Sunday, October 30, 2011
1) Domestic Politics. Politicians protect domestic industries to get re-elected. Even if a small country in Africa that no one can pronounce has a comparative advantage in making shoes, the shoe factories in the U.S. don't want to go out of business. It's a hard sell to convince someone to give up their job for "the better good of the world". So politicians promote protectionism through trade policies and the African country never gets the chance to sell its shoes in the U.S..
2) International Politics. Who would regulate the international economy to make sure that the playing field was even? We would need a referee, but how are we going to agree on what or who that would be?
3) Evil Dictators. Ok, evil dictators might be a strong description, but sanctions are still used as a political tool. So I guess evil dictators would fall under reason 1 and 2, but the point is more about the unpredictability of other nations. Political systems determine national trade policies, so the unstable nature of some countries would be constantly changing the dynamic of international relationships and national priorities. Although the market would adapt to these changes in the long run, the frequency and severity of such changes might make it difficult to ever stabilize.
Comparative advantage is beautiful when it is practiced, so hopefully someday we can work out a system that will allow this on the international level.
Saturday, October 29, 2011
Wednesday, October 26, 2011
Monday, October 24, 2011
But really, just like how hacking improves security, I believe that understanding how manipulation works could improve the sophistication of trade. I'm going to describe a 2-step case of manipulation with a story. Environments this can be used in include flea markets, used car lots, with real estate agents, garage sales, craft fairs, black markets, vehicle/computer repair stores, or with your 'friends' you jerk. Basically anywhere where the person you're purchasing from owns the rights to the item being purchased.
Imagine a situation where you and somebody, lets call them Jack, have some items to trade. Alright, before we can begin to describe the process of manipulating Jack to create an imbalanced trade we must first take heed of two things: what Jack wants and what Jack knows. The reason why we must know what Jack wants is so that we may appeal the emotions of Jack. The reason we have to know what Jack knows is so that we can avoid getting detected in our disingenuous schemes!
Go: Jack comes up to you and is like, "Look I just got a lot of [magical item]!" Jealous, and wanting to get more of this [magical item], you start your game.
The first step you can take is to make Jack think less of the [magical item]. THE BEST way to do this is to find REAL faults with the [magical item]. For example, when you go to purchase a used car you may notice that there is a dent in the door or a crack in the windshield. Call those things out -> ????? -> Profit! You can also do this by providing false information about the [magical item] or by devaluing the positive impact of the [magical item]. The reason you may wish to provide false information alongside real information is because perhaps you just can't get the price low enough being honest! And if you can get better than the honest price, why not?
The easiest way to have somebody believe false information is to guise it in an informal fallacy. The reason that informal fallacies are useful in this situation is because Jack isn't stupid, and he knows the basic information about his [magical item]. If we tried telling him that his [magical item] does something extra or doesn't do something that he knows it does, he'll [b]catch us[/b]. Boo. But if we used an informal fallacy such as "Oh, everybody I know that has [magical item] actually say it isn't that great in regard Y" then he will generally be more willing to assimilate your proposition, rather than to just discount it. Also, a key about using informal fallacies is that they are generally difficult to verify! That means two things: Jack would have difficulty verifying it on the spot, and that Jack probably hasn't had the chance to verify such information in the past, especially if the proposition false.
Particularly useful informal fallacies:
-Argumentum Ad Populum: It is of my experience that people tend to trust - at least somewhat - the popular opinion. Nevertheless, be careful because there are some people that - for some reason - are inclined to reject popular opinion.
-Argumentum ad Verecundiam: Similarly you can tell somebody that a very respectable authority claimed something to be true. The awesome thing about this is it doesn't have to be true at all! Precede what you're claiming the authority to have said with the fragment "Dr. X said something like" and all of a sudden your claims are unverifiable.
-Slippery Slope: Oh, this one is slightly harder to employ but so useful. To use this one effectively you could tell Jack "Hey, I heard people that use [magical item] tend to get addicted to [magical item], which leads to [negative habit]."
-Appeal to Emotion: This requires knowing a little about your victims values. Lets say that Jack has a strong aversion to stupid people. You could then claim that the people that generally use [magical item] are stupid, and you don't really want to get caught up with that crowd.
These are all methods of making Jack feel as if his [magical item] isn't quite so valuable. That is, the process we are undergoing is lowering the oppositions wealth inherited from the desired item. Also, the opposition will assume you will not trade quite as much as you would have for the item. It is important that you don't overdo it because the next step is to do the first trade!
Step two is to encounter your first trade with Jack. For some reason you want some of this devalued item. Luckily people don't make sense and you don't have to either. Besides, you're just "trying it out" for the first time! You're not certain of how much the product will benefit you! So you make an offer to give Jack something, probably money, for his [magical item]. Depending on your success at changing Jack's opinion of his [magical item] through information manipulation, you'll get a lower price.
Again, Jack isn't stupid, he wants to get the best price, too, so he's going to try and haggle the price upward! How might he do this and how can you detect it?
1) He may take a long pause or seem undecided, which means he wants more. In these cases your job is to IMMEDIATELY withdraw your offer for trade. A statement like "Oh, well don't worry about it then" does the trick. This does two things: (1) It makes it so that Jack must make his decision to trade or not trade immediately, and (2) If Jack keeps a supply, it makes possible for you to reissue the same offer next time the situation arises.
2) He might lie to you. It's generally hard to tell if somebody is lying, especially if they know how, but a few indicators are: (1) They look towards the right, which indicates creative rather than factual thinking, (2) they touch their face which indicates a rush of blood to the head, (3) they act defensively.
3) He might just outwardly claim he feels like he's being tricked. Just dismiss this with "Well, hmm, I don't know, hmm..."
Competition: Most industries tend to have competition. If Jack is aware of the market conditions for his good then make sure you do not ask for the same quantity of that good that the market provides. That way there is no direct way for Jack to tell if the transaction is inferior or not. Competition can also be used in your advantage if Jack isn't aware of the market conditions. This allows you to claim market conditions. When claiming market conditions you must make sure you're claiming the market sells a different amount than the amount you're buying to avoid any direct indicators of what the price should be in your transaction. I'm sure by this point you're already thinking about making the market look like it offers a better deal than the one you're asking for. ;) Prepare a couple reasons for why you're willing to buy at a worse price than the market offers, ofc. My favourite two are: (1) I just don't want to head over to [place where market is] right now, and (2) I know you have to make a profit.
"That sounds about right" <-- When accepting offers
"Well, hmm, I'm not so sure, hmmm" <-- To avoid confrontation
"Yeah, but I heard" <-- To acknowledge information in passing while changing the focus in your favour
"But here's what I'll do for you" <-- When offering to do a trade.
Keep In Mind
Build rapport with your victims!
Stay flexible as the process is highly circumstantial!
Don't be evil!
That is why I feel that information market should remain untouched by any government body wishing to attain overall prosperity. The only reasons information would be controlled is to give someone, somewhere a better insight to a transaction. That to me is representative of crony capitalism, which the average economist knows is only good for the few and bad for the most. By crony capitalism I mean an institution that fights against asymmetric information for their own personal gain. These sorts of institutions are holding back governments and markets across the globe, and removing them should be a focus of modern economists. Markets should be free, and the information market is no exception.
Sunday, October 23, 2011
Russell Roberts argues that, "many of the policies that a president or legislators might propose to improve something, are often offset by market forces", but if this is true then why does government play such a significant role in regulating our economy? I have no doubt that if I could spend an afternoon with Dr. Roberts he could explain this statement to me, but as of right now I have a hard time understanding how an institution that has the ability to place constraints on both buyers and sellers doesn't have any affect on the determination of prices.
I also have to wonder if Roberts was making a blanket statement regarding governments, or if his position is only referring to republics. Does the ability of a government to influence prices change depending on how it is structured? Comparing Iran, which is a theocracy, with China, a communist state, with Israel, a parliamentary democracy, is like trying to compare apples with polar bears with lamp shades. I might be going slightly conspiracy theory, but if there was a non-market force that could impact prices, could it be used on a domestic as well as international level? If this could be developed, it could mean unmatched economic prosperity for whoever controlled it. According to the modern golden rule (he who has the gold makes the rule), this would concentrate power for whoever controlled the non-market force. In the right hands this could be used to promote positive initiatives, but in the wrong hands it could turn out worse than a zombie apocalypse. Well, maybe not quite that bad, but to sum up that ramble, there is certainly incentive to develop a force that could manipulate prices, but is it possible? If it were possible, how would such a force affect the international political and economic environment? Wow, that was a rabbit trial of paranoia, so maybe it's a good thing that a brilliant economist like Russell Roberts already ruled out that possibility :)
Saturday, October 22, 2011
We have talked a little about things like New Zealand's fishing quota management system, which has helped to make the fishing market more sustainable. In this case, it appears as the though the government was able to assist the market by clearly defining and maintaining private property rights. Are there any other ways that government intervention can assist markets? Is this a true government success story?
I really enjoyed the podcast this week. Particularly, I liked the part where Smith discussed the reaction to his first paper, "If you believe in markets, you don't necessarily need evidence." It almost sounds like the editor was defending free market economy on religious grounds. So it was nice to hear Smith showing his skepticism of textbook teaching methods, and emphasizing the need for experimentation in the classroom. Real life models have much more of an impact on me than a price vs. quantity graph written on a sheet of paper, and I also feel that theories should be tested. It is fascinating that price's can be set purely through the exchange of goods, and that this leads to the creation of wealth. Smith's examples made it easier for me to conceptualize the self-regulating nature of a free market. They also lead me to ask the following questions:
How do government education standards affect education?
Should children be placed into specialized education programs that maximize their comparative advantage at an early age? Or should education be more general? If so, what should be taught in schools? Is there a way that the market could determine this?
Tuesday, October 18, 2011
Sunday, October 16, 2011
- at least 30 years of age
- a US citizen for at least 9 years
- a resident of the state one is elected to represent
- A Ph.D in economics
I think the Law of Unintended Consequences does a fantastic job of highlighting the difficulty that is apparent when we try to maximize the utility of our actions and decision making. There is no way to foresee every unintended consequence and it would be senseless and costly to attempt such an endeavor. Through science, via experimentation and reflective contemplation, we venture to make more educated decisions, but I’m not sure that science will always be completely utilized in the decision making process.
Opinions are diverse and people are always operating in a state of rational ignorance, it is just too costly for everyone to have a perfect knowledge of everything. So we have a problem… The general public is rationally ignorant and has been overwhelmed with a multitude of obstacles which need to be addressed and responded to immediately. These obstacles have to do with necessities: food, water, and housing, waste disposal, transportation, etc. What will we do?
The general public elects officials (AKA scapegoats) to take charge and help create legislation and regulations that will help it past these obstacles. We like to believe these officials have a greater comparative advantage when it comes to guiding policy or decision making, but perhaps this isn’t always the case. Politicians, it seems, have more of an incentive to make decisions based on public opinion, than to make decisions based on science. Public opinion gets them elected, but public opinion isn’t necessarily rational and is often stupefied further by appeals for short term conclusions. In light of this, perhaps economists should be less concerned with elected officials implementing poor legislation, and more concerned with influencing the general public to have a greater appreciation for science and education.
Yesterday I was in a park speaking with some protesters and a man walked up and asked me what I felt about the American Jobs act, and after I told them I thought it was the most short sited bill I have seen recently they accused me of being a right wing oppressor. The plan of this act is to reduce unemployment and stimulate the economy by providing thousands of jobs in public works and extending unemployment benefits for the long term unemployed. By hiring thousands of government workers, they hope to give spending power to the many unemployed. What the propagators of this bill don’t understand is that this would only destroy wealth and lead to even more job shortages. They don’t understand the concept of opportunity cost, that all of that money must come from somewhere.
To address the first fallacy of their argument, there is no way that this bill could effectively reduce unemployment. We have approximately 9.1% of our nation’s workforce unemployed (according to the Bureau of Labor Statistics), and we have a population of a little over 300 million (according to the US census Bureau), doing some simple math this means about 27 million people are in need of jobs. To bring this number down by just one percent we would need to employ at least 3 million people. An undertaking of such magnitude would effectively break the bank of the United States. Just counting wages, if we paid each employed only 30,000$ a year that would incur a cost of 90 billion dollars. This doesn’t account for the rest of the unseen costs of materials and organization to put all of these people to work. But wait, there is more! By placing this cost on the government means we, the tax payer, must pay for this bill in the form of higher taxes. By increasing taxes it greatly reduces the ability of people to participate in entrepreneurship, which has been proven to be the number one creator of jobs. So in the short term we may gain some jobs, but the costs of doing so could easily cost more jobs than it creates. This just doesn’t make any sense.
The second fallacy is that using government capitol to stimulate spending aides the economy and promotes growth. This is entirely wrong; if I take the money out of your pocket and put it in mine I have not created any wealth. In fact by giving people money when they did not produce anything to earn it, it causes a system meltdown. People have no incentive to go to work when they can survive comfortably without it. Also all of this money has to come from somewhere, so there are the additional costs of lost opportunity. Imagine if that money was in the hands of driven individuals that earned that money themselves and had every incentive to make the most of it, the positive effects on the economy are literally countless because people have unlimited potential. Since the money spent has only negative effects on the economy it would be brutal to stack upon the already lagging US market.
Since this act has no practical way of employing even one percent of the population, will reduce the overall number of jobs, and will only drag down the ability of people to participate in entrepreneurship, it would be ridiculous to put into law. After I explained this to the man that called me an oppressor he thanked me for my time and wanted to look at other acts to see if they do had hidden costs he was not aware of. I may not be an oppressor, but this bill definitely is.