Russ Nelson : economics

I think David Isenberg is a little frustrated with me, because he keeps snarking at me about economics. The problem is that not only does he not "get it", he doesn't understand that he's not getting it. It's like the guy who adds 2 plus 2 to get 5, and then when you say that he's bad at math, he says "Oh yeah? Well I know that 3 plus 4 is 8!"

From the looks of things, David is good at finance -- at least that's what his later posting is about. Trouble is that finance is not economics. Finance tells you how much, but economics tells you why. Finance can let you determine that two things have the same value, or the same cost, but only economics can tell you why people would buy one versus the other.

This seems to be a fairly commonly executed fallacy. Many many people feel free to criticize economics and economists, when it's clear that they don't know the first thing about economics. I think that's because they, like David, confuse finance for economics. They figure that they can balance their checkbook, so they know as much as somebody who has studied economics for years and year. At least, that's my best guess, but I might be wrong.

Usually, customers seek the maximum value at all times. This could mean paying a lot for very high quality, or paying a little for something that barely suffices. But customers optimize for value -- bang for the buck.

In the American health care system, nobody is optimizing for value. The patient demands the highest standard of care regardless of the cost. The insurance company demands the lowest payments regardless of the quality of the care.

This is totally wrong. We need to move to a system where most people pay most medical bills out of pocket, and insurance companies step in only when the costs are completely unaffordable. To get there, we need to eliminate the deductibility of health care costs. Why should health care be deductible on income taxes when food is not? Food is way more important to your health than is a doctor's care. So is exercise, but neither one is deductible.

We also need to accept that most insurance companies will need to fire most of their employees, and that doctors' offices will need to fire one or more employees. On the bright side, consider that that will free up their labor for production that makes American society better rather than worse, as is currently the case.

David Isenberg drives me batty. He's the fellow who pointed out that a stupid network (intelligence at the edges) produces more public benefit than the smart network that his then-employer, AT&T, was building. Well, of course when you make a public fuss like that, you either change your employer's direction, or you have to leave. He left, and has been a successful consultant since then.

Unfortunately, David doesn't know much economics. Like most people who don't know much economics, he feels free to cast aspersions on what he calls junk economics. He complains therein that some of his friends deny the peak oil hypothesis. Maybe he means me? I don't deny the hypothesis in the sense that I'm not an expert on oil. I have been studying economics, however, and can make some predictions which counter David's "Junk" economics.

First is that there are sources of huge amounts of oil which are not profitable to extract when the Saudis are dumping oil. Second is that nobody is going to invest in these oil sources unless it looks like they can successfully sell their oil. So they're not going to act simply because the price of oil is high. Everybody expects the Saudis to try to push the price of oil up to extract the maximum possible profit.

But if the Saudis are artificially restricting the supply of oil, they can artificially expand it as well. The people sitting on more expensive oil are going to wait to extract it until they're sure that the Saudis can't screw them by expanding production.

As I said at and after David's WTF conference back in 2004, people will not act simply because experts say that peak oil has occurred on such-and-such a date. People will act when they wish to avoid discomfort and not before.

Yes, the end of cheap oil is going to be a challenge. But it's not going to be the end of the world. Probably the only bigger challenge we'll face as a species is the global cooling of the next ice age. That is going to be a problem when the ice starts covering the northern hemisphere.

UPDATE (since a friend pointed out that I hadn't made my point) 5/5.

The world lurches from crisis to crisis. You might think this is a sign of mismangement, a flaw in human nature, or simply God screwing up. (As for the last, I believe that God stops in from time to time to see if we've blown ourselves up yet, so he can promote the great apes, but that's the extent of his involvement in the world.) Regardless of your opinion, that is how people work.

In these crises, many people take different actions to try to resolve the crisis. People fitting underneath a bell curve, they will try all sorts of things. Some of them work, some do not. Sooner or later, a smart person invents something that totally crashes through the crisis. Blows it apart. The crisis is gone, and what we have is better than what we had before the crisis. For example, a hundred years ago, New York City was fast approaching a crisis of equine proportions: piles of horse shit in the streets, and no place to put them. "We" invented the automobile, and have experienced huge benefits in personal mobility.

The key to remember is that nobody can predict who will invent this new thing, nor what it will be. In order to facilitate this solution to the crisis, the best thing government can do is: nothing. Don't favor anyone or anything, let everybody do everything, don't stop anything that's peaceful.

You may ask yourself, "but why don't we get the government to do something to avert these crises before they become full-blown crises?" The answer is simply that the government is doing something. It is actively maintaining the peace. It is choosing not to interfere with peaceful human relations. It is choosing not to favor one solution over another. Choosing not to choose is a choice -- probably the hardest choice to make.

UPDATE 5/12: David doesn't have much to say about this post. I think he is trying to trivially refute me by pointing to the fact that I don't think much of some people who call themselves economists. I've been saying that all along.

Having watched people poop on the streets in Mumbai, wanting to help stop that, and not knowing what to do, I was pleased to come across the PoopReport's project to help people in India. Specifically, schoolgirls in Uttar Pradesh. They can build a composting toilet for $250, which is a fair sum, but less than the computer you're using to read this posting. Granted, it's not Mumbai, but the problem is still the same.

Our new governor says that state government needs to do more to lower cost of doing business in New York:

To create a more conducive climate for business, the governor said New York must make doing business in the state cheaper by investing in infrastructure and reducing high energy and health care costs.

How the heck is he going to do that? By pressing the "lower energy costs" and "lower health care costs" buttons? He's a Democrat, and Democrats are historically unwilling to do what is actually needed to lower these costs: nothing. Government needs to get out of the way of creative resourceful people with ideas. Government has a positive role to play while getting out of the way: by ensuring that all relations between people are peaceful. But that's government's only role.

He goes on to say:

For his part, Gov. Paterson reiterated his commitment to belt-tightening and fiscal prudence. "Our economy is still reeling," the governor said. "When this storm hits, we can't simply do what Albany usually does: turn around and tax the first business or the first resident we see. Rather, we have to cut wasteful spending."

No, David, you need to cut all spending, not just the wasteful spending. You need to do less for us, you need to do less to us. You need to do less, period. Shut down department after department, and send the people home to get productive jobs. Most of what New York State does is either irrelevant or actively harmful.

Everybody willing to give up home, family, community, home, hearth, and (within two generations) language to come here has the same nature as everyone else already here, and is thus already an American. We should not stand in the way of anyone who wants to set up a new life in America.

Period.

The comedian John Oliver was quoted as saying, about an inflatable floating barbacue grill, which lets you cook while soaking in your pool:

"Is there any greater example of what it is to live in the freest nation on Earth than that?", he marvels with no small dose of irony

Sure, it's funny, just the idea of cooking in a pool. But why would it be ironic that freedom would produce strange outliers? In a free society, most people would be most like most other people. But out on the ends of the bell curve you've got some strange people doing strange things, and selling strange stuff. The face that you can find this strangeness is good evidence that America really is the freest nation on Earth.

Look at this chart:

We need to stop sunspots! Rather than worrying about silly CO₂ emissions, we need to stop the sun from varying the number of sunspots! Or ... maybe .... more sensibly ... we should understand that the climate changes. Rather than engage in futile efforts to maintain today's climate in perpetuity, we should be prepared to adapt to changes in the climate? Maybe? Ya think?

It's good that government operatives in the Department of Homeland inSecurity realize that anti-future laws are harmful and are going to "bypass" them. Good idea! How about they allow us to "set aside" these laws, too? After all, building a wall to keep ot workers is going to have negative effects on businesses (already is). They should grant businesses a boon by "waiving" these laws just as they are doing.

Frigging morons. Help! My country has been invaded by a government, and they won't go away!