2011 March 31 Thursday
Health Reform Law Makes Many Kids Uninsurable

The New York Times reports how the Obamacare health insurance legislation (the Patient Protection and Affordable Care Act or PPACA) has the perverse effect of making large numbers of children medically uninsurable.

Insurers in Texas and across the nation — protesting a provision of the 2010 federal health care overhaul that prohibits pre-existing condition limitations for children under 19, have simply stopped offering new child-only policies. For children being raised by their grandparents, who are not poor enough to qualify for Medicaid and have no employer-offered insurance or family plans to cover them, there are few options.

The (obvious) problem is that if you can get medical insurance at any time why not save money and just wait to buy it once you develop a serious ilness? But the impractical idealists who voted for Obamacare wanted to make everyone equal. So they've made uninsurable any child whose parents do not get dependent medical insurance thru their jobs.

One of the results: decreased labor mobility. Parents won't be able to quit jobs to start their own businesses or to do more highly paid contract work when doing so will leave their kids uninsured. Congress is such a wrecking crew.

A few state legislatures are making a bad situation even worse by requiring any insurance company that offers medical insurance policies to adults to also offer policies for children. Of course this is an incentive for more insurance companies to drop out of the individual health insurance market altogether.

By Randall Parker 2011 March 31 11:03 PM  Economics Health
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2011 March 30 Wednesday
Obama Sends CIA Into Libya To Help Lame Rebels

You might have expected the CIA was already on the ground in Libya. Maybe so. But now the Obama Administration is at minimum using CIA agents in Libya to gather intelligence and coordinate with rebels. The New York Times reports British MI6 and British special forces are in Libya with the special forces calling in air strikes and tracking Libyan government troop movements.

Obama so far denies he wants to overthrow Khadafy and he's just trying to protect the civilians. So he's lying, boxed in by his desire to portray his foreign policy as less aggressive and more respectful of the sovereignty of other nations than George W. Bush's. Yet Obama does not want Libya to become yet another long running American war in the Middle East with lots of chaos and decay. Therefore he needs Qadafi's regime to fall - and quickly before his coalition falls apart. So, all his rhetoric aside, the US and its allies are going to help the rebels in more ways.

The Brits (who are running low on pilots for the air campaign) and probably the French as well are already using spies and special forces to topple Gaddafi. Plus, Qatar and Saudi Arabia will probably provide weapons to the rebels.

The US voted for a UN Security Council resolution that authorized the air war while at the same time disallowing outside support for either side in Libya. But now it looks like the US, France, Britain, Saudi Arabia, and Qatar will violate the the very Security Council resolution they are currently using to legitimize the air war. Is that cool, or what?

Hypocrisy in the service of what? The rebels are lame. In spite of impressive air support and capture of a number of tanks and Grad rocket systems, the rebels are once again in retreat, abandoning cities they had just recaptured yet again. With massive air superiority they can't even hold ground? Lame, lame, lame.

Remember when the White House was trying to portray the US role in the air strikes as minimal? As recently as March 19, 2011 Obama tried to portray US involvement in Libya as a support role which would not involve US troops on the ground. So he'll have to use mercenaries.

Good afternoon, everybody. Today I authorized the Armed Forces of the United States to begin a limited military action in Libya in support of an international effort to protect Libyan civilians. That action has now begun.

...

As a part of this effort, the United States will contribute our unique capabilities at the front end of the mission to protect Libyan civilians, and enable the enforcement of a no-fly zone that will be led by our international partners.  And as I said yesterday, we will not -- I repeat -- we will not deploy any U.S. troops on the ground.

If Obama sticks with that promise either the Brits and French will have to send in many more special forces or it is time for professional mercenaries to get paid to fight for the rebels.

Here is an incredible irony: By trying to avoid leading a coalition Obama managed to create the smallest coalition out of any US intervention of the last 20 years. His very attempt at multilateralism made the coalition must less multi.

President Obama has touted his emphasis on multilateralism in the U.S. military intervention in Libya, but — for political, operational and legal reasons — his “coalition of the willing” is smaller than any major multilateral operation since the end of the Cold War.

Half-hearted commitment to half measures leads to failure.

By Randall Parker 2011 March 30 09:37 PM  MidEast Insurgencies
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2011 March 27 Sunday
Stephen Walt On Failed Liberal Foreign Interventions

Harvard political science prof Stephen Walt takes a look at the social science findings on interventions by liberal states that fail to transform target states in desired ways. Sure, those targets change. But, whoops, not in the ways intended.

Before France, Britain, and the United States stumbled into its current attempt to dislodge Muammar al-Qaddafi from power in Libya -- and let's not kid ourselves, that's what they are trying to do -- did anyone bother to ask what recent social science tells us about the likely results of our intervention?

I doubt it, because recent research suggests that we are likely to be disappointed by the outcome. A 2006 study by Jeffrey Pickering and Mark Peceny found that military intervention by liberal states (i.e., states like Britain, France and the United States) "has only very rarely played a role in democratization since 1945." Similarly, George Downs, and Bruce Bueno de Mesquita of New York University found that U.S. interventions since World War II led to stable democracies within ten years less than 3 percent of the time, and a separate study by their NYU colleague William Easterly and several associates found that both U.S and Soviet interventions during the Cold War generally led to "significant declines in democracy." Finally, a 2010 article by Goran Piec and Daniel Reiter examines forty-two "foreign imposed regime changes" since 1920 and finds that when interventions "damage state infrastructural power" they also increase the risk of subsequent civil war.

Back in 2004 I did a post about political science research into how US interventions usually fail. Walt's post covers more recent research that comes to similar conclusions. If past experience was our guide we would not try to convert so many countries to democracies. But the faith of our elites in our secular religion remains quite strong. I suspect that faith is going to begin to fade in the next 10 years for a variety of reasons. I'm impatiently awaiting the day when both domestic and foreign policy becomes based on a more rational assessment of human nature.

Robert Conquest, accomplished historian of the Soviet Union, also took a dim view of trying to establish democracy in infertile soil.

One very important social science consideration that is rarely mentioned (with notable exceptions) when it comes to the Middle East: Consanguineous marriage where people marry close relatives, cousins most often. The secretive hbd chick has a post about the high rate of consanguineous marriage in Libya. This high rate does not bode well for democracy in Libya.

Speaking of failed liberal foreign interventions, Megan McArdle argues the American intervention in Iraq created many obstacles for business formation that remain in effect.

Update: Lou Pagnucco points to a podcast interview of Stephen Walt about the US intervention in Libya and comparisons with previous US interventions. Walt would make a good US national security advisor. I wonder what Brent Scowcroft thinks of the current (faltering) intervention.

By Randall Parker 2011 March 27 02:54 PM  Reconstruction and Reformation
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Western Governors University For Online Learning

Washington state legislators want to easy the use of courses earned thru Western Governors University, an online non-profit school founded by 19 governors of the US west. State budget crunches are helping to feed increased interest in lower cost online educational options.

At a time when Washington's higher-education budget is being slashed, some lawmakers believe a partnership with Western Governors University, a private, not-for-profit online school, could provide more access to college programs without costing the state any money. Critics say the legislation raises philosophical questions about just what constitutes a college education.

The lawmakers want to make it easier to transfer WGU course credits to Washington state universities.

Go as fast as you want to go and then demonstrate your competency when you are ready to do so. This is the way education should work in the future.

Western Governors University, a non-profit, online university and an innovator in distance education, was founded by 19 U.S. governors to provide working adults with affordable access to a quality college degree. WGU is not only all online, it uses a unique competency-based learning model. This competency-based approach to learning allows students to advance in their online degree program by demonstrating their knowledge and skill, instead of logging hours in class. Rather than “attending” classes online, students have 24/7 access to a variety of learning resources for each course. They can complete their studies on a schedule that allows them to meet their job and family responsibilities. WGU faculty do not teach—they serve as mentors, working one-on-one with each student to provide coaching, support, and guidance.

Since the WGU “campus” is online, its nearly 24,000 students live and work in all 50 states, and WGU faculty members are also located across the U.S. Unlike universities established using a traditional, brick-and-mortar approach, WGU’s academic model was designed for the online environment.

Have we reached Peak Classrooms yet? Will online now take off so fast that the number of people attending classes in-person will enter a long term decline? With upper end universities charging over $50k per year the bricks-and-mortar model has become far too expensive. People spend years, even decades, trying to pay off the loans they took to attend college. This is a crushing burden with which to start out one's working life. Online education is the best hope for freeing the young from becoming beasts of burden, saddled with debts that can't even be discharged in bankruptcy court.

Michelle Mills, married to a military man, could not complete a degree at a few colleges she attended because they moved too often. But she was able to complete a degree quickly as she continued courses while in different states and countries.

Then she stumbled on a website that led her to Western Governors University (WGU), a nonprofit online institution. The school's reasonable tuition—just $2,890 for a six-month term—coupled with an academic model that lets students accelerate their completion of the degree based on prior subject knowledge, seemed at first "too good to be true," says Mills, who enrolled in the school's BS program in marketing management in the fall of 2008. WGU's unconventional structure was ideal for Mills, who earned her college degree in one year and, last year, received her MBA from the school.

Conventional colleges not only tie you to a location but also to a schedule. Can't take the time some week to attend classes? Not a problem when the classes are video recorded. Got a block of time where you can study all waking hours? With many online courses you can speed up, watch lectures more rapidly, and choose to take tests as soon as you think you are ready.

Autodidacts should be able to take a test to find out their weak areas, go study on their own with some suggested readings, and then come back and take a test again. Online tests for each subject should have enough versions and variations that someone can try to pass a class several times and gauge their progress each time.

By Randall Parker 2011 March 27 01:55 PM  Education Online
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2011 March 26 Saturday
British Man Denied Right Of Political Activity

The lack of a guarantee of free speech in Britain allows us a view into what America's elite would do if it could silence dissenting views: A political activist with the English Defence League (EDL) has been banned from all political activity or even travel by train. He has been subjected to a "Criminal Anti-Social Behaviour Order" or "crasbo". If you get silenced in Britain you get crasboed.

Last week, a man was hauled up before Doncaster Crown Court for using ‘offensive’ language. As punishment, he was banned from attending or helping to organise any demonstration, meeting or gathering held by his political organisation or even visiting its website for 10 years. In addition, he was banned from travelling by train anywhere in the UK and from entering a mosque, meeting room, school or cultural centre.

As more views become deemed offensive the number of unutterable viewpoints could get rather large. In such an environment I'd be tempted to voice views I didn't even have just to defy authority.

He is accused of insulting some people because of their race.

So for unemployed 38-year-old Shane Overton, the UK has effectively become an open prison for the next 10 years, one in which he can no longer play any role in the (perfectly legal) activities he was previously engaged in with his political organisation, the English Defence League (EDL).

This all amounts of speaking out of church. But church these days is church for a secular belief system whose rise was foreseen. Recently I happened to be reading Amazon reviews of books by Vilfredo Pareto. Great comment from Pareto from the late 19th century:

Pareto, after discussing some socialist 'sectarians', writes, "One day we will perhaps have the Holy Inquisition of the socialist faith. (Note 18)" The Soviet 'show trials' of the thirties were indeed this Inquisition.

While some economic aspects of the socialist belief system have lost credibility many other aspects have not lost any power over their believers.

Update: The UK Spectator is under police investigation for a blog post where Melanie Phillips describes some Arabs as morally depraved for killing some Israelis. Normative judgments against members of minority groups are now against the law in Britain?

It’s a funny old world. I have now been contacted by two journalists informing me that Bedfordshire Police are investigating The Spectator. Why? Because of the Melanie Philips blog where she referred to the “moral depravity” of “the Arabs” who killed the Fogel family in Israel. CoffeeHousers can judge for themselves if they agree or disagree with her language and views – but should this be illegal?  The Guardian has written this story up, claiming The Spectator is being investigated by the Press Complaints Commission. This is untrue. The PCC tell me that a complaint has been lodged, but that’s as far as it has gone. They investigate only if they believe there is a serious prospect that their code has been breached, and it hasn't. Our blogs, as well as the magazine, adhere to the PCC code.

Western Civilization's elites desire to force the West to commit suicide.

By Randall Parker 2011 March 26 05:28 PM  Cultural Wars Religious
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Value Of Elite College Educations Questioned

Amity Shlaes, author of The Forgotten Man: A New History of the Great Depression, finds the advantages of an elite education in economics and finance have declined or disappeared.

In 2006, E. Han Kim and Adair Morse of the University of Michigan, along with Luigi Zingales, then of Harvard, looked at research productivity in economics and finance faculty who had connections to the top 25 universities in their fields.

They found that those who were affiliated with a name school in the 1970s produced more, and more original, work, but that that effect declined in the 1980s and weakened further in the 1990s. Some of the cleverest, most useful papers come from the non-Harvards, non-Yales and non-Chicagos.

One possible explanation for this result: So much discipline and focus is needed to accumulate the grades and accomplishments (e.g. civic activities) needed to get into the Ivy League that the most creative are selected against. Look, if you think lots of unconventional thoughts and are very smart in your teen years do you want to run for high school class president, join clubs, do volunteer work, and rack up the other points that elite university admissions committees look for? I do not think so.

She also discusses other research that questions the benefits of an Ivy League education. What the Ivy League lives off of: The most talented and ambitious compete to get accepted. So of course once they get into the labor force they do better than people who attend other colleges.

Writing in The Atlantic Professor X surveys an assortment of recent reports that question the value of a conventional path thru higher education.

"Some Say Bypassing a Higher Education Is Smarter Than Paying for a Degree," reads a recent headline in The Washington Post. (The article, which addresses everything from higher education's outsize price tag to its questionable correlation with career success, garnered more than 4,000 Facebook recommendations on the Post's web site.) And just last month, the Harvard Graduate School of Education published a study suggesting that (gasp!) four-year college is perhaps not for everyone. Rather, for a growing proportion of students, the report contends, internships, apprenticeships, and vocational training would be far more beneficial.

Unless you've got very affluent parents who can afford to pay the freight for a $50k per year education you are better off avoiding the expensive colleges. College debt can not be discharged in bankruptcy. So someone taking on debt in college is basically signing up to be a debt serf at the start of their working career. Just say no. Don't he a sucker. Far cheaper online options and state universities will let you get skills needed to boost your earnings prospects.

Even a New York Times reporter found the evidence for the benefit of elite college education inconclusive.

Even for the academically inclined, the value of college in this economic climate is increasingly subject to question. "Is Going to an Elite College Worth The Cost?," asked New York Times reporter Jacques Steinberg in December. He surveyed economic studies, perused labor reports, and interviewed economists and sociologists to ascertain whether there's really a significant payoff for choosing a swanky private college over someplace less glamorous. The answer?  Inconclusive.

Richard Vedder says research finds a neutral or negative relationship between state economic growth and state government spending on higher education. He claims much of the higher spending in some states goes to administration and higher salaries. I doubt the higher salaries increase the quality of instruction in most fields. The excess of Ph.D. holders in most fields means that there's a huge surplus of applicants for any teaching position. Higher salaries are not needed.

If I was a teenager today I would start doing online courses to earn college credits in useful knowledge while still in high school. The best strategy is to accelerate your education and to do your education in ways that are much cheaper and less structured. With online courses with pre-recorded lectures and tests available to be taken at any time you can accumulate knowledge and credits as fast as you can study. You can use many pieces of time that you waste today, choose from a much larger body of courses, and avoid debt. You can also avoid having to work at low paying jobs by aiming first for courses that boost your earnings power.

By Randall Parker 2011 March 26 01:45 PM  Education Returns On Investment
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Portugal: Most Are High School Drop-Outs

Reading a Wall Street Journal article about why Portugal isn't going to be able to grow its way out of being deeply in debt and the incredibly low rate of high school graduations leaps out.

Just 28% of the Portuguese population between 25 and 64 has completed high school. The figure is 85% in Germany, 91% in the Czech Republic and 89% in the U.S.

Anyone understand Portugal much? National IQ does not appear to be low enough to explain it.

The article puts the current drop-out rate as only at 37%. That's a lower drop-out rate than Hispanics in America. So the US is on course to have a higher overall drop-out rate than Portugal as whites fade as a percentage of the US population.

Greece and Ireland are in worse financial shape.

LONDON — As Europe struggles to come to grips with its debt crisis, which has deepened with the collapse of Portugal’s government after it pushed for yet another round of budget cuts, three numbers stand out: 12.4, 9.8 and 7.8.

Those are the interest rates currently paid on 10-year government bonds for Greece, Ireland and Portugal.

While Germany pays just 3.24% on 10 year bonds Greece pays 4% on money lent by the EU and that is still too high given the state of the Greek economy.

Greece, for its part, has already secured more favorable terms for its EU loans. The country is now paying 4 percent interest on the billions in aid it has received. Nevertheless, tax revenues are shrinking -- by close to 10 percent in January and February -- and it will be extremely difficult for the government to continue to operate without even further austerity measures. Many expect that Greece will ultimately have to restructure its debts.

Since I expect another oil price spike to push the world economy back into recession in a year or two the idea that economic growth can solve these sovereign debt problems does not seem credible. Restructuring with haircuts for bond holders seems inevitable.

By Randall Parker 2011 March 26 01:44 PM  Economics Sovereign Crises
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2011 March 22 Tuesday
Libya War To Cost Billions?

What is the return on investment?

The cost could reach up to $800 million to fully establish the no-fly zone and another $100 million a week to maintain it going forward, said Zack Cooper, a senior analyst for the Center for Strategic and Budgetary Assessments.

I sympathize with the people of Libya for having to live under Gaddafi. But what is the benefit to US interests if he is overthrown? The biggest benefit is if we kill the guy who sent out Libyan agents to take down the Pan Am 747 over Lockerbie Scotland. Is there another benefit to the national interest? If so, what is it?

We should not casually take on more ways to spend billions of dollars since we are living beyond our means and need to pull back and retrench.

By Randall Parker 2011 March 22 11:30 PM  MidEast Insurgencies
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Great News: Cheaper Housing In The Offing

Coming soon to a town near you: cheaper housing!

Sales of previously owned homes fell sharply in February, setting the stage for steep discounting in the spring market.

The National Association of Realtors reported Monday that existing home sales dropped 9.6%, and the median price, $156,100, was the lowest since February 2002.

Why no parades and celebrations about more affordable housing? The goal of many Congresses, to make housing more affordable, is clearly happening. Politicians aren't taking credit for this happy turn of events. Why no calls to shut down no-longer-needed government-funded afforable housing programs? The market is making housing cheaper than it has been in 9 years. If we adjust for inflation the cost of housing is probably cheaper than it has been in 10 to 15 years. Great news for those who do not already own. Though with the trend in male incomes housing will have to drop much more to be affordable to the median.

But wait, don't rush out and buy too soon. More price drops are on the way. If Yale housing economist Robert Shiller is correct then stay strong and resist the temptation to buy.

Then Robert Shiller, the Yale economist and co-founder of the S&P/Case-Shiller home price indexes, dropped this bomb: "There's a substantial risk of home prices falling another 15%, 20% or 25%," he said.

Of course, in some parts of the country housing prices have already crashed. The buy-rent ratio in Las Vegas is ridiculously low. Though Las Vegas still has a high vacancy rate. Still more downward pressure on prices. The vacancy rates in Florida are highest. So prices still have a way to go down in Florida.

The luckiest person buys at the very bottom of the market right before hyperinflation takes off. Then your mortgage gets inflated away. If your salary can keep up to even part of the inflation rate you'll be able to pay down the mortgage with inflated dollars. Better make sure you can afford food though.

What about hyperinflaton? Well Dallas Fed president Richard Fisher says on our current course insolvency looms.

"If we continue down on the path on which the fiscal authorities put us, we will become insolvent, the question is when," Dallas Federal Reserve Bank President Richard Fisher said in a question and answer session after delivering a speech at the University of Frankfurt.

"The short-term negotiations are very important, I look at this as a tipping point."

Of course we know both political parties and the majority of the voters are so irresponsible that we aren't going to veer from our course. Fisher says our leaders will come to their senses and do the right things. But who is he kidding?

Fisher says we are monetizing the debt.

"In essence what we have done as a central bank is to monetize the entire US debt through the end of June," he lamented. "Had I been a voter last year, which I am this year, I would have joined [Kansas City Fed President Thomas] Hoenig and would have voted against what is known as QE2." It is "indisputable" that "there is plenty of fuel" for American businesses to invest and get people back to work, he said.

QE1 and QE2 will be followed by QE3 when the oil price spikes high enough to cause another recession. Going into the next recession the US government will not be able to afford to do counter-cyclical spending. Instead, as the already $1.6 trillion deficit soars to levels that thoroughly spook the bond market the US government will be forced to either print money (hence the prospect of hyperinflation to pay down mortgages) and/or to cut spending as tax revenues plunge. The next recession is going to be very ugly and the recession after that will be brutal.

Hyperinflation is the big puzzle for me. Will we have a deflationary or inflationary depression as Peak Oil strangles economic growth and forces a long term contraction?

By Randall Parker 2011 March 22 09:13 PM  Economics Housing
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2011 March 21 Monday
Secular Right 2 Million Strong

Inspired by a New York Times article about Razib Khan and the blog Secular Right Audacious Epigone used GSS (General Social Survey) data to calculate that conservative atheists and conservative agnostics together make up only 0.67% of the American population. Wow, I've always felt like a statistical outlier. But 0.67%?

I wondered what percentage of people in the US could be categorized as such. Turning to the GSS, I found the percentage of respondents who indicated they were either "conservative" or "extremely conservative" and who said in response to the question on belief in God that they either "do not believe in God" (functionally atheist) or that they "don't know whether there is a God and [they] don't believe there is any way to find out" (functionally agnostic). For contemporary relevance, only data from 2000 onward were considered.

The constituency constitutes a whopping 0.67%, or 1 in 150 people, or two million people in a country of 310 million.

I'd love to see a bigger data set that breaks the numbers out by IQ. My expectation is that at higher IQ levels the secular right, while still a minority, might even hit 10% of the smart population.

If you are a secular rightist you can just forget about getting the majority of the population to adopt your views. Expect to go thru life at best trying to influence the views of larger groups who have different moral compasses and assumptions.

Update: The mysterious "hbd chick" (with an even stronger aversion to capital letters than Razib) finds 2.1% of those with perfect 10 GSS wordsum scores are solidly conservative and agnostic or atheist.

of those who scored a perfect 10 on the wordsum test, something like 25% 2.1% of those were either “conservative” or “extremely conservative” and were either atheists or agnostics.

So once IVF with pre-implantation genetic selection of embryos for intelligence becomes cheap and easy the resulting rise in IQs will select for some pretty rational and skeptical conservatives. But a meaningful lift of adult IQs from IVF combined with genetic testing is still a few decades in the future.

By Randall Parker 2011 March 21 11:25 PM  Religion Secular Ideologies
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Lame Allies Foil Obama Non-Leading Against Libya

Barack Obama is making a big deal out of how the United States is not leading the push against Muammar Gaddafi (whose name is so cool it does not need spell checking ever). But the French and British have welfare states too big to afford proper modern militaries suitable for knocking out tanks in a desert.

The first major strike involved 112 Tomahawk cruise missiles launched from US Navy ships (and one British submarine) against SA-5 Russian-made surface-to-air missiles, early warning sites, and key communication modes.

On Sunday, US Navy EA-18G radar jammers began flying over Libya as part of the effort to enforce the no-fly zone. In addition, US Marine Corps AV-8B Harrier jets, which can take off and land vertically, were launched against ground targets from the amphibious ship USS Kearsarge in the Mediterranean. US Air Force F-15s, F-16s, and B-2 stealth bombers reportedly were involved in the US-coordinated effort to establish air superiority and prevent Libyan army attacks on civilians.

Barack needs to work this problem. He could give the Brits an aircraft carrier and some F/A-18s and support ships. Like with Lend-Lease in World War II (ignoring Barack's dislike of the Brits - politics makes for strange bedfellows).

Of course, carriers are expensive to maintain. So the US will have to give the Brits foreign aid to support upkeep of their expensive gifts from America. I think it would be a tougher sell to convince Congress to fund the French military. But if we make the Brits strong enough then in event of a conflict they could paint some of their British F-16s and F/A-18s with French colors and let some French pilots do some bombing runs.

The Brits brought one whole sub to the the cruise missile launch fest. So we could give them a few more subs to use the next time. Or give them a cruiser. Hey, fiscal stimulus: Build cruisers to give away as foreign aid.

Really, this could be the new US strategy. Pretend to be isolationist while funding other Western nations to fight for us. Who knows, with the Canadians playing a role against Libya perhaps even they could become aid recipients receiving our ships and aircraft. The Brits, Canadians, and French could operate our military for us. That will free up lots of Americans to work in jobs supplying our allies. We'll become exporters. It will be good.

Is this a cool idea or what?

By Randall Parker 2011 March 21 12:08 AM  MidEast Insurgencies
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2011 March 19 Saturday
IQ Boosts National Income

News of this best kept secret occasionally leaks out. I hope I'm not carried away in the night for reporting it but some German and British researchers have rediscovered the obvious.

It's not just how free the market is. Some economists are looking at another factor that determines how much a country's economy flourishes: how smart its people are. For a study published in an upcoming issue of Psychological Science, researchers analyzed test scores from 90 countries and found that the intelligence of the people, particularly the smartest 5 percent, made a big contribution to the strength of their economies.

Human capital is the cognitive ability and accumulation of skills on top of that ability.

In the last 50 years or so, economists have started taking an interest in the value of human capital. That means all of the qualities of the people who make up the workforce. Heiner Rindermann, of the Chemnitz University of Technology, wanted to look more closely at human capital, and particularly the factor that psychologists call cognitive ability. "In other words, it's the ability of a person to solve a problem in the most efficient way—not with violence, but by thinking," Rindermann says. He wrote the new study with James Thompson of University College London.

Many measures of cognitive accomplishment and ability were examined.

The researchers collected information on 90 countries, including far-off lands from the U.S. to New Zealand and Colombia to Kazakhstan. They also collected data on the country's excellence in science and technology—the number of patents granted per person and how many Nobel Prizes the country's people had won in science, for example.

The intelligence of the top 5% matters most. Of course this makes American educational policy at the grade school and high school level pretty backward, with resources increasingly shifted toward the least able at the expense of the smartest.

They found that intelligence made a difference in gross domestic product. For each one-point increase in a country's average IQ, the per capita GDP was $229 higher. It made an even bigger difference if the smartest 5 percent of the population got smarter; for every additional IQ point in that group, a country's per capita GDP was $468 higher.

Immigration policy should be turned upside down to incorporate this finding. But good luck with that given that Barack Obama controls the White House and liberals in the media find common sense to be anathema.

The smartest people are most important for determining the wealth of a society. Smart people are more productive on average.

"Within a society, the level of the most intelligent people is important for economic productivity," Rindermann says. He thinks that's because "they are relevant for technological progress, for innovation, for leading a nation, for leading organizations, as entrepreneurs, and so on." Since Adam Smith, many economists have assumed that the main thing you need for a strong economy is a government that stays out of the way. "I think in the modern economy, human capital and cognitive ability are more important than economic freedom," Rindermann says.

As Chinese living standards rise the correlation between IQ and national wealth will grow even stronger. Unfortunately, while selective pressures used to select for genes that boost IQ that is no longer the case. Worse still, median income for American men is already on a long term decline. In America only the smartest and most skilled still experience rising incomes. (PDF)

After three decades of sustained increases, the return to skills as typically measured by the earnings ratio of college graduates relative to high school graduates is at a historic high. In 1963, the hourly wage of the typical college graduate was approximately 1.5 times the hourly wage of the typical high school graduate. By 2009, this ratio stood at 1.95. The entirety of this 45 percentage point rise occurred after 1980. In fact, the college-to-high- school earnings ratio declined by 10 percentage points in the 1970s.

Moreover, this simple comparison of the wage gap between college and high school graduates probably understates significantly the real growth in compensation for college graduates relative to high school graduates in recent decades. College graduates work more hours per week and more weeks per year than high school graduates, spend less time unemployed, and receive a disproportionate share of nonwage fringe benefits, including sick and vacation pay, employer-paid health insurance, pension contributions, and safe and pleasant working conditions. And these gaps in nonwage benefits between high- and low-education workers have each grown over the past several decades.10

People who are not smart are experiencing declining incomes. Unemployment of lower IQ people will soar as as more tasks become automated.

By Randall Parker 2011 March 19 10:52 AM  Human Nature Cognitive Ability
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2011 March 16 Wednesday
No Queue Jumping In Sendai Japan

Short of food, fuel, and water, the Japanese do not degenerate into lawlessness.

In a city of 1 million that now has little electricity or gasoline and where nearly all restaurants and shops are closed, survival is ruled not by the law of the jungle but by the orderly rhythms of long lines.

There has been no surge of lawlessness in Sendai, the Japanese city hit hardest by the 9.0-magnitude earthquake on Friday, as there was in already crime-ridden Haiti after an earthquake last year. There was no exodus of terrified residents, as happened in Indonesia after the 2004 tsunami.

Not like Haiti. Not like Indonesia. Not like New Orleans. Who (leaving aside anyone with a basic knowledge of the Japanese people and a willingness to go pass the CrimeStop point) could have expected this difference?

What I would like to know: Why isn't the Japanese government getting supplies into Sendai? Is the task of fixing rail lines and roads really so difficult? Or is the Japanese bureaucracy incredibly slow when faced with a new challenge?

By Randall Parker 2011 March 16 09:29 PM  Culture Compared
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2011 March 13 Sunday
Unemployment Duration Same Across Education Levels

Unemployment rate is strongly inversely correlated with level of education. That's not new news. But here's what's weird: Once unemployed the average duration of unemployment is the same regardless of level of education. Why is that? You will see at that link the commenters do not know either. The lengthening time for unemployment benefit eligibility is offered as an explanation. But why wouldn't smarter and higher paid people want to get back into higher paid jobs as rapidly as possible?

Also, the average duration of unemployment has skyrocketed in the latest recession up to nearly 40 weeks. In the 2001-2002 period it was below 20 weeks. The average duration of unemployment grew sharply coming out of that recession peaking in 2004, dropped a bit, and then started back up again. The rate if layoffs is very low. But so is the rate of hiring. The job market is becoming highly segregated between those who have jobs and those who don't.

A related phenomenon: Some employers are averse to hiring the unemployed. Among employer motives for this preference:

  • Faster ramp-ups: the already employed are expected to come up to speed more quickly.
  • Employers retain the more talented during a layoff (on average). Those who did not get laid off are seen as more talented on average as compared to those who got laid off. Of course, if a whole site shuts down or a division gets axed then that rule doesn't work. Also, managers can lay off people talented enough to replace them.
  • Job switchers are more attached to new jobs. If someone leaves one job for another they are more likely to see the new job as a better job. Whereas an unemployed person who takes just any job they can find is less likely to feel their job that allows them to escape unemployment is satisfactory for the long term. So they are more likely to keep an eye out for a better job.

None of these items explain why the average duration of unemployment is the same across employment levels. Any ideas why?

By Randall Parker 2011 March 13 08:00 PM  Economics Labor
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2011 March 12 Saturday
An Argument For Knocking Off Gaddafi

Whoever controls Libya is going to sell the oil. So that's really not an issue in the Libyan civil war. But a point rarely mentioned should be a major factor in choosing American policies toward the combatant factions: Muammar did order the Pan Am Lockerbie terrorist attack after all.

Jalal Elgallal, a Benghazi businessman educated in Britain who supports the revolution, added: "I lived in Britain for years, I admire Britain - as most Libyans do - and I would expect Britain to help the underdog. If we get a no-fly zone he can't bomb us, and our fighters could march on Tripoli and end this.

"We need your help to get rid of Gaddafi. Just think about what he has done to you in the past - Lockerbie, Yvonne Fletcher, terror attacks.

"This is your chance too to get rid of him. We could get rid of him quickly with some foreign help, otherwise doing this could cost tens of thousands of lives."

For that reason alone I say send in special forces to knock him off or supply anti-tank weapons and some anti-aircraft missiles to the rebels. Do what it takes to tip the scales against Khadafy. When he dies celebrate the death of the Lockerbie killer.

By Randall Parker 2011 March 12 04:58 PM  MidEast Insurgencies
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2011 March 10 Thursday
Egyptian Muslim Persecution Of Coptic Christians

How exciting that the Egyptians rose up to overthrow a tyrant. This provided lots of video footage and thrills about the power of social media web sites. But then what happened with the Egyptians? Freedom from a dictator gave them greater freedom to abuse and kill Christians.

But such idealism might be waning as Egyptians confront the worst outbreak of religious violence since Hosni Mubarak was swept out of power Feb. 11. The deaths of 13 people in clashes in Cairo between Muslims and Christians late Tuesday have prompted calls for religious tolerance and raised the prospect of a deepening sectarian divide after a post-revolution honeymoon period.

Street battles broke out after Coptic Christians set up roadblocks in major arteries to protest the destruction of one of their churches. Security is scant in this metropolis of 18 million, where the military-controlled government is still groping to find a way to tamp down crime with no functioning police force.

The Copts say the Egyptian army stood by for hours while Muslims killed Christians. The Copts did not want to see Mubarak ousted because Mubarak did a better (though far from perfect) job of protecting them from Muslims than they expect the next Egyptian government to do. That's reasonable. Why expect a government elected by an overwhelming Muslim majority to protect a non-Muslim minority?

Reacting to the assassination of the Christian minority minister in Pakistan Razib says he's not holding his breathe in expectation that Muslims will stop persecuting non-Muslims.

Let’s ignore the blatant whitewashing of what being dhimmi under Muslim “protection” entailed. The teachings of Muhammad are irrelevant. Many of us think that the Muslim religion, like all religions, is a human fiction. Those of us who are not Muslim, the majority of his audience, think that the religion is false in most of its premises. Islam is what most Muslims believe, say, and do. Eboo Patel is not the Muslim pope who can adjudicate this. The fact is that the majority of Pakistani Muslims seem to support, or do not object to, these actions against dissenters from the theocratic consensus. Are they all then not Muslims? The word “Muslim” loses all meaning if that is so.

I don’t care about the “real Islam,” or what “Islam teaches.” All I care is that Muslims stop engaging in active persecution of non-Muslims. All I care is that Muslims march out into the streets and take back their public spaces in nations where they are the majority from the thugs. I’m not holding my breath. Though I’ll take notice when Eboo Patel and his acolytes of the true tolerant Islam go to Muslim majority nations and make clear to them the error of their ways….

What do you call an outspoken moderate in Pakistan? Dead.

By Randall Parker 2011 March 10 11:38 PM  Civilizations Clash Of
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2011 March 08 Tuesday
Union Tries To Force City Employee Hiring

A parasitic union in San Jose California is trying to force an elected official in San Jose to hire a an executive assistant for $70k per year plus benefits.

Judge Kevin McKenney of Santa Clara County Superior Court recently ordered that the case be taken to a costly arbitration instead of the state's Public Employment Relations Board -- something both Constant and the city's attorneys had sought.

That decision pleased the city's 214-member Confidential Employees Organization, which contends the city was required to confer with the union before Constant decided to eliminate the position. The job -- which requires answering phones, scheduling appointments and making photocopies, among other duties -- pays about $70,000 a year.

First of all, yes, an administrative assistant in the San Jose California city government pulls down $70k per year. That job probably comes with a pension that would be the envy of the vast majority of people in America who don't work for a government.

Second, the other Councilmen of San Jose do let the public employees union force on them $70k administrative assistants at the expensive of the taxpayers of San Jose. They go along with the parasitism.

Mish Shedlock loves the union for drawing attention to its parasitic impulses.

I commend the sheer idiocy of LaVerne Washington, president of the employees' association, in pressing this case.

LaVerne Washington shows without a doubt why the only solution to this madness is the total repudiation and complete destruction of public unions.

I cheer Washington's idiocy because this is just the kind of thing that gets the public riled up against public unions. It will backfire.

I'm with Mish. Get the public angry enough to support bans on government employee collective bargaining.

Mish also points to a decision by Costa Mesa California to lay off 43% of city employees and outsource 18 city functions. Whenever I see city employees mowing lawns and doing other manual outside labor my reaction is "why does the city employ those workers directly?". I see lots of private property managers using gardening services and assorted repair services. Governments should do the same. Many other government functions can be outsourced. Each city should not run its own IT department. Hire cloud services.

By Randall Parker 2011 March 08 11:44 PM  Politics Parasites
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2011 March 07 Monday
Single Natalie Portman Pregnant: Bad Or Good Thing?

OneSTDV disagrees with Mike Huckabee over the issue of just why Natalie Portman should be criticized for getting pregnant out of wedlock. Says OneSTDV: Huckabee Criticizes Natalie Portman and Gets It Totally Wrong. Huckabee does not want rich, single, highly successful women making babies and setting an example that poorer women will follow. OneSTDV criticizes the materialistic slant of Huckabee's criticism:

In denouncing Ron Paul and ideological libertarianism as well as opining on the Ground Zero mosque controversy, I've lamented the rise of abject pragmatism. Our society increasingly ignores the "spiritual" and emotional concerns of the populace, both in a personal and collective context. In our pursuit of materialism (not the philosophical kind) and status, we too often focus on the quantitative and tangible. As in Paul's economic obsession over cultural importance, we ignore what enlivens the soul rather than invigorates the bank account.

Huckabee's entirely practical denouncement of single motherhood fits this perfectly. Notice that he doesn't discuss the need for fathers from a spiritual perspective, how having a supportive male role model makes a child (especially a boy) feel, how fathers provide a type of guidance and love that a mother can't, how a child can only know his entire self through his father's lineage and not merely from his mother, and how a mother and father pair enrich a child's life in a way that a single mother can't duplicate. He doesn't speak on the happiness of a family, the togetherness, the support of a close collective. No, he merely notes food stamps, poverty, and throws in an appeal to limited government politics. It's all about money, jobs, and healthcare.

Okay, they both make fair points. Visible celebrities serve as role models. Kids deserve loving dads. Fair enough. But I'm going to come at this from a totally different place: Smart women making babies are rare enough that we should celebrate their pregnancies even when they are single. Their babies will be smarter than the babies of the average single mother. We need smarter babies for the next generation.

To put it another way: The odds of smart women making babies are already too low. If we demand they find a guy who they find acceptable to marry who will make babies with them then today we might just be setting the bar too high.

Update: Commenters wonder why I assert that Miss Portman is smart. Well, as another commenter points out the Wikipedia page on Natalie Portman provides plenty of evidence for her braininess. Ever since we've escaped from the Malthusian Trap the selective pressures for higher IQ during the Malthusian Trap era have probably stopped and even reversed. This threatens the long term health of Western Civilization.

By Randall Parker 2011 March 07 08:11 PM  Human Nature Mating
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2011 March 05 Saturday
Protestantized Muslims Still Rare In America?

One American Muslim does not believe in the supremacy of Muslims over non-Muslims.

In some ways, Zuhdi Jasser doesn't match the profile of the typical Muslim American. He's an active Republican who has supported U.S. wars in Afghanistan and Iraq, advocates for Israel and says his faith harbors "an insidious supremacism."

Well, Islam spread by conquest. Supremacism is core do its definition. Jasser might hope for an Islamic Reformation that separates belief in Islam from belief in religious states that enforce religious rules. But I think the odds are against him. Maybe American Muslims will absorb Protestant values the way that American Catholics basically protestantized. Maybe not too.

Yet the prominent Scottsdale, Ariz., doctor is the face of American Islam for a Capitol Hill moment. Other than members of Congress, Jasser is the only witness New York Rep. Peter T. King has identified so far for his upcoming hearings on the radicalization of U.S. Muslims.

The people of Muslim background who seem compatible with American values all seem to be atheists from Muslim families. So I am skeptical about claims of protestantization of American Islam.

Razib Khan argues that in America other religions (even Islam) have adopted Protestant norms for the position of religion in society. I question his assertion that American Muslims have accepted American norms on religion's place in society.

Which brings me to the point of this post, and the reason for the title: the exact numbers of Protestants, Catholics and Jews is pretty much irrelevant today in the United States. That is because Americans who are Catholic, Jewish, Muslim, and even irreligious, have a fundamentally Protestant understand of how one “does” religion. To understand how and why I say American Catholics and Jews have a Protestant understanding of religion I recommend In Search of an American Catholicism: A History of Religion and Culture in Tension and American Judaism: A History. In Catholicism and American Freedom: A History John T. McGreevy outlines the realignment in the 1950s of Jews with elite east coast Protestants in the culture wars against traditional Catholicism, a reversal of the historical white ethnic coalitions within the Democratic party which emerged in the wake of the Civil War. In The Impossibility of Religious Freedom Winnifred Sullivan argues that American jurisprudence in the domain of church-state separation and accommodation is rooted in Protestant presuppositions. Finally, in The Cousins’ Wars: Religion, Politics, Civil Warfare, And The Triumph Of Anglo-America Kevin Phillips asserts that American Protestantism is fundamentally a dissenting faith which was aligned with the Whig party. I believe that this is most precisely the influence which frames how Americans of all faiths and no faiths understand religion.

What I worry about: As the world becomes a smaller place will Americanized religions in America lose their American character due to more contact of their believers (e.g. via social media sites) with those areas which are sort of the center of gravity of each of their religions? I think we can not count on the continued Protestantization of America's religious.

By Randall Parker 2011 March 05 02:53 PM  Religion Protestant Influence
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Laurence Kotlikoff: America Already Bankrupt

Laurence Kotlikoff, an econ prof at Boston U who writes extensively on the US budget and unfunded entitlements, has a piece on Bloomberg about how America is really already bankrupt.

Our country is bankrupt. It’s not bankrupt in 30 years or five years. It’s bankrupt today.

Want proof? Look at President Barack Obama’s 2010 budget. It showed a massive fiscal gap over the next 75 years, the closure of which requires immediate tax increases, spending cuts, or some combination totaling 8 percent of gross domestic product. To put 8 percent of GDP in perspective, this year’s employee and employer payroll taxes for Social Security and Medicare will amount to just 5 percent of GDP.

I keep harping on this theme because it is one of the long term developments that will blow up in our faces during the lives of most people reading this. We will suffer declining living standards for this reason among others.

Look at the growth in net interest payments as a budget item and you can see the crisis develop. The graph at that link us from the White House Office of Management and Budget. So it is an overly optimistic projection of the future. various projected cost controls assumed by the Obama Administration will not happen. Plus, economic growth won't happen due to Peak Oil.

Even without considering approaching the US federal fiscal train wreck future generations of Americans are facing retirement at lower living standards.

A new report by McKinsey & Company, the consulting firm, is gloomy about retirement. The report, Restoring Americans’ Retirement Security: A Shared Responsibility, says, “The average American family faces a 37 percent shortfall in the income they will need in retirement,” meaning “the average household will face a retirement savings shortfall of nearly $250,000 by the time of retirement.

Note that's McKinsey, not a stock brokerage trying to get more customers. The article explains some of the reasons why the outlook for retirees is worse: A larger fraction of retiree income will go toward rising Medicare insurance premiums. Plus, taxes will rise. So even if Social Security payments stay the same adjusted for overall inflation the overall inflation rate understates the decline in buying power which retirees will experience.

Since the US government will not be able to maintain the currently projected path of combined Social Security and Medicare expenditures the need to save for one's retirement is even greater than conventional wisdom would suggest.

State and local government pensions are similarly in trouble. Their assumptions for future investment returns are overly optimistic. It was possible to have a few decades of rapid growth in stock prices after stock prices became very depressed in the Great Depression and after they became depressed during the 1970s. But we are now in a period where 8% yearly stock market investment returns are no longer realistic.

Update: The amount of money getting paid out of Defined Benefit retirement plans is going to fall by an order of magnitude.

Younger households (30-to-39 years old) across all income levels face the biggest retirement challenge with RRIs ranging from 47 to 64, but they have the greatest ability to recover by changing their behaviors. This group must rely almost entirely on personal savings (DB payouts will provide one-tenth of the retirement income of their parents’ generation), and historically it has not saved. These households have, however, started to adapt their savings behavior, at least in the higher-income groups. And although they still are not saving enough, they have the benefit of time to build their nest eggs.

I do not think most people under the age of 50 realize how poor they are going to be in retirement. The McKinsey report makes for good reading both on a personal level (maximize your retirement plan contributions) and on a policy level (make it easier for employers to offer retirement plans among other points).

By Randall Parker 2011 March 05 02:51 PM  Economics Retirement
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Why Less Teen Sex?

Fewer kids are doing it.

The study, released Thursday, is based on interviews of about 5,300 young people, ages 15 to 24. It shows the proportion in that age group who said they'd never had oral, vaginal or anal sex rose in the past decade from 22 percent to about 28 percent.

Why? A few hypotheses:

  • Sucked into virtual worlds. Teens spend less time physically with others.
  • Pressure to study.
  • More structured time. Less time free.
  • Less physically attractive kids due to rising obesity.
  • Lower male sex drive due to rising obesity's effect of lowering testosterone.

A change in brain metabolism due to obesity is quite plausible. The theory is that abdominal fat cells contain an enzyme that converts testosterone to estradiol.

In males with increasing obesity there is increased aromatase activity, which irreversibly converts testosterone to estradiol resulting in decreased testosterone and elevated estrogen levels.

You might want to use this as another motivation to improve your diet and exercise. Lower serum testosterone ("T") comes along with many other undesirable metabolic changes when the fat builds up.

It was found that with increasing BMI, levels of serum leptin, triglycerides, insulin, the ratio high-density lipoprotein (HDL) cholesterol/low-density liporotein (LDL) cholesterol, the waist circumference (WC), the area of visceral fat and systolic/diastolic blood pressure were higher, whereas insulin sensitivity (HOMA) and serum T were lower.

But what about Facebook and instant messaging? Does the virtual world eat up so much time that less time is available for socializing in person? Does this reduce teen sex?

If obesity lowers testosterone is it also lowering the crime rate? Arrested guys get more sex. Girls really do prefer bad guys.

By Randall Parker 2011 March 05 11:27 AM  Human Nature Mating
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2011 March 02 Wednesday
Build A Navy Or Face Our Budget Deficits?

Writing in the Wall Street Journal Mark Helprin argues that the American people should support spending to expand the US Navy to prevent it from yielding control of the seas to China.

The United Sates Navy need not follow the Royal Navy into near oblivion. We have five times the population and almost six times the GDP of the U.K., and unlike Britain we were not exhausted by the great wars and their debt, and we neither depended upon an empire for our sway nor did we lose one.

Despite its necessity, deficit reduction is not the only or even the most important thing.

What caught me: Deficit reduction is not the most important thing? Running a deficit equal to 10% of GDP and the thing to do is run up that deficit even faster because we need more ships? Record debt at all levels of government is not a reason to admit we are living beyond our limits? This is an irresponsible argument.

The current massive deficits are an attempt to live beyond our means and pretend that the era of continually rising living standards hasn't come to an end. Totally ignoring fundamental limitations to growth, people like Helprin want America to act like it is still a rising power with the wind at its back. If only.

Gonzalo Lira, ranting about the $1.6+ trillion US government deficit, says the most noteworthy thing about the massive US fiscal disaster is how little people care.

Yet for all these terribly depressing facts, here’s the rub: 

No one seems particularly concerned. 

It’s as if it were happening to someone else—it’s as if it were happening to the Canadians, not to America. The American people are taking the whole budget deficit thing so la-di-da that you would think that the entire country had dropped extacy in one giant, collective, “Don’t give a fuck about nuthin’ ‘cept dancing!” moment. 

Lira thinks people see the approaching disaster and have given up and just do not care. In response to Lira, Dennis Mangan sees apathy and stupidity as more likely causes of our profligacy.

But why aren't they paying attention? At least a couple of reasons come to mind: they've got their own lives to lead, or they don't think much could be done about it anyway, or at least some of them are too dumb to understand. Some may also believe that our elected leaders will solve these problems; that's why we elected them, right? That leads us to the agency problem: the interests of our elected government agents are not necessarily the same as our own.

Yes to all the above. But also, there's also a strong element of "You pay", "No, you pay". Like Mark Helprin, everyone has their favorite cause or benefit that they want to protect. Cut waste but do not cut Social Security, Medicare, government employee pensions, foreign aid to a favorite country, and dozens of other programs and causes.

I have been puzzled over the last 5 years or so whether our economic problems will lead to high inflation. I am reaching a conclusion: Yes. Politicians can portray inflation as a force outside of their control that has the effect of reducing the value of many government benefits. Inflation is a way to cut government spending programs while pretending to be opposed. Our leaders and populace have such poor moral character (and not a few are too dumb and interested) to prevent the inflationary route. So I think high inflation is a likely consequence of how governments will respond to massive underfunded entitlements and declining tax revenues.

By Randall Parker 2011 March 02 10:11 PM  Civilizations Decay
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More Top College Grads Wasting Talent In Non-Profit Work

Yet another story about self-indulgent Ivy Leaguers turning to NGOs, non-profits, and other pursuits that do not raise living standards.

“It’s not uncommon for me to hear of over 100 applications for a nonprofit position, sometimes many more than that, and many more Ivy League college graduates applying than before,” said Diana Aviv, chief executive of Independent Sector, a trade group for nonprofits. “Some of these people haven’t been employed for a while and are happy to have something. But once they’re there, they’ve recalibrated and reoriented themselves toward public service.”

After $200k spent on an Ivy League education a job in a non-profit is going to leave many of those grads paying down their college loans in their 30s.

Teach for America is an especially notable waste of smart brains. Teaching for a cause will not make the sleepy, dumb, lazy, and drugged kids any more able and willing to learn.

Renewed interest in public service is visible across the country. Applications for AmeriCorps positions have nearly tripled to 258,829 in 2010 from 91,399 in 2008. The number of applicants for Teach for America climbed 32 percent last year, to a record 46,359. Organizations like Harvard’s Center for Public Interest Careers have been overwhelmed — and overjoyed — with the swelling demand from talented 20-somethings.

In my post Selfish People Take Lower Paying Jobs I argued that smarter people who take jobs with less potential for wealth generation are denying the world the benefit of their brains. If the smarter people turned their backs on dead-end non-profit work and pursued science, technology, and business the result would be more inventions, innovations, scientific discoveries, healthier environments, less habitat damage, and higher living standards,

The world faces a relative paucity of low-hanging fruit for discovery and innovation and therefore Western living standards have been stagnating. We can not afford for the smarter minds to waste themselves in non-profit work.

By Randall Parker 2011 March 02 09:21 PM  Economics Inequality
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2011 March 01 Tuesday
Government Pensions Unaffordable In California

An LA Times editorial points to a new report on how it will be impossible for governments to deliver on pension benefit promises made to all the government employees in California.

But a new report from the Little Hoover Commission in Sacramento makes a more troubling point: Many state and local government employees have been promised pensions that the public couldn't have afforded even had there been no crash.

The public employee unions managed to bribe politicians to get these pensions. The mistake is up there with the Iraq war in terms of great US national policy mistakes. Still not in the same league as the massive mistakes made in the last 45 years of immigration policy. But state and local governments are increasingly going to serve their retirees more than their citizens.

The Democratic Party basically made a pact with the devil: In exchange for getting mandatory union member membership fees funneled into Demo campaign funds the Demo politicians voted to put the interests of state employees far ahead of the interests of the larger public.

But the report argues that political factors have been at least as important in driving up costs, starting with the Legislature's move in 1999 to reduce the retirement age for public workers, base pensions on a higher percentage of a worker's salary and increase benefits retroactively. The increases authorized by Sacramento soon spread across the 85 public pension plans in California.

Compounding the problem, the state has increased its workforce almost 40% since the pension formula was changed and boosted the average state worker's wages by 50%. Local governments, meanwhile, raised their average salaries by 60%. Much of the growth came in the ranks of police and firefighters, who increased significantly in number and in pay.

Fat city. But now we are well into the phase of costly consequences. Government debts have gotten too big to keep kicking the ball down the road.

The daunting tower of national, state and local debt in the United States will reach a level this year unmatched just after World War II and already exceeds the size of the entire economy, according to government estimates.

The Tea Party-led rebellion against government employee unions is an absolutely necessary (but insufficient) corrective. Wisconsin Governor Scott Walker has to massively cut down the power of the unions as a defensive measure for the public.

Nationally, Walker's efforts to break the power of public service unions - being replicated to some degree in several other Republican-led states - have thrown public employee unions into an existential crisis.

Crashing some of the public employee unions is a deserved outcome for the damage they've caused. Gutting their power to bribe the Democrats would result in much more fiscally responsible and frugal government. We'd get higher quality services at lower cost and bloat would be easier to cut.

FDR understood that government workers should not have unions.

This is "an assault on unions," said President Barack Obama of Gov. Walker's plan.

That's true. But Franklin Delano Roosevelt, the president most favorable to industrial trade unions, would have stood with Mr. Walker.

"Meticulous attention should be paid to the special relations and obligations of public servants to the public itself," FDR said in 1937. "The process of collective bargaining, as usually understood, cannot be transplanted into the public service."

When you hear official estimates of underfunded pension funds keep in mind their books are somewhat cooked. So their real problems are much bigger than they officially claim. The states use unrealistic future stock market returns to avoid admitting the size of their unfunded liabilities.

The Pew Center on the States finds that the US states have $1 trillion in unfunded pension and health care liabilities. The states are in worse shape than they officially state because they assume ludicrous rates of return on their investments. The lowest assumed annual return rate is 7.25% for North Carolina and South Carolina. The highest at 8.5% is used by 5 states (CO, CT, IL, MN, NH). This is delusional. Click thru on that link to figure out whether you need to plan to move to another state.

The interview with Chanos is worth reading for his comments about proper uses of credit default swaps.

States do not want to get realistic on rates of return because they can't afford higher pension fund contributions that would come from more realistic assumptions.

Northwestern U biz prof Joshua Rauh thinks the state pensions are underfunded to the tune of $3 trillion.

2/16/2011 - Associate Professor Joshua Rauh testified before members of the U.S. House Judiciary Committee Feb. 14 on the role of public employee pensions and the risk of state bankruptcy from these underfunded liabilities.

Based on his research, Rauh predicts that without basic reform to the current pension system, many large state pension funds will run dry, even if they achieve predicted 8 percent annual returns. Rauh estimates taxpayers will bear a large share of the financial burden of the $3 trillion in unfunded legacy liabilities associated with state pension plans.

Even a very successful gutting of union power by Republican governors and legislatures would still leave at least $1 trillion in unfunded liabilities. Throw in Peak Oil and I expect the problem to be much worse. We face something worse than a zero sum struggle for money over the next 10-15 years. Economic growth has in the past allowed politicians to pay back bribes and votes from assorted groups. But we are now in an era where elected officials will have to cut cut cut. The cutting we are witnessing at the state and local level will eventually happen at the federal level too. Though the US federal government and other governments with their own central banks will probably opt for some inflation to cut down at least a portion of their liabilities.

Our problem is that collective expectations and promises far exceed future wealth. Expect lots of wails and conflicts as expectations and reality continue to collide.

By Randall Parker 2011 March 01 08:54 PM  Economics Sovereign Crises
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