2011 July 31 Sunday
Mitt Romney's Relatives In Dangerous Mexico

Mitt Romney's ancestors fled to Mexico for some years back in the 19th century. A Washington Post article takes a look at the few dozen Romneys that still remain in Colonia Juarez Mexico. A third of the population of 500 are traced back to the United States. The violence in Mexico is a present danger to the Romney clan and other Mormons of Colonia Juarez.

Meredith Romney was opening the gate to his sprawling cattle ranch in the Sierra Madre mountains two years ago when he was ambushed by three men in ski masks. They clubbed him with their pistol butts, put a hood over his head and stuffed him in the back of a sport-utility vehicle as his wife and grandson looked on. Then they drove him deep into the mountains.

“They told me, ‘We’ve been watching you for a month,’ ” Meredith said.

He was marched down a canyon and tied up in a cave for three days, until the family paid an undisclosed sum to get him back. “I just figured my time was up,” Meredith said, shaking his head. “I later found out they’d kidnapped 18 people and killed 14 of them.”

Corrupt local officials who shake down honest businesses and who are in cahoots with big criminal gangs. Scared people.

The kids are kept in-doors much more and they all travel much less.

“We’re sort of like sitting ducks down here, but nobody wants to leave,” said Jeff Romney, whose friend, a local ceramic artist, was kidnapped, tortured and killed recently; he was found with his genitals severed and stuffed in his mouth. This month was the first time in a year that Jeff had driven from El Paso to see his parents

Another Washington Post piece looks at how the rising violence in Mexico is cutting the flow of illegal aliens from Central America headed to the United States. They get kidnapped, robbed, raped, killed. The article has details.

The soaring number of attacks on migrants in Mexico, and the widely dispersed news of their barbarity, is discouraging many Central Americans from even attempting the trip to the United States, according to immigration officials, human rights advocates and the travelers themselves.

Illegal drug flows thru Mexico are a large part (but not the only part) of the problem. If the US is going to continue to keep recreational drugs illegal (and I think parents and grandparents will continue to demand this) the US government ought to try much harder to stop that flow. The US ought to build a formidable barrier along the entire US border with Mexico. This will help insulate us from the violence and reduce the drug flow. It will also decrease the amount of violence in northern Mexico. This should be combined with heavy searching of cargo traveling across the border to cut the land-based drug flow. If the north of Mexico ceases to be a useful drug movement staging ground then it will become a relatively less violent place. We'll also benefit from a smaller number of impoverished people in the US than would otherwise be the case.

By Randall Parker 2011 July 31 06:14 PM  Mexico
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David Friedman On Debt Ceiling Political Economics

What are Obama and the Republicans really fighting about over the debt crisis? David Friedman suggests that Obama wants a higher debt limit thru the 2012 election in order to buy votes and Republicans want to cut his debt-based spending to undermine his ability to do the same.

The other and more interesting game, now that the administration has dropped its demand for tax increases, is about whether or not to raise the limit by enough to get past the next election. From Obama's standpoint, the answer is, I think, obvious. Having the option of deficit spending is almost always a benefit for those currently in power, since it lets them buy votes without obvious cost. Concern with the size of the national debt may have changed that, at least for a while, but I think more likely not. Hence Obama would like to be able to spend as much money as he wants through the election while satisfying demands for fiscal responsibility via cuts, possibly imaginary, in future expenditures.

My take on the debt limit brinkmanship in Washington DC: It is serving a constructive purpose. While each side is playing for partisan advantage we are lucky that a crisis is being created around the debt limit rise because otherwise the total US debt would keep going up to a point where the financial markets would create a very real crisis. Better the political theater in Washington DC than to have the fate that has befallen Greece, Italy, Spain, Ireland, and other Euro countries whose sovereign debt has reached levels which have caused the markets to lose faith in their ability to repay their debt. As the markets turn on each country it gets hit with interest rates so high that some form of default on sovereign debt becomes unavoidable.

Voters do not have sufficient incentive to understand government finance, taxes, the economy, and entitlements costs. We can't expect much from politicians elected by the general populace. What is going on in Washington DC in the battle between Barack Obama's Administration, John Boehner, the Tea Party, Harry Reid, and other players about the best we should expect given who votes and the interests that fund election campaigns.

Rather than take a dim view of dysfunctional and irresponsible national politicians e I look at the current manufactured debt limit crisis and am pleasantly surprised. That the politicians are wrestling with US government deficits even to the extent that they are is more than I hoped for. Are various figures lying? Hypocritical? Irrational? Manipulative? Even if true, so what. My expectation bar is so low I feel fortunate that the Repubs are even willing to try to take on entitlements spending or to risk government shutdown. Last time they did that under Clinton they got the blame. Whether their latest moves represent courage or calculation that conditions are more favorable to them at least they are trying to cut spending.

Friedman suggests best to raise the debt limit by an amount that will get thru the election only if Obama tries to cut back on spending.

Raise the limit by an amount that will require further action before the election unless Obama manages to substantially reduce federal expenditure, but which can be pushed past the election if he does. It will then be in Obama's self-interest to find ways of cutting federal spending, which is a better guarantee than any legislative promises that Congress can pass today and break tomorrow.

Of course, it is also an incentive to find ways of increasing tax revenue—but until the election, the Republican House is in a position to deal with that problem.

The voters don't want to choose between lower services and higher taxes. Voter preferences run toward more entitlements, higher services, and lower taxes. In an era with low economic growth, an aging population, and rising health care costs they are going to have to settle for fewer entitlements and eventually higher taxes as well. Political crises over debt limits will force these trade-offs sooner than would be the case if we waited for markets to drive up interest rates or force the Federal Reserve to inflate away the debt.

By Randall Parker 2011 July 31 01:06 PM  Economics Political
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2011 July 30 Saturday
Hedge Funds Not Heavily Leveraged?

Did the investment bankers blame the hedge funds in order to shift blame away from themselves? Investment banks are far more leveraged than hedge funds.

NEW YORK — July 27, 2011— The Journal of Financial Economics recently published a paper by Andrew Ang, Chair, Ann F. Kaplan Professor of Business and Chair, Finance and Economics Division at Columbia Business School; Sergiy Gorovyy, PhD candidate, Columbia Business School; and Gregory B. van Inwegen, Head of Quantitative Research/Managing Director for Tailored Portfolio Group of Citi Private Bank, that was the first paper to formally investigate hedge fund leverage using actual hedge fund ratios. Contrary to popular belief, the researchers found that hedge funds, in general, are only modestly leveraged. The average hedge fund leverages its equity by two times. In addition, hedge fund leverage is counter–cyclical to the leverage of the finance sector and large financial intermediaries. During the financial crisis, the leverage of investment banks spiked up to above 40 during the first quarter of 2009. During that time, the average hedge fund leverage was only 1.4, and hedge funds had started to substantially reduce their leverage in 2007 long before the onset of the financial crisis.

Perhaps the bad reputation of hedge funds was put on them as part of an inter-elite fight to shift blame for the financial crisis. Maybe the investment banks have more influence over the crucial TV channels which do so much to mold opinion (PDF format) and hedge fund operators just can't compete. Also, I expect the investment banks pay more for influence in Washington DC. How much of the wealth of the highly influential top 0.1% is invested in hedge funds? Enough for the hedge funds to have powerful protectors?

By Randall Parker 2011 July 30 04:27 PM  Politics Influence Buying
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Tighter Union Or Bust For European Union?

Ilargi makes an interesting point: if far tighter financial and political union is the only way to save the Euro zone then rejection of that step by voters could break the EU. The Europeans need to scale up the power of their union or it will fall apart.

Europe is, of -financial- necessity, sliding towards a fiscal and subsequent political union (and yesterday was a big step). A union that has zero chance of being accepted by its members. That is how we recognize that this is the beginning of the end. Without the extended powers of the EFSF, an outright Greek default would have been unavoidable. With the revamped facility, there can be a few more months (or is it even just weeks?) of pretending. And then, German, Dutch and/or Finnish voters will hammer it down.

Will voters in a couple of European states throw up so much opposition to bail-outs aimed at saving the Euro that ejection of some Euro zone members will become necessary? Can the Euro at least be saved for the northern European countries?

In a Foreign Policy piece Steven Erlanger argues the European Union faces an existential crisis. The assorted peoples of Europe do not feel themselves Europeans. They distrust and resent those of other nations.

PARIS — Europe isn't going quietly. In this season of continental crisis, both financial and existential, French President Nicolas Sarkozy has yelled at European Central Bank President Jean-Claude Trichet. The European Union commissioner in charge of justice, Viviane Reding, has insulted Sarkozy, who has fired back. Leaders of smaller countries have openly complained about German pigheadedness and French arrogance. The Germans and the northern countries call the Greeks freeloaders, liars, and worse; the Greeks have said Germany should return gold and antiquities looted by the Nazis.

Europe's members are too many and too diverse. Ethnic nationalism is still a potent force. Germany's own growing nationalism is undermining its willingness to provide alms to keep the union together. A common currency stretched over growing list of countries makes no economic sense. Milton Friedman predicted the Euro would cause more harm than benefit.

I expect Peak Oil and an aging population to make Europe's financial crisis grow in the next 10 years. So I am skeptical of the survival of the Euro, at least with all its current members. It can only survive if the big money elite in Europe decide to bribe and otherwise cajole national leaders to adopt policies to ensure the Euro's survival. It is not clear to me the European elite will decide they want to do that.

By Randall Parker 2011 July 30 12:34 PM  Europe Monetary Union
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2011 July 26 Tuesday
Less Than 40% Of High School Drop-Outs Working

A Wall Street Journal article about how the US economy isn't generating jobs any more (while US corps generate jobs abroad) has a depressing statistic about the least educated (and need I say least intelligent?) part of the US population: Most high school drop-outs aren't working.

The Bureau of Labor Statistics says there are 25.3 million Americans over age 25 without high-school diplomas: Only 9.8 million, or less than 40% of them, were working in June.

It begs the question: What are they doing? How are they getting food and housing? Obviously, some are in Club Fed and state and local prisons. But for the ones not doing jail time how are they surviving? Soup kitchens? Welfare? Mooching off of friends and family? Drug dealing?

There's no light at the end of the tunnel for the least skilled, least educated, and least intelligent. Manual labor manufacturing jobs continue to get automated or shipped abroad. For reasons hard to fathom our elites continue to favor a big influx of low skilled illegal immigrants. Really, the poorest are paid so little that cutting their incomes even lower by displacing them with immigrants does not save the upper class much money. So why do it? I would like to ask the top 0.1% who effectively rule America why they favor this state of affairs.

Labor market participation rates are down to levels last seen in the early 1980s. A large chunk of the labor force suffers from long term unemployment. And how are they getting by? As Catherine Rampell recently reported in an NY Times piece, employers are explicitly advertising for the already employed or recently unemployed. Anyone who has been out of a job for 6 months gets stamped "Loser". Well, there are lots of people getting stamped "Loser" and that looks set to continue for years to come.

By Randall Parker 2011 July 26 11:10 PM  Economics Labor
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2011 July 25 Monday
Consumers Slashed Discretionary Services In Recession

New York Times economics writer David Leonhardt points to an interesting aspect of our current economic downturn: some categories of consumer spending have fallen to levels not seen for 10 to 20 years.

But the real culprit — or at least the main one — has been hiding in plain sight. We are living through a tremendous bust. It isn’t simply a housing bust. It’s a fizzling of the great consumer bubble that was decades in the making.

It is good that Leonhardt makes reference to the decades long unhealthy trend in debt accumulation that got us where we are today. The end of the private debt binge has drastically cut into consumer spending.

The auto industry is on pace to sell 28 percent fewer new vehicles this year than it did 10 years ago — and 10 years ago was 2001, when the country was in recession. Sales of ovens and stoves are on pace to be at their lowest level since 1992. Home sales over the past year have fallen back to their lowest point since the crisis began. And big-ticket items are hardly the only problem.

Decades of rising consumer debt, a huge housing bubble, and persistently high oil prices have made the current economic recovery the weakest since World War II. Steve Keen asks "Dude! Where's My Recovery?". Good question.

But what Leonhardt advocates as a policy response does nothing to address underlying causes.

A more promising approach could instead offer a tax cut to businesses — but only to those expanding their payrolls and, in the process, helping to solve the jobs crisis.

Tax cuts for expanding your payrolls? Seriously? Those businesses that happen to already have plans to expand their payrolls would get a tax break. The incentive would be too small to make a big difference. So the vast bulk of the benefits would go to hiring that would have happened anyway. How is this a cost effective use of the taxpayer dollars?

His next proposal is telling: He really doesn't know what to do about our economic predicament (just like me btw) but wants government to do something. For those on the political Left economic problems demand policy responses. They need government to be efficacious in managing the economy.

Leonhardt advocates for more research. Even if that'll help in the long run it'll have no impact in the next 3 years and probably little in the next 5 or 6 years.

Along similar lines, a budget deal could increase funding for medical research and clean energy by even more than President Obama has suggested.

How about some root causes? We have too much consumer debt and government debt. That's a root cause. How about more bankruptcies to discharge some of this debt? Then there's Peak Oil. Sorry, its drag on the economy is going to grow with or without better energy policies. Get used to declining living standards. Then there's another root cause in the labor market: America's declining competitiveness due to demographic changes causing skill levels to decline. Well, the horse is out of the barn and isn't coming back. Though with better immigration policies (e.g. skills-based requirements) we could slow the decline in labor quality.

We need policies that reflect the deep long term nature of our problems and no attempted tricks to jump-start our return to business as usual (BAU). Fact is, BAU ended years ago and it is not coming back. Only in 2008 did the financial markets run out of capacity to paper over the depths of our economic problem as rising debt ceased to be a viable way to hide America's decline in competitiveness.

The NY Fed says the decline in discretionary services spending has been especially severe.

The pronounced weakness in personal consumption expenditures (PCE) for services has been an unusual feature of the 2007-09 recession and the slow recovery from it. Even in 2010:Q4, when real PCE increased at a relatively robust 4.1 percent annual rate, real PCE on services rose at only a 1.4 percent rate. This weakness has been especially evident in “discretionary” services (to be defined below), which fell more in the recent recession than in previous recessions and since have rebounded more sluggishly.


The drop in discretionary services expenditures in the last recession was much more severe than in previous recessions: the nearly 7 percent fall from the peak is more than double the percentage decline in the early 1980s recession (the previous “champion” in this dimension).

Debt-burdened consumer, suffering higher rates of unemployment and underemployment and cuts in compensation, naturally have cut out optional expenditures. They have to husband their diminished resources in order to spend on essentials. They've got more cutting to do.

By Randall Parker 2011 July 25 09:04 PM  Economics Limits To Growth
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2011 July 24 Sunday
Fred Reed Says Disengage From National Loyalty

In a declining society Fred Reed thinks it makes sense to withdraw your loyalty and reduce involvement in decayed institutions.

When a country works reasonably well—when the schools teach algebra and not governmentally mandated Appropriate Values, when the police are scarce and courteous, when government is remote and minds its business and works more for the benefit of the country than for looters and special interests, then pledging to it a degree of allegiance isn't foolish. Decades back America was such a country, imperfect as all countries are, but good enough to cherish.

As decline begins, and government becomes oppressive, self-righteous, and ruthless yet incompetent, as official spying flourishes, as corruption sets in hard, and institutions rot, it is time to disengage. Loyalty to a country is a choice, not an obligation. In other times people have loved family, friends, common decency, tribe, regiment, or church instead of country. In an age of national collapse, this is wise.

Fred says you can do something short of becoming a physical expatriate. As a domestic expat you could see yourself as a resident or visitor in 21st century America. I think this is a cool idea. I felt like an outlier when I was young. But now my feeling is more like an alien.

Fred argues for home schooling . His arguments against universities might seem over the top but one does not have to look far to find evidence that universities have been captured by people with seriously messed up priorities who are damaging these institutions. One of my recurring themes here is that online education can enable escape from both the costs and the ideological messages of the modern university. Escape to online. Create a subculture there.

One does not have to look far to see the United States as a whole is headed down with lots of bad things in store: oppressively high taxes, lower per capita wealth, declining incomes (with California and Texas notably headed down) with the young folks poorer and, according to Alan Greenspan, less able to compete.

I do not know how far or how fast the US will decline. But conducting your life in a way that cuts your dependence on core societal institutions seems wise at this point. This has implications for career choices. Reduce your dependence on a single location or region by developing skills, contacts, and a career trajectory that enable you to work abroad if necessary.

By Randall Parker 2011 July 24 10:38 PM  Civilizations Decay
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Trade Sanctions Against Iran To Bite?

The US and some of its allies managed to get the big shipping firm Maersk to stop serving Iranian ports. Is this a big win for the US against Iran's nuclear program and government?

After two years of failed efforts to entice Iran with diplomatic carrots, the Obama administration is quietly toasting successes at using economic sticks. A series of U.S. and international sanctions imposed over the past year have slowly undermined Iran’s ability to conduct trade by targeting the country’s access to international banking, insurers and transportation companies. Like Maersk, some firms voluntarily cut ties with Iranian companies that U.S. officials say are front operations for the Revolutionary Guard.

How can trade sanctions by Western governments make much of a dent in an era when China is factory to the world? Unless China wants to stop selling Iran stuff (and China needs Iran's oil) whatever the US and its allies decide will have only marginal impact on Iran. That impact will decline with time. This is one of the ways US influence is declining. US export controls mean less and less every year as other countries develop industries of their own that make a growing list of stuff that the US doesn't even make any more.

Iran has 52 drilling rigs active versus Saudi Arabia's 68 rigs. So it doesn't sound like Iran's oil industry has ground to a halt. As long as the oil keeps pumping the Iranians could just buy ships and cruise those ships to south Asian and east Asian ports to buy stuff.

By Randall Parker 2011 July 24 02:15 PM  MidEast Iran
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2011 July 23 Saturday
Nike Helpless To Stop Worker Abuse

Nike is a powerless corporation that really has very little freedom for maneuver. So feel sympathy for Nike. Maybe help them out by buying a pair of shoes.

SUKABUMI, Indonesia — Workers making Converse sneakers in Indonesia say supervisors throw shoes at them, slap them in the face and call them dogs and pigs.

Dog and horse lovers are of course incensed to read this. Why speak pejoratively of dogs and horses by comparing them to the the lowest status human workers? How about a Western social movement to stop the pejorative usage of names for other species? These supervisors could make other choices. Why not compare the workers to inanimate objects? Or perhaps to other workers of even lower status? Surely, 25 cent per hour worker exists and these Indonesian workers could be insulted by comparison with them.

Nike, the brand’s owner, admits that such abuse has occurred among the contractors that make its hip high-tops but says there was little it could do to stop it.

Really, if you need to use the lowest cost workers possible you've got to use workers who have no legal protections at all. Also, the workers should be desperate for work. This is the only way to maximize profit margins. Nike has few choices to make that would not cut into profits. Poor Nike. To be fair: Nike says it has old contracts to licensees over which it has limited leverage. But it could bribe licensees to modify contracts. Oh wait, my bad. That would cut into profits.

Of course, there's an upside to this sort of story: If you a poor American but can still afford a pair of shoes that costs the equivalent of a couple hundred hours of Indonesian labor then by wearing Converse shoes you can advertise your ability to figuratively walk over lots of people even poorer and lower status than you are.

In the article they say at one plant the workers make 50 cents an hour, which leaves little left over after paying food and bunkhouse-type lodging (Malthusian Trap anyone?). This seems like a symptom of a deeper problem: too many people. Imagine people practiced more birth control. I expect pay and working conditions would improve. Mary Ellen Harte and Anne Ehrlich say overpopulation is the root problem. Jeremy Grantham thinks we are nearing something close to Peak Everything.

The question in my mind: Can we come up with ways to generate energy cheap enough that we can use energy to compensate for dwindling fresh water, minerals, and other resources? Until we do it looks like a Zero Sum future where the sum will start shrinking at some point.

Update: See physics prof Tom Murphy on why long term growth can't be sustained.

By Randall Parker 2011 July 23 10:31 AM  Economics Labor
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2011 July 19 Tuesday
Ignorant TV Watchers Vote On Looks

No surprise here.

Using data from the 2006 U.S. Senate and governors’ races, the study shows that for every 10-point increase in the advantage a candidate has when rated by voters on his or her looks, there will be a nearly 5 percent increase in the vote for that candidate by the uninformed voters who are most firmly planted on their couches. Yet that same advantage in looks is worth only about a 1 percent increase among low-information voters who watch little television.

“It’s not that this effect influences all voters exactly the same way,” says Chappell Lawson, an associate professor of political science at MIT and a co-author of the study. “Voters who watch a lot of television but don’t really know much about the candidates, besides how they look, are particularly susceptible.”

Lawson and Gabriel Lenz — who worked on the study as an associate professor of political science at MIT and is now at the University of California, Berkeley — detail the results in a new paper, “Looking the Part: Television Leads Less Informed Citizens to Vote Based on Candidates’ Appearance,” published this month in the American Journal of Political Science.

So if the less informed TV watchers vote on looks what about the less informed who don't watch TV? How do they decide? The sound of a name? What their friends say? What they see on Facebook? Bumper stickers?

Will we witness the rise of voting systems where less informed or less intelligent people don't get to vote? How about competency qualifications for jurors so that incompetent jurors do not let off guilty people? I know smart people who've served on juries with incompetent people. Their stories about the deliberations do not inspire confidence in the criminal justice system.

By Randall Parker 2011 July 19 10:21 PM  Democracy Failure
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2011 July 18 Monday
Dog Popularity Grows In Iran

A sign of an advancing culture even as the mullahs try to crack down on dog ownership.

Buying and selling dogs is illegal in Iran, unless they are guard dogs or used by police. Dogs are considered "haram," or unclean, in Islam. Until recently, keeping dogs as pets was limited to a small circle of Westernized Iranians.

But access to satellite television—and American programs depicting families playing with pups—has turned dog ownership into a sign of social status in Iran.

I flash on poor Anne Frank hiding from the Nazis (and how she should have had a dog to hide with her). Dogs in Iran hide from the mullahs. Their owners walk them late at night or drive them out to the country to walk them.

Rather than spend trillions of dollars invading and fighting in other countries the US could far more cheaply and easily transform countries like Iran by giving them free satellite TV. Beam every TV show and movie and documentary into Iran without encryption with subtitles or dubbed voices. The costs of royalties and satellites would be peanuts compared to what the US has spent fighting in the Middle East.

Any measures that would help boost internet access in Iran would also help build up larger subcultures that oppose clerical rule. A good piece in the Washington Post in June 2011 reports on how Iranians live more freely in the virtual realm and in their homes than they do on the street.

Iranians have used special software to bypass government firewalls and maintain access to Facebook, Twitter, Badoo and other Web sites. Iran has one of the largest Facebook communities in the Middle East and is one of the most densely Web-connected nations in the region, according to Internet World Stats, a Web site.

Online, Iranians brazenly show the parts of their lives that they used to keep secret from the state and others. Pictures of illegal underground parties, platinum blond girls without head scarves and couples frolicking on the beaches of Turkey are all over Iranian social media. They illustrate the rapid modernization that the Islamic republic has gone through during the past decade, changes that have left clerics, revolutionaries and many families struggling to understand.

Do Western trade sanctions work against higher speed and cheaper internet in Iran? If so, those trade sanctions should be lifted selectively - along with lifting any sanctions on dog care products.

By Randall Parker 2011 July 18 07:56 PM  MidEast Iran
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2011 July 15 Friday
Ethnic Nationalism Going Strong

Political scientist Stephen Walt says nationalism is alive and very well around the globe.

It was nationalism that cemented most of the European powers in the modern era, turning them from dynastic states into nation-states, and it was the spread of nationalist ideology that helped destroy the British, French, Ottoman, Dutch, Portuguese, Austro-Hungarian, and Russian/Soviet empires. Nationalism is the main reason the United Nations had fifty-one members immediately after its founding in 1945 and has nearly 200 members today. It is why the Zionists wanted a state for the Jewish people and why Palestinians want a state of their own today. It is what enabled the Vietnamese to defeat both the French and the American armies during the Cold War. It is also why Kurds and Chechens still aspire to statehood; why Scots have pressed for greater autonomy within the United Kingdom, and it is why we now have a Republic of South Sudan.

The vast majority of nationalisms are organized around single ethnicities. So it is not surprising that Walt points to evidence for the renationalization of European foreign policy. This bodes poorly for the EU project and the common currency. The financial strains of deeply indebted mostly southern European nations are prompting nationalists in northern European countries to increasingly assert their own national interests over those of countries reeling from sovereign debt crises. If Greece and Portugal find it necessary to leave the Euro then they will claw back more sovereignty in other policy areas. Brussels will lose power to the national governments. When you see Italy's sovereign debt interest rates spike that's the markets accidentally fanning the flames of nationalism against multi-ethnic elite-driven mpires such as the EU.

I have long advocated for more partitioning of countries that hold mixes of untrusting and hostile ethnicities. Good fences make good neighbors. G. Pascal Zachary says more regions of existing African nations should secede and create new nations.

The birth of South Sudan is a momentous invitation not to despair over the travails that the people of this new landlocked and impoverished nation surely will experience, but to celebrate another step toward closing what Pierre Englebert, a professor of African politics at Claremont College, has called "Africa's secessionist deficit." And the deficit in question refers to living standards and development generally. Englebert found, in one of the most exciting recent academic projects in academic African studies, that the unwillingness to cut African nations down in size (in other words, to let new nations form) has "contributed to its underdevelopment."

I'm not optimistic that more nation formation will usher in some sort of golden age of African development. Africa's incredibly low living standards have several (rather untractable) causes. Medieval England had higher living standards than Africa today and the many nations of sub-Saharan Africa remain in a Mathusian Trap. Even worse, if Gregory Clark is right about the role of disease in boosting living standards (by putting limits on population density) then Bill Gates' pursuit of cures for African diseases will lower living standards there even further. But putting borders between warring groups such as Hutu and Tutsi seems like a good idea.

Back in January 2011 Parag Khanna wrote a piece in Foreign Policy Breaking Up Is Good to Do where he argued that the world could benefit from a surge to 300 for the number of nations. It is amazing to see these sorts of arguments in an era where many members of the elite enthusiastically argue for globalization and a borderless world. Also amazing: Denmark has reestablished border controls to keep out unwanted immigrants. The EU is not a done deal.

By Randall Parker 2011 July 15 06:53 PM  Ethnic Nationalism
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2011 July 09 Saturday
Tim Pawlenty Or Half Sigma Right On Online Education?

A year ago on the Daily Show presidential aspirant and former Minnesota governor Tim Pawlenty opined that online courses are the ticket to lower cost, greater convenience, and better education.

Do you really think in 20 years somebody is going to put on their backpack, drive a half an hour to the University of Minnesota from the suburbs, haul their keister across campus and hear some boring person drone on about Econ 101 or Spanish 101? ... Is there another way to deliver the service other than a one-size-fits-all monopoly provider that says, 'Show up at 9 o'clock on Wednesday morning for Econ 101?' Can't I just pull that down on my iPhone or my iPad whenever the heck I feel like it, from wherever I feel like? And instead of paying thousands of dollars, can I pay $199 for iCollege instead of 99 cents for iTunes?

Those views are similar to my own. You should be able to choose from many pre-recorded lectures on the same topic and watch lectures and interact with drilling software and tests at any time of the night or day. We need to move to that model anyway in order to best utilize findings of research into memory formation, testing, and learning. See more here.

Half Sigma just now says what Pawlenty said is stupid (click thru to see the stupid reference).

Education has been delivered by lecture for the last 200 years, so yes, I really think that 19 years from now it will still be the same.

Furthermore, there’s already a website where you can buy the same instructional material they use at college. It’s called Amazon.com. But no one cares if you’ve read the textbook on your own and know the material. Employers hire based on credentials and not whether you actually know the material taught at college.

Yes, the credentials are important. But since when has online study prevented the earning of credentials? Real bricks-and-mortar colleges are increasingly offering online courses. Plus, more credible pure online educational institutions are emerging such as Western Governors University.

Students certainly aren't put off by concerns about earning a credential. From fall 2005 to fall 2006 the number of students enrolled in at least one online course rose from 2.3 to 3.2 million. By fall 2009 the number was 5.6 million college students taking at least one online course. When do we hit 10 million?

A few of his commenters think a college's study-friendly environment and the structure and deadlines of an in-person course.

I "taught" engineering at the college and university level for 37 years. I slowly realized that what I was doing was providing structure and discipline via deadlines and grades. I never taught anyone anything. They learned stuff by themselves because of the discipline and structure.

But some evidence suggests a large number of students can handle the online context and learn just fine: Online Students Perform As Well As In-Person Students. Even people enrolled in bricks-and-mortar colleges living at the campus are increasingly watching the lectures from their dorm rooms. What does that tell you?

I see the growth of online education as an inevitable market response to very high prices and inflexibility of institutions that are long overdue for reform.

On a related note see a couple of posts by Reihan Salam about a cheaper model for bricks-and-mortar higher education and another take on the choices elite universities make in terms of who they'll enroll. It seems clear to me that universities act like they know they serve a signaling function (our students are smart and motivated) more than an educational function.

The key to educational reform: find cheaper ways to provide the signaling function. This is possible because there are many alternative ways to demonstrate smartness that involve education. The key is to separate the testing from the course provision. Let someone test out their knowledge without having to pay tuition to the same institution as provides the test.

Update: Tyler Cowen takes a look at research economic research papers on how much of the value of education is a signaling function. The answer will depend on the market (e.g. US versus Britain), the IQ of the students and the eliteness of their schools, and which major each student takes.

Update II: Let me repeat: It is possible to find cheaper ways to do the signaling function that bricks-and-mortar colleges provide today. Other ways to demonstrate your intellectual prowess:

  • Earn degrees sooner. A math degree at 19 or a history degree at 18 demonstrates superior intellectual ability.
  • Earn degrees in harder subjects. Nothing like a physics degree to say "I'm smart".
  • Earn technical certifications. The top Cisco cert is good for a 6 figure income.
  • Write a book, especially in a subject that some industry thinks important. It is the route to a lucrative consulting career for many.
  • Write a great open source piece of software.
  • Write a blog on a difficult subject and produce sustained great content. A number of bloggers in economics have made names for themselves this way.

Is a degree from Western Governors University worth as much as a degree from Harvard? Of course not. But if getting into an Ivy League is out of reach then WGU can make more sense than quite a few other choices.

By Randall Parker 2011 July 09 08:47 PM  Education Online
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Extreme Coupon Stealing

For families hard hit by recession a new very practical fad involves using large numbers of store and product coupons. An article in the Washington Post reports on women who are cutting their grocery bills by an order of magnitude or more (and I'm thinking they must not buy much in the way of fresh fruits and vegetables). To illustrate just how far extreme couponing can go some are stealing coupons from newspaper racks.

Yoder and other extreme coupon cutters acknowledge some participants do cross the line.

In Idaho, two newspapers reported this month that coupon inserts were being stolen from their racks. The state’s largest newspaper, the Idaho Statesman, set up a sting in Boise and filed a police report after a woman was caught pulling the ads from more than a dozen copies.

A sign of desperation? The article reports a doubling of coupon usage in 2009 as the recession cut incomes. Imagine what people are going to be willing to do once we enter a full economic depression. Many cost-cutting strategies stop working once too many people try to follow them. As long as heavy coupon users make up a very small fraction of all buyers the coupon issuers can still use coupons to reach out to new customers. But once purchases coupons cease to generate follow-on purchases without coupons the coupon business becomes untenable.

Coupons for food are going to become even more popular. US food inflation was 4.8% over the last 12 months. My advice: Try ever harder not to be poor. Get yourself into a higher income bracket, a more secure job, a better career path. Life for the bottom half is going to get worse.

Looking hard at US consumer behavior and the depth of the underwater US housing market make strong economic growth seem like a pipe dream. Personal austerity, like government austerity, can't be avoided at this point. Yet austerity means less economic growth (e.g the anemic US economic recovery) or even contraction. Look at Greece as an example: In Greece the already shrunken economy is going to contract another 3.75% in 2011 and it is going deeper into debt even as austerity measures take hold.

Greece’s debt is expected to peak at 172 percent of its annual economic output, substantially higher than the 150 percent of gross domestic product estimated when the joint IMF-European Union rescue was approved last year.

Greece is beyond the extreme coupon stage. The danger signs are starting to flash for Italy too. Italy is a domino big enough to cause a wave of sovereign and bank defaults. If those dominoes start falling then severe world recession is a likely consequence.

The US government has bigger tools with which to put off a reckoning. But harder times are headed our way as well. Extreme coupon usage is going to become an even more common practice. Peak Oil will cause Peak Debt and that that puts us at risk for a vicious cycle. An aging population and declining average skills will take their tolls too. American decline is real this time.

By Randall Parker 2011 July 09 12:34 PM  Economics Family
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Big Infrastructure Budgets Routinely Overrun

Virginia Postrel (who was much shorter in person than I expected - her mind is tall though) reports on a study that found large public works infrastructure projects very frequently go way over projected budget and deliver far fewer benefits than projected.

“Cost overruns in the order of 50 percent in real terms are common for major infrastructure, and overruns above 100 percent are not uncommon,” Bent Flyvbjerg, a professor of major program management at the University of Oxford’s Said Business School, writes in the Oxford Review of Economic Policy. “Demand and benefit forecasts that are wrong by 20-70 percent compared with actual development are common.”

Flyvbjerg says the projects that most overestimate their benefits and most underestimate their costs get funded. Oh and public passenger rail and urban projects have especially big overruns. Why is that not surprising to me? Because passenger rail advocates tend to be zealots. They don't look critically at their great love. Read the full article for other good points of interest.

Given that politicians are going to continue to lade out the pork spending at our expense what's needed are independent agencies with engineers, accountants, MBAs, and the like who critically analyze infrastructure project proposals and present more accurate measures of costs and benefits.

For example, imagine a mechanism where existing government agencies or non-governmental organizations are chosen by lottery to analyze a big infrastructure proposal (e.g. a light rail project or high speed rail project) of some state or local agency. If the project goes forward anyhow and goes over budget as the independent agency predicts then the independent agency should get a financial reward from the agency that originated the project.

There are problems with my first version of this idea. Like, an independent agency would be tempted to project a cost overrun just out of hope it would get it right and make money. How to incentivize the independent agency to estimate the cost correctly? The closer the final cost is to the independent estimate the bigger the reward? One problem with this sort of a reward system: the better the reputation of the independent agency becomes the less likely it becomes projects will get built so their accuracy can be measured and rewarded.

Update: Also see Reihan Salam on how the Federal Railroad Administration drives up the cost of rail.

Update II: How about China? It is cited by high speed rail advocates as an example of enlightened leadership for its big build-out of high speed rail lines. But fares are so high that few can afford to ride and safety is an issue too. Also, lots of corruption has accompanied the construction of the rails. Passengers end up in buses and other cheaper ways to get around.

By Randall Parker 2011 July 09 12:33 PM  Economics Government Effectiveness
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2011 July 04 Monday
Public Release Of US Federal Data Cut

Vivek Kundra just quit as Barack Obama's Chief Information Officer. The reason for his quitting: His most important initiative, Data.gov, had its budget slashed. Data.gov was set up to release more data sets into the public domain so that individuals and other organizations could more cheaply do more with the data and cut costs. The initiative to fund data.gov has been cut from $35 million to $8 million.

The program was off to a great start, with hundreds of thousands of data sets becoming available, and entrepreneurs building thousands of innovative applications. Then the ill-considered race to slash the Federal deficit started. The Obama Administration agreed to cut e-government initiative funding from $35 million to $8 million. Never mind that Kundra’s programs had already saved taxpayers $3 billion over the past two years.

If it really saved billions and really can save more then the cut is pretty stupid. But then why was it done? A different guy, Vivek Wadhwa, argues that breaking the data out of expensive legacy systems threatens the contracts and jobs that maintain those legacy systems.

Here is the problem: the people who own the legacy systems often fear for their jobs if they give their data away. What happens when entrepreneurs from all over the world build systems and software that are a hundred times better than the junk they are maintaining and cost a fraction to run--that is the fear.

So the pressure has to come top down from our political leaders, and bottoms up from the electorate. We are wasting tens of billions of dollars at the city and state level.

I can believe that the US government has a lot of old expensive legacy IT systems with vested interests defending their continued existence. But we can't afford this sort of waste. The US government is headed for a sovereign debt crisis. Therefore it would be extremely timely to try to replace old IT systems with newer, cheaper, and more useful systems. The people in the US government, like the general US public, need to understand that we are poorer than we used to be and that we've got to take a far more frugal approach to running our society.

There is probably a lot of potential for cost-cutting at the state and local level by sharing IT infrastructure and by basically open sourcing software to be used by multiple governments. Take each state's Department of Motor Vehicles. A group of states could share software development costs for an IT system shared between them. Ditto for many other agencies common to multiple state, county, or local governments.

By Randall Parker 2011 July 04 10:42 PM  Economics Government Costs
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Corruption Endemic In Afghanistan

The US intervention in Afghanistan props up a thoroughly corrupt government which is fighting a corrupt Taliban. An AP story highlights the pervasiveness of corruption and bribery in Afghanistan.

WASHINGTON — The farmer picking apples in the outskirts of Kabul must pay the Taliban $33 to ship out each truckload of fruit. The governor sends in armed men to chase workers off job sites if the official bribes aren’t paid. Poor neighborhoods never get their U.N.-provided wheat, long since sold on the black market.

Read the whole thing to see how bad it is. Also see this WikiLeaks US diplomatic cable about corruption in Afghanistan. We can't lift up the Afghans into a democratic republic. But why? With one of the world's highest rates of consanguineous (cousin) marriage they lack the attributes necessary to build an uncorrupt society. Consanguinity prevents Middle Eastern political development The US-European intervention in Libya runs up against the same problem with high rates of cousin marriage. What has made Europe so different than the Middle East? Multiple causes no doubt. But "hbd chick" says Europe was able to develop democratic nation-states because the Catholic Church banned consanguineous marriage a long time ago. Critics of the Popes should take note.

Here's a previous explanation I've given on why cousin marriage is the enemy of civil society.

The need for alliances: First off, people are more willing to help their brothers and sisters than their cousins. But they are more willing to help their cousins than to help strangers. Okay, so suppose a man marries his female cousin. Now both he and his wife can go to her brothers and ask for help. They are far more inclined to provide that help because they'll be helping not only their cousin but also their sister with the same act of help.

But if you are married to your male cousin's sister and he is married to your sister you are both far more loyal to each other. But if you are far more loyal to each other you are far less loyal to everyone else. This creates problems in the society as a whole because then there's less motivation to treat all people fairly and do perform acts that benefit everyone.

Middle Eastern societies are very corrupt. Their governments are very inefficient and have bureaucracies that are hard to deal with. You have a hard time getting fair treatment from their bureaucracies and court systems. Why? Lots of the workers in those organizations have primary loyalties outside of the government that are very demanding on them. They've got to cheat and steal from non-relatives in order to fulfill their extended family obligations.

The need for alliances grows out of the lack of ability to deal anonymously with organizations. You've got to have family connections in order to get by. This feeds on itself in a vicious cycle. If you need cousin marriage then you engage in it to help yourself. But that makes you more inclined to screw others which means they need cousin marriage too.

A realistic foreign policy would throw out the last half century of politically correct nonsense about human nature and go back to earlier wisdom for guidance. John Adams on virtue and republics comes to mind:

The Form of Government, which you admire, when its Principles are pure is admirable, indeed, it is productive of every Thing, which is great and excellent among Men. But its Principles are as easily destroyed, as human Nature is corrupted. Such a Government is only to be supported by pure Religion or Austere Morals. Public Virtue cannot exist in a Nation without private, and public Virtue is the only Foundation of Republics. There must be a positive Passion for the public good, the public Interest, Honour, Power and Glory, established in the Minds of the People, or there can be no Republican Government, nor any real Liberty: and this public Passion must be Superiour to all private Passions. Men must be ready, they must pride themselves, and be happy to sacrifice their private Pleasures, Passions and Interests, nay, their private Friendships and dearest Connections, when they stand in Competition with the Rights of Society.

If a people lack Virtue as Adams understood it then US foreign policy should not assume an outcome is possible which relies in that Virtue.

Why doesn't US foreign policy adopt a much more realistic view of the character of individual nations? Why not accept that factors like consanguineous marriage place severe limits on what we can hope to achieve in our many foreign interventions? Unfortunately, too many elite interests stand in the way of a foreign policy shaped around only vital US interests. Part of the problem, I suspect, is as biological as cousin marriage. Daniel Larison notes a recurring theme of invented enemies even in 19th century European statecraft. This problem is not just the result of neoconservatives trying to make the US dominate the Middle East. A bunch of guys with a large amount of military power are going to tend to look around for enemies. The might of the US military attracts people who invent enemies in their minds to the levers that control it.

By Randall Parker 2011 July 04 11:36 AM  MidEast Afghanistan
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2011 July 03 Sunday
Joni Mitchell: Making Vice Chic Tremendous Moral Error

Joni Mitchell interviewed by Charlie Rose in January 2008: "Making vice, you know, chic I think was a tremendous moral error and I think the entire global village is suffering right now and the generation coming up right now is malformed because of it, that they never had a shot at innocence, you know which is one of the privileges of childhood unless you're in a war zone".

Another quote: "The boys are weakened and the girls are grotesquely aggressive".

What do you all make of that?

Regards vice chic: I'm struck by the glorification of Las Vegas by TV shows (e.g. with Josh Duhamel playing a casino security officer in one of them) and movies. Look, gambling is a vice, a very destructive vice for some individuals and families. Mom or Dad gambles away the food money and rent money. Today state governments run their own lotteries, claiming to need the money to help poor people. But who are they preying on to buy their tickets? People who want a ticket out of the lower classes. That's morally perverse.

Her comments about water and food shortages suggest she's worried about the limits to growth and exhaustion of resources. But these limits (like the idea that vices are bad things which children should be shielded from) are still outside of the range of discussion engaged in by mainstream commentators.

Note that she also saw the severity of the approaching financial crisis before it hit full force. The mainstream economic commentary of January 2008 was not predicting a near collapse of the global financial system that would be prevented only by trillions of dollars from the US Federal Reserve. So she was ahead of the mainstream echo chamber of conventional wisdom. An artist's sensitivity helps to see thru conventional wisdom.

For those too young to recognize her name here is Joni Mitchell in 1969 performing Chelsea Morning.

Update: I can see a couple of arguments for letting the lottery stand:

- The poor are already getting supported by more productive people and do not deserve to be parasites. So taxing them thru a lottery reverses an unfair redistribution.

- The lottery acts like natural selection against people dumb enough to spend on it. But I'm skeptical that the lottery (or gambling in general) reduces fertility, especially in welfare states.

Arguments against the lottery and against legalized gambling:

- The poor are unfairly oppressed and therefore need to receive from the state as a remedy to the unfair system. Therefore they should not be tempted to give to state via a lottery. But I'm skeptical of Marxist arguments about class oppression, at least with regard to the vast majority of the poor. Most who are poor in industrialized economies are that way due to their own attributes: they are too dumb to do highly productive work or too lazy or too uncooperative or because they have short time horizons and do not save. Likely multiple reasons apply for most of them. Granted there are exception who are poor due to no fault of their own.

- When the easily tempted engage in vices others pay for a portion of the results. Keep temptation away and people become more likely to support their kids, stay with their spouse, keep their job, etc. That seems the most persuasive argument to me. But this argument, while it would have been persuasive 100 years ago, no longer holds much force among liberals. That's unfortunate for the health of a society.

By Randall Parker 2011 July 03 11:27 AM  Civilizations Decay
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2011 July 02 Saturday
Companies With Tough Job Interview Questions?

A Wall Street Journal FINS article cites a report by glassdoor.com claiming the top 20 companies for tough job interviews aren't familiar names like Microsoft, Apple, or Google.

At the top of the list were: consultancy McKinsey, proprietary trading firm Jane Street Capital and semiconductor manufacturer Cree Inc. Firms like BP (No. 10), Procter & Gamble (No. 12), investment fund Bridgewater Associates (No. 16) and Amazon (No. 18), followed. Notably absent from the top 20 were tech giants like Google and Apple, both notorious for their high levels of competition and challenging interviews.

This all has to be taken with a grain of salt. Obviously, the applicants for clerical positions aren't being asked to solve tough equations. Which jobs in each firm have especially tough questions? How g-loaded are the questions from each firm? How much are the questions dependent on learning specific areas of mathematics or algorithms or engineering domain knowledge? How g-loaded are the questions?

What would be even more interesting: What's the relationship between salary and difficulty of interview? Do some firms have really high standards for jobs that do not even pay $100k per year? Do some firms have easier questions for their $200k per year jobs than other firms do for their $150k per year jobs?

Since BP is the only oil company on the top 20 list I'm skeptical about the sample pool too. For a petroleum engineer applying at BP, Exxon, Chevron, Total, Schlumberger, Transocean, Halliburton, and Cenovus what's going to be the ranking of difficulty of questions asked? If BP really is asking harder questions than its competitors and had been for a long time they should have a bigger competitive advantage.

By Randall Parker 2011 July 02 07:59 AM  Economics Labor
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