Blame Us

Jacob Weisberg argues in Slate that the American public has no one to blame for our political quagmire but themselves.

…the American public lives in Candyland, where government can tackle the big problems and get out of the way at the same time. In this respect, the whole country is becoming more and more like California, where ignorance is bliss and the state’s bonds have dropped to an A- rating (the same level as Libya’s), thanks to a referendum system that allows the people to be even more irresponsible than their elected representatives. Middle-class Americans really don’t want to hear about sacrifices or trade-offs—except as flattering descriptions about how ready we, as a people, are, or used to be, to accept them. We like the idea of hard choices in theory. When was the last time we made one in reality?

…Increasingly, the crucial distinction is between the minority of serious politicians in either party who are prepared to speak directly about our choices, on the one hand, and the majority who indulge the public’s delusions, on the other. I would put President Obama and his economic team in the first group, along with California Gov. Arnold Schwarzenegger. Republicans are more indulgent of the public’s unrealism in general, but Democrats have spent years fostering their own forms of denial. Where Republicans encourage popular myths about taxes, spending, and climate change, Democrats tend to stoke our fantasies about the sustainability of entitlement spending as well as about the cost of new programs.

The Federal Budget

The Washington Post has a bunch of interesting graphs up (here) about the federal budget.

The Parable of the Dishonest Steward

Daniel M. Bell, Jr., associate professor of theological ethics at Lutheran Theological Southern Seminary, has a fantastic article up at The Other Journal about one of Jesus’ more mystifying parables, the parable of the dishonest steward (or shrewd manager) found in Luke 16:1-9.

Jesus told his disciples: “There was a rich man whose manager was accused of wasting his possessions. So he called him in and asked him, ‘What is this I hear about you? Give an account of your management, because you cannot be manager any longer.’

“The manager said to himself, ‘What shall I do now? My master is taking away my job. I’m not strong enough to dig, and I’m ashamed to beg— I know what I’ll do so that, when I lose my job here, people will welcome me into their houses.’

“So he called in each one of his master’s debtors. He asked the first, ‘How much do you owe my master?’

” ‘Eight hundred gallons of olive oil,’ he replied.
“The manager told him, ‘Take your bill, sit down quickly, and make it four hundred.’

“Then he asked the second, ‘And how much do you owe?’
” ‘A thousand bushels of wheat,’ he replied.
“He told him, ‘Take your bill and make it eight hundred.’

“The master commended the dishonest manager because he had acted shrewdly. For the people of this world are more shrewd in dealing with their own kind than are the people of the light. I tell you, use worldly wealth to gain friends for yourselves, so that when it is gone, you will be welcomed into eternal dwellings.

This is one of those passages I’ve always read and thought, “Whiskey tango foxtrot, Jesus. What’s this about?” But I find Bell’s interpretation convincing. Check it out here.

Move Your Money campaign

My wife and I recently opened a checking account at the North Carolina State Employees Credit Union and will be closing our Wachovia account. Why? Fees, fees, and more fees. We had a simple checking account, but to access my own financial information via Quicken, Wachovia wanted $6 per month.  SECU charges a $1 monthly maintenance fee which somehow feels to me more transparent, reasonable, and actually for the service they provide. The large national banks seem to think they can just alter fees to make more money rather than simply charge for a service. Add on to that the sometimes ugly behavior of the big banks with regards to overdraft fees, mortgage mods, and compensation, and we’re done.

Little did I know that there was a Move Your Money campaign started by the Huffington Post. They are encouraging people to take the pledge to move their money out of big banks, to local community banks and credit unions. I’ve not signed the pledge, but did take the action. Tim Geithner has commented, somewhat awkwardly.

I recommend you do the same. The only inconvenience is the ATM network, so if you are a heavy user of cash, perhaps that’s a problem for you.

more on Local Food

I have previously blogged on the Local Food movement, with the basic position that while it is nice in principal, it may be a form of protectionism in disguise and we may be better off with more global food – importing food from poor countries, while imperfect, is better than direct aid and better than nothing. It also allows variety at the local level.

So this is the first thing I’ve seen which may make me alter my stance. It is a pretty well thought out argument about homogeneity, disease, and the benefits of local diversity of crops over monolithic cash crops with trade. Essentially, what this means for me is a bit more of a moderate stance between the pure Local Food movement and the pure Global Food idea. Rather than militantly following one or the other, there is probably a vast place in the middle for small local farms, hopefully a place for mid-sized diversified farms with multiple crops, and some larger industrial farms as well.

I’m not convinced that a world of pure Local Food is what we want, but now I understand more clearly the dangers of homogenous cash crops. More to come.

The trouble with compromise

economics you can use

Here is an interesting (and very short) article from the Economist. It is about an experiment with bonuses and loss aversion, a key theory in Behavioral Economics.

Loss aversion is the idea that when we have something, we tend to overvalue it. The classic experiment was with a coffee mug. When a certain coffee mug was displayed to a a group of people and told it was available to them for $5, very few agreed and said they were willing to purchase it. When the same mug was given to a group of people and told that it was worth $5, few would part with it for less.

To spoil the above article, it is a new perspective on bonuses. In a Chinese factory, workers were told that if they manufactured X widgets in a week, they’d get 80 yuan. Another group was told that they were to receive a bonus of 80 yuan at the end of the week, but if their productivity fell below X widgets, they would lose part of that bonus. The second group outperformed the first. They felt that the bonus was theirs already and thus they were willing to work harder to avoid losing it.

How does this apply to us? It is a pretty well established fact that we humans hang on to things for too long, and we overvalue things we already own. I’m experiencing this a little bit now as my wife and I are trying to sell some used things to make room for our new family. So, the thing you need to do is recognize that you likely have this problem and try to overcome it. If you are selling something (your car, for instance), try to turn it around and say “how much would I pay for a new car like mine?” to get a better idea of what it is worth. You are probably overvaluing your car and thus may have a hard time selling it or feel like you got ripped off when you do. You probably didn’t get ripped off, it was just worth less than you thought.

Also, let ‘er go. If a project, or investment, or other thing that you’ve been working on is not going well, it is probably time to cut it loose. Step back and ask yourself “If I were going to start fresh on this project right now, having invested nothing, would I start?” Most of the time, the answer is no. To use an investing decision, ask yourself “Would I buy this right now as is at it’s current price?” If the answer is no, then sell. We all get invested in projects and feel like we’ve come so far, we have to push forward. Many times, we need to cut it off.

Are these hard and fast rules? No. All I’m doing is making sure you know that you are likely also loss averse. Recognize it and step back to make sure you’re not following bad habits.

Economics Music Video. Not joking.

Corporate developers abandon “underwater” property — why not individuals?

From BoingBoing here.

Tishman Speyer Properties and its co-investors just walked away from the largest real-estate deal in US history, simply defaulting on the properties and the loans that bought them and leaving their creditors in the lurch. The properties, Manhattan’s 56-building, 11,232-unit Peter Cooper Village and Stuyvesant Town, were “under water” (worth less than the debt hanging over them), so the corporate developers elected to simply jettison them.

They’re not alone — Morgan Stanley recently dumped five San Francisco office buildings, stiffing their creditors when the buildings went underwater.

As a business-strategy it makes sense: why repay loans secured by assets that are worth less than the loans? Just turn the assets over and cut your losses.

But individuals are shamed, bullied, and counselled not to do this when it’s their private homes that fall underwater. Everyone from former US Treasury Secretary Hank Paulson to credit counsellors to the Mortgage Bankers Association tell you that defaulting on underwater property is low and dishonest (unless you’re a Wall Street player — then it’s just “protecting shareholder value”).

A thought on change

Another wrinkle that a lot of people leave out is that many of us have, and more of us should have, a bias towards the status quo on any issue. It’s a bias that can be overcome if the people advocating change make a really good case, but we place the burden of proof squarely on those who want to change something. If they don’t make a good case for the specific change they propose, the other side isn’t obliged to do anything. But of course the other side can make a case for a different change, if they want to, in which case the burden is on them.

Note that this isn’t to say the status quo is perfect. It’s just that we have full information about it, because the experiment has been run and the outcome is there for all to see. We can see the good points and the bad. But with any hypothetical change, we really don’t know what is going to happen. The benefits that proponents of the change promise may occur, or they may not. There will almost certainly be unintended consequences. We don’t really know. And that suggests a need to move slowly, test things out, communicate honestly about what does and does not seem to work, and so forth. The exact opposite of bumper sticker politics and rushing through legislation before the public can digest it and weigh in.

The Democrats have failed the communication test rather spectacularly in this case. And a lot of people who are NOT stupid or uninformed can articulate real problems with the bills Congress has passed. And so, for these people, the Democrats haven’t met the burden of proof and we should default to the status quo for a few more years.

This isn’t about a preference for public vs. private sector solutions either. I would apply the same kind test to a proposed change that involved privatizing something the government currently does. The lack of information is the same no matter which way you are going.

=============

This whole post was from a commenter on Megan McArdle’s blog. I couldn’t have said it better myself.