Economics III

 

Certs Jingle

Certs is a breath Mint
Certs is a candy Mint
Cert is two, two, two mints in one.

Is Keynesian or Monetary economics correct?

John Maynard Keynes supported progressive income taxes, state provided health care, retirement pensions, and  government deficits, and opposed high tariffs and the gold standard. Friedrich von Hayek, one of the founders of the Chicago School of Economics, opposed progressive income taxes, state provided health care, retirement pensions, and government deficits and supported high tariffs and the gold standard.  So who is right? They both could be considered to be correct. Keynes was describing a System Optimal solution and Hayek, a major proponent of Monetarism  along with Milton Friedman, was describing a User Optimal solution.

Differences between User Optimal solutions and System Optimal solutions are common.  For example, absent any ban on this behavior, taking goods from others is a User Optimal solution, e.g."Might makes right".  However those who are stronger have no incentive to produce goods, if they can simply take goods that others produce.  And those who are weaker have no incentive to produce goods, if those goods will only be taken from them.  Society wants to maximize the production of goods, and society has banned any stealing goods from others as one means to ensure that the User Optimal solution will be closer to the System Optimal solution, e.g. "Might for right"

Commandments, laws, regulations, policies, programs, etc. are society’s way of imposing shadow prices such that User Optimal solutions are closer to  System Optimal solutions.  Knowing what the User Optimal solutions are, and what the System Optimal solutions are, is necessary in order for society to enact commandments, laws, regulations, policies, programs, etc. that can bridge any gaps between System Optimal solutions and the User Optimal solutions.

Labels such as capitalism/free markets or socialism/Marxism/communism/collectivism serve little purpose.  Neither system is fully adopted anyway.  Capitalism requires a level playing field and perfect knowledge by both the producers/sellers and consumers/buyers.  But the playing field is not level, and knowledge is not perfect, and this why what we have is more properly regulated capitalism.  Similarly collectivism presumes that the system can plan for the best solution.  But there is no perfect system or solution, just the plans from the individuals managing the system, and one plan cannot work for every individual. In practice, there are no purely capitalist, or purely communist, economic systems. At best what we observed is regulated capitalism or unplanned socialism.

In practice society can regulate sellers and buyers.  It regulates the investment/capital used by producers. It regulates the goods that are used by producers, including common unpriced goods, and regulates labor ( i.e. no slavery,  minimum wages, a 40-hour work week, etc.).  It can regulate the quantity and prices of goods.  But the ownership of capital, goods, and labor can vary.  In the United States, all capital is owned by individuals, labor is owned by individuals, common goods are protected, but private goods are owned by individuals.  In Scandinavian socialism, the capital in some industries is owned by society, but the labor and private goods are owned by individuals.  In state socialism, the state can let individuals own some capital, but labor and outputs might belong to the state. If those managing the system have a higher standard of living than those subject to the system, then those managing the system are themselves following a User Optimal solution for themselves instead of a System Optimal solution for all.

So the question may not be is a solution capitalist or socialist?  It may be is the solution User Optimal or System Optimal?

Winning II

 

Step to the Rear

Will everyone here kindly step to the rear
And let a winner lead the way
Here's where we separate
The notes from the noise
The men from the boys
The rose from the poison ivy

So what does it take to be a winner?

The Ultimatum Game is an instrument in Economics and Game Theory. One player, the proposer, is given a sum of money, say $100. The proposer must split it with another player, the responder. Once the proposer makes his offer, the responder may accept it or reject it. If the responder accepts, the money is split according to the offer. If the responder rejects the offer, both players receive nothing.

A “fair” distribution would be a 50/50 split by the proposer.  That is not the User Optimal solution for the proposer.  The User Optimal solution of the proposer should be to offer the lowest non-zero amount and keep the balance. The User Optimal solution of the responder is to accept any non-zero offer by the proposer.  In the case of a $100 gift and integer offers, an offer of a $1 from the proposer to the responder should be accepted, since it would be the User Optimal solution of both players.

However in experiments, (Güth, Schmittberger, & Schwarze, 1982), responders typically rejected offers of less than 30%.  This was verified in different societies and cultural settings (Henrich, 2004) (Oosterbeek, 2004). Why did responders reject offers of less than 30% when that was not their User Optimal solution? With the User Optimal solution, a responder would at least have the offer, instead of both players having nothing.

The answer is that in that offer, the proposer is not only making an offer.  He is also conveying his expectation for repeating this game with the roles reversed, and if the game is repeated, then the proposer is conveying the discount rate that the proposer places on the future.  The System Optimal solution is the sum of the accepted offers in repeated games.  If the offer is 50/50 in each game, and the roles are reversed after each game, then after two games each player would have $100 and the System of all players would have $200.  If each player follows the User Optimal Solution in each game and makes an unfair offer and that offer is rejected, then after two games both players have $0 and the System has $0.

If the offer follows a User Optimal strategy and offers the bare minimum, then in addition to that offer the proposer is conveying information that he does not expect to ever repeat this game with the roles reversed OR if the roles are reversed and the game is repeated that he has a very high discount rate (i.e. places a very low value on the future).  The System Optimal solution requires that the game be repeated and that a reasonable discount rate is used to value that future.

If the offer is a 50/50 split then the offeror may be conveying that he does expect the game to be repeated with reversed roles or his discount rate is 0% CAGR.  If the offer is $30, then the proposer is also conveying that he expects the game to be repeated with roles reversed,but if it is repeated once per year then his discount rate is 40% CAGR, ( $50-$30)/$50.  When the responder rejects an offer, then the responder is responding not only for himself as a User, but for the System of all potential players.  By rejecting the offer, the responder is indicating that the proposer should be excluded from the System because the proposer either does not believe in a future, or if he does believe in the future he places a low value, i.e. a high discount rate, on that future.

Even though the System does not appear to have a role in the Ultimatum game, the responder is playing not only for themselves as a User,  but for the entire System. The winner is the System, not the player.

References

Güth, W., Schmittberger, R., & Schwarze, B. (1982). "An experimental analysis of ultimatum bargaining". Journal of Economic Behavior & Organization. 3 (4), 367–388.

Henrich, J. R. (2004). Foundations of Human Sociality: Economic Experiments and Ethnographic Evidence from Fifteen Small-Scale Societies. Oxford University Press.

Oosterbeek, H. R. (2004). "Cultural Differences in Ultimatum Game Experiments: Evidence from a Meta-Analysis". Experimental Economics. 7 (2), 171–188.

 

 

Treason

 

Take Me To The Pilot

If you feel that it's real I'm on trial
And I'm here in your prison
Like a coin in your mint
I am dented and I'm spent with high treason

Did General Mark Miley commit treason?

In "Peril," the latest book by Washington Post journalist Bob Woodard, he writes that in a pair of calls in 2020, General Mark Milley, the Chairman of the Joint Chiefs of the Staff, twice assured his Chinese counterpart, Gen. Li Zuocheng of the Chinese People’s Liberation Army. Former President Donald Trump and his allies have called that treasonous, accusing Milley of subverting the military chain of command, calling for consequences.

The charges of treason are telling because they indicate that former President Donald Trump and his allies don’t understand what constitutes treason. Treason is an action against the sovereign. In the United States, according to the Constitution, the People are the sovereign. General Milley, and former President Trump took an oath to protect the Constitution. The president is the Commander-in-Chief of the armed forces, but an election does NOT make him the sovereign. Saying that General Milley’s actions were insubordination might have some basis, but it is not insubordination to oppose an action that is itself against the sovereign wishes of the United States.

 
The constitution grants the power to declare war, take an action against another sovereign nation such as China, to the Congress, not to the President. The reality of nuclear war is that actions must be taken faster than Congress can be expected to act, and thus the President can act if there is an immediate threat against the sovereign nation that is the United States. It is possible for a Commander-in-Chief to issue an order to attack despite NO imminent threat to the United States. Such an action would itself be treasonous. To oppose that action is NOT treason. It is the very definition of an action that is NOT treason. 

Donald Trump was not, and never will be, the sovereign of the United States, without an Amendment to its Constitution. The election of 2016 made him the president, not the sovereign. Any action to oppose the orders of Donald Trump, including reminding an enemy sovereign that Donald Trump is not the sovereign of the United States, is consistent with the oath to the constitution, and its sovereign, the people. A person might not agree with that action, but that does not make it treason.

Truth

 

Human Nature

If they say, "Why? Why?"
Just tell 'em that is human nature
Why, why does he do it that way?

Can we expect humans to speak the truth?

There is a considerable difference between speaking without error and telling lies.  Truth is not the absence of errors.  Truth is the absence of lies.  Lies are knowing the truth and still telling something that is known not to be the truth.  Errors are differences between what is thought to be the truth at one time, and what is know to be the truth at a later time.  To error is human, to forgive is divine. 

Humans are not divine.  We will make errors.  Those errors can be expressing with certainty, that something is impossible when it is merely improbable.  Saying that there will be no rain in a desert is not necessarily the truth. But if it does rain, that is an error, not a lie. 

Our understanding of the truth is changing.  Saying that the world is flat in ancient times might be an error, not a lie.  If someone today said  that the earth is flat they would be lying, or at least expressing an opinion that is inconsistent with the facts, truth.

Admitting that you made an error is a sign of integrity, not a sign of weakness.  Everyone can be expected to make an error.  If someone claims that they can not make an error, that is itself a lie.

President Biden  made errors in stating his policies, including those regarding Afghanistan. Saying that these errors are lies is itself a lie, particularly if the President admits the error.  Leaders can be expected to make a minimum number of errors.  They can not be expected to make no errors.  That would be to expect our leaders to not be human.

Vaccines and Masks

 

Good Lovin’

I was feeling so bad
I asked my family doctor just what I had
I said, "Doctor" (Doctor)
"Mr. M.D." (Doctor)
"Now can you tell me what's ailing me?" (Doctor)

……

"I got the fever, yeah, and you got the cure" (Got the cure)

What is the cure?

It is known that there is a difference between HIV( the virus) and AIDS (the disease).  It is known that not everyone who is infected with the HIV virus will get the disease.  We also know that a sure way to ensure that you will not get AIDS is to not contract the HIV virus.  We know that the HIV virus is difficult to contract.  It requires an exchange of bodily fluids between an infected and uninfected person.  That is why sharing intravenous needles, having unprotected sex, transfusions of untested blood, etc. are risky behaviors.  For at least one of those behaviors it is considered appropriate to use protection.  HIV, like all viruses, replicates by invading your body's cells.  Once within a cell, it can make copies of itself and can spread to others. We do not trust the HIV status of others. We may not trust that they have not engaged in risky behavior. People can have the HIV virus and either lie about their status, or not be aware that they have the virus.  A test only means that you did not have HIV at the time of the test.  It says nothing about any risky behavior that occured after the test. It is reasonable to assume that, unless proven otherwise, persons encountered might have HIV and not share needles with, have sex with, or accept blood transfusions from those people. If you are infected you can inadvertently spread it to others with whom you have unprotected sex, share needles, or transfuse untested blood, etc.  Thankfully we are unlikely to engage in these behaviors with casual strangers, our children, our parents, etc.

SARS-CoV-2 is the virus.  COVID-19 is the disease.  You can have the SARS-CoV-2 virus and not have the COVID-19 disease.  The virus is spread through the air.  Breathing the air expelled by an infected person can infect you.  Unprotected breathing is a risky behavior.  The Pfizer and Moderna vaccines are very effective at preventing the cell from invading a cell, but they are not perfect.  The Moderna vaccine is 94.6% effective, which means that it is 5.6% ineffective.  People that have the vaccine are probably not infected, but they can be infected. Remember the vaccine is 5.6% ineffective.  It is reasonable to assume that unless proven otherwise that all persons encountered have the SARS-CoV-2 virus.  It is reasonable not to exchange air with those persons by wearing a mask. We are very likely to exchange air with casual strangers, our children, our parents, etc.

Heed the lessons from the AIDS epidemic.  Not wearing a mask is just as bad as not using protection during casual sex.  You may not exchange bodily fluids with persons whom you do not wish to get HIV, but you probably exchange breaths with everyone that you encounter.  Not accepting the vaccine means that you if you are infected with  SARS-CoV-2, it is 100% likely, not 5.6% likely to invade your cells.  If the virus can not invade cells, then it can not replicate.  If the virus can not replicate, it can not spread to others.  If you take precautions against getting HIV, please take even more precautions against getting SARS-CoV-2.  If you don’t get SARS-CoV-2 you can not spread it to others and you and they can not get COVID-19. Please wear a mask and get the vaccine.  If you don’t think going to a brothel and having unprotected sex is a good idea, then it is inconsistent to oppose masks and vaccines.  Please gimme some lovin’.

Texas II

 

Mind Your Business

Mindin' other people's business seems to be high-tone
But I got all that I can do just mindin' my own
And I'm gonna mind my own business (mind your own business)
Hey, mind your own business (mind your own business)
If you mind your business then you won't be mindin' mine

This is a country-western song.  Sing it along with me Texas.

If I approached a lawyer saying that I wished to file a civil suit in which I had experienced no economic costs (damages) but had experienced non-economic losses (pain and suffering), that lawyer would tell me that I had no case.  If I further said that I had no contract with the party that  I wished to sue, then I would be told that I also had no standing to file a civil case.  There is no civil case if I incurred only non-economic costs and I wished to sue someone with whom I had no contract.  If someone is offended by behavior which does not injure them, they would be told to mind their own business and put on their big-boy pants.

The United States has already experimented with making something a criminal rather than a civil offense by enacting a law. Prohibition made the sale and consumption of alcohol a criminal offense. In order to adopt a Constitutional Amendment, the proponents argued that society did incur economic costs ( the costs to society of lost wealth by, and the societal medical costs of dealing with, those who abused alcohol). The proponents neglected to mention the costs to society of prohibition (the disrespect of other laws by those who felt that they were not abusers but still wished to consume alcohol, and the growth of organized crime to help those to avoid the law, etc.).  Arguably the law also violated the protection in the Constitution against Cruel and Unusual punishments in that it criminalized and cruelly punished behavior for which there should be no punishment ( consumption but non-abuse of alcohol).

It is sad to see Texas ignore this lesson.  Not only should the punishment fit the crime, but just because something offends you, and you vote to make that behavior a crime, that does not mean that behavior is a crime. If something can not be a civil violation, enacting a law does not make it a criminal violation. Mind your own business!

The Supreme Court

 

If I Had a Hammer

Well I got a hammer, and I got a bell
And I got a song to sing all over this land
It's the hammer of JUSTICE, it's the bell of freedom
It's a song about love between my brothers and my sisters all over this land

How many seats should the Supreme Court have if they are to hammer out justice?

It is hard to divorce the question of the structure of the Supreme Court from the rancor over the hearings of Brent Kavanaugh, the hearings of Clarence Thomas, the denial of a hearing for Merrick Garland, the denial of a seat as Chief Justice to Abe Fortas, the denial of a seat as an Associate Justice to Robert Bork, the rushed hearings for Amy Coney Barrett, and the denial of  a stay in the Texas abortion case.  However, I am going to try. 

When the US Judiciary was established in 1789, there were three circuits (An aside. The name circuit goes back to a time when travel was hard and judges had to "ride the circuit" and travel to a trial, instead of having a permanent location and having trials "travel" to the judges)  There are now 11 Circuits ( 13 if you count DC and the Federal Circuit), an increase of 367% (or 437% if the circuits are 13).  In the Census of 1790, the population of the United States was 3.9 million.  As of the 2020 Census it was 331.4 million, an increase of 8435%.  There were 13 states in 1789 and that has increased to 50 today, an increase of 384%.  At two Senators per state, that percentage increase in Senators has been the same. In 1789 there were 65 representatives in the House.  There are now 435 representatives, an increase of 669%. There were 69 electoral votes cast in 1789.  There were 538 electoral votes cast in the election of 2020, an increase of 780%.  Over this same period the number of Justices on the Supreme Court has increased from 6 in 1789 to 9 today, an increase of 150%.  If the growth in the US has been more than 150%, shouldn’t the number of Justices on its Supreme Court be more than 9?

Even if there had been no rancor, a case could be made that the number of justices on the Supreme Court is not in keeping with the growth of the US.  Increasing the number of justices is not an evil packing of the court, any more than buying larger clothes for a growing child is evil. It is an acceptance of growth.