 34% of citations from 15,000 documents, but 34% from 916 documents. Lutz does not give us any clues about the citations in the other 14,000 documents he left out of his sample, because he didn't count the citations in them. They could have had more biblical citations, the same, or fewer, but we don't have enough information to make any such extrapolations.

However it is clear what was in those 916 documents, and we can make reasonable extrapolations about the way the citations were distributed among them. Here, again, is Lutz:
From Table 1 we can see that the biblical tradition is most prominent among the citations. Anyone familiar with the literature will know that most of these citations came from sermons reprinted as pamphlets; hundreds of sermons were reprinted during the era, amounting to at least 10% of all pamphlets published. These reprinted sermons accounted for almost 3/4 of the biblical citations...

Before we dig into actual numbers, consider those percentages--only about 10% of the pamphlets published in that era were religious pamphlets, yet they contained roughly 75% of all the biblical citations, meaning around 90% of the pamphlets contained only 25% of the biblical citations. Evidently these sermons had "explicitly political content," as that was the primary standard by which Lutz did his first winnowing of the sample from 15,000 to 2,200. Neverthless they were sermons, which implies they were predominantly written by preachers, whereas most (not all, but most) of the Founders were not clergy. Consequently, the remaining 90% of the documents were likely written predominantly by non-clergy--and that vast majority of the documents contained a a clear minority of the biblical references, suggesting that most of the authors of the founding era did not use the Bible as a primary source of inspiration.

Fortunately, Lutz gives actual numbers of citations, so we can do a rough calculation of average biblical citations per sermon/non-sermon.

1. In 916 publications he counted 3,154 citations.

2. 34% of those citations were biblical, so there were 1,072 biblical citations (3,154 * .34).

3. There were approximately 92 sermons in the sample (916 * .1). (Note: Here I am making an assumption that 10% of Lutz sample were sermons, based on his statement that 10% of publications of the era were sermons. Lutz does not explicitly say so, but his statement about the percentage of publications that were sermons is placed within his discussion of the sample, so the extrapolation is reasonable. If his sample had been widly disproportionate, he would presumably have said so.)

4. Approximately 804 biblical citations came from the approximately 92 sermons (1,072 biblication citations * .75).

5. From that we can estimate the mean number of biblical citations per sermon at 8.7 (804 biblical citations/92 sermons).

5. Approximately 268 biblical citations came from non-sermon writings (1,072 - 804, or 1072 * .25)

6. The sample contained approximately 824 non-sermon publications (916 * .9)

7. Finally, we can estimate that the non-sermon writings had a mean of .3 biblical citations (268 biblical citations/916 non-sermon publications).

In summary, sermons contained more than 8 biblical citations each (on average), which is not too surprising for sermons, whether they contain political content or not. But the non-sermon publications contained less than 1 citation each, on average. In fact because the mean number of citations per non-sermon is less than .5, the liklihood of a non-sermon political publication from the founding era containing a biblical citation is not even random! The political writings were more likely than not to have no biblical references at all.

But there is yet more to the story. Keep in mind that Lutz was just counting citations, not analyzing them for substance. As he explained:

Another advantage is that a citation count need not distinguish between positive and negative citations;
So Lutz was not making any claim that the Founders used the Bible to support any particular political view, a point that becomes relevant when we look at the pattern of citations by Federalists and Anti-Federalist in 1787 and 1788, the years the Constitution was being debated (Lutz's Table 4). The Federalists--the founders of our actual political system, the suporters of the Constitution, so often said to have a biblical basis--never quoted the Bible! Lutz counts zero Federalist citations to the Bible. Conversely, 9% of the Anti-Federalists' citations were to the Bible, far less than the 38% of their references to enlightenment authors (and note that the enlightenment challenged the idea of God as the source of knowledge), but obviously far more than the Federalists. So the conclusion here, if we were to follow Flannery's method, is that God opposed the Constitution. A silly conclusion, of course, but the natural outgrowth of the "they cited it" school of historical analysis.

Also significant here is that the percentage of biblical references dropped dramatically in these two years (thanks to Ed Brayton for bringing that to my attention). The average for the 1780s, as it was for the whole period of the study (1760-1805) was 34%, but in 1787/88, it dropped to 0% for Federalists and 9% for Anti-Federalists (and for those two years, there was precious little political writing that was not one or the other, so there is no great residual of biblically based political writings that is being ignored). Here is Lutz's comment on the findings for these two years:

The Bible's prominence disappears, which is not surprising since the debate centered upon specific institutions about which the Bible had little to say. The Anti-Federalists do drag it in with respect to basic principles of government, but the Federalists' inclination to Enlightenment rationalism is most evident here in their failure to consider the Bible relevant.
Assuming my extrapolations from Lutz, and my math, are correct (and, at the least, I have tried to do a real analysis of the issue, rather than merely repeating platitudes), there clearly is no justification for arguing that the Founders, except for the handful of clergy, made substantial use of the Bible at all as a source of political inspiration.

To be fair, Lutz did think the number of biblical citations was of interest, saying:

It is relevant, nonetheless, to note the prominence of biblical sources for American political thought, since it was highly influential in our political tradition, and is not always given the attention it deserves.
Nonetheless, this rough analysis of the data shows that this influence was most prominent where we would expect it to be, among the clergy, and least prominent among the non-clergy political leaders, who predominantly cited the enlightenment rationalists.

Note: I have emailed Dr. Lutz asking him to comment on this issue. As it is summer, and as he has certainly never heard of me, I may or may not receive a timely reply. When, or if, I do, I will post it.

Full Citation: Lutz, Donald S. 1984. "The Relative Influence of European Writers on Late Eighteenth-Century American Political Thought," The American Political Science Review 78:189-197. One can see also Lutz further analysis in his book, The Origins of American Constitutionalism, which I have not read.

Rich Rodgriguez Pays Up

Football coach Rich Rodgriquez and the University of Michigan have agreed to pay $4 million to Rodriguez's former employer, University of West Virginia, for breach of contract. This was the inevitable outcome, as West Virginia's claim was airtight.

Rodriguez's contract with West Virginia had a $4 million dollar compensation clause if he left before the end of the contract. He did, then tried to get out of paying it. His lawyer claimed he was "tricked" into signing the contact with that clause in it. Yes, a man smart enough to run a major college football program who was represented by legal counsel, was tricked. It's no shock they didn't actually take that one all the way to the courthouse.

And that's the value of a written contract: It's an essential tool for doing business with people you don't trust, and Rodriguez certainly demonstrated that he's not trustworthy.

With Indiana University having just had yet more penalties added because they failed to properly oversee Kelvin Sampson, a man they hired despite a track record of rules violations, it's becoming clear that schools should not be giving these coaches second chances. Michigan may yet regret their choice of Rodriguez, if their share of the $4 million doesn't have them regretting it yet.

08 July 2008

Collective Action Problems and the Gift of Irrationality

According to us Public Choice theorists, collective action problems are the primary justification for government, or at least governance. So if you're as as anti-government as I am, it's disconcerting to recognize that the social world is filled with collective action problems. That's why I was pleased today to realize that irrational people are actually a bit of a blessing.

The specific collective action problem was in finding enough volunteers to work my daughters' swim meet. The work is divided into a first half and a second half, and the norm is that you don't have to work more than one session per meet. This being an away meet for us, nobody wanted to work the second half; they all wanted to pack up and head home as soon as their kids completed all their events. Without volunteers, the meet can't take place, but there's no reward beyond the good feeling of having helped out.

So why, when I saw that nobody from our team had signed up to be a timer in the second half, did I agree to do it? I had already signed up to work the first half. Anyway, 6 timers from our team were needed, so with no one signed up, my contribution could not be expected to be critical. And I had already worked each meet (except the one my kids missed while at camp), which only a handful of others have also done.

And why did others do so as well? I like to think we are all slightly irrational, and that irrationality helps mitigate collective action problems. Sure, I can think of certain mild benefits I received: I do enjoy timing the swimmers and cheering them on; I do enjoy knowing that I've helped make the meet possible for my kids; and I do receive a greater level of friendliness from certain other parents (those, like us, who have our kids in both the summer and winter programs, and who are known to be the dependable foundations of the program).

But I receive each of those benefits by working just one half, and given the disagreeably hot and humid weather, and the Harry Potter book waiting for me under our pop-up canopy, the marginal value of those benefits was less than what i would have received by declining.

OK, that's not quite precisely true. What tipped the balance was my own choice between guilt at not doing extra, and the satisfaction of knowing I helped--even if non-critically--by doing a little extra, despite nobody else noticing. Still, if that's rational, our definitions of rationality are pretty weak. I prefer to think that a little irrationality goes a long way toward strengthening social institutions.

06 July 2008

Talk vs. Action

Middleeastnews.com reports:
Occupied Jerusalem: After N.Y. Times report of Israel's DF drill to attack Iran, The Islamic Republic of Iran on Friday warned Israel that it would retaliate to any Israeli attack with a "strong blow" that will daze Israel's core.
Of course Israel's Defense Forces are drilling for an attack; that's what successful armies do. Preparing plans for possible scenarios is the primary job of a military's general staff. And as long as Ahmadinejad keeps talking about destrying Israel and acting as though he's going to develop nuclear weapons, Israel will keep planning and drilling. Iran, meanwhile, responds with vague threats, which leads me to suspect they don't have a general staff that's actually preparing plans for countering Israel and drilling their troops for that specific eventuality.

Fortunately, other Iranian officials are sending signals that Ahmadinejad doesn't quite have the full confidence of Iran's government. Hopefully there won't be any need for Israel to act, consequently no need for Iran to fail to back up it's feeble threat.

Coincidentally, I read in a Public Administration textbook this past weekend that when Woodrow Wilson became president--Wilson, a political scientist and expert in public administration--he didn't know what military general staff's do. When World War I began, he happened to learn that the general staff was developing plans for fighting Germany, and he thought they were actually preparing to do so. He called in the Secretary of War and demanded that everyone involved be fired, at which point the "founder" of public administration as a field of study got a most important lesson in public administration.

Heh, heh. I never do get tired of bashing on Wilson, a racist and staunch advocate of presidential government. If his grave wasn't in the National Cathedral in Washington, I'd be tempted to piss upon it.

02 July 2008

World's Least Shocking Economic News!

From Foreign Policy Passport:
Russia's leaders have created a legal system in which it's essentially impossible for a business to operate legally, making anyone who does business there subject to arbitrary prosecution. It's an arrangement that's well-suited to protecting state power, but not very effective at promoting economic growth. If Medvedev really wants to make Russia the world's fifth largest economy by 2020, he's going to need to try a littler harder.

World's Most Shocking Economic News!

Starbucks plans to close up to 600 stores. Starbucks, the coffee shop everyone loves to hate (see here, here, and here, for example), but which seemingly could do nothing wrong from the business end of things.

The main reasons for hating Starbucks seem to bethat (a) it is corporate, and we all know corporations are evil, (b) it is homogenizing American culture, and (c) it's a fucking monopoly!

Well, (a) is silly. Starbucks used to be beloved by counterculturalists because it was the little hippie coffee company from Seattle that treated its employees well. But then, I guess, it sold out. Selling out, of course, is a form of betrayal, so I suspect that in consequence certain folks hate Starbucks more than they would if it had just been created by a corporate giant from the beginning. And (b) is a bit pointless after a half century of television and a century of movies.

Which brings us to (c), an issue I have looked at closely in the past, as I believe free market monopolies are rare. I remember vividly a grad school friend of mine grumbling that Starbucks was a monopoly, and there was no other place close to the University of Oregon campus to get coffee. As we walked down 13th Street, I pointed out the bookstore, the bar, the bagel shop, and two other coffee shops, all of which we had to pass to get to Starbucks at the end of the block. Somehow, he still wasn't convinced there was any other place to get coffee.

Another friend of mine, a Foucaltian Marxist, or some such inscrutable academic combination, preferred the coffee shop just a few doors down from Starbucks. It served coffee boiling hot in handleless glasses, had rickety folding chairs to sit on, and wobbly tables that were too small to put your laptop on to get some work done. Anyway, if you had tried they would have started asking you if you were going to buy another coffee--the message was clear, buy another cup or get out.

Starbucks, on the other hand, had couches, solid tables big enough to work on a laptop, and a policy of mostly ignoring you if you didn't come up to the counter to order another cup. Occasionally, someone wiping down tables would ask if you wanted anything else, but not in a way that made you feel uncomfortable. I often spent hours in Starbucks, working on my dissertation, and buying only two or three cups of coffee. But my friend didn't like them because they were "corporate," and no matter how much I pointed out that they'd become successful by making the experience pleasant, he preferred the shop where he had to suffer. I was never sure whether it was guilt at being a rich American, benefiting so much from free markets, or whether he didn't want to accept that markets could work so well, or whether he just thought that true Marxism required suffering for your cup of java.

As to its monopoly status, Starbucks was sued in 2006 by another Seattle coffee shop owner, who charged that Starbucks was using anti-competitive tactics, including signing exclusive leases with downtown office building owners at above market prices, and offering free drink samples. The woman had to close down her coffee shop because she couldn't compete. That's life in America, where we think free markets mean every business can succeed. Signing exclusive leases and offering free samples are just good business practices, not nefarious and anticompetitive schemes. Likewise, my good friend Phil complains that when Starbucks moved into his neighborhood, all 5 previously existing coffee shops went out of business. OK, I understand that he missed his favorite coffee shop, but really, if not one of the five can manage to stay in business, they couldn't have had that much going for them.

So I've always admired Starbucks, despite not caring for the type of music they choose to play and sell, and resenting them for starting the trend of fancy names for "small, medium, and large." But I found that if I refused to play along, and ordered a large coffee, the baristas never blinked, and gave me exactly what I asked for.

So it's surprising to see them having such a large reverse, but proof yet again that being a large corporation is no guarantee of continued success. And that's what the anti-free market, anti-corporation folks don't get--businesses only grow large and remain large because they're doing something right, and that something is meeting human needs and wants. But if they stop doing so, or if they try to rest on their laurels and stop being innovative, even the Starbucks of the world will have to close up shop(s).