State of the Democrats

Like Glenn Reynolds, I would like the Democrats to not suck and offer stiffer competition to the Republicans. So, on the day that Iraqis are risking their lives to vote, bringing competition and accountability to governance in the Middle East for the first time ever, the culmination of a protracted war by the US and it's true allies against the newest form of fascism, at the cost of tremendous blood and treasure, what does Josh Marshall's Talking Points Memo focus on?

Sheryl Gay Stolberg has a nice piece in tomorrow's Times about how central the Social Security debate has become for Dems...

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The Facts About Oil-For-Food
Fact: The UN Oil-For-Food program cut Iraqi Children's Malnutrition rates in half

First, the mention of Sen. Nelson (D) of Nebraska seems incomplete without noting that he has now explicitly come out in favor of add-on accounts rather than carved-out accounts favored by President Bush and even more emphatically against changing benefits to tie them to inflation rather than wages...etc

While I don't think elections in Iraq are going to make lives easier for the Iraqis any time soon, I do think they are a blow to terrorists because it split Arab dictator-haters (pretty much everyone) into those who prefer theocratic-dictators and those who prefer (probably religious) government that can be kicked out ever 4-8 years. Iraqis are religious people and they do not believe that their religion and competitive, accountable government are at odds with each other.

Given that this is an (the?) answer to the question that's been driving America, and the rest of the world since 9/11, Josh's complete lack of mention of it on this page indicates where their party is with respect to the terrorism question -- they've decided to sit it out.

And to while away the hours while they ignore what's going on the Middle East, Josh plots on how to keep Social Security from changing. Remember, young people think that Social Security in their current form will not help them, so why Democrats think clinging to it will be an election winner for them in the years to come is beyond me. As Bill Clinton, a once prominent Democrat said

"You know, there was a recent poll which said that young people in the generation of the students here felt it was far more likely that they would see a UFO than that they would draw Social Security. And others may think that it's a long way off, as Mannone said, and the Vice President said he thought it was a long way off.

Josh may think that "Social Security may be less real than UFOs but it's still worth fighting for" is a rallying call, but I think it's an admission of having no ideas at all.

In all fairness, Josh also takes a breather for battling to keep social security as it is to track the Kremlinesque machinations around who will be the new DNC chair. To me this looks like deck-chair rearranging of Titanic proportions, but hey, I guess someone should care about what Senator Obscure (D-Nebraska) wore when visiting Senator Who? (D-Some Other State) last Tuesday.

I go to Josh's site because although he is loyal to political parties, and thus limited in his thinking, he is non-frothy. I don't know how close Josh is to actual, non-frothy Democrat thought, but if he is representative, things are looking pretty grim.

Socialism at the Office

Stumbling and Mumbling thinks that left-wing ideas about economics have "lost" and wants to turn that around. He's "sick and tired of getting the impression that leftism and economic illiteracy are coterminous." Unfortunately, he then writes the following:

1) Answer the question: why exactly do we want redistribution?.. 2) Recognize bounded rationality – and use it... First, it gives us a reason to oppose capitalist hierarchies in the workplace. We all know a centrally planned economy is a stinking idea. So why is a centrally planned company a good one? 3) Face the facts – markets work. Markets are the least bad mechanism we have for allocating scarce resources. Many of the problems the Left associates with markets are not, strictly speaking, problems with markets per se. Instead, some – such as the insecurity they bring – are the result of missing markets.

Some good points here, but also some bad ones. First the bad.

Recognize bounded rationality – and use it

The standard left wing use of bounded rationality (sometimes called Behavioral Economics, but not here I think) is to argue against markets. If individuals are not rational actors, the argument goes, how can markets be efficient? Among other things, this argument fails because the alternative to markets, committees, are also made up of non-rational actors.

The author's point is different -- he's arguing against central planning and companies are the epitome of central planning. Of course, this apparant paradox has been spotted by economists as well, U Chicago Nobel Prizewinner Ronald Coase wrote about exactly this in The Nature of the Firm. Wikipedia does an OK job at explaining Coase's ideas:

The Nature of the Firm is a brief essay in which Coase tries to explain why the economy is populated by a number of business firms, instead of consisting exclusively of a multitude of independent, self-employed people who contract with one another. Given that "production could be carried on without any organization [i.e. firms] at all", Coase asks, why and under what conditions should we expect firms to emerge?

Since modern firms can only emerge when an entrepreneur of some sort begins to hire people, Coase's analysis proceeds by considering the conditions under which it makes sense for an entrepreneur to seek hired help instead of contracting out for some particular task. The traditional economic theory of the time suggested that, because the market is "efficient" (i.e. those who are best at providing each good or service most cheaply are already doing so), it should always be cheaper to contract out than to hire. Coase noted, however, that there are a number of transaction costs to using the market; the cost of obtaining a good or service via the market is actually more than just the price of the good. Other costs, including search and information costs, bargaining costs, and policing and enforcement costs, can all potentially add to the cost of procuring something with a market. This suggests that firms will arise when they can arrange to produce what they need internally and somehow avoid these costs.

There is a natural limit to what can be produced internally, however. Coase notices a "decreasing returns to the entrepreneur function", including increasing overhead costs and increasing propensity for an overwhelmed manager to make mistakes in resource allocation. This is a countervailing cost to the use of the firm.

Coase argues that the size of a firm (as measured by how many contractual relations are "internal" to the firm and how many "external") is a result of finding an optimal balance between the competing tendencies of the costs outlined above. In general, making the firm larger will initially be advantageous, but the decreasing returns indicated above will eventually kick in, preventing the firm from growing indefinitely.

But it is true that firms are a centrally planned environment, and anyone who has ever worked in a firm or consulted to one knows what a bureaucratic, whimsical, heirarchical, insane they are. If capitalism is a mall -- anonymous transactions where you are free to do as you please, everyone is trying to be nice to you, and their ability to please you determines their success or failure, then socialism is definately the firm -- group decision making, consensus unless someone pulls rank, bureaucracy, politics, susperstition. Makes the choice easy.

Now for the good points:

Face the facts – markets work. Markets are the least bad mechanism we have for allocating scarce resources. Many of the problems the Left associates with markets are not, strictly speaking, problems with markets per se. Instead, some – such as the insecurity they bring – are the result of missing markets.

I think a key aspect of this is housing. Look, everyone needs a house in a way everyone does not need IBM stock, so we are born short housing but neutral IBM stock. I mean that people who don't own anything nevertheless have a short position on housing (will be hurt if prices rise), and owning a house actually makes one neutral on real estate (if prices rise you are richer, but other houses cost more too, so your gains will just be eaten up by your next purchase).

The goal of every young person should therefore be to put money into housing until one gets neutral, probably through some sort of local, regional, or national residential REIT. Robert Shiller, whom I met at Chicago, has similar thoughts on our current housing bubble

[Robert Shiller] has now added a chapter on real estate to his book and is also launching a company that will sell futures allowing people to hedge against movements in housing prices in a given city.

NEWSWEEK: What can you say about your outlook for housing prices. Is it a bubble?
Robert Shiller: I’m not objective any more because I will have a financial interest [when the new company is launched]. I can’t be objective so I won’t say. If people talk about a bubble, they think in terms of deflating or bust. But the real question is, how it will look longer term? As I’ve said in the past, I don’t think housing prices will be higher five to 10 years from now.

Call on the River

The big bet that President Bush placed all these months ago, the bet that the root cause of Islamic Fundamentalism was the repressive, totalitarian regimes these people lived in, is being called as Iraq has elections tomorrow.

Terrorist are staging attacks to intimidate voters because, in the words of Al Zarqawi, democracy is toxic to their flavour of Islamic teaching. Bush is betting on that being true, which is why he reversed decades of American policy promoting stability in the Middle East through dictatorship and embraced instability through voting.

Voting will not solve Iraq's problems. On Feb 1st, the day after the polls, Iraq will not become rich, or enlightened. Voting will, however, give Iraqis someone near to blame for their lot instead of letting them fester in the paranoid conspiracy theories that are common in the Middle East. Pakistan tried democracy a while ago and ended up with two kleptocrats who looted the country every chance they got. Musharraf's coup was a blessing in that it brought better governance to the country. But now he's made it clear that he's not going anywhere, and the Islamic parties who have never done very well in Pakistan are now on the rise.

Movie Recommendation

I saw Shaolin Soccer last night and thought it was fantastic. Kung Fu and soccer -- why has this not been done before?

Are blogs overhyped?

Considering the amount of blog-related bleating we've had to sit through, first on blogs themselves, and now on other media outlets, the answer has to be yes, yes, now please make it stop! But I find this Slate article tone deaf on the reality of what traditional media and traditional blogs actually do.

To wit:

Michael Shamberg and a clutch of other video visionaries from the Raindance Corporation visited my college campus to preach their gospel of the coming media apocalypse. Waving a copy his book Guerrilla Television, Shamberg prophesied that the Sony Porta-Pak?an ungainly video camera wired to a luggage-size tape deck carried over the shoulder?would herald a media revolution greater than the one fomented by Gutenberg's moveable type.

Once the People got their hands on the video power and started making decentralized, alternative media, the network news programs would collapse under the weight of their own lies, Shamberg said. The Hollywood industrial entertainment complex was going down, too, man, and would be replaced by street stories recorded by Porta-Pak-toting freaks. The multiplexes out by the freeway would be shuttered and sold to neighborhood theater groups...

The premature triumphalism of some bloggers indicates that they haven't paid attention to how Webified journalists have become. They also ignore media history. New media technologies almost never replace old media technologies, they merely force old technologies to adapt and find new ways to connect with their audiences. Radio killed the "special edition," but newspapers survived. When television dethroned radio as the hearthside infobox and cratered the Hollywood box office, radio became a mobile medium, and Hollywood devoted itself to spectaculars that the tiny TV set couldn't adequately display. The competitive spiral has continued, with cable TV, VCRs and DVDs, satellite TV and radio broadcasters, and now Internet broadcasters entering the fray. The only extinct mass medium that I can think of is the movie house newsreel.

Has anyone actually tried to make a movie? Video is a very very difficult medium to create, and it is even tougher to edit and produce with any sort of production value at all. It is unsurprising that handycams haven't replaced the Hollywood movie. It is also unsurprising that reality TV has become, and I think will remain, so dominant--the low cost production with professional editing and drafting make something competitive with scripted dramas.

Blogs on the other hand are extremely easy to make, and their production value is on par with professional sites. This means that their quantity will be great, and with enough quantity, quality will eventually emerge.

The article completely misses the boat on the next point:

When the Times' Abramson asked rhetorically if the conference bloggers had any idea how much it cost to maintain a news bureau in Baghdad, the supreme confidence of a couple of bloggers fractured into petty defensiveness.

"That's a silly question!" snapped Winer. "Asking bloggers what this costs is silly. If you want to tell us what it costs, that's fine. ... But there are bloggers in Baghdad! That's your competition; that's what you have to deal with."

With the exception of the "metro" section reporter covering a 12-car pile-up on the freeway, I think most practicing journalists today are as Webby as any blogger you care to name. Journalists have had access to broadband connections for longer than most civilians, and nearly every story they tackle begins with a Web dump of essential information from Google or a proprietary database such as Nexis or Factiva. They conduct interviews via e-mail, download official documents from .gov sites, check facts, and monitor the competition?including blogs?the whole while. A few even store as a "favorite" the URL from Technorati that takes them directly to what the blogs are saying about them (here's mine) and talk back. When every story starts on the Web, and every story can be stripped to its digital bits and pumped through wires and over the air, we're all Web journalists.

If you have ever read an article on a topic that you are knowledgeable about, you will probably find yourself disagreeing with the article. The writer, who probably did some research, simply cannot manage the level of expertise that a true expert can and so will probably get things wrong. This is not to say that experts are always correct, but experts arguing is usually more interesting than dilettantes arguing, and that's all that journalists can be.

Blogs let the expert voices be heard, and dilettante voices look really amateurish next to expert voices. The threat blogs post to professional media is that it makes them look like they don't know what they are talking about, which undermines their authority and credibility.

The point on the expense of running a Baghdad bureau is important, but not in the way Abramson thinks. To an Iraqi blogger, the cost of running a Baghdad bureau is zero, and he is likely to be more expert about what's going on than any foreign reporter. Higher expertise. Lower cost. I just don't see what MSM can do.

The author is correct though in noting that new media have never killed old media, they've just added, eclipsed, and overtaken them in importance. Blogs will not replace main-stream media, they will just take the "main-stream" out of it. For those who believe current journalism is an important vehicle for discovering and disseminating Truth, being reduced to just another pampheleteer may seem like a death of a sort.

Disaster Tourists

A remarkable account of how various disaster tourists, ranging from Dan Rather (in disgrace) to Save The Children, World Health Organization, the United Nations, and Indonesian military officers, stayed for free on the USS Lincoln (helping out in Indonesia) and were jetted around by the US Navy. One can single out these individuals for being immoral but I think that's unfair, the NGO/GO world of freedom without consequences would addle any brain and corrupt any soul. (Link via The Diplomad)

How true is this account? I don't know. The UN has a bad reputation for not paying parking tickets in NYC, does this extend to room and board on American aircraft carriers?

Fixing social security

I was talking to a buddy of mine about social security the other day, and he recently heard U Chicago's Kevin Murphy discuss the topic. Murphy's point was that essentially, the problem with social security is that more has been promised to retirees than workers produce.

Therefore, the key discussion on this topic is how to 1) cut benefits and/or 2) raise taxes. Please note how private accounts do not explicitly address either of these points.

Arnold has a run down on different POVs in the Wall Street Journal. Most of them do not explicitly address these points either.

Sony 0, mp3 1

People have often worried that manufacturers will put DRM into their devices. I used to worry about this too, but then figured that people would just not buy devices that had draconian DRM in it. This seems to have played out at Sony, which has finally acknowledged that it's awkward and hard-to-use DRM music players don't sell because they are, well, awkward, hard-to-use, and allergic to mp3s.

I'm interested to see if this announcement heralds intelligent integration between Sony's content and consumer electronics arms, or if Sony's going to stop listening to the content guys entirely and start shipping product that just plays well with all the son-of-Napsters out there. I'm actually hoping for better integration, there needs to be more experimentation in that area.

Posner gives Blink a thumbs down

U Chicago's Judge Posner is unimpressed by Malcolm Gladwell's new book, Blink. His review is also funny.

Gladwell also discusses alternative approaches in dating. (The procession of his anecdotes here becomes dizzying.) One is to make a list of the characteristics one desires in a date and then go looking for possible dates that fit the characteristics. The other, which experiments reveal, plausibly, to be superior, is to date a variety of people until you find someone with whom you click. The distinction is not between articulate thinking and intuitive thinking, but between deduction and induction. If you have never dated, you will not have a good idea of what you are looking for. As you date, you will acquire a better idea, and eventually you will be able to construct a useful checklist of characteristics. So this is yet another little tale that doesn't fit the ostensible subject of his book. Gladwell does not discuss "love at first sight," which would be a good illustration of the unreliability of rapid cognition.

Social Security Stuff

When people write about social security, they often make many mistakes. I certainly did, when I mocked a 50 year projection as being meaningless because 50 years is a long time. Brad DeLong wrote back and housed me, pointing out that the demographic models used in 50 year projections are actually pretty well understood. So i stand corrected. Brad also had a cautionary note on how getting snarky in defense of/attacking certain political segments erodes one's reputation, a principle that Brad threw to the wind deciding that the joys of paddling in Krugman's fever swamps outweighed the fact that he's viewed as yet another partisan hack from Berkeley, but hey, I don't judge.

Winterspeak reader JS wrote in in response to another SS post of mine saying:

So I looked at my case [wrt SS]:
I am 62 and started receiving SS. My wife and I total contribution to SS is $89,080. The company had to pay an equal amount for a total of $178,160. If I had invested this money at the risk free 10 Year Treasury Note. We would have $ 591,547 today. Our life expectancy is age 85 and 88. If we keep this money invested in the long bond at 5.75% and live until 85 and 88; we would receive an average of $24,972 per year. For a total of $749,156 plus have $276,776 left over for a total of $1,025,932. All in 2005 dollars.

Social Security will pay me $16,500/yr (adjusted for inflation) and my wife $7,512/year starting in 2008. If we live until 85 and 88, the total we receive in 2005 dollars is $623,026.

So $1,025,932 vs. $623,026.

If one views SS as a investment (an instrument for accruing capital gains), then the current program is a big time loser, especially for young people now who are not going to see any money come out of it. But I don't think SS should be viewed as an investment, I think it should have 2 components, one of which is compulsory savings scheme and the other is insurance against poverty in old age.

I actually support forced savings because I think people's savings decisions are not rational. I know this is not a very Chicago thing to say, but it's the position I'm taking anyway.

I also think that poor people should have government transfers because they are poor, fully cognizant of both the skewed incentives such transfers create (they reward reckless behavior) and because of the broader soceity-wide economic stagnation that comes with high marginal tax rates.

But I'm not sure why a "help the poor" needs to be in any way seperate from a "help the old", which is what SS advocates (who seem to consist entirely of Bush-hating sore-loser Democrats) seem to stress, even though social security benefits rich people much more than poor people.

Arnold Kling and Max have a celebrity death-match around SS, with Arnold taking the "fix a bad system" approach, and Max taking the "SS is fine/even if it is not fine Bush will make it worse/fix other things first/the Iraq war was wrong/incentives do not effect behavior/Bush=Hitler" position. Am I being uncharitable to Max? Maybe, but you can judge this for yourself:

The prime objective is to ensure retirement with dignity, which means a standard of living that reflects economic progress in general, not one that confines retirees to second-class status. In effect, you describe this as "an extra scoop of ice cream." I would say the incessant yowling of the right for ever more tax cuts to finance obscene levels of crony-capitalist waste and conspicuous consumption deserves the highest condemnation of a humane society. But that's just me.

You finally come around to the topic of transformation to a funded system. But you fail to integrate it with the problem upon which you dwell -- the program shortfall. And indeed you cannot, since it is an irrelevance. If we were starting from scratch, perhaps we would not construct a pay-as-you-go system. But we're not, so all the speculation about pre-funding has no purpose, other than to distract from the Bush administration's desire for Draconian benefit cuts.

I come back to the points I made in my previous post, which you ignored: Social Security is the wrong crisis, in the wrong place, at the wrong time.

I actually think that the Bush=Hitler psychosis that has gripped Democrats should embolden those who want to reform social security. The opposition will be blinded by their own froth.

If you want a very good discussion of the ins and outs of SS, and the impact (negative and positive) that SS has wrt to welfare and economic growth, I recommend this excellent (long) paper from Martin Feldstein on reforming social security. Not frothy at all.

James Surowiecki and Malcolm Gladwell

Slate has a good back-and-forth between James Surowiecki and Malcolm Gladwell, two of my more favorite author/thinkers. They write about Surowiecki's The Wisdom of Crowds, which details how aggregating many independent decisions produces outcomes better than expert decisions, and Gladwell's Blink, which outlines how split-second gut feelings are almost as good as-or better than- deliberation.

As the discussion outlines, the specifics of the situation are important to which effect, if not both, take precedence. I think the specifics of the specifics matter even more, the *types* of environmental factors that matter aren't the ones we think of first (is the person an expert, is the situation clear), they are more structural (what incentives undergird the committee, both personal and institutional etc.) And if you add behavioral economics to the mix, you have systematic bias (probably biological in origin) which would probably remain even after you have aggregated decision making and expert gut-checks.

As I'd discussed on this blog before, I think that our cognition is an artefact of our neural biology, and therefore its strengths and (systematic) weaknesses must ultimately be explained by biological processes instead. Trying to model cognitive bias through behavioral economics + aggregate decision making + gut checks is like throwing three laundry lists into a kitchen sink, too long and too unsystematic to have useful explanatory power. I think that biology is going to ultimately sort this stuff out, and I look forward to progress in that arena.

Marketing in Technology

Marketing is the red-headed step child of the technology world. It doesn't bring in money, like sales, it doesn't understand the technology, like engineering, and it seems soft and addled to anyone who looks at it, unlike finance. To some degree this is fair, the Marketing departments of most technology companies are soft and addled and do little to bring value to the company.

One exception is Apple. Their two new products in yesterday's Macworld are triumphs of marketing. Not engineering, not sales, not design, not usability, but marketing.

First, consider the iPod Shuffle. Flash drive mp3 player with no screen -- you just put in your 120 songs and it plays them back randomly. This was driven by the marketing insight that many iPod users just set their machine on random play, something that I do all the time and that I may have commented on on this blog. My brother is considering an iPod and rejected the Shuffle because he "wants control over his urban audio experience." Picking the songs and letting the machine go through them randomly is a great way to get a good "urban audio experience" but since he has never actually owned an iPod, he does not know this yet. Hmmm, I wonder if the iPod Shuffle market will be limited to joggers and those who have already owned an iPod and know how well the random playlist feature works?

Secondly, consider the Mac Mini. $500 to get OS X and storage. Again, this is driven by the marketing insight that the PC market is saturated, many PC owners aren't going to switch but may augment, and that they already own a monitor, keyboard, and mouse, but may be short of space on their desk. There is no new technology in this tiny marvel, just very intelligent feature editting and pricing.

Great stuff.

Gitmo

I struggle to combine this post by Jane Galt on bad things you can do to prisoners that is not torture

The reason that we shouldn't do it is not that it doesn't work; it's that it's wrong. The catholic church has a special category of sins called (IIRC) "sins that cry out to heaven for justice", and if torture isn't one of them, it should be. Yes, if there were a nuclear bomb set to go off in midtown Manhattan, and we could find it by torturing a terrorist, I'd probably want the CIA to go ahead and do it. But as Glenn Reynolds once pointed out, no matter what rules we make, if there's a nuclear bomb set to go off in midtown Manhattan, and we can find it by torturing a terrorist, the CIA is going to go ahead and torture him no matter what rules we make. Legitimising torture, morally, legally, or culturally, is not for the extreme cases; it's for the everyday ones. And I don't think America is, or should be, the kind of country that makes everyday use of torture.

But having ruled out torture, we need to set the limits of what we are willing to tolerate in the pursuit of information. Some of the things that MacDonald cites sound perfectly ridiculous: interrogators aren't allowed to bribe captives with chocolate, or a view of the sea, or switch them from hot meals to MREs. Is making people stand up, or kneel, for hours, acceptable? Making them hot or cold for the duration of the interrogation? Putting a Mickey Mouse mask on them and singing "It's a small world after all" for days (although, come to think of it, I'm sure "It's a small world after all" must be banned by the Geneva accords). Many of these things are forbidden by Geneva, but they don't seem to me to obviously fall into the category of grossly inhumane treatment; they fall into the category of "things I'd rather not have happen to me if I'm taken prisoner, and thus will forgo doing to the prisoners I take." But of course, the enemies we are pursuing have no interest in reciprocity, which is the heart of Geneva; if one agrees to behave nicely unilaterally, one has no lever with which to ensure that one's soldiers are treated decently, thus possibly increasing, rather than decreasing, the net amount of suffering in the world. That is before we take into account the fact that some of our captives may have information regarding plans to slaughter innocent civilians (though of course the likelihood of this declines with each passing year).

Where do we draw the line? What are the things we will do only if they're reciprocated, and what are the things we will never do, because they are too horrible?

and this post by her in the comments section:

Second, the issue is not whether each side has rigorously hewed to the letter of the Geneva Convention; in no war in history (nor, I suspect, in the future) has either side gone without violating the conventions, some in fairly horrific ways (civilian bombings, the Bataan death march). But we're fighting an enemy which hasn't signed the damn thing, and whose standards for taking and treating prisoners is not merely well below those of the Geneva accord; not merely well below the standards we are already using; but totally incompatible with basic human decency--in no place is the kidnapping and execution of journalists or humanitarian workers allowed by the law of war or minimal standards of morality. Faced with an enemy who is clearly uninterested in the Geneva accords, it is appropriate to ask which provisions are just basic humanity (don't put their eyes out a la that Byzantine emporer), and which are just nice extras (hot meals). If you think that reciprocity is irrelevant, I suggest you go look at what happens, in either game theory or history, to actors who unilaterally commit to taking certain sanctions off the table. If you can find any left alive.

Yes, I am also advocating unilateral committments to things like not mutilating prisoners. But at least I have the moral courage to recognise that the price of my committment may be lives lost.

Third, there are very, very good reasons that Geneva protections are denied to those who masquerade as civilians, target civilians, use churches and civilian buildings, or civilians, as shields for their military forces, or otherwise violate the definition of lawful combatants in the Geneva accords--and those good reasons are not that I voted for George Bush the second time round. Those provisions are designed to protect civilians, by making it unprofitable to endanger civilians either as camaflouge, or as a propaganda tool through forcing the enemy to target them in order to pursue the battle. While superficial reasoning convinces advocates of a "unilateral Geneva" that they are occupying the high moral ground, it is their position that results in the greatest harm to the greatest number of innocents.

A willingness to unilaterally agree not to do bad things to prisoners because they are too bad makes it easier for prisoners to resist interrogation because they know if they hold out they will be fine. The consequence of this will be the same as the consequence of having poor intelligence, which are visible every morning when we tune into the news in Iraq. The Belmont Club makes the plain statement that America is not out gunned in Iraq, but short on Iraqi speaking spies that can infiltrate local communities. The assertion that I have seen some make ("we need more boots on the ground") smacks of the typical ignorance common on committees and those who have never actually had to do anything.

Given that the violence in Iraq is due to a shortage on human intelligence, limiting intelligence gathering further through banning coercive interrogation techniques (also known as torture) means that American self-image and Iraqi lives have been weighed in the balance and the lives just didn't seem to make the cut after all. This is no skin of my nose since I am not out there personally, but I must admit, the morality of the "no prisoner abuse" position is lost on me even as the ickyness of it all is not.

It's also worth noting that if we currently feel the balance between coercive interrogation and not being mean is OK, that balance will change after the next 9/11, and not in the direction that those concerned about human rights would hope for.

If you wouldn't buy it, sell it

A well known issue in behavioral economics is the observation that investors tend to hang-on to low preforming stocks for too long, while selling winners too quickly. The idea seems to be that a low performing stock will turn around someday, and then can be sold for a smaller loss, or maybe even a gain.

U Chicago behavioral economist, Dick Thaler has a rule of thumb for how to think about stocks and their prices: "if you wouldn't buy it, sell it". In other words, if you would not buy a stock at a given price, and you own some of that stock, then you should sell it. Don't hang on to losers.

Today I did two things I usually don't do. Firstly, I picked up a copy of the New York Times, an excerable publication that I find poorly written (too long winded), short on facts, and sloppy in its analysis. The back page had a long article about how Social Security was OK and should not be changed, but I skipped it because I think the current social security system is a loser. (Note, I don't know if the Bush plan will end up being a loser too, or not). Secondly, I went to talking points memo where, surprise, Josh as adding echoes to the chamber by praising that same article and saying the American Academy of Actuaries agrees too. No actual arguments, just assertions. *Yawn*.

In the spirit of letting your losers go, let's think about what a pension scheme would look like if one were to design it from scratch today.

1) People would be forced to save through their working lives. I know, I know, it's wrong to force people to save, but hey, people are also (irrationally) bad at saving. If you really want, I would let people opt out of this if they wanted. But the default ought to be "you save, unless you opt out" instead of what exists right now, i.e. "you don't save, unless you opt in."

2) People's forced savings should be put into a passively managed, massively indexed fund. Index it to Wilshire 5000, bonds, international instruments, etc. The object is largest diversification, lowest cost.

3) When people retire, they can tap their forced savings fund--it should probably act as some sort of annuity so the money comes in installments. Third party options to take the cash out as a lump sum will probably spring up, but this should not be the default.

4) People can retire when they want, but not before a certain age, like 70 (I'm not sure about this one).

5) Poor old people should get welfare. I'm not sure if the money poor old people get for being poor should be any different from the money poor young people get for being poor, because being poor is being poor. I don't know welfare law well, but I believe that under Clinton your benefits get cut if you don't go back to work. Clearly, this should not apply to old people.

6) When your fund runs out, you start qualifying for poor old-person welfare.

7) Poor old person welfare should be paid out of general tax revenues.

Now let's compare this to the current system.

1) People are currently taxed through their working lives though FICA. FICA is a tax because money is taken from you for government services which you may or may not receive in the future, depending on what happens. You can't rely on social security. You can rely, however, on whatever pool your forced savings have built up which means this is not a tax, it is just defered consumption. Taxes retard economic growth and make us all poorer. Defered consumption does not.

2) People's savings payouts are currently determined by the whim of Congress and the pressure the electorate puts on it for lower taxes. The "social security fund" is just spent out of current government revenue, and so is just part of general government spending. Capital accumulated in a forced savingd account would go to work in actual, real financial markets, filtering down to real companies making real investment. This is probably a good thing, although it is not clear how good.

3&4) The current structure makes people retire too early. Today's "old" are really "old young" by their physical fitness level. They can still work, so they should. If they really want to hit the golf course early, that's fine, but it should come out of their pocket.

5) Currently, all old people get welfare, poor and rich. Also, all young people get taxed to supply this, poor and rich. This means that poor young people are being taxed to pay rich old people to pay golf. I understand why Republicans might think this is a good idea, but I don't know why Democrats are in support of it.

6) Currently, you get old-person welfare no matter how much money you have. Again, a transfer from the poor to the rich.

7) FICA is a regressive tax structure because it caps out at some level of salary ($80,000 or something). And it only comes out of wages, avoiding consumption, capital gains, etc. So, poor wage earners pay for social security, instead of rich capitalist people, like Teresa Heinz Kerry and George Soros. Why the Democrats seem so attached to the status quo, I don't know.

It is quite possible that Bush's plan won't hit any of the features I've laid out in my wish-list, and his proposal may be worse than what exists now. But what exists now is not what anyone would have come up with if they were starting from scratch today. Remember -- let your losers go.

My plan fixes the redistributive and incentive problems the current system has, and makes it more progressive. It also reduces the government's liabilities by reneging on promises to pay rich people social security, and it would raise taxes on rich people who currently cap FICA out. OK. As the conservative (cling to the past) NYTimes and Josh Marshall point out, the problem is a fiscal imbalance one, which means a solution has to involve some mix of cutting benefits and increasing taxes. But why fight cutting benefits when rich people are getting benefits they don't need? And why raise taxes when you can cut benefits to rich people (that they don't need) first?

The current social security system is un-Democratic in that it is quite regressive, moving money from young, poor people to less-young, rich people. It also happens to be broken. An opportunity has appeared to fix this, and instead of weighing in with appropriate, redistributive suggestions, the Democratic party seems to be denying a problem even exists. This is a missed opportunity, and it's sad. I guess extreme consevatism is what happens when you are the party out of power.

Jane Galt has related thoughts here
Arnold Kling has related thoughts here

Microsoft drops Hailstorm

It seems that Microsoft has dropped Hailstorm, the authentication level control point that was enable Microsoft to conquer the web (and then the world). I remember when people thought Hailstorm was a diabolical big deal. I used to think it was a diabolical big deal. This lead me to write many stupid things about Microsoft. Hailstorm was a secret plot to extend Microsoft's desktop operating system into the web, but it seems that the web has extended the network operating system into the desktop instead.

I don't care much about Microsoft any more. I admire their ease of use (after working at IBM you learn that Microsoft is very easy to use). I admire the way they've made computing cheap, and spread this ease of use to many (in a way Apple, forever the niche player, never has). I hope they continue to innovate and make good products, but if they don't, that's OK too. Thanks to the web, we've all got options.

Happy New Year

A very happy new year to all winterspeak readers!