Innovation vs Regulation

Alex T has some interesting things to say about innovation and regulation:

There are good regulations and bad regulations and lots of debate over which is which. From an innovation perspective, however, this debate misses a key point. Let’s assume that all regulations are good. The problem is that even if each regulation is good, the net effect of all the regulations combined may be bad. A single pebble in a big stream doesn’t do much, but throw enough pebbles and the stream of innovation is dammed.

Building in the United States today, for example, requires navigating a thicket of environmental, zoning and aesthetic regulations that vary not only state by state but county by county. If building a house is difficult, try building an airport. Passenger travel has more than tripled since deregulation in 1978, but in that time only one major new airport has been built: Denver’s. That airport is now the fourth busiest in the world. Indeed the top seven busiest airports are all in the United States, not so much because we are big but because without new construction we are forced to overcrowd our existing infrastructure. The result is delays and inefficiency. Meanwhile, China is building 50 to 100 new airports over the next 10 years.

It would appear that regulations intended to keep life from getting worse might also keep life from getting better. I wonder if someone has suggested a way of prudently judging the regulation/innovation trade offs.

Image by Flying Cloud via Flickr

There must be some idea more nuanced than “all regulation is good” or “all regulation is bad”. Today, it looks like we’re flying by the seat of our pants.

Economics and Investing

It is rare to see a good article that examines the topics of economics and investing. This is the exception. It seems to me that most economists have a weak understanding of investing and most investors have a weak understanding of economics. It’s discouraging, but not as discouraging as listening to politicians who have little clue about either or, even worse, business and taxes. The world is awash in misinformation and misunderstanding, not to mention confusion about short term and long term impacts. Admittedly, this stuff is complicated and requires extensive study. Politicians probably don’t have the time. But it is better to stay silent and be thought a fool than open your mouth and prove it.

Some Eurozone Thoughts

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People are getting pretty annoyed with the never ending struggle to fix the economic and financial problems of the Eurozone. I liked this quote:

These two quotes from the IMF actually point to the problem itself: the belief that technocrats can “run” an economy. These statements are almost nonsensical when you think about it: if they could do these things they say that need to be done, why haven’t they already done them, and if they have done them, why haven’t they worked?

The Daily Capitalist

Ouch. The problem is really pretty simple: you can’t live above your means forever – eventually you have to pay the piper, which means living below your means for long enough for things to balance out. This ain’t rocket science. Tyler Cowen gets it right:

When it comes to “failure to remedy the euro crisis,” as opposed to initial causes, let’s look long and hard at “unwillingness to consider solutions which admit that citizens’ standards of living will fall.”  That’s not socialism, but it is one pernicious form of modern interventionism and you will find it very much here in America too.

It’s the last part that’s worrisome.

Related articles

• IMF slashes world outlook (business.financialpost.com)

Economic and Financial Future

Folks on the left are very concerned about income inequality and low intergenerational mobility (it’s hard to get rich if you start out poor). Folks on the right are worried about a staggering debt load and out of control spending on social welfare programs. It looks like everyone is worried about our economic and financial future. What is it about our way of doing things that got us here?

But before we despair too much, we should remember where we are. We are the wealthiest nation on earth and we have the highest standard of living. Most people in this world would gladly change places with poor Americans. Our “way of doing things” has produced not only inequality and scary debt, but also an extremely high standard of living.

I’m not defending the status quo, but efforts to fix things often break things as well, so we should be cautious about changing anything with undue haste. Our ungainly political system usually protects us from hasty legislation, but, as we saw with Obamacare, the occasional concentration of political power produces sloppy legislation. Parts of Obamacare have already been jettisoned as unworkable, other parts are looking dubious, and no one seems totally happy with it. Democrats had a rare opportunity to make big changes and they acted in haste. Should the Republicans take control of government next year, they will be tempted to do the same.

We have plenty of problems that need fixing, but all change is not improvement. For all our problems, we’ve got it pretty good. We need more calm deliberation and prudence and less fiery rhetoric. We will probably be disappointed.

Adventures In Government

Barron’s has an amusing articledescribing some of the history of government “investments”. It’s mostly about the Erie Railroad, which I would hope is no longer controversial. There are countless other examples. Suffice it to say that, as an investor, government tends to do a terrible job. The reasons are fairly obvious. Nevertheless, there are constant calls for more government investment, as if things will be different this time. I’m sure that there are government investments that have worked out well, but the overall track record is poor. Wouldn’t it be nice if we knew more about which kinds of investments were probably good and which were probably bad? Yet I suspect that even if we knew, we’d ignore the facts. For politicians

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, there are a lot more important things than facts.

The History of Banking

Bankers aren’t especially popular these days. If you want to spend a few interesting hours, I suggest researching the history of banking. I just read an analysis of the banking crisis of 1819 and it wasn’t too different from a contemporary account. Spend some time thinking about banking and banking systems. I did, and came to two key conclusions:

1. The improvement of our standard of living requires an extensive banking system.
2. An extensive banking system will, of necessity, occasionally implode and cause great havoc for innocent bystanders.

Reality can be depressing. Banking seems to have a three steps forward, two steps back cycle. Sometimes everything just hums along and we’re fat, dumb, and happy. Then it all tanks and we hold the bankers in contempt. I’m smart enough to see why it works this way, but not smart enough to see how it could not work this way.

As an aside, remembering the banking is essential, how do we get people to be bankers, knowing that they will be reviled and despised? Hint: for enough money, some people will do anything.

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Morality and Economics

More than anything else, economics is a way of thinking that allows us to more fully identify the consequences of actions. It doesn’t take much economic thinking to recognize that most actions have multiple consequences and that some of those consequences are more desirable than others. Some would say that there are good consequences and bad consequences, but that requires a moral judgement that is quite independent of economics. That’s one of my beefs with a lot of practicing economists: they don’t content themselves with identifying consequences, they also weigh in on the desirability of those consequences. At the very least, the two lines of thought should be kept separate.

Politicians are even less rigorous. They think they know what consequences will be mostly judged as good, so they describe their choices and actions only in terms they hope voters will see as “good” consequences. They act as if there are no “bad” consequences. In the real world, there are always trade-offs; in the real world, people will view the goodness of consequences differently; in the real world, most actions have “good” and “bad” consequences. Politicians tend to ignore these real world conditions. This isn’t a beef about any politician in particular: they all do it – and probably wouldn’t get elected if they didn’t. Most pundits are little better.

I would like to see more focus on the consequences of policies with less opining about which are “good” and “bad” consequences. Identifying consequences, or the likelihood of consequences, is tricky enough without overlaying the process with somebody’s moral philosophy. At the very least, we should clearly differentiate between the two in our thinking.

The New Year

By now, many New Year’s resolutions have been broken. That’s one reason I wait, the other being that I’m getting more relaxed slowing down as I get older. Beside that, most resolutions are aimed at the same goal – having a better life. I might want to get this right.

This raises a key question – what changes would make for a better life?

This isn’t a new question. People have been wrestling with this for over a hundred generations. The conclusions drawn from millions of observations are available to us. Yet we are reluctant to tap into this resource – after all, our ancestors didn’t have cell phones or iPads – what relevance could they possibly have?

One of my new year goals is to explore more of the wisdom of the past. Best I can tell, human nature hasn’t changed much. Perhaps we are so busy keeping track of what’s new that we neglect learning what’s important.

We’ll see whether I can really focus more on what’s important (rather than current). As part of that effort, I’m suspending my tumblr activity. Don’t expect this to go fast – my posts may come slower – but hopefully they will also be better!

Progressive Morphing

It seems to happen all the time, but it’s rare to glimpse it while it’s happening. I’m referring to the process of a political progressive beginning to morph into a conservative. I was reminded of that process by this article, wherein a committed progressive is complaining about the ill effects of the teacher’s union in Minneapolis.

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It’s pretty clear that she hasn’t connected all the dots (yet), but I imagine she will.

It’s sometimes seems a harsh awakening to realize that good intentions don’t always lead to good outcomes, using government power to help someone always harms someone else, and that men are not angels. Though it may be harsh, it’s an awakening that needs to be more common.

White Lies, Budget Style

One of my pet peeves is that people use bogus numbers to support policy proposals. By bogus numbers, I don’t mean that the math is wrong (although sometimes it is). Instead, people often use numbers which, while mathematically correct, are extremely misleading. This seems to be a bi-partisan sport. Barry Ritholtz has done a great job of explaining one great stinking example of this: federal budgets as they relate to Presidents. Today, President Obama is the victim of this, but every president in recent history has also been the victim. Like I say, it’s a bi-partisan sport. I don’t know if such perversions of truth actually sway many voters, but it’s easy to do and the partisans are unlikely to get caught in the act. As we all know, voters aren’t very good with numbers.

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UPDATE: It looks like I’m not the only one annoyed by bad numbers!