The Liberal Order

Let's expose more of these personality defects!

This is just so, so, so disturbing!

As the chart below shows, more and more of our productive efforts are filtering through Washington, DC and, to a lesser extent, state capitols. As this disturbing article from Time notes, more and more money flowing to Washington has created a boom town. (Read the article, it is very disturbing.)

The tragic and scary part is that as DC becomes the mecca for higher paying jobs (the vast majority supported by wealth transfers and having no correlation to productive abilities), it attracts more and brighter people who are otherwise not producing value to society outside of the insular party going on in Washington. Consequently, living standards around the rest of the country decline. Sorry friends in DC, but for many it's true. Here, read this:

Peter Corbett isn’t so sure about the wisdom of D.C.’s version of the knowledge economy. Corbett heads a social-media marketing company, with corporate clients that have famous names. Most of his work involves nonprofit foundations that have flocked to Washington to be close to the fount of grants and tax breaks. He did a single project for the federal government and then swore it off for good. He describes his first meeting at the Pentagon. “There are 12 people sitting around the table,” he says. “I didn’t know eight of them. I said, ‘Who are you?’ They say, ‘I’m with Booz Allen.’ ‘I’m with Lockheed.’ ‘I’m with CACI.’ ‘But why are you here?’ ‘We’re consultants on your project.’ I said, ‘You are?’ They were charging the government $300 an hour, and I had no idea what they were doing, and neither did they. They were just there. So I just ignored them and did my project with my own people.”

Eventually, getting one of the coveted high paying jobs becomes a matter of whom you know, not what you know. How egalitarian is that? 

HT: Tyler Cowen

Are too many high school graduates going to college?

Robert Samuelson offers a good analysis of the college degree stigma.

The real concern is the quality of graduates at all levels. The fixation on college-going, justified in the early postwar decades, stigmatizes those who don’t go to college and minimizes their needs for more vocational skills. It cheapens the value of a college degree and spawns the delusion that only the degree — not the skills and knowledge behind it — matters. We need to rethink.

Dan Quayle Was Correct - Go Figure!

It really wasn't difficult to see the flawed reasoning exhibited by Hollywood and "Murphy Brown" when it came to single parenthood. Dan Quayle was correct.

Isabel Sawhill from the Brookings Institution notes:

Twenty years later, Quayle’s words seem less controversial than prophetic. The number of single parents in America has increased dramatically: The proportion of children born outside marriage has risen from roughly 30 percent in 1992 to 41 percent in 2009. For women under age 30, more than half of babies are born out of wedlock. A lifestyle once associated with poverty has become mainstream. The only group of parents for whom marriage continues to be the norm is the college-educated.

* * * *

In later research, Ron Haskins and I learned that if individuals do just three things — finish high school, work full time and marry before they have children — their chances of being poor drop from 15 percent to 2 percent.

Unfortunately, don't expect Hollywood and those on the left who championed single women having and adopting children to issue a mea culpa and apologies to all the lives, young and older, that have been made worse off.

Can we ever have too few airline accidents?

A great test question that Walter Williams used as part of his Intermediate Microeconomics exam was, "Given that airline safety is costly, can there ever be too few airline accidents?" The answer, of course, is yes. It is a simple application of supply and demand where diminishing marginal benefits of some spending or action goes against increasing marginal costs. This applies to everything, including to airline safety. Certain safeguards and safety checks provide tremendous value at little cost, but you eventually encounter spending that provides almost zero benefit at extremely high cost. (Can you say, TSA screening?)

We know that when you spend other people's money you overspend relative to how you spend your own money. A great example of this is provided by today's News & Observer with this story on North Carolina and its push to pave every state-maintained road.

The state has spent hundreds of millions in the past two decades to blacktop 13,000 miles of roads, bringing asphalt to the driveways of nearly 200,000 homes, DOT records show.

Crews are still at it and now are reaching the bottom of the list, with only 1,842 miles still eligible for paving. They are working in the most rural and least populated spots, such as Mark Teague Road, and in hard-to-pave, mountainous terrain in the west, such as at Lower North Fork Road in Jackson County near the Tennessee border.

Crews there have nearly finished widening work and are preparing to pave a 2.5-mile dead-end road that climbs up the side of a mountain. It has about 30 houses, half of them considered “part-time” or second homes. There are no churches and, except for a bed-and-breakfast, no businesses.

Taxpayers are spending nearly $3.8 million on the project.

Granted, at least one resident who lives on this road is happy to see it paved; she obviously benefits from it. But not everyone sees the great benefits of seeing paved even the roads on which they live.

Mark Teague Road near Pittsboro in rural Chatham County is a half-mile-long strip of gravel that cuts through some woods and then dead-ends at a vacant brick ranch house surrounded by farmland.

The state road looks more like a driveway for Elizabeth Hopp, whose family lives in one of three houses off the lane. When crews showed up recently to widen the road bed, build erosion control for a pond and get ready to pave the road with asphalt, she wondered why the state was upgrading a road that goes nowhere. The cost to taxpayers: $225,000.

“I don’t really see the need for this,” Hopp said. “Maybe this is some kind of progress, but it seems sort of strange to me.”

And it's not as if even the News & Observer doesn't see the inefficiencies in all this.

The program costs have increased sharply over the past 23 years, and the benefits have diminished.

More miles were paved, on roads serving more houses, before 1997 than during all the years since, according to DOT figures. During those first eight years, the paving program served 18 homes for every mile of asphalt. DOT’s upcoming two-year work plan calls for paving roads that average 8 homes per mile.

Fast-rising prices for fuel and asphalt have pushed up construction costs for all kinds of road projects. DOT’s average cost for paving gravel roads has increased from $250,000 per mile in 2007 to $350,000 today. At that price, it would cost the state $644 million to pave those remaining miles.

Now if only the N&O's editorial staff could see that this applies to education spending as well. 

Why Government Debt Grows Uncontrollably and What Hillsdale College Is Getting Right

Critical of Republicans in Congress for failing to propose serious budget cuts over the past two years, Michael Tanner writes:

On an annualized basis, Republicans in the House proposed spending increases of $5.3 billion and cuts of $135 billion. Thus, if every one of their proposals had passed, total federal spending would have been reduced by $130.2 billion, which is 3.6 percent of this year’s projected spending. That would still have left us with a budget deficit this year of $1.17 trillion.

That’s an improvement over last year, when Republicans proposed a net spending reduction of only $45 billion. So it’s a baby step in the right direction — but far from what we need to keep us from falling off the debt-and-deficit cliff.

Story here. It's not as if this wasn't predictable.

The following is a game theoretic explanation of why Congress cannot/will not cut spending and why changing the party or people in Congress will not solve our debt crisis.

You and I must decide how to spend our time: specializing exclusively in production of private goods and entering into voluntary exchange, which gives us $100 each, or expending some resources lobbying politicians to transfer $10 from the other to ourselves. So we can choose to NOT engage in rent-seeking behavior or spend resources seeking to transfer wealth from me to you or from you to me.

Should we both choose to NOT rent seek, we both specialize in producing goods that we sell to the other, providing us both an income of $100 for a social total of $200 (upper left-hand corner).

Alternatively, should I choose to NOT rent-seek and you choose to do so, you succeed in transferring $10 from me to you, leaving me with $90). And since you had to spend $5 in lobbying costs to acquire the $10 form me, you're left with $105, the $100 in income minus the $5 lobbying costs, plus the $10 transfer from me. The social total is $195, which is less than if we both had refrained from rent-seeking behavior. (Upper right-hand corner.)

Were you to NOT engage in rent-seeking activity and I choose to do so, then the outcome is opposite. (Lower left-hand corner.)  I now have $105 and you have $90, for again, a social total of $195.

Finally, if we both engage in rent-seeking behavior we both expend $5 in resources and any transfers from one of us to the other is offset by an equal transfer from the other to one of us. We both end up with $95, for a social total of $190, the least desirable outcome. (Lower right-hand corner.)

As in a typical prisoner's dilemma game, it's in both of our interests to engage in rent-seeking behavior. This means that we end up in the worst-case outcome, the lower right-hand corner. Regardless of what I choose to do, your best option is to rent-seek. ($105 > $100 and $95 > $90) And regardless of what you choose to do, for the same reasons my best choice is to rent-seek. We therefore find ourselves mired in the lower right-hand corner forever, unable to move to the upper left-hand corner, which provides us the greatest social total.

Check out the approval ratings of Congress shown below (actual information here).

For decades Congress' approval rating has typically stayed below 50%, usually hovering around 30% to 40%. Yet when questioned about how they perceive their own member of Congress, poll respondents overwhelmingly hold favorably views, often hitting 80 and 90%. Basically, it's a sitution where I don't approve of your Representative taking money from me to give to you, but I want my Representative to continue taking money from you for my benefit. We're in the exact same situation illustrated by the PD game shown above. 

Until a) people understand that our current path is not sustainable, and b) that without institutional change that effectively constrains what we can pursue through the political process (i.e., rent-seeking), we will sooner rather than later face the same problems currently infecting Europe.

That's where Hillsdale College comes in. HC has made teaching the Constitution a priority, not only to its students, but to the general population too. They understand well our self-interested nature, and consequently the importance of constitutional constraints that promote and sustain civil society.

So it doesn't matter if you fill the halls of Congress with the most ardent libertarians (or Tea Partiers), you won't bring about any change. It takes changing the mindset of the people and imposing the constraints on collective action as stipulated in the U.S. Constitution. 

A Brief History of Credit Card Users

A 1968 survey found that only 17 percent of Americans had credit cards, as opposed to the 62 percent who had gas cards. A 1971 study in the Journal of Marketing found that men who used credit cards were disproportionately affluent, urban and more likely to agree with statements like “I like to think I am a bit of a swinger.”

Those who didn’t use credit cards led more restrained lifestyles. Men without cards disproportionately believed that “hippies should be drafted,” that “liquor is a curse on American life” and that “a woman’s place is in the home.”

Story here.

 

Should It Be A Crime to Use A Washing Machine to Give Your Baby A Bath?

There are two reasons for charging and prosecuting someone for criminal behavior or negligence: one is about retribution and the other deterrence. 

The first says that you punish a wrongdoer as retribution for his or her misdeed(s) - you harmed somebody so we're going to harm you back. The other says that we punish a wrongdoer now to deter others from acting similarly in the future.

Watch the video below of a man (presumably the father) putting a child in a washer at a laundromat and then closing the door. It could have ended tragically, but it didn't. Luckily, an attendant at the laundromat was able to disconnect power to the machine and then open the door.

 

Now, do you not charge the father for child endangerment given that a) the child was not physically harmed, and b) it was probably just a stupid prank gone amiss, not an actual intent to hurt the child?

The principle of retribution says to let it go; he learned his lesson the hard way. The principle of deterrence says to charge him and penalize him so that any person who thinks about doing something like this in the future will think twice knowing they'll likely face criminal charges for their act.   

This actually happens more than you would think. But I'm also not certain that charging the father will deter that many people from doing something like this again. (Though you can never know the successes of such a deterrent.) Few people will ever know about his criminal charge and maybe a video like this going viral has far more of a deterrent effect than convicting him of negligence and child endangerment. And if someone can attach his name to it, a little shame might deter others as well.

UPDATE: New Jersey's prosecutor decides to not press charges against the man.

"By looking at the video it is clear there was no attempt to harm the child," he said.

Here is the New Jersey statute regarding child endangerment.

Cruelty to a child shall consist in any of the following acts: (a) inflicting unnecessarily severe corporal punishment upon a child; (b) inflicting upon a child unnecessary suffering or pain, either mental or physical; (c) habitually tormenting, vexing or afflicting a child; (d) any willful act of omission or commission whereby unnecessary pain and suffering, whether mental or physical, is caused or permitted to be inflicted on a child; (e) or exposing a child to unnecessary hardship, fatigue or mental or physical strains that may tend to injure the health or physical or moral well-being of such child.

Emphasis mine. I'm not certain the prosecutor doesn't have a case, but again, there appears to be no willful intent to harm the child. The prosecutor is accepting the retribution argument rather than the deterrent argument. 

Why Do We Set the Bar For Students' Behavior So Low?

Read this story from the Southwest Wake (NC county) News. Kangaroo Express, a subsidiary of The Pantry (convenience stores located in the Southeastern U.S.), is offering consumers a special deal where for $6.99 you receive a plastic "Roo Cup" that permits you to purchase unlimited refills at any Kanagroo store for 25¢ between May 26th and Labor Day 2012. (The refills were free last summer.)

Now, as an incentive to encourage attendance and appropriate behavior in school, Kangaroo Express offered every student at Apex (NC) High School a free Roo Cup for this summer. That's right, these students just had to make it on time to all their classes and not act out for a whole year, and as a reward the students who met this standard would be rewarded with a free cup and unlimited 25¢ refills.

Oh wait, it wasn't for a whole year that they had to attend all their classes on time and not act out; that might be tough for many kids to achieve. It was probably for a whole semester that students had to act responsibly. Just one semester is a bit weaker for sure, but it still creates a good incentive to teach students the importance responsibility, which will help them socially and professionally over the long run. And this way only about 25% of the students would likely not qualify for the cup rather than the 50% that probably wouldn't qualify if perfect attendance and good behavior were required for a whole year.

Well actually, here's the deal:

For two weeks the students fought off colds, tugged themselves out of bed, and brushed off distractions in order to meet the requirements needed to get the cup – perfect attendance, no tardies and good conduct. 

Two freakin' weeks!?!? Are you kidding me? We have such low standards for students in public schools that they need an incentive to not be late, absent, or screw around for just two weeks? 

Here's the killer:

About 74 percent of the school’s 2,300 students qualified for the incentive.

What?!?! Only 74% of the students were able to show up for all their classes on time and not act up for just two short measly weeks? No wonder our government schools are failing; we have such low expectations of students who attend them.

“I think it’s really awesome,” said Junior Adrika Rahim, 17, about the cups.

She said the toughest requirement was not being late to class, especially after lunch. Rahim said she solved the problem by leaving five minutes early.

Oh, I see, Miss Rahim's education is not a priority, at least enough to get her to class on time. But the prospect of 25¢ sodas over the summer convinces her to make a minor change in her behavior - leaving five minutes earlier - and that's enough to get her to class on time. What a pity!

Karen Ortiz,16, said she’s usually always running late and the incentive program helped to motivate her.

“I think it was hard,” Ortiz said. “You get sidetracked by your friends. I would just say ‘Hey, I need to leave. Remember Roo Cup.’ ”

Hard?!?!? Getting to class on time is a serious challenge for today's high school students? No, getting to class on time may be an inconvenince to their perceived busy social lives, but it's not hard. Here, do you want to read a story about two students who experience hard every day of their academic careers and more? Ortiz's remarks are symptomatic of students who have been coddled for years in our government school systems. How about, "Hey, I need to leave. It's expected of me to be in class on time and I can meet at least that low level of responsibility."

Senior Jon Perkins, 17, said last summer he missed out on the Roo Cups and was determined to get one this year.

“I was dealing with a bad cold this entire week and I didn’t want to get up,” Perkins said. “But, to get a (cheap) drink all summer, it was worth it.”

Yeah, I guess when the expectations of your behavior are so low, and from the quotes above your classmates must largely be undisciplined slackers who have been overindulged their whole lives, there's little reason for you to ever think that education is important enough to act responsibly and value what many in this world will never ever have the privilege of experiencing. Is that what's wrong?

How much, and what exactly, are we teaching our kids in schools today?

UPDATE: Here is the "Vision Statement" for Apex High School."

At Apex High School graduates will master curriculum knowledge. Our students will embody a core of positive character traits. Meaningful relationships between adults and students will provide the support necessary for students to develop their potential and pursue challenging goals. Our students will combine knowledge and 21st century skills in becoming lifelong productive citizens.

As Woody Allen once said, "Eighty percent of success is just showing up on time." Hmmm!?! How about working on that timeliness thing, or self-discipline and responsibility.

The Solution to Too-Big-To-Fail Is Not Bailing Out Big Banks

I have two opportunities to invest $100.

1. A safe investment that pays me $110 with certainty in one year.
2. A risky investment with a 50% chance of paying me $200 in one year and a 50% chance of leaving me with nothing.

For the first option, $110 with certainty means that after one year: ($110/$100) - 1 = .10, or an expected ten percent return.

For the second option, a 50% chance of $200 and a 50% chance of 0 means that after one year: [(100+0)/100] - 1 = 0, or an expected zero return.

It's the first opportunity that I will take since it a) has a higher expected return (10% v. 0%), and b) is less risky. 

Now, suppose instead that I take my own $100, borrow another $900 with a promise to repay investors $945 one year from now (a 5% rate of interest), and use the $1,000 to undertake one of the two investment opportunities laid out above.

$1,000 (1+.1) = $1,100, I repay investors $945, leaving me with $155. ($155/100) - 1 = .55 or a 55% return. 

By investing in the other alternative, I have a 50% chance of ending up with $2,000 - $945 = $1,055, giving me an expected gain of $527.50, and a 50% chance of ending up with 0 (i.e., my investors and I lose our investment). [($527.50 + 0)/100] - 1 = 4.275, or a 427.5% expected return on my $100 investment.

Now which investment will I pursue?  Governments can try to increase their oversight of banks and the investments they make, but Alan Meltzer makes a good case for increasing capital requirements instead.

Experience shows that regulation is an inadequate substitute for bank capital. Scrutiny failures by the Securities and Exchange Commission left investors in the Madoff and Stanford funds with huge losses. Regulation failed to protect the public. Federal Reserve examiners monitored all the transactions in major banks before the 2008 crisis. These regulators also failed to protect the public and the banks.

Government housing-policy overseers mandated lower down payments and reduced the quality of mortgages, resulting in more than $100 billion in losses at government mortgage lenders. The taxpaying public will pay for the mistakes.

Mr. Vitter had it right; Dodd-Frank has it wrong. Congress should repeal Dodd-Frank and mandate higher capital requirements. Making bankers bear the risks they undertake is the best way to limit those risks.