Ass u me

If I understand this [via Zimran] correctly, the Austrian theory is that consumption deferred is an increase in savings, which results in a lower interest rate, which stimulates investment, which results in growth. Meanwhile, the Keynesian theory holds that deferred consumption results in a real loss in wages because sales fall, production declines, businesses collapse, and jobs are lost.

Some questions for Keynes: How does a increase in individual deficit spending (i.e. credit card debt) translate into an increase in real wages? Conversely, how does a reduction in individual deficit spending (i.e. living within one’s means) translate into a reduction in real wages? Is the optimal state one where one has no savings, and where one’s wallet is empty?

A question for Hayek: What if the deferred consumption is saved under my mattress, and therefore does not cause the increase in the supply of savings that lowers the interest rate and stimulates investment?

The Disarming Power of Words

We TiVo’d the last debate, and watched it again just now. Others have summarized it much more pithily, or eviscerated the candidates with more gusto, but I’d like to offer a small observation, a small suggestion in hind-sight that perhaps would have moved some voters from column A to column B.

When discussing a Constitutional right to privacy, Senator Obama ranked it with the First Amendment, and then groped for some other Very Important Right to use as a second example. The transcript doesn’t show the hesitation between “than” and “many.”

And I think that the Constitution has a right to privacy in it that shouldn’t be subject to state referendum, any more than our First Amendment rights are subject to state referendum, any more than many of the other rights that we have should be subject to popular vote.

At that point, right there, Obama should have said “the Second Amendment.”


Politics makes for strange bedfellows, they say, and the Republican primary in New York’s 99th assembly district is a case in point. The incumbent, Greg Ball, pissed off nearly everybody in Albany, infuriated the Putnam County executive (a Republican), and generally showed no willingness to go along to get along. He was challenged for the Republican nomination by the former mayor of Brewster, John Degnan, who had been endorsed by the Putnam Republican and Democratic committees.

Mr. Degnan lost. He’s running on the Democratic line in the general election.

Four Years Too Many of College

Is a four-year college degree excessive for most? Charles Murray, writing at Cato Unbound, thinks a bachelor’s degree is unnecessary for most professions, has little bearing on success in a field, and suspects that college attendance rates are artificially high.

Cato has structured the Cato Unbound journal as a series of dialogues. The response from Pedro Carneiro contains this interesting chart from “Human Capital Policy”, in Inequality in America: What Role For Human Capital Policies (MIT, 2005).

This leads one to wonder what factors cause the flat trend lines in the graph since approximately 1950. A very brief glance at related papers and the related books (as judged by Amazon) seems to presuppose that equality of outcome is desirable, so research focuses on identifying the differences in inputs which determine those outcomes, and suggests methods to alter the inputs so as to alter the outcomes. Heckman and Carneiro suggest that the differences in outcome are the result of very early differences in cognitive and non-cognitive skills of individuals from different backgrounds. Some of these differences are likely environmental; others, I would suspect, innate.

While there may be strong correlation between success in school and success in life, I do not think it wise to confuse success in school with success in life. Further, one would not want to confuse success in a career with success in life. High school and college are preparatory, in a sense, but they are not a requisite for success. In some careers, certain degrees are used officially to restrict entry to those careers, and have little actual bearing on the ability of the individual to succeed at the tasks required in that career. In others, the degree is simply unrelated to the career. The work performed in determining what causes failure in school and later careers is important, but a desired outcome of 100% high school graduation and college attendance is not. Schooling is a means to an end, and not the end itself. One way we might enhance the prospects of those who are not attending college, or not completing high school, would be by removing artificial barriers to entry to productive careers. Otherwise we are only attempting to achieve what Lake Wobegon has: everyone above average.

A second response from Bryan Caplan, who needs a shave as desperately as I do, raises an important point about the text of Mr. Murray’s essay.

So far, Murray and I are on the same page. But when he tries to explain how useless studies translate into big bucks, his story gets fuzzy. On the one hand, he tells us that “The BA really does confer a wage premium on its average recipient, but there is no good reason that it should.” On the other hand, he insists that “Employers are not stupid.” How can both be true?

Maybe some employers are stupid.

[Employers] have a strong incentive to see through academic hype. When firms overpay the overeducated — or needlessly “stigmatize” applicants without a BA — the market charges them for their mistake.

If they are in a competitive market. For example, a certain large corporation with which I am familiar has a tendency to assign relatively menial tasks to college graduates. These tasks could be completed by anyone with the ability to read and follow instructions. What appears to happen after years of this is that the skills to complete the nominal job for which the individual is paid are either undeveloped or atrophy, as they are no longer required, making the formerly highly educated and experienced employee unfit for anything other than making doughnuts.

Mr. Caplan suggests that Mr. Murray would have been better off remarking that the bachelor’s degree is a signal, and that this signal is flawed. But employers find it works. He suggests that government cease subsidies for higher education, thus increasing the value of a college degree and providing incentives for employers to find other ways of determining whether a potential employee is desirable. Meanwhile, I’m of the opinion that a high school diploma would work sufficiently well as a signal if its value were not diluted by compulsory attendance.

Mr. Murray concludes,

Everyone in every occupation starts as an apprentice. Those who are good enough become journeymen. The best become master craftsmen. This is as true of history professors and business executives as of chefs and welders.

But We Have to do Something!

There is a propensity for politicians, and in truth all of us, to act hastily when the times call rather for patience and calm.

Sen. Charles Schumer (D-NY), in discussing the Senate’s approval of a bill permitting the Treasury to buy worthless mortgage-backed securities, remarked, “It’s better than doing nothing.”

Not if “nothing” is the right thing to do.

Sen. Hillary Clinton (D-NY), on the same subject, said, “What we are doing here in an intangible way is restoring trust and confidence.”

Perhaps the tangible way the Senate could have helped would have been to stop panicking, and instead to exercise some restraint. Because, from my perspective, an industry that is still trying to sell the same kinds of products that got them into this mess deserves nothing but contempt.

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