Department of Unintended Consequences — Part V August 23, 2007Posted by federalist in Diplomacy, Economic Policy.
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Arvind Subramanian summarizes research confirming what free-market thinkers have always suspected:
[Foreign] Aid, especially in large amounts, can damage governance and make an economy uncompetitive.
The problem is that development and long-run growth are less about resources than about the environment for generating and sustaining private sector investment. Two key aspects of this environment are decent public institutions or governance — the essential “software” for running a market economy, for creating rule of law and protecting property rights — and incentives that encourage the private sector to export, especially manufactured products.
Giving aid is like looking for the lost key under the lamppost because that is the easiest thing to do. But it is not obviously the most effective way that outsiders can help.
Homeownership Myth August 22, 2007Posted by federalist in Finance, Real Estate.
For a long time Homeownership has enjoyed the status of Unconditional Social Good, right alongside such metrics as Employment or Life Expectancy. Witness the degree of government intervention to foster home ownership — personal tax breaks (the mortgage interest deduction) as well as government-backed loans and loan subsidies.
A typical low-income household might spend half the family income on mortgage costs, leaving less money for a rainy day or investing in education. Their less-marketable homes apparently also tended to tie them down, making them less likely to relocate for a job.
Bottom line: Homeownership likely has had an exceedingly poor payoff for millions of low-income purchasers, perhaps even blighting the prospects of what might otherwise be upwardly mobile families.
I would point out that even wealthy individuals should not blindly assume that homeownership is right for them.
People often get hung up on the fact that renters don’t “build equity” the way homeowners paying off principle on a mortgage do. Home equity has historically appreciated, but so have many other assets in which one could invest spare cash. No money manager, looking at a home as simply another investment, would advise an individual to put a significant portion of his portfolio in a single house.
It is true that owning a home can sometimes be cheaper than renting, but that is a function of cyclical and regional market conditions. Sometimes renting is cheaper — especially when one considers the illiquidity of individual real estate.
How Can a Free Society Protect Itself? August 17, 2007Posted by federalist in Government, Open Questions.
An open question for Libertarian readers, as well as any who oppose the Patriot Act, warrantless wiretapping, and all the trappings of a police state:
A civil society prides itself on its ability to presume every citizen innocent until proven guilty. Libertarians chafe at the idea of a government spending resources “invading the privacy” of people who have not committed crimes in order to predict who intends to commit a crime, and punish them for that intention.
Is conspiracy to commit a crime ever itself a crime that deserves punishment?
Are there not people who will conspire to commit murder and yet will not be deterred from the act by any punishment that might be imposed after the fact?
Then does not the government, in its legitimate role of securing our lives and property, have the obligation to engage in prophylactic law enforcement activities to prevent those who cannot be deterred from committing terrible crimes against the citizenry?
If so, then how can we balance that obligation to proactively police against the risk of government abusing its police and intelligence powers?
QOTD on Judicial Activism August 10, 2007Posted by federalist in Government, Judiciary.
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James Madison stood for limited government, not wide-ranging democracy. His first principle was that in wide areas individuals are entitled to be free simply because they are born free. His second principle was that in some areas majorities are entitled to rule because we have authorized them to.
Yet we repeatedly see conservative jurists, as [in Abigail Alliance for Better Access to Developmental Drugs v. Eschenbach], ignoring the true Madison — deferring to the legislature when their duty, as Madison put it, is to stand as “an impenetrable bulwark against every assumption of power in the legislative or executive.”
The Conformity Epidemic August 9, 2007Posted by federalist in Education, Human Markets.
We have a society that is in certain dimensions so rigid that it creates disorders out of differences.
As I read this recent article on autistic adolescents I was surprised at how intent families and public schools were to put children into mainstream schools and social situations for which they are obviously not suited. (The WSJ has also done a recent series on mainstreaming mentally disabled children, highlighting many cases with traumatic results.)
It may be that a majority of children will realize their maximum return on investment within the standard system of schooling (though even that is open to debate). I can appreciate the desire to keep things simple by squeezing every person through the same system, but there are some people who will just not fit. The attempt strains the system and traumatizes the deviant.
How much better could these cases turn out if parents and teachers accommodated the differences instead of trying to overcome them? If someone can’t connect, communicate, or comply then figure out what they can do — based on innate ability and interest — and accommodate their development in that direction.
Liberal Arts Conceit August 8, 2007Posted by federalist in Education.
Chester Finn and Diane Ravitch (Not By Geeks Alone) strain to produce reasons why government-funded schools should not increase their focus on teaching STEM subjects (“science, technology, engineering and math”).
Worthy though these skills are, they ignore at least half of what has long been regarded as a “well rounded” education in Western civilization: literature, art, music, history, civics and geography. Indeed, a new study from the Center on Education Policy says that, since NCLB’s enactment, nearly half of U.S. school districts have reduced the time their students spend on subjects such as art and music.
Liberal arts — literature, art, music, history, civics — are not skills that require formal training and testing, nor can our politicized public schools be relied upon to teach these subjects in a constructive fashion. In contrast, reading skills along with quantitative and analytic reasoning can be both taught and measured. A student with a strong foundation in reading and analysis can pursue his own education in liberal arts without the need for further pedagogical investment by the state.
It may be true that liberal arts are “the foundation for a democratic civic polity.” But Finn and Ravitch’s conclusion that liberal arts training is critical to economic or social success would seem dated even in the 19th century.
Abandoning the liberal arts in the name of STEM alone also risks widening social divides and deepening domestic inequities. The well-to-do who understand the value of liberal learning may be the only ones able to purchase it for their children. Top private schools and a few suburban systems will stick with education broadly defined, as will elite colleges. Rich kids will study philosophy and art, music and history, while their poor peers fill in bubbles on test sheets. The lucky few will spawn the next generation of tycoons, political leaders, inventors, authors, artists and entrepreneurs. The less lucky masses will see narrower opportunities.
In this post-industrial information age the “lucky few” who pick up great pieces of literature and historical analysis in their spare time, or who indulge a hobby in art or music, will not by that reason be the next generation of tycoons, entrepreneurs, or inventors. It is those who lack proficiency in STEM subjects who are at a disadvantage in today’s world.
Can Data-Mining Increase Market Efficiency? August 3, 2007Posted by federalist in Markets.
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Let us say that the goal of capitalism is to create as many goods and services that people most want and to get those things into their hands as efficiently as possible. In a free market producers try to innovate and market, but we know that even the perfect product at the right price can fail to find all the consumers whose utility it will optimize.
The recent WSJ article, “We Know What You Ought To Be Watching This Summer,” raised my hopes that technology will yet give us massive improvements in consumer market efficiency: Online marketers should be able to mine the ratings and purchases of large numbers of customers to produce tailored profiles that can recommend new products to individuals that suit their needs and interests — products those individuals may not otherwise encounter.
It is a compelling idea, but maybe not quite so straightforward. Tom Slee offers an illuminating analysis of the Netflix recommendation database and concludes, “I see little evidence … that recommender systems are the magic ingredient that will reveal the wisdom of crowds.”