How to live before you die
The You Have Two Cows Challenge
No doubt you are familiar with the two cows guide to political philosophy.
- Socialism: You have t
wo cows. The government takes one and gives it to your neighbor.
- Communism: You have two cows. You give them to the Government, and the Government then sells you some milk.
- Capitalism: You have two cows. You sell one and buy a bull.
So under what type of ism do you have two cows but the government says that you can’t drink their milk? Whatever we call such an ism it may help to know that it is the one we live under. In a recent case in Wisconsin, as summarized by the judge (earlier case here):
Plaintiffs argue that they have a fundamental right to possess, use and enjoy their property and therefore have a fundamental right to own a cow, or a heard [sic] of cows, and to use their(s) in a manner that does not cause harm to third parties. They argue that they have a fundamental right to privacy to consume the food of their choice for themselves and their families and therefore a fundamental right to consume unpasteurized milk from their cows.
In response, Judge Fiedler wrote:
No, Plaintiffs do not have a fundamental right to own and use a dairy cow or a dairy herd;
No, Plaintiffs do not have a fundamental right to consume the milk from their own cow;
No, Plaintiffs do not have a fundamental right to produce and consume the foods of their choice…
So MR readers, here is the challenge: You have two cows. The government says that you cannot drink their milk. What ___ism?
My suggestions?
Paternalism is the obvious choice but I am going to go with Animal Farmism.
Google and the Power of Positive Feedback
Just about everything Google does allows Google to do just about everything it does better. Here’s an example:
By 2007, Google knew enough about the structure of queries to be able to release a US-only directory inquiry service called GOOG-411. You dialled 1-800-4664-411 and spoke your question to the robot operator, which parsed it and spoke you back the top eight results, while offering to connect your call. It was free, nifty and widely used, especially because – unprecedentedly for a company that had never spent much on marketing – Google chose to promote it on billboards across California and New York State. People thought it was weird that Google was paying to advertise a product it couldn’t possibly make money from, but by then Google had become known for doing weird and pleasing things.
…What was it getting with GOOG-411? It soon became clear that what it was getting were demands for pizza spoken in every accent in the continental United States, along with questions about plumbers in Detroit and countless variations on the pronunciations of ‘Schenectady’, ‘Okefenokee’ and ‘Boca Raton’. GOOG-411, a Google researcher later wrote, was a phoneme-gathering operation, a way of improving voice recognition technology through massive data collection.
Three years later, the service was dropped, but by then Google had launched its Android operating system and had released into the wild an improved search-by-voice service that didn’t require a phone call. You tapped the little microphone icon on your phone’s screen – it was later extended to Blackberries and iPhones – and your speech was transmitted via the mobile internet to Google servers, where it was interpreted using the advanced techniques the GOOG-411 exercise had enabled. The baby had learned to talk.
…If, however, Google is able to deploy its newly capable voice recognition system to transcribe the spoken words in the two days’ worth of video uploaded to YouTube every minute, there would be an explosion in the amount of searchable material. Since there’s no reason Google can’t do it, it will.A thought experiment: if Google launched satellites into orbit it could record all terrestrial broadcasts and transcribe those too. That may sound exorbitant, but it’s not obviously crazier than some of the ideas that Google’s founders have dreamed up and found a way of implementing: the idea of photographing all the world’s streets, of scanning all the world’s books, of building cars that drive themselves. It’s the sort of thing that crosses Google’s mind.
More of interest.
Andy Grove on Reforming the FDA
In an important editorial in Science, Andy Grove, former Chief Executive Officer of Intel Corporation, advocates restricting the FDA to safety-only trials. Instead of FDA required efficacy trials patients would be tracked using a very large, open database.
The biomedical industry spends over $50 billion per year on research and development and produces some 20 new drugs….A breakthrough in regulation is needed to create a system that does more with fewer patients.
While safety-focused Phase I trials would continue under their [FDA] jurisdiction, establishing efficacy would no longer be under their purview. Once safety is proven, patients could access the medicine in question through qualified physicians. Patients’ responses to a drug would be stored in a database, along with their medical histories. Patient identity would be protected by biometric identifiers, and the database would be open to qualified medical researchers as a “commons.” The response of any patient or group of patients to a drug or treatment would be tracked and compared to those of others in the database who were treated in a different manner or not at all. These comparisons would provide insights into the factors that determine real-life efficacy: how individuals or subgroups respond to the drug. This would liberate drugs from the tyranny of the averages that characterize trial information today. The technology would facilitate such comparisons at incredible speeds and could quickly highlight negative results. As the patient population in the database grows and time passes, analysis of the data would also provide the information needed to conduct postmarketing studies and comparative effectiveness research.
Grove cites Boldin and Swamidass and especially Bartley Madden’s important book, Free to Choose Medicine, as inspiration for this proposal. By the way, I also recommend Madden’s book very highly (I am also proud to note my bias in this regard).
I have long advocated restricting the FDA to safety only trials (see, for example, FDAReview.org and my paper on off-label prescribing) and it seems that this idea, once considered outlandish, is now rapidly gathering advocates.
Addendum: Derek Lowe offers useful comments (see also Kevin Outterson below). One point that I think the critics miss is that nothing in Groves’s proposal and certainly not in Madden’s proposal which is somewhat different or in anything that I have advocated precludes randomized clinical trials for efficacy. Indeed, I strongly support such trials and have argued for greater funding so such trials can be done not by the pharmaceutical companies but by more objective third parties.
Bounty Hunters in Korea
Fascinating article in the NYTimes about Korean “paparazzi,” camera-wielding bounty hunters who film people committing small crimes and then turn the evidence in for a bounty:
The opportunities are everywhere: a factory releasing industrial waste into a river, a building owner keeping an emergency exit locked, doctors and lawyers not providing receipts for payment so that they can underreport their taxable income.
Mr. Im’s pet target is people who burn garbage at construction sites, a violation of environmental laws.
“I’m making three times what I made as an English tutor,” said Mr. Im, 39, who began his new line of work around seven years ago and says he makes about $85,000 a year….
The outsourcing of law enforcement has also been something of a boon for local governments. They say that they can save money on hiring officers, and that the fines imposed on offenders generally outstrip the rewards paid to informers. (The reward for reporting illegal garbage dumping: about $40. The fine: about 10 times as much.)
For most infractions, rewards can range from as little as about $5 (reporting a cigarette tosser) to as much as $850 (turning in an unlicensed seller of livestock). But there are possibilities for windfalls. Seoul’s city government promises up to $1.7 million for reports of major corruption involving its own staff members.
The system appears to work well, if you take the goals as given. The goals, of course, are where the trouble lies. Tax-farming was efficient but was it a good idea? (Is it a good idea today in developing countries? Compare here with here and consider a recent proposal for tax farming in Greece.) Private prisons reduce costs but given the law of demand how much do we want to reduce the price of imprisoning people? (See Bruce Benson’s paper in my book, Changing the Guard.) All else equal, it’s more efficient to tax goods with inelastic demands but give government the right to tax such goods and all else will not be equal, leviathan will tax more.
The bounties, however, are only part of the issue. More fundamentally, what we are seeing is the ubiquity of surveillance. I have mixed feeling about this transformation but given technology it is inevitable. What we can do, however, is to ensure that the surveillance goes all ways. The government surveils us both directly and with the help of the junior bounty hunters but we must guard our rights to also surveil them.
Hat tip: Maxim Lott.
Why they call it Green Energy: The Summers/Klain/Browner Memo
The LA Times reports that Larry Summers and Timothy Geithner “raised warning flags” about the loan guarantee program for renewables long before the Solyndra bankruptcy. The article doesn’t have a lot of new information (the key players are clearly protecting themselves) but it does link to a fascinating briefing memo written for the President in October of 2010 by Summers, Ron Klain (then chief of staff to the Vice President), and energy advisor Carol Browner.
The memo says that OMB and Treasury were concerned about three problems, “double dipping” (massive government subsidies from multiple sources), lack of “skin in the game” from private investors and “non-incremental investment,” the funding of projects which would occur even without the loan guarantee.
The memo then illustrates with one such program, the Shepherds Flat Loan guarantee. Here is the relevant portion of the memo:
The Shepherds Flat loan guarantee illustrates some of the economic and public policy issues raised by OMB and Treasury. Shepherds Flat is an 845-megawatt wind farm proposed for Oregon. This $1.9 billion project would consist of 338 GE wind turbines manufactured in South Carolina and Florida and, upon completion; it would represent the largest wind farm in the country.
The sponsor’s equity is about 11% of the project costs, and would generate an estimated return on equity of 30%.
Double dipping: The total government subsidies are about $1.2 billion.
Subsidy Type Approximate
Amount
(millions)Federal 1603 grant (equal to 30% investment tax credit) $500
State tax credits $18
Accelerated depreciation on Federal and State taxes $200
Value of loan guarantee $300
Premium paid for power from state renewable electricity standard $220
Total $1,238
Skin in the game: The government would provide a significant subsidy (65+%), while the sponsor would provide little skin in the game (equity about 10%).
Non-incremental investment: This project would likely move without the loan guarantee. The economics are favorable for wind investment given tax credits and state renewable energy standards. GE signaled through Hill staff that it considered going to the private market for financing out of frustration with the review process. The return on equity is high (30%) because of tax credits, grants, and selling power at above-market rates, which suggests that the alternative of private financing would not make the project financially non-viable.
Carbon reduction benefits: If this wind power displaced power generated from sources with the average California carbon intensity, it would result in about 18 million fewer tons of CO2 emissions through 2033. Carbon reductions would have to be valued at nearly $130 per ton CO2 for the climate benefits to equal the subsidies (more than 6 times the primary estimate used by the government in evaluating rules).
In my view, the Summers/Klain/Browner analysis was a damning indictment of the Shepherds Flat project. The taxpayers were expected to fund by far the largest share of the bills and also of the risk and in return they weren’t getting many benefits in terms of reduced pollution. In contrast, Caithness Energy and GE Energy Financial Services, the corporations behind the project, weren’t taking much risk but they stood to profit handsomely. I guess that is why they call it “green” energy.
In short, the Shepherds Flat project was corporate welfare masquerading under an environmental rainbow.
So are you surprised to learn that shortly after the memo was written the Shepherd Flats loan guarantee of $1.3 billion was approved? Of course not; no doubt you also saw that the memo authors were careful to inform the President that the “338 GE wind turbines” were to be “manufactured in South Carolina and Florida.” Corporate welfare meet politicized investment.
In the Solyndra case just about everything went wrong, including bankruptcy and possible malfeasance. Caithness Energy and GE Energy Financial Services are unlikely to go bankrupt and malfeasance is not at issue. As a result, this loan guarantee and the hundreds of millions of dollars in other subsidies that made this project possible are unlikely to create an uproar. Nevertheless, the real scandal is not what happens when everything goes wrong but how these programs work when everything goes right.
Milton Friedman on the Euro and QE3
In 2000 Milton Friedman gave the keynote address to a conference at the Bank of Canada on flexible exchange rates. A Q&A at the end of the talk featured David Laidler, Michael Bordo, John Crow and others.
Michael Bordo asked Friedman about the Euro:
Milton Friedman:…I think the euro is in its honeymoon phase. I hope it succeeds, but I have very low expectations for it. I think that differences are going to accumulate among the various countries and that non-synchronous shocks are going to affect them. Right now, Ireland is a very different state; it needs a very different monetary policy from that of Spain or Italy. On purely theoretical grounds, it’s hard to believe that it’s going to be a stable system for a long time. …
If we look back at recent history, they’ve tried in the past to have rigid exchange rates, and each time it has broken down. 1992, 1993, you had the crises. Before that, Europe had the snake, and then it broke down into something else. So the verdict isn’t in on the euro. It’s only a year old. Give it time to develop its troubles.
David Beckworth and I think a few others have already pointed to Friedman’s answer to David Laidler’s question but it is so appropos of the moment that it is worth repeating:
David Laidler: Many commentators are claiming that, in Japan, with short interest rates essentially at zero, monetary policy is as expansionary as it can get, but has had no stimulative effect on the economy. Do you have a view on this issue?
Milton Friedman: Yes, indeed. As far as Japan is concerned, the situation is very clear. And it’s a good example. I’m glad you brought it up, because it shows how unreliable interest rates can be as an indicator of appropriate monetary policy. The Japanese bank has supposedly had, until very recently, a zero interest rate policy. Yet that zero interest rate policy was evidence of an extremely tight monetary policy. Essentially, you had deflation. The real interest rate was positive; it was not negative. What you needed in Japan was more liquidity.
During the 1970s, you had the bubble period. Monetary growth was very high. There was a so-called speculative bubble in the stock market. In 1989, the Bank of Japan stepped on the brakes very hard and brought money supply down to negative rates for a while. The stock market broke. The economy went into a recession, and it’s been in a state of quasirecession ever since. Monetary growth has been too low. Now, the Bank of Japan’s argument is, “Oh well, we’ve got the interest rate down to zero; what more can we do?” It’s very simple. They can buy long-term government securities, and they can keep buying them and providing high-powered money until the high powered money starts getting the economy in an expansion. What Japan
needs is a more expansive domestic monetary policy.
Crowd Investing versus the SEC
Crowdfunding has become well known thanks to popular websites like Kiva and Kickstarter so it may come as a surprise that crowd investing, investing in order to earn a return as opposed to “investing” for philanthropic reasons, remains essentially illegal. If a website like Kiva or Kickstarter tried to connect small investors with small firms it would run afoul of state and Federal laws regulating securities. As Amy Cortese writes in the NYTimes:
Under those laws, crafted largely in the 1930s, the sites would have to either limit the fund-raising to wealthy investors, who the S.E.C. deems sophisticated, or go through a registration process that would prove too costly given the small sums being sought…
In the United States, these outdated laws are cutting off a huge pool of potential capital for small, private businesses that have been all but abandoned by banks and Wall Street.
…President Obama, as part of his jobs act, advocates an exemption for sums totaling up to $1 million. Representative Patrick McHenry, a Republican from North Carolina, has drafted legislation that would allow companies to obtain up to $5 million from individuals through crowdfunded ventures, with a cap of $10,000 per investor, or 10 percent of their annual incomes, whichever is smaller.
In Britain the regulations are less onerous:
For a glimpse of what is possible, look at Britain, where securities laws are helpful to crowdfunding and several start-ups are vying to be the Facebook of finance. The year-old Funding Circle, a business-lending site based in London, raises more than $2.3 million each month for small businesses from individuals who can invest as little as $30 and earn an average yield of roughly 7.3 percent after fees. Those are loans; two other start-ups are applying the model to equity shares in small companies.
Hat tip: Daniel Lippman.
Efficient Markets in Everything
Sabermetrics worked but “once the casino catches on to your card-counting tricks, you can’t prosper at the table for long.”
NYTimes: The A’s, meanwhile, have tumbled back to mediocrity: the team is on its way to a losing season this year, after compiling a record of 231 wins and 254 losses over the previous three seasons. Most of the innovations introduced or popularized by Beane have been freely adopted by other organizations, thus eliminating whatever stealth advantages he once enjoyed.
… He told me baseball is moving “back to an efficient market — albeit one with some random events that don’t offer perfect efficiency — where whatever you spend, that’s where you’re going to finish.” In short, the Yankees spend a lot and make the playoffs pretty much every year. The Pirates don’t, and they don’t. There are aberrations to this pattern, but the pattern itself is unmistakable.
But the more efficient baseball becomes as a market, I asked him, the worse it is for you, right?
“Oh, yeah!” he said, and laughed.
Sentence of the Day
Larry Summers speaking at IMF/World Bank meeting:
The challenge is “finding the language that generates [the] alarm that drives action, but not the despair that proves self-fulfilling.”
The WSJ continues:
Attempting to sound reassuring, he said, “These are solvable problems.” His audience didn’t look reassured.
Be Safe, Break the Law
The 55 mph speed limit was a vain attempt by the Federal government to reduce gasoline consumption; initially passed in the 1974 Emergency Highway Energy Conservation Act the law was relaxed in 1987 and finally repealed in 1995 allowing states to choose their speed limits. Highways and cars are safer today than in the 1970s and on many highways speed limits were increased to 65 mph. Higher speed limits are often safer because what is worse than speed is variable speed, some people driving fast and some driving slow. When the speed limit is set too low you get lots of people who safely break the law and a few law-abiders who make the roads more dangerous.
Unfortunately vestiges of the 55mph limit remain, in part because police like the 55mph limit which lets them write tickets at will whenever they need an increase in revenues. John Carr at the National Motorists blog gives a particularly egregious example from Massachusetts:
The speed limit on Route 3 is 55. The speed limit used to be 60….It was reduced by executive order in 1973 to comply with the national speed limit. When the national speed limit was repealed in 1995 the highway commissioner ordered the low limit retained…
It gets better. Route 3 was completely rebuilt a decade ago. The design speed for the project was 110 km/h (68 mph). The design speed is like a warranty: nothing in the road design requires a driver to go slower than 68 mph, not even on a wet road at night (the design conditions).
The average speed is not far from the design speed. The 85th percentile speed, which is supposed to be used for setting speed limits, is around 75 mph. A little over by my measurement, which found 1% compliance with the speed limit.
Eventually the absurdity of the 55 mph speed limit sunk in and in 2006 MassHighway traffic engineers recommended a speed limit increase. State Police vetoed the change, preferring the 99% violation rate that let them write tickets at will. Police have no legal role in setting speed limits. Somebody in the Romney administration weighed the risk of losing ticket revenue against the risk of being blamed for accidents. Police won.
After engineers lost that fight people began to worry about the high accident rate on Route 3. The state hired a consultant to do a Road Safety Audit. The consultant’s report blamed the low speed limit, among other factors, for the high crash rate. The report explicitly recommended raising the speed limit.
Three years later, state officials have not followed the advice of their engineers, their consultant, or 100,000 drivers per day. State police are still out there running speed traps and helping keep the road as dangerous and profitable as they can.
Hat tip: Radley Balko.
Seeing is Hearing: The McGurk Effect
Very cool auditory illusion created by visual dominance.
Hat tip to Carpe Diem.
Contagion
Contagion, the Steven Soderberg film about a lethal virus that goes pandemic, succeeds well as a movie and very well as a warning. The movie is particularly good at explaining the science of contagion: how a virus can spread from hand to cup to lip, from Kowloon to Minneapolis to Calcutta, within a matter of days.
One of the few silver linings from the 9/11 and anthrax attacks is that we have invested some $50 billion in preparing for bio-terrorism. The headline project, Project Bioshield, was supposed to produce vaccines and treatments for anthrax, botulinum toxin, Ebola, and plague but that has not gone well. An unintended consequence of greater fear of bio-terrorism, however, has been a significant improvement in our ability to deal with natural attacks. In Contagion a U.S. general asks Dr. Ellis Cheever (Laurence Fishburne) of the CDC whether they could be looking at a weaponized agent. Cheever responds:
Someone doesn’t has to weaponize the bird flu. The birds are doing that.
That is exactly right. Fortunately, under the umbrella of bio-terrorism, we have invested in the public health system by building more bio-safety level 3 and 4 laboratories including the latest BSL3 at George Mason University, we have expanded the CDC and built up epidemic centers at the WHO and elsewhere and we have improved some local public health centers. Most importantly, a network of experts at the department of defense, the CDC, universities and private firms has been created. All of this has increased the speed at which we can respond to a natural or unnatural pandemic.
In 2009, as H1N1 was spreading rapidly, the Pentagon’s Defense Threat Reduction Agency asked Professor Ian Lipkin, the director of the Center for Infection and Immunity at Columbia University’s Mailman School of Public Health, to sequence the virus. Working non-stop and updating other geneticists hourly, Lipkin and his team were able to sequence the virus in 31 hours. (Professor Ian Sussman, played in the movie by Elliott Gould, is based on Lipkin.) As the movie explains, however, sequencing a virus is only the first step to developing a drug or vaccine and the latter steps are more difficult and more filled with paperwork and delay. In the case of H1N1 it took months to even get going on animal studies, in part because of the massive amount of paperwork that is required to work on animals. (Contagion also hints at the problems of bureaucracy which are notably solved in the movie by bravely ignoring the law.)
It’s common to hear today that the dangers of avian flu were exaggerated. I think that is a mistake. Keep in mind that H1N1 infected 15 to 30 percent of the U.S. population (including one of my sons). Fortunately, the death rate for H1N1 was much lower than feared. In contrast, H5N1 has killed more than half the people who have contracted it. Fortunately, the transmission rate for H5N1 was much lower than feared. In other words, we have been lucky not virtuous.
We are not wired to rationally prepare for small probability events, even when such events can be devastating on a world-wide scale. Contagion reminds us, visually and emotionally, that the most dangerous bird may be the black swan.
The Italian Job
NYTimes: With only 960 residents and a handful of roads, this tiny hilltop village in the arid, sulfurous hills of southern Sicily does not appear to have major traffic problems. But that does not prevent it from having one full-time traffic officer — and eight auxiliaries.
The auxiliaries, who earn a respectable 800 euros a month, or $1,100, to work 20 hours a week, are among about 64 Comitini residents employed by the town, the product of an entrenched jobs-for-votes system pervasive in Italian politics at all levels.
“Jobs like these have kept this city alive,” said Caterina Valenti, 41, an auxiliary in a neat blue uniform as she sat recently with two colleagues, all on duty, drinking coffee in the town’s bar on a hot afternoon. “You see, here we are at the bar, we support the economy this way.”
The Importance of Selection Effects
I love this example of the importance of selection effects:
During WWII, statistician Abraham Wald was asked to help the British decide where to add armor to their bombers. After analyzing the records, he recommended adding more armor to the places where there was no damage!
The RAF was initially confused. Can you explain?
You can find the answer in the extension or at the link.
Wald had data only on the planes that returned to Britain so the bullet holes that Wald saw were all in places where a plane could be hit and still survive. The planes that were shot down were probably hit in different places than those that returned so Wald recommended adding armor to the places where the surviving planes were lucky enough not to have been hit.