The Freakwenter Got Mail

And I'm not sure whether to consider this junk mail. From the inbox of freakwenter@gmail.com:

Hello,

I'm the webmaster of [website withheld] I wanted to know if by any chance you would be interested in doing an unbiased review of our site on your blog http://zacharychild.blogspot.com/

If you agree we will send you a payment for the review.

Please let me know if you are interested.

Thank you
[initials withheld]

To which I responded:

I am willing to consider your proposal, if you could be more specific. In particular, what is the payment, how would the payment occur? If pay comes after the review is published, then I have no way to be sure that pay will come, and if pay comes before the review is published, how will you know that my work will be satisfactory?

To which it responded:

The review must be at least 300 words in length with 3 good links going to the website.

We will pay you $10, paid in advance through Paypal.If you agree,please send me your Paypal ID so I can make payment and send you the keywords.

To which I have nothing to say. Should I look into getting a Paypal ID?

My Contribution to Society

My stocks aren't doing so well. But let's not focus on that. I want to talk about my contribution to society.

On Saturday morning I woke up feeling bored. What will become of me today? I wondered. Such is life for a young healthy thrifty selfish urbanite with a padded government job and no debts or obligations other than to keep myself content.

So I did what I usually do when I get bored: started looking at all the ads on craigslist. And there I found an ad for a sweet Cannondale mountain bike, size large, asking price of $500. A bit of googling revealed that the bike goes for about $1,050 in bike shops. Hmmm.

I drove 11 miles north and waited at they man's driveway. I'll be there in ten minutes, he told me on the phone. I debated with myself how long I should wait for him. But he showed up. And the bike was nice indeed. Disk brakes. Huge, but light. 27-speed. A shiney spanking new look.

Are you open to negotiation on the price? I said. Negotiate, he said. How about $440, I said. I didn't even want the bike, but I was too bored to turn down this opportunity to spend money. Can you do $450, he said. O.K., I said. Smart move on his part, I thought, later. How was I, a man who thinks only in percentages, going to haggle over a mere $10 when hundreds are at stake?

The next day I took the bike full-speed over the smooth grassy hills of my local golf course. That ride was fine, but the bike was terrible on the road. The tires roared against pavement so that I felt like I was pedaling a vacuum cleaner.

I put up an ad on craigslist. $650 firm, it read. That night a big burly man stopped by. After a few minutes of test-riding and poking around, he asked me why I was selling it. I told him. How much did you pay for it? he asked. I told him. So you're flipping bikes on craigslist, he said. Yep, I said.

With a tone of great finality in his voice, he declared, I can give you $580 for this bike. I thought about the one other person who had responded to the ad. They sounded pretty interested. But I really don't want this bike. But I have plenty of space for it. $600 I said.

And with that, I made $150 in about two hours.

But did I really "make" anything besides money? Definitely. First, I made myself some entertainment. Second, I freaking IMPORTED a bicycle into the great non-state of Washington, DC. That's got to be worth something. Third, I prevented somebody else from wasting $150 on stuff like beer and vacations, whereas my hard-earned money is going into savings, increasing the national capital stock and thereby helping to alleviate the credit crisis.

The Bailout Failout, and China

Newsweek's Fareed Zacharia says that Paulson and Bernanke's collaboration to produce a solution to the ongoing economic collapse is government working "as it should." I agree with him. And I predict that the refusal of congress to grant Henry Paulson the money he requests illustrates one of the great weaknesses of Democracy: It works only when voters understand the issues. Although the current issues are only moderately complex, they are so new that the public will not have time to understand what is going on before it is too late. It is in times like these that totalitarian states such as China pull ahead -- unfettered by politics -- while the land of the free and the home of the brave ties itself up in knots of fear.

The voters shout "Why!?"

Why should we dump taxpayer money into the greedy and corrupt institutions that caused this mess? Why shouldn't we let them perish? And how dare anyone suggest subsidizing these corporations before we help struggling homeowners?

All good questions. And I agree: new regulations need to be introduce to prevent corporations from getting us into this mess again. And I'm not opposed to raising taxes on the wealthy so that we can prop up the living standards of the poor -- including those who are losing their [modest] homes to foreclosure. But this is not Christmastime. Demand that congress deals with those issues next week. If we don't give Paulson the power he requests soon, we'll all be poorer, rich and poor alike (except for government employees, hehe).

But enough talking down to voters. Here is a condensed version of what happened and why we need a bailout:

• Bad policies from Congress, such as pressure on Fannie Mae and Freddie Mac to subsidize home-ownership by purchasing more than a trillion dollars of subprime mortgages since 2004, expanded a surge of irresponsible lending that may have began with the low interest rates of Greenspan post 911.
• The bad mortgages, in the form of all sorts of bizarre securities, are now held by a bunch of financial institutions, such as banks. As these securities lost value, lending institutions got poorer and started going bankrupt.
  
• When a lending institution (which specializes in borrowing money to lend) goes bankrupt, whoever was lending their money to it looses that money.
  
• Guess who I'm not going to lend money to anymore.
• Nobody want to lend to anybody else.
• Businesses can't find loans to pay their employees.
• Sales falls as the public fears hard times.
• Poor people lose their jobs.

So bad mortgages are the root. Henry Paulson wants to buy them all up to purge the system, and that would prop up all the flailing institutions and lenders would have confidence once more and the economy would go humming along.

But if the mortgages are really the problem, why not just help all of the home-owners who are threatened by foreclosure? Not a bad idea, but the implementation could take a very long time and be very complicated, not to mention potentially very unfair. How do you decide who gets help? And if the real concern is poverty, why not just start with the Paulson Plan and then, once the economy is strong again, jack up the taxes on CEOs and lower taxes on the poor.

Good movie

http://www.youtube.com/watch?v=0mjUZEsduIE&feature=related

The $160 billion buy-in

I have just a couple of observations on the "$700 billion bailout," neither of which is my own, and neither of which have been internalized by the press.

First, $700 billion most certainly does not represent the cost of the bailout plan. True, the Treasury is requesting to spend $700 billion, but it is not as though the money is going to be pushed out of a helicopter over Wall Street. A better analogy would be that the government is buying up $700 billion in real estate, in a land where nobody knows how much the land is worth. But this land is definitely worth a lot more than zero, and the government could even end up turning a profit on the whole deal. In the estimate of the Freakwenter, a $700 billion bailout is most likely to cost taxpayers just $160 billion when all is said and done, about the same as a few months of war in Iraq.

Second, the term "bailout" may be a bad term for it. The Freakwenter proposes that this term be replaced with "buy-in." The government is hoping to temporarily buy-in to a market where sales have slowed down. And the method of buying-in will be a far cry from the theatre of Bear Stearns and Lehman Brothers. No longer will the Feds be choosing which company lives and which one dies. Instead, Henry Paulson plans to do a REVERSE AUCTION in which companies get to compete on reasonably equal terms for the opportunity to sell their unwanted securities. In a reverse auction, the Treasury will offer a very low price for each major category of risky security and gradually up these offers until companies start selling.

Palin Failin'

After Charlie Gibson's interview with Sarah Palin, the first few news articles I read took a strongly negative tone on her performance. Then I read the transcript of the interview was surprised at how reasonable her statements sounded in context. Ah ha! I said. Maybe the liberal bias in the media is real! But then I watched this.

Obama's top economic advisor: Responsible?

Austan Goolsbee had an opinion article in the NYT on March 29, 2007, chiding the establishment for calling the rise of subprime mortgages "irresponsible."

The Panic of 2007

The Wall Street Journal today ran an article by a well-respected economist blaming much of the financial turmoil on Fannie Mae and Freddie Mac, the two mortgage subsidizing giants that were backed by Congress. If the article is correct, the current calls for increasing government regulation on the financial world may be misguided. Something drastic may need to be done in the short term to prevent a deep recession, but the real moral of the story could be that government involvement in market activity is more a cause of problems than a solution most of the time.

The validity of the article's premise rests mainly on a single number: $1 trillion.

... the vast accumulation of toxic mortgage debt that poisoned the global financial system was driven by the aggressive buying of subprime and Alt-A mortgages, and mortgage-backed securities, by Fannie Mae and Freddie Mac.
...
They became the largest buyers of subprime and Alt-A mortgages between 2004 and 2007, with total GSE exposure eventually exceeding $1 trillion. In doing so, they stimulated the growth of the subpar mortgage market and substantially magnified the costs of its collapse.

This is an astounding argument for libertarianism, but the problem is that the $1 trillion number is difficult to verify.

The Opportunity Cost of Philanthropy

Suppose you have some money and you want to help poor starving children. What is the best thing to do with the money? Let's consider some options.

1. Put the money in a bank (or mutual fund or stocks or invest it in your own business), earn as much interest as possible, and watch it grow.
2. Donate to the government.
3. Donate to a lobbyist who will push for your favorite government policies.
4. Burn the money.
5. Donate to an organization that claims to feed the hungry, cloth the naked, and care for the sick, either directly or through some kind of broader economic development scheme like connecting indigenous artists with the American market. Giving money away like this is what I'm calling philanthropy.

If you've eliminated all the options except #1 and #5, than we're ready to get started. Now there are lots of kinds of philanthropy. Some people give to projects which feed starving children now, while others focus on longer-term economic development. Still others give money for the "arts" or for the environment or education for their own sake. But for simplicity I want to define the "highest philanthropic calling" to be roughly the following: To sustainably raise the level of consumption of the poorest people in the world.

How can we compare the effectiveness of options #1 and #5 as strategies for the highest philanthropic calling? This is difficult, or, more precisely, impossible, since category #5 contains such a broad range of activity. (On the surface, it might seem obvious that investing your money, as in #1, would do far more for the poor than giving it away, since investment triggers a chain reaction of job creation, economic growth, opportunities for the poor, and increasing incomes for the poor, whereas money that is given freely risks being wasted in nonprofit bureacracy or hastily consumed for the short-term alleviation of pain and suffering).

However, investment is easier to analyze than philanthropy, given the straightforward profit-seeking structure of free markets. If we can quantify the extent to which saving (saving is just another word for investment) supports the highest philanthropic calling, then we have established a lower bound on the opportunity cost of philanthropy! In other words, we can identify an alternative to philanthropy that's much better than doing nothing, and therefore possibly not a bad option if you're not sure about a good way to go about giving money away.

Here is the Freakwenter's primary research agenda for the next ten years. He will adapt a general-equilibrium micro-founded macroeconomic model of a closed economy to include three representative agents: the rich, the poor, and the altruistic rich. The rich and poor will be taken as "normal" people with no philanthropic agenda - they care only about getting richer and enjoying life. The altruistic rich will behave like the rich in every way except that they will have a variable preference for saving instead of consuming. The Freakwenter will run this model for several different types of parameter calibrations, and observe how changes in the magnitude of the preference for saving among the altruistic rich affects all other variables in the model, but in particular the economic growth rate of the poor.

If the model confirms the Freakwenter's belief that a preference for saving over consuming is an effective way of helping the poor (assuming a certain amount of political stability and lack of an excellent welfare system), then the argument could be made that people who don't completely understand the long-term effects or efficiency of donating to this or that charitable cause should think twice before depriving the world of investment by giving to charity.

On Capitalism and Accountability

I am a capitalist socialist libertarian. Most of my friends are socialist liberals.

They say, "Capitalism is about maximizing profit, at the expense of all else. We would rather insist that corporations protect the environment and take care of their workers and take care of consumers. Why aren't you with us?"

My answer has many parts. First, I am interested in meeting the needs of people. Ultimately, the profits of capitalism are not an end in themselves, but a means to meeting needs. That is why I am a socialist. I believe that the government should tax the wealthy to support the poor, and should take measures to protect the environment. The fine details of how this happens are crucial to achieving optimal results.

Second, I am a libertarian. That means that I believe in freedom. This sounds trite, like some kind of Bush Doctrine, but be careful what you mock. Federal overreach such as minimum wage laws, child labor laws, immigration laws, complex tax codes, excessive taxation (in some cases), medical litigation, corporate subsidies, and red tape make it more difficult for individuals to start businesses and pursue personal dreams. Some of these laws have an important purpose, but I think that the costs they impose are high.

Here is one caveat to my libertarianism. On the spectrum from individuals to the federal government, you find families, neighborhoods, districts, states, and regions. Those groups that are closer on the spectrum to the individual should have greater freedom to impose control on their own members than those groups closer to the federal government have the ability to impose laws on everybody. For example, neighborhoods should generally not interfere with parenting, states should not interfere with neighborhood zoning preferences, and the feds should not prevent states from establishing environmental restrictions above and beyond the federal mandates. But a key role of the Federal government is to keep communities from acting aggressively towards one another or preventing their members from migrating to other communities.

And finally, I am a capitalist. To me, this means that I look to hard work, business, and even corporations-- all in pursuit of profit --as the most effective motors of production. And this motor produces exactly what the market demands, that is, what people are willing to pay for. Granted, some people have more needs than others, and some people are better-equipped to produce more than others, and that's why I'm also a socialist.

To some extent I'm just spouting off what I think without saying why. The choice between capitalism and the many versions of its absence (Totalitarian Socialism) involves so many value-judgments and contingencies on the exact specification of these economic systems that the very idea of proof on these matters is a dead end.

However, here is one rough outline of an argument for capitalism. Observe that nearly all institutions stray from their stated missions. This is often referred to as corruption or incompetence. The Catholic Church has abused children, FEMA neglected New Orleans, Bear Sterns let down it's shareholders, countless relief organizations have mishandled funds, etc. One thing that has come out of all of this is a near universal desire by the public to hold institutions accountable for their actions.

The nice thing about the greedy world of business is that, #1, everyone knows precisely the mission of a business (to make profit), and #2, the free market holds businesses accountable to that mission. In other words, as long as corporations are not pressured to engage in multiple missions (caring for the environment beyond the requirement of the law, or sporting charitable side-projects), there is complete transparency about what these institutions (companies) do and why they exist. "Corporate corruption" is redundant. Corporations ARE corruption-- institutions embodying the aggregate greed and need of humanity --and it is the business of a small government to enforce the laws we establish to protect people from the path of these pariahs. But to restrict them too severely is to reduce freedom and commerce.

We have a choice: to know where corruption lies, or to be constantly chasing it, rooting it out of the programs set up by our elected leaders. Greed exists everywhere, so it is important that the institution that specializes in regulating greed be as small, transparent, and focused as possible. That institution is the government. And when the government goes into business, or when the government asks businesses to do the business of government, that's when things get fuzzy. And fuzz is bad.

What is the best car for the environment?

A friend recently said she plans to spend $15,000 on a used hybrid car, because she cares about the environment. But wait, I said, don't the high manufacturing costs of hybrids make an old Toyota Corolla or Honda Civic more environmentally friendly -- not to mention much cheaper?

Brendon Koerner recently addressed this very question in Slate. His conclusion: the Prius has a far smaller carbon footprint than nearly any other car, including the energy used in manufacture. I agree with his overall conclusion.

But I don't agree that this is the end of the story. My calculations* suggest that, after accounting for gas savings, the extra cost of getting a used Prius at 80k miles is about $2,600 greater than the same cost for a Corolla.

Why should this matter to a buyer who is most worried about reducing energy consumption? Isn't $2,600 just the cost of being environmentally friendly? Maybe, but before jumping to that conclusion, consider the opportunity cost: With $2,600 to blow on saving energy in other ways besides buying an expensive car, could you end up saving even more energy?

For example, you could turn down the heat extremely low in winter and compensate with $500 of comfy winter clothes and blankets. You could upgrade your most energy inefficient appliance for another $500. You could get a nice bike for $500 and reduce your city driving. That leaves $1,100 for you to donate to your favorite educational or political organization to mobilize more people to take up the simple life.

If you already do all these things, or if you are uncomfortable with your image and want to look more green to impress your friends, then, by all means, buy a hybrid.

*According to Kelly Blue Book, a 2004 Toyota Corolla LE with 80k miles in good condition goes for about $9,000 (private party dealer), whereas a comparable Toyota Prius costs over $15,000. The difference is $6,000. Suppose the price of gas stays around $4/gallon. Suppose the Prius averages 50mpg and the Corolla averages 35mpg. Then the Prius saves just $0.034 per mile, and the prius would need to continue running to 255k to pay itself off. Realistically, the cars might die at about 180k, putting the "environmentalism primium" (the true financial cost of choosing the Prius over the Corolla) at about $6,000 - $3,400 = $2,600.

The Spiral Staircase: My Climb Out of Darkness

Karen Armstrong, author of A History of God, tells the amusing and somewhat depressing tale of her life as of 2004. Accutely self-concious and afraid of her unstable mind, Armstrong was a nun, a Ph.D. candidate, a school teacher, a biblical scholar on TV, and finally a world-renouned author and speaker. Her award-winning TED lecture is here.

Some highlights from The Spiral Staircase:

[While making a film in the holy land with a couple of local men who didn't
like small talk ...] On the first morning, while we were driving out to
the Mount of Olives, I had made another attempt at polite conversation,
twittering in my English way to fill the awkward silence. After he had
endured my pointless remarks -- "How beautiful the light is! How long have
you lived in Jerusalem, Joel? And where do you live , Danny?" --for about
ten minutes, sighing heavily and answering in curt monosyllables, Joel's
patience finally came to an end. "Karen," he growled, "if you have
something to say, say it! If not, sheket!"

[The driver Danny would drop her off at her hotel after working on the film
every day ...] Danny would drive me back to the American Colony,
screeching up to the entrance of the hotel with a flourish, clearly eager to get
rid of me and begin his own evening. "Thank you very much," I had said on
the first occasion, as I got out of the car. "What for?" [he asked] I
looked at him questionly. "Why are you thanking me? Don't thank me!
I have to drive you, whether I like it or not! It's my
job!"

[Around that time, with some Palistinian friends ...] Ahmed and three
of his mates were driving me back ... The car radio was blaring out some
tinny Arabic music, and two of the men on the backseat were drinking bottled
beer. Suddenly the music stopped, there was an announcement, and the
atmosphere in the car becamevery still. "It's the Koran," Ahmed told me
tersely, but with eager anticipation, as though he were expecting a great
treat. I was surprised. I knew that Ahmed was not a practicing
Muslim; in fact, he seemed to dislike religion. Had I been driving
in London with beer-drinking secularists and found that we were about to be
treated to a reading from the Bible on the radio, somebody would have lunged
immediately for the off button ... I listened to the the chanted
recitation as it filled the car. Periodically one of the men would make an
involuntary exclamation of delight, and soon, felling sorry for me, they tried
to include me in the experience, by translating the text into English, the words
tumbling over one another as they tried to express its complexity. ... Somehow
this scripture could still move these tough fifty-year-old men almost to tears,
even though they never went near a mosque and saw religion as the bane of the
Middle East.

The Economic Machine

Consider the following divisions: Labor vs leisure; present vs future; consumption vs investment; utility vs disutility; individual vs nation; home vs firm.

These demarcations form much of the basis for economic models of how the world works. These concepts existed before economics was acknowledged as a field of study, and modern mainstream culture subtly pounds them into the minds of its young.

What is the difference between labor and leisure? My job is so easy that I have forgotten. If I get home from work and cook for a while to unwind, is that labor? And if I grow tired of cooking and sit down to write a future best-selling novel, is that leisure?

And what is the difference between consumption and investment? Consuming a lunch now is necessary so that I have the energy to work in the afternoon -- here consumption is an investment. And if I buy an empty lot of land as an investment property and hold it for ten years, haven't I consumed it for those ten years, in the sense that I kept it from others?

Ah, never mind. I lack the will and brains to deconstruct the machine any further. I need something better to do in my leisure time. Something more like an investment.