Sunday, November 27, 2011

Free Will

Until recently, I had considered the existence of free will to be a moral dilemma. I understood that free will, in the sense of transcending our prior experience and genetics, did not exist. But I also knew that we needed to act as if it did exist to hold people responsible for their actions and to have a functioning society. I was curious to see what Sam Harris would say about it in a book I’m currently reading, The Moral Landscape.

I expected that he would accept that free will does not exist (in the metaphysical sense), but what surprised me was that he embraced it as an advance in morality. He said that we shouldn’t be locking people up out of retribution, or punishment, but out of concern for what they might do. If someone has demonstrated that they are a threat to society, and might cause harm in the future, it makes sense to lock them up. Not out of punishment, but out of concern for the consequences of their future actions.

Recently, more people have begun to attribute misbehavior to disorders of the brain, rather than simply the choices of that person. This represents a step towards seeing the mind as the product of the brain, as the difference between a person’s idiosyncrasies or personality and brain disorders is more a difference of degree rather than in kind. The more we understand this, the less we feel a strong desire for retribution for undesired or even harmful behavior. Rather, we become motivated out of concern for the person or the consequences of their actions.

While writing this blog entry, I discovered that Sam Harris has a blog post summarizing some of what he said in his book. Since he’s undoubtedly a better writer than I am, it would be a great article to read if I didn’t convey this concept very clearly.

The bottom line, though, is that we need to be clear about the objectives of our morality. If it is to promote human well-being, as I think it is, then our better understanding of how our minds work may require a change in our definition of justice. I now agree with Sam Harris: that redefinition of justice would be a step in the right direction.

Tuesday, November 22, 2011

Working out

This post is kind of a review of my favorite app.

I like being in shape. I feel good, I feel good about myself, I feel good about how I look. But staying in shape takes a lot of time. I used to drive to a gym, work out for an hour, drive home, and take a shower. It took darn near two hours a day, usually after work. Whenever I got busy, the workouts got cut.

I think I've now discovered a better way. First I found this book. It explains how to work out all your major muscle groups at home. It also explains why cardio is a waste of time: if you want to burn fat, the best thing to do is to build muscle and raise your baseline metabolism. Later, a companion iOS app was released. I immediately bought it too, and it's been slowly improving over time, and release 2.0 made it a ton better than the original. That's what I've been using for my workouts for the last few weeks. The iPhone app now has all the workouts and exercises listed in it, so if you just want the workouts, that's all you really need.

It's nice because I can hammer out a 30-35 min. workout in the morning, take my shower, and go to work. It doesn't take a lot of time, so I keep doing it even when I'm busy. I like doing everything from an app because you don't need to remember what you're supposed to do, it just tells you. It also keeps track of all your workouts so you can look back at your workout history anytime. I love it.

Sorry this sounds like a product promo, but I guess that's what it is. It's about a $2 app that makes it unnecessary to have a gym membership, saves a ton of time, and makes you feel good about yourself. If you have an iPhone or an iPod Touch, get it. It'll be easily worth it if you do it.

It's not perfect yet, I'm hoping the developer will continue to improve it.

Monday, November 21, 2011

Competing on Corporate Taxes

This is an unusually nerdy post, so if you're not into economics, skip it.

I'm going to briefly discuss why it's unnecessary for the U.S. to compete with other countries on corporate tax rates.

Imagine you're running a country. Let's just focus on maximizing good for the long run first, then talk about short-term effects. The basic principle is that in the long run, the exchange rate will change to make your imports equal your exports. Now let's say that a company moves a plant from the U.S. to China. Presumably, they can produce, say, product A, more cheaply in China than they can in the U.S. That means that the resources (labor, etc.) that would have been used to produce product A can be employed elsewhere in the U.S. economy. Assuming that those resources can produce a product B, which is close to the value of product A, and product A can now be produced more cheaply, productivity has increased. If many things begin to be produced in China, such that China is exporting more than it imports, then the value of China's currency will increase until imports again equal exports. Now, realistically, China holds down the value of their currency by buying tons of our currency and stockpiling it. That basically means they're making their stuff artificially cheap: they're exporting products, we're exporting money (which we can freely print). So if they do this for the long-term, we're the winners, because we're getting the goods and services without having to produce anything. If this is done in the long-term, it doesn't create U.S. unemployment because wages will adjust to create full employment.

Now, let's consider the short term. During a recession, aggregate demand is too low, and it needs to be increased. Suddenly having a weak currency is very desirable because it increases the attractiveness of your goods overseas, and can increase your exports. That's why when we hit the recession, all of a sudden everyone is mad at China for keeping their currency weak. It wouldn't matter during normal times, but during recessions, everyone wants to be the ones with the weak currencies. Getting companies to build plants in your country is suddenly important because it increases expenditures. But it's important to realize that it's only important during a recession, not during normal times. So a temporary tax discount to get companies to come here makes sense right now, but long-term dropping of corporate tax rates to "compete" with other countries does not.

Economics is awesome.

Sunday, November 20, 2011

Cause of the Housing Bubble

I learned about this by reading "13 Bankers," a great book about the housing crisis that I'd highly recommend.

After the Great Depression, laws were put in place to keep the financial system sound. The FDIC was created to guarantee bank deposits and prevent runs on banks (a bank run is when depositors cause a bank to fail by withdrawing their money at the same time). Because the government was guaranteeing the deposited money, it also required banks to only invest that money in safe investments: specifically in housing loans. The housing loan could only provide 80% of the appraised value of the house, ensuring that the bank would not lose money on the loan. This is called the era of “boring banking” in 13 Bankers. From the close of the Great Depression until the 80s, these regulations kept the financial system boring, stable and sound. Economic growth was steady and the financial system did not cause any recessions (the major recession of the 70s was caused by skyrocketing oil prices).

Ronald Reagan believed that stronger economic growth could be achieved by deregulating the financial system. I will quickly quote from “The Evolution of the Subprime Mortgage Market” about how financial deregulation lead to the growth of the subprime mortgage market:

“Many factors have contributed to the growth of subprime lending. Most fundamentally, it became legal. The Depository Institutions Deregulation and Monetary Control Act (DIDMCA) was adopted in 1980, preempting state interest rate caps. The Alternative Mortgage Transaction Parity Act (AMTPA) in 1982 permitted the use of variable interest rates and balloon payments. These laws opened the door for the development of a subprime market, but subprime lending would not become a viable large-scale lending alternative until the Tax Reform Act of 1986 (TRA). The TRA increased the demand for mortgage debt because it prohibited the deduction of interest on consumer loans, yet allowed interest deductions on mortgages for a primary residence as well as one additional home. This made even high-cost mortgage debt cheaper than consumer debt for many homeowners. In environments of low and declining interest rates, such as the late 1990s and early 2000s, cash-out refinancing becomes a popular mechanism for homeowners to access the value of their homes. In fact, slightly over half of subprime loan originations have been for cash-out refinancing.”1

Although it took a fair bit of time for the housing bubble to build, I think it is clear that it either would never have existed, or would not have done serious damage to the financial system if these regulations had not been repealed. If subprime borrowing was illegal, borrowers that couldn’t afford to pay for their homes would never have gotten loans in the first place. I would also agree that some other things contributed to the problem, such as the “global savings glut,” Alan Greenspan continuing to hold interest rates down in spite of evidence that a housing bubble existed and additional deregulation that took place under Bush and Clinton (such as repeal of Glass-Steagall and allowing banks to leverage themselves too much).

Now I want to quickly dispel a conservative myth: that the Community Reinvestment Act (CRA), passed under Bill Clinton, caused the housing bubble. The CRA required large banks to make loans in low-income areas as well as high-income areas. I feel confident that the CRA did not cause the housing bubble because the CRA only governed some of the largest organizations that could originate a loan, and 75% of of subprime loans were issued by institutions not covered by CRA.2 I’m not saying I agree with the CRA, I’m just saying it didn’t cause the housing bubble.

So there you have it: the housing bubble and and this recession was ultimately caused by financial deregulation.



Sunday, November 13, 2011

In Praise of a Progressive Tax

I support a progressive tax because I think it’s fair. Fairness presumes equality of opportunity. Unfortunately, in real life, true equal opportunity does not exist. Some people get ahead by having rich parents get them into good schools, knowing the right people, cheating, or just by getting lucky. That doesn't mean you should give up. There are many opportunities available to all of us, and the harder we work, the more likely we are to be successful. But it does mean that just because someone makes more than you, they didn't necessarily work harder than you. That's okay, life doesn't have to be perfectly fair to be good, but the way to make it more fair is to provide more opportunity to everyone.

If rich kids go to better schools than middle class kids, they'll be better qualified for the most desirable jobs. We can provide opportunity by providing a quality education to everyone, and by keeping good colleges affordable.

Sometimes someone from a poor family will be pressured to get a job immediately instead of going to college because their parents need the money or because of an illness in the family. Without proper treatment, medical conditions can prevent someone from working or going to school. We can minimize these types of situations by providing social security, so that no children will have to care for their parents who didn't save for retirement, or became disabled, and through Medicare and Medicaid, so that poor families will receive medical care enabling each family member to go to school and work. Pell grants help make college affordable. Strong police forces can reduce the crime rate and gang presence in poor neighborhoods.

These things help provide opportunity, and we have to pay for them through taxes, but why should it be a progressive tax? I base my entire morality on promoting human well-being.1 If a multi-millionaire pays an extra 100,000 in taxes, that means ten middle class families can save 10,000 each. I think the increase in quality of life experienced by those families is more than would be experienced by the multi-millionaire, so we should do it because it increases the total quality of life, as long as the millionaire is still fairly compensated for his economic contributions.

How do we judge “fairly compensated?” I don’t think the market outcome is necessarily the fair outcome. Do CEOs get paid more than the workers because they contribute more, or because they have more control over how compensation is determined? It’s hard to say. I propose another method of determining what is fair compensation: if the tax rate is too progressive, then many people will lose the incentive to work more, and overall economic output will fall. Historical data shows that even a much more progressive tax than we currently have does not seriously impede economic growth.2 That means the high-earners are showing, by their actions, that they consider the additional compensation a sufficient incentive to work, even if it’s taxed at a higher rate.

I’m not anti-capitalism, I’m just saying that capitalism is the means, not the end. Capitalism provides incentives to produce, so it’s very effective at producing high-quality goods and services, and fairly effective at providing jobs. It also has its shortcomings. The structure of some markets leads to inefficient outcomes, so we need regulations. For example, we need to prevent monopolies from abusing their power to crush competitors, and we need financial regulation to keep banks from getting too big. The free market also goes through cycles, so we have a central bank to enact counter-cyclical action to prevent (as much as is possible) recessions and depressions. The basic point is that capitalism is a means toward providing goods and services and jobs to citizens, not an end in itself. People who have so much faith in the market that they think the market outcome is the fair outcome need to take an economics class and pay attention to market inefficiencies.

All the evidence I’ve seen indicates that a more progressive tax will create a society with more equal opportunity, and thus more fairness. Citizens would be, on average, better off than with a flat tax. A flat tax would lead to a society with a few super-rich people, and many poor people. I support a more progressive tax system.

1 I’m currently reading “The Moral Landscape,” by Sam Harris, on the subject. The basic thesis is presented pretty well here.

2 See Paul Krugman.

Friday, November 4, 2011

Ode to Marie Stopes

The world is facing a lot of problems, but the one that concerns me the most long-term is overpopulation. The simple reality is that we will have to choose how to balance the total human population with the quality of life we’d like each person to have, and how much land we’d like to set aside for conservation and other species. It may be possible to have 15 billion people living quality lives, but that might be more of a toll on nature than I’d like to countenance.

The good thing about the problem is that it’s possible to solve it without anyone having less kids than they’d like. It appears that our fertility rate could be dropped to a sustainable level simply by preventing unwanted pregnancies. Expanding access and increasing the social acceptance of contraceptives not only helps prevent overpopulation, it’s one of the cheapest and best ways of protecting the environment, fighting global warming, increasing the status of women, and promoting economic development. That’s because less people demand less natural resources and use less energy. If women are able to control how many children they have, they’re more able to pursue education and participate in the workforce (if that's what they want), which is empowering to them. The higher the status of women in a society, the less violent or prone to war that society tends to be.

Months ago, when I left the church, I wanted to find a charity I really believed in to consistently donate to instead of paying tithing. I looked for one dedicated to promoting family planning in developing nations. I found such a charity: Marie Stopes International. Their Global Impact Report estimates they prevented 4.8 million unwanted pregnancies last year, and spent about 83.3 million pounds. That means they only spent about $34 dollars for each averted pregnancy. It’s my favorite charity, and I just want to encourage everyone to find a charity dedicated to making the world a better place that you believe in, regularly donate to it. I believe it does make a real difference.