Posted by Marc Hodak on July 14, 2008 under Unintended consequences | 
A recent article in the WSJ identified the following incentive to staying alive:
Thousands of high-net-worth Americans who care about the financial well-being of their heirs have a powerful tax incentive to survive until at least Jan. 1, 2009. On that day, the federal estate-tax exclusion is scheduled to jump to $3.5 million from $2 million this year.
The article notes that an even bigger incentive will be provided the following year, in 2010, when the federal estate tax is scheduled to disappear entirely. On January 1, 2011, however, the estate tax is scheduled to reappear with only a $1 million exclusion. What incentive will that create?
Posted by Marc Hodak on under Futurama |
I’ve been on vacation this past week, which included my birthday, which is why there have been no posts since Wednesday.
One thing I missed on my birthday was this review by Andrew Stark of “The Mortal Coil” by David Boyd Haycock. The review of the book itself was OK, but then the author transitions into a pointless after-commentary:
But how desirable would cryonics or immortality in tiny steps be, even if they were possible? Mr. Haycock says that he “will leave it for others to try and answer” such a question. OK, let’s try.
He fails. Stark doesn’t like the proposed, rocky road to immortality that might be just around the corner, and says he will pass. The next step in Darwinism may be the intellectuals and mystics who are bothered by such proposed interventions, and step off the path of continued existence.
Posted by Marc Hodak on July 9, 2008 under Unintended consequences |
For most countries, R&D is a major cost. The U.S., Russia, France, and other members of the “nuclear club” spent a ton of money to get there. Korea and Iran have now shown non-nuclear nations around the world how to actually get the wealthy countries to fund their nuclear R&D.
1) Spend lots and lots of money on nuclear enrichment
2) Convince other world leaders that you’re batshit crazy
That second piece is important. It makes people take seriously the idea that you might use them.
Here is how civilized nations will react:
“Iran’s development of ballistic missiles is a violation of United Nations Security Council resolutions and completely inconsistent with Iran’s obligations to the world,” said National Security Council spokesman Gordon Johndroe.
Johndroe said that the U.S., Britain, France, Russia, China and Germany “are committed to a diplomatic path, and have offered Iran a generous package of incentives if they will suspend their uranium enrichment activities.”
That’s right. First issue the recrimination, then offer a “generous package of incentives.” That’ll show ’em.
The problem, of course, is that once the nuclear wannabes have credibly shown that they are able to play this game, their incentive will be to keep playing it over and over. This game is bound to attract more players.
Posted by Marc Hodak on July 8, 2008 under Economics |
Congress is big on legislating based on speculation, particularly against speculators. Academics almost universally agree that speculation generally increases liquidity, and therefore decreases volatility in markets. But populist politicians continue to ignore that consensus, more recently with accusations that speculators are responsible for the recent volatility in oil prices. In this case “volatility” is read as “increase” since we never hear concern about sudden, significant decreases in commodity prices, except for land.
Fortune writer John Birger has done some real journalism rooting around to find this story about onion speculation: There isn’t any. It was banned in 1958 by a law pushed by a young Michigan congressman, Gerald Ford.
And yet even with no traders to blame, the volatility in onion prices makes the swings in oil and corn look tame, reinforcing academics’ belief that futures trading diminishes extreme price swings.
We hate it when we’re right. Actually, we just hate it when we’re right an no one is listening.
HT: Alex T.
Posted by Marc Hodak on July 6, 2008 under Politics |
We have family visiting New York this long weekend. Yesterday they visited the World Trade Center site, just day after an interesting editorial in yesterday’s New York Sun.
Across New York City, there is a visible divide between development projects built by the private sector and those built by the public sector.
The article notes how large-scale, privately managed projects such as Yankee and Mets stadiums, and various commercial and residential projects that have transformed various areas of the city are on their way to completion, or up and running.
In stark contrast, public projects being managed by various governmental agencies are, so to speak, stuck in the mud. Ground zero has become a symbol of political paralysis. A picture of the original design for the Fulton Street station should be in the dictionary under “boondogle.”
Liberal New Yorkers (redundant, I know) look upon these differences with a curious mixture of cynicism and hopefulness. So, here is a little quiz to separate the liberals from the deluded liberals.
The reason that public projects are typically so much more costly and delayed than equivalent private projects is:
a) Because the private projects are run by smarter people. If only we could get better people in the public sector to run those projects, they could be managed just as well.
b) Because the public projects are hampered by funds. If they had more money, they could get more done more quickly.
c) Because the public sector operates under a very different set of incentives and constraints than the private sector. No one should expect better of public management than what they’ve done in the past.
Most liberals choose (a); it’s just a matter of getting the right people in place. They totally buy into the idea that the past public officials dropped the ball and are to blame for the delays. We just need to get better people in office.
Some liberals choose (b), but that’s plain nonsense. Many public projects waste more money than private projects use. And they often do so, by the way, with fewer environmental and other constraints, and far fewer liability concerns, than those faced by private developers.
Naturally, I would choose (c), but would be open to additional possibilities not encountered in this list of choices.
The point here is that there is no reason to blame public officials for incompetence. True, they are an easy target of ridicule, which may be a subtle reason why the media seems to have a strong bias toward public management. The point is that competence shouldn’t be expected to begin with. It would be far more productive to question the credulity of the people who, against all evidence to the contrary, expect public officials to effectively manage big projects.
Posted by Marc Hodak on July 3, 2008 under History |
I have to take the day off tomorrow, so here are my early best wishes for a Happy 4th.
Having recently read 1776, I’m reminded how remote the situation of our Founding Fathers must seem to Americans today. The Declaration ends with the famous pledge by the signers of “our Lives, our Fortunes, and our Sacred Honor.” Today that sounds like the kind of campaign hyperbole spouted by presidential candidates when they’re concluding a stem winder.
Here is a trick question: which presidential candidate do you think would stand for freedom if they knew that losing the election meant the distinct possibility of death by public hanging? Which would do so if they knew that they had something like a ten percent chance of winning?
Answer: Neither. Not necessarily for lack of courage, but because neither candidate stands for freedom.
Up until July of 1776, members of the Continental Congress could hold out some hope for a negotiated settlement with the Crown, whereby they might get the King to see the errors of his ministers in provoking the colonies. The colonies had been in a state of rebellion for over a year by then. By June 1776, they were facing long odds behind an army that was barely being held together.
This was the point when the Founding Fathers decided to attack the King personally, publicly calling him a “tyrant.” This was the moment they chose to completely sever their bonds to England, and challenge the most powerful military on Earth. To every practical person alive that day, each signer of the Declaration had basically signed his death warrant.
And they weren’t doing it for better health care or teachers unions.
Posted by Marc Hodak on July 2, 2008 under Scandal |
Lesson #1: It’s OK to take money that your boss gives you, but you better be willing to fight for it if the AG doesn’t like it.
Spitzer was basically suing Grasso for accepting what he was awarded. Grasso was given several opportunities to settle the case. He was, in fact, willing leave about $48 million behind to the NYSE, but Spitzer said it wasn’t enough. So Grasso fought for it all under the quaint notion that his bosses, the board, awarded him his pay, and so he was entitled to it. Five years and millions of dollars later, Grasso gets to keep his money.
Lesson #2: If you want to avoid being sued, be a good friend of the DA
Spitzer’s real complaint in this case would have been with the board of the NYSE by alleging that they weren’t acting as good fiduciaries. But that would have meant suing the heads of Wall Street’s major banks for not knowing what they were doing. Spitzer in his heyday would have no qualms about that, but it would have been tough to argue that people like Henry Paulson, then head of Goldman and now Treasury Secretary, Larry Fink, head of BlackRock, and Richard Fuld, head of Lehman, got all confused about the numbers. So Spitzer narrowed his focus to the compensation committee of the board. There, he had one committee member saying he knew exactly what he was doing, and another saying he had no idea what he was doing. Spitzer was able to thread that needle by going after the first guy, Home Depot founder Ken Langone, and gaving a total pass to the second one, fellow pol Carl McCall.
Lesson #3: The state will cause $12 worth of expense to recover $11.
Spitzer was trying to get back $110 million from Grasso. Langone said the total cost of litigating this thing for the defendants, the exchange, and former directors who were deposed approached $70 million. It’s very likely that the state (i.e., New York’s taxpayers) spent almost that much in prosecuting this thing.
I hear that Spitzer is now looking to start a private equity fund. I hope he gets better returns than this.
Posted by Marc Hodak on July 1, 2008 under Futurama |
Forbes just came out with an issue about Best Places to Raise a Family Most of these places seem very geared to young families, with great schools and kid-friendly open spaces. Other issues have touted best places to retire. These tend to have lower property taxes (which often, though not always, translate into poorer schools) and easy living.
I’m wondering if in our more mobile society, certain political jurisdictions will realize they can’t be all things to all people, and begin to specialize. Florida itself seems to be doing that with senior friendly areas (with pretty crappy public schools), and family friendly areas with sky-high property taxes.
I know that some individual states and counties are starting to give significant property tax breaks to retirees as a way of keeping them, presumably as sales tax and fee payers with higher-than-average disposable income (not to mention a significant voting block).
Posted by Marc Hodak on June 30, 2008 under Practical definitions |
Michael Kinsley and Conor Clarke have opened up a discussion on Bill Gates’s new, big idea: “creative capitalism.” Kinsley tries to confer some intellectual heft upon these musings by labeling Gates “the most successful capitalist in the history of the world.”
Bill Gates is arguably the most successful businessman in history, and he achieved his success in a largely capitalist system, so I suppose it’s fair to refer to him as a successful capitalist.* But does that endow Gates with any special insight into the system of capitalism, i.e., the legal and social framework under which market-based economies function? In other words, does his great success as an economic agent make him a great economist? I don’t think so, any more than my cat’s ability to jump from the floor to the window sill without knocking over a vase makes her a great mathematician or physicist.
Gates is certainly more self aware of market and political processes than a cat is about angles and muscle reflex, but that doesn’t get him anywhere close to being an expert on capitalism. In fact, one of the key features of economics is that you don’t have to be an expert in anything except your space in the overall market in order to be a financial success. Ignorance of unrelated matters may even help, if it contributes to enhancing one’s focus on one’s own business.
All this is not to say that Gates has nothing to say about capitalism. His contributions, however, are far more likely to be empirical than theoretical. Unfortunately, I’m doubtful that he will be forthright about his achievements on the empirical front. I doubt we will hear about the virtues of vaporware in marketing, or how the vigorous attempt to monopolize via the network effect gave him a sustainable competitive advantage. I say this as one who was never bothered by Gates’s ruthlessness in achieving market dominance. I actually supported Microsoft in their defense against federal anti-trust charges.
So, I don’t think Gates will defend capitalism the way he practiced it, red in tooth and claw. It appears that he has joined the pursuit of a third way. That’s a shame, because he does understand vanilla capitalism better than most, and the Gates Foundation is capable of doing much good short of saving the world. But the title of “world’s most successful capitalist” makes him no more likely to develop a better approach capitalism than his ability to leap onto a big, new stage will enable him to develop a new proof in math or physics.
* I tend to think of a successful capitalist as one who made their pile as an investor rather than entrepreneur, but that’s a minor quibble in this discussion.
Posted by Marc Hodak on June 29, 2008 under Movie reviews |
The movie was pretty good, despite having the most illogical premise ever.
I’m not talking about the robot love story, where machines go against their programming to acquire free will and human emotion. I grew up with Hanna-Barbera. I’m cool with smart-ass robot maids and rambunctious robot pets, so I have no qualms about robot romance. What bothered me is the inexplicable strategy of the humans in this film.
B’n’L, a rapacious corporation-cum-government, has taken consumerist pandering to such obscenely wasteful levels that the earth is no longer fit for habitation. (OK, Hollywood blames the Earth’s environmental destruction on a monolithic corporation; nothing surprising there.) Then, as they deploy robots to clean up the planet, this same company has chosen to build a mammoth, luxury space liner, called Axiom, to transport the people away, with robot servants catering to their every whim. Think Starship Enterprise meets Royal Caribbean. Then, as B’n’L would, super-size it. And Axiom provides this luxury indefinitely, for centuries at a time, even though it was only designed for a five-year cruise.
Maybe I’m just a victim of my aerospace engineering training, here, but it seems obvious to me that a spaceship is a self-contained environment. It has to provide everything needed to sustain the basics of life, let alone its luxuries. It must have a permanently renewable source of energy. It has to be able to recycle everything–water, air, waste of every kind–otherwise this ark would eventually be depleted. (There is a moment where we see that the ship regularly ejects waste from a trash hold into space, but let’s ignore that.)
So, if B’n’L could, and would, create this sustainable, self-contained haven as a space-borne habitat, why couldn’t it have built it as a earth-bound biosphere? I mean, it could be as sealed off on Earth as it would have to be in space, except that it wouldn’t need all that extra propulsion and navigation equipment. Ask Hilton; a land-based hotel is much less complicated and costly than a sea-borne one. At least some people would presumably prefer a hotel to a high-end prison, even if that hotel were on a spoiled Earth. (That was, in fact, a conclusion quickly reached by the humans in this film.)
I can abide retro notions of robots that don’t (quite) take over the world, and Brave New World monopolies that do. I can laugh at human stupidity in a dystopian future, and at human kinkiness in a post-apocalyptic paradise. But I can’t help but notice when people make totally uneconomic choices about technology right there in hand. That does not compute.
