Brace for Dollar Inflation

The Wall Street Journal editorial board has been cautioning the Fed on its loose money policies for some time now.  Two recent op-ed’s step up the warning.

The Federal Reserve has only one lever to push: the short-term lending rate for dollars, which affect the “supply of money.”  Ideally it would only use that lever to control one thing: inflation.  However, as Ben Steil explains, economics are complicated and the effects of interest rate changes on inflation can be delayed and indirect.  So the Fed has allowed itself to consider questions like employment, GDP, and market conditions when setting its rate.

For example, with credit and liquidity crises racking the markets the Fed has dropped its rate perilously low even as inflation has hit dangerous highs.  The Fed argues that it can solve the market crisis and that the current recession will deal with inflation before long.  So far the Fed has gotten away with this — markets are still pricing in an expectation of nominal long-term dollar inflation — presumably thanks to the credibility the Fed has banked since the early 1980s.  I.e., people still believe that the Fed will finally make the hard call to raise rates if the recession doesn’t pull us back from the brink of inflation.

Gerald O’Driscoll (“Washington Is Quietly Repudiating Its Debts“) doubts this can continue.  The presence of political pressure in the Fed’s calculus should give us pause.  The U.S. government is piling on obligations: Debt spending, unsustainable entitlements, and now government bailouts of market makers.  It will be increasingly difficult for government to resist the temptation to inflate its way out of its debt — certainly not while the Fed is willing to subjugate a stable dollar to concerns of market strength or shorter-term financial stability.

A stable currency is a tremendous boon to market efficiency and general welfare.  Large or unexpected inflation takes money from creditors and transfers it to debtors, with bad results for the overall economy.  Fortunately, it is possible to limit one’s exposure to the risk of excess inflation, as I suggested earlier.  This is a good time to increase your hedges against dollar inflation.

Higher Education

As I previously noted, our current system of higher education is an expensive way of taking an IQ test, and it’s a waste of time for most people to pursue 4-year college degrees.  Charles Murray returns to lampoon this system in a recent essay:

First, we will set up a single goal to represent educational success, which will take four years to achieve no matter what is being taught. We will attach an economic reward to it that seldom has anything to do with what has been learned. We will urge large numbers of people who do not possess adequate ability to try to achieve the goal, wait until they have spent a lot of time and money, and then deny it to them. We will stigmatize everyone who doesn’t meet the goal. We will call the goal a “BA.”

As the United States faces a shortage of skilled blue-collar workers, Murray’s new book, Real Education, is a timely proposal for overhauling the way society approaches education.

Here’s the reality: 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 business executives and history professors as of chefs and welders. Getting rid of the BA and replacing it with evidence of competence — treating post-secondary education as apprenticeships for everyone — is one way to help us to recognize that common bond.

Murray takes a lot of flak from egalitarians who don’t like the idea that we are not all created with equal potential.  But it’s not just the IQ or “g” Murray often emphasizes.  Variations in individual dispositions and interest mean that education valuable to one person might be wasted on another.  We can preserve the idea that everyone gets an equal opportunity to pursue happiness without implying that happiness requires a college degree.

The first step we should take as a society is to depreciate liberal arts degrees.  A four-year vacation by a young adult to study liberal arts should soon seem as unusual and antiquated as the previous norm that every college graduate should be fluent in Hebrew, Greek, and Latin; or the earlier norm that most literate adults should take an oath of celibacy and spend their lives copying scripture by hand.

Higher study of liberal arts should be its own calling and profession, like medicine or divinity.  Unless someone intends to practice medicine we do not expect them to master more than first aid.  So why do we suggest that every sufficiently intelligent person should tuck themselves away for four years studying primary cultural sources and writing short papers about them?  Employers should never hold the lack of a liberal arts degree against someone who is not seeking a job as a liberal artist.

Even many of those who are “intelligent enough” spend most of college trying to do as little as possible to get the degree.  And why shouldn’t they?  It does not take four years of lectures, reading, and writing on arcane subjects to learn to read, write, and reason.  The content of these courses is readily available to anyone, whether as lectures recorded by master professors or books written by the most insightful scholars.  Those who have the interest and disposition to study liberal arts can and will do so outside of college — such study is a useful hobby.  The most motivated students of the Liberal Arts will follow popular derivative works to primary sources, and may even choose to become professionals in those fields.  Everyone else should feel free — even encouraged — to pursue productive hobbies and studies to which they are naturally attracted.

Society needs to evolve beyond this four-year core-curriculum paradigm.  Or perhaps it needs a devolution to the classic apprenticeship model of developing productive adults.

Diesel Fuel Efficiency Myths

Do you get better mileage in a vehicle running on diesel fuel instead of gasoline?  Given the increased demand for diesel cars in the United States you would think so.  Congress seems to think so, since its CAFE regulations are based on “Miles Per Gallon” (MPG), regardless of whether those are gallons of diesel or of gasoline.

Any significant difference between diesel and gasoline disappears if we instead talk about “Miles Per Pound” (MPP), or “Miles Per BTU” (MPB).  A gallon of diesel weighs 7 pounds and contains 139kBTU of energy.  A gallon of gasoline weighs 6.2 pounds and contains 124kBTU of energy.  I.e., gasoline and diesel contain the same amount of energy per unit weight.  It’s just that gasoline is less dense, so it takes more volume (gallons) to hold a given amount of energy.

An unbiased measure of fuel economy would quote MPP, not MPG.

(The price per BTU (PPB) of diesel can be different from that of gasoline, but that is primarily a function of refining, storage, and distribution infrastructure.)

QOTD: Proper Objectives of Higher Education

Stanley Fish‘s new book is “Save the World on Your Own Time.”  A recent essay summarizes his advice for academia:

Pick up the mission statement of almost any college or university, and you will find claims and ambitions that will lead you to think that it is the job of an institution of higher learning to cure every ill the world has ever known….

So what is it that institutions of higher learning are supposed to do? My answer is simple. College and university teachers can (legitimately) do two things: (1) introduce students to bodies of knowledge and traditions of inquiry that had not previously been part of their experience; and (2) equip those same students with the analytical skills — of argument, statistical modeling, laboratory procedure — that will enable them to move confidently within those traditions and to engage in independent research after a course is over.

He strikes the same chord as Alan Kors, warning the current crop of professors who seem more interested in converting students to their left-wing ideology:

Analyzing ethical issues is one thing; deciding them is another, and only the first is an appropriate academic activity.

Teaching is a job, and what it requires is not a superior sensibility or a purity of heart and intention — excellent teachers can be absolutely terrible human beings, and exemplary human beings can be terrible teachers — but mastery of a craft. Teachers who prefer grandiose claims and ambitions to that craft are the ones who diminish it and render it unworthy.

QOTD: Ban Union Monopolies

The “Employee Free Choice Act” is a legislative proposal that would allow unions to monopolize a workforce through intimidation or coercion of workers, since it would remove the final refuge of an anonymous ballot.  George Leef in today’s WSJ explains that even without the EFCA,

Current [labor relations] law is an authoritarian assault on the liberty of workers who do not want union representation at all.

The National Labor Relations Act makes a certified union the exclusive representative of all the workers. Those who think that the union costs too much, fails to represent their workplace interests, or engages in political activities they don’t support must nevertheless accept its dominion over them. The Right to Work laws of 23 states permit disaffected workers to stop paying dues without being fired, but that is only a second-best remedy.

There is no reason why labor unions must be given monopoly status. Both Democrats and Republicans ought to support reform of the law so that individuals are free to join or quit unions, just as they are free to join or quit churches, clubs, or any other organization.

If unions are beneficial, they will survive without coercing workers who prefer independence.

Bounties to Reduce Government?

The Wall Street Journal is running an Op-Ed series, inspired by the Copenhagen Consensus, asking people how they would spend $10BB to solve the world’s problems.  Today Newt Gingrich proposes allocating billions of American dollars to fund prizes for solutions to major problems.  This is a good suggestion since much smaller “bounties” like X PRIZEs have spurred extraordinary research and unconventional solutions to other challenges.

Gingrich unwittingly shows us where Americans might find a lot of spare change: One of his prizes would be $1 billion for “A method for reusing nuclear waste to make Yucca Mountain, Nevada unnecessary as a repository.”  Apparently the former Congressional leader is ignorant of the fact that Yucca Mountain is necessary only because of a Carter Administration regulation that forbids nuclear recycling! Canada, Britain, France, and Russia have recycled their nuclear fuel for years, obviating the need to store massive amounts of slowly decaying isotopes. (For example, France has used primarily nuclear power for over a generation, yet stores all its high-level nuclear “waste” in a single room at Le Havre.)

Yucca Mountain has already cost $4 billion to study and prepare; actual storage, if it ever begins, will cost many billion more. Since a stroke of the Presidential pen will solve that problem perhaps we really can fund Gingrich’s prizes. Shall we start with a prize for “A method to prevent ignorant Congressmen from wasting American money?”

Academic Bias

Let colleges and universities have the courage, if they truly believe what they say privately to themselves and to me, to put it on page one of their catalogues, fundraising letters and appeals to the state assembly: “This University believes that your sons and daughters are the racist, sexist, homophobic, Eurocentric progeny or victims of an oppressive society from which most of them receive unjust privilege. In return for tuition and massive taxpayer subsidy, we shall assign rights on a compensatory basis and undertake by coercion their moral and political enlightenment.”

This is Alan Kors in his sweeping exposition of the origins and state of political bias in the Academy. His insider’s view on this problem is illuminating:

It is the faculties (both the minority of zealots and the majority of cowards) and the administrations (both the minority of ideologues and the majority of careerists with double standards) who are to blame.

Academics, in their own minds, face an almost insoluble problem of time. How, in only four years, can they disabuse students of the notion that the capital, risk, productivity and military sacrifice of others have contributed to human dignity and to the prospects of a decent society? How can they make them understand, with only four years to do so, that capitalism and individualism have created cultures that are cruel, inefficient, racist, sexist and homophobic, with oppressive caste systems, mental and behavioral? How, in such a brief period, can they enlighten “minorities,” including women (the majority of students), about the “internalization” of their oppression (today’s equivalent of false consciousness)? How, in only eight semesters, might they use the classroom, curriculum and university in loco parentis to create a radical leadership among what they see as the victim groups of our society, and to make the heirs of successful families uneasy in the moral right of their possessions and opportunities? Given those constraints, why in the world should they complicate their awesome task by hiring anyone who disagrees with them?

Even if we put them on truth-serum, the academics who dominate the humanities and social sciences on our campuses today would state that K-12 education essentially has been one long celebration of America and the West, as if our students were intimately familiar with the Federalist Papers and had never heard of slavery or empire. Having convinced themselves that the students whom they inherit have been immersed in American and Western traditions without critical perspective—they do believe that—contemporary academics see themselves as having merely four brief years in which to demystify students, and somehow to get them to look up from their Madison and Hamilton long enough to gaze upon the darker side of American and Western life. In their view, our K-12 students know all about Aristotle, John Milton and Adam Smith, have studied for twelve years how America created bounty and integrated score after score of millions of immigrants, but have never heard of the Great Depression or segregation.

The rise of this counter-cultural mission in institutions of higher education has corresponded to an erosion of educational quality. Expanding on the idea that college is an expensive way of taking an IQ test, Kors explains,

The power of universities comes from their monopoly of credentials. As Richard Vedder so deeply understands in his “Going Broke by Degree,” they are the only institutions allowed to separate young individuals by IQ and by the ability to complete complex tasks. They do not add value to that, except in technical fields. Recruiters do not pay premiums because of what the Ivy League or the flagship state universities teach in English, history, political science, or sociology. They hire there despite, not because of, that. Recruiters do not pay premiums because our children have been sent to multicultural centers for sensitivity training. Recruiters pay premiums for the value already there, which universities merely identify. So long as recruiters pay premiums, however, it is rational for parents who wish to gain the most options for their children to send them to the university with the most prestigious degree. That will not change in the current scheme.

The sad bottom line is that there are no incentives for administrators to offer a different product, such as a niche of high-quality education, equal treatment, liberty and merit. Parents invest understandably in the value of degrees, not in the quality of curriculum and faculty.

Amplifying my warning in Runaway Higher Education he cautions:

We now have closed-shop, massively subsidized, intolerant political fiefdoms, and they are the gatekeepers of society’s rewards. Without incentives for different models of higher education, we shall have this same system of colleges and universities as far as the mind can foresee. The tax-free mega-endowments will grow. The legislators and the public will not end the subsidy. The alumni will continue their bequests. The trustees will proudly attend the administrative dog-and-pony shows, the most efficient act on any campus. Well-intentioned donors will support ghettoized “centers” (without faculty lines, cross-listed courses, graduate fellowships, or degrees) that marginalize inquiries that should be central to the academy. These provide protective coloration for administrators, help with fund raising in certain quarters, and permit a transfer of funds to the accelerating thirst for ever new forms of regnant campus orthodoxies. Until civil society makes administrators pay a price for the politicized hiring, curriculum and student life offices they administer, nothing truly will be reformed.

Stimulus: The Differences Between Spending, Saving, Storing, and Investing

It’s easy to criticize the Federal government’s plan to “stimulate” the economy by sending money to taxpayers who didn’t earn too much last year.  The government believes that those people have the highest marginal propensity to spend.  I.e., the government is trying to boost current retail spending by taking money from both future taxpayers who can’t spend now, and from current wealthier taxpayers who presumably are more likely to save than to spend.  The government’s canard is that this is the best way to lift us out of the current credit crisis and recession.

It’s worth reading Steve Waldman’s exposition on the Paradox of Thrift.  “Saving” can take the form of storage or of investment.  The latter stimulates, the former does not.  I.e., if we save in the form of stocks, bonds, or other stakes in capital markets we are really making an investment in future production, which in a virtuous cycle both enables future consumption and increases current employment and incomes.  However, if we save by accumulating stores of value — say land or old art — we do little more than create scarcity rents for those who possess that fixed supply.

It does appear that saving is now skewing more towards storage than investment.  Waldman explains why this may be happening, and why “stimulus” spending is not a good response:

Storage eats wealth, while productive enterprise creates it. People know this. No one “invests” in gold or oil when a financial system is working. They do so when it is broken. Like now.

Encouraging people to go shopping in order to help the economy is not “second best” policy. It’s a desperate last resort. We’re not at a point where there’s so little economic activity that we can’t foresee future wants. We’re at a point where people are beginning to shift from investment to storage because of a well-deserved loss of confidence in the financial system. Encouraging consumption now is nihilistic. It feeds into a vibe (I feel it personally, do you?) that saving is so uncertain and money so volatile that one might as well spend, ‘cuz who knows what tomorrow might bring. The right way to sustain aggregate demand and maintain current income is to figure out what we should be investing in … and then to put current resources to work. Our financial system is failing spectacularly because it erred grievously. It built homes and roads and sewers that oughtn’t have been built, it “invested” in vacations and plasma televisions, and it paid itself handsomely for doing so. That’s not a problem we can spend our way out of.