Monthly Archives: April 2013

The Current State of Economics

Easily summarized by a quote from my econometrics book (Introduction to Econometrics, third edition, by Stock and Watson):

“Rather, the slow rise of inflation is now understood to have occurred because of bad luck and monetary policy mistakes…” [my emphasis]

When you have to appeal to bad luck to theorize causality, you know your “science” is not doing very well.

Nope, That’s Not What Price Elasticity Means

I’m taking an Information Systems Management course. One of the textbooks (Information Systems: A Manager’s Guide to Harnessing Technology, v.1.4 by John Gallaugher) has been fairly good up till now.

It states:

“When technology gets cheap, price¬†elasticity kicks in. Tech products are highly price elastic, meaning consumers buy more products as they become cheaper.”

In Austrian economics, the law of demand states that individuals will buy more as goods become cheaper, ceteris paribus. Of course, even in neoclassical economics, the law of demand states the same thing, with certain exceptions.

Price elasticity (of demand) refers to the % change in quantity divided by the % change in price. If the resulting calculation is less than -1, it is price elastic. If it is equal to -1, it is unit elastic. If it is between -1 and 0, it is price inelastic. High price elasticity would refer to an elasticity that is in the <-1 range (a large negative number).

So in layman’s terms, what exactly does this mean? For a given percentage change in price, the percentage change in quantity demanded will be very large. So for small price shifts, you can expect big changes in quantity demanded.

In other words, a fixed (yet imprecise, but I could live with that) version might say “When technology gets cheap, price¬†elasticity kicks in. Tech products are highly price elastic, meaning consumers buy many more products as they become cheaper.”

I often have minor quibbles with textbooks that I decide not to post about, but this is something easily fixable with a few more words. The difference between high price elasticity and the law of demand is something that not just economists should be aware of, but something that managers should as well, if they’re going to be taught about it at all.

Take Some Time Off to Contemplate

I’ve gone through most of my life in auto-drive mode. I didn’t think much in terms of “is this really worth it?” or “is there something more fundamentally necessary that I should be allocating my time toward?” We all have to allocate our time, a scarce resource, to particular ends that we choose. And sure, we do this on a daily basis; e.g. do I really want to do this assignment or should I go and play pingpong instead? But up till college, I had never really considered these type of questions on a more fundamental level. “Is my time worth doing this at all? Could it be a complete waste in the end?”

I consider myself lucky. When I fell ill two years ago, I found some answers that I may have not found otherwise. Two things really pop out to me. The first is Austrian economics, a deductive method of economics that teaches us a lot about the world, even if only with its simplistic truths. For example, ex ante, two individuals that exchange different goods voluntarily both gain. This is fairly indisputable, and knowing such obvious truths allows us to build a base of knowledge with which we can expand on top of. Most people don’t spend much time scrutinizing their base. They simply take it for granted (and once again, go into autodrive mode).

The second is pai-da/la-jin. Because I was ill with a disease contemporary, mainstream doctors could not cure, I was in a sense, forced to try something I may not have tried otherwise. Now I’ve found something that can help with almost all deficiencies in human health, and once again, it is simplistic. In fact, it’s something you could teach someone in a minute.

Unfortunately (? or maybe fortunately), what I’ve realized is that the base probably extends even further below. And so I have to keep scrutinizing it. While auto-drive is useful for many activities, there are points where we have to sit back and think: examine our lives and asks ourselves questions we have been avoiding. We may not always come up with precise answers. In fact, precise answers are usually the exception.

Why do we avoid these simple questions? As mentioned before, sometimes we are constantly doing activities and the thought never reaches us. But sometimes we are also scared of the answer. “Well, I don’t want to realize the last 10 years of my life was a waste so I’m just going to avoid thinking about this.” No! Don’t fall into this trap. Experiences are rarely useless. I only say rarely because I am uncomfortable using the absolute “never.” You can almost always find ways that experiences have benefited you. The only reason you think it’s useless is because the experience is useless with your original purpose in mind. For example, if I learned to be a mainstream economist, and then found Austrian economics 20 years into my career and thought its simplistic truths actually had more explaining power than mainstream models, I might initially feel as if my investment into mainstream economics was a waste. The original purpose was to explain certain occurrences in the world, e.g. exchange, prices. etc, and basically all of my learning for that purpose is now a waste. But this set of skills and experiences can be used in other ways. You could use your knowledge of mainstream economics to argue against it for what you now believe is true. You could use your hard work and the ability you developed in writing and teaching to now spread Austrian ideas. There are many other possibilities, but this is for you to think up for your particular situations.

Rousseau Blowing Up the “Right of the Stronger”

I really enjoyed this passage when I read it a year ago in David Gordon’s Political Thought Through the Ages course; while re-reading it for my Political Philosophy class in college, I realized my appreciation for it has not swayed one bit.

The right Rousseau is discussing is the “right of the stronger,” a claim that morality is derived from the greater force.

The following is from the Cambridge edition, edited by Victor Gourevitch.

But will no one ever explain this word to us? Force is a physical power; I fail to see what morality can result from its effects. To yield to force is an act of necessity, not of will; at most it is an act of prudence.

Let us assume this alleged right for a moment. I say that it can only result in an unintelligible muddle. For once force makes right, the effect changes together with the cause; every force that overcomes the first, inherits its right. Once one can disobey with impunity, one can do so legitimately, and since the stronger is always right, one need only make sure to be the stronger. But what is a right that perishes when force ceases? If one has to obey by force, one need not obey by duty, and if one is no longer forced to obey, one is no longer obliged to do so. Clearly, then, this word “right” adds nothing to force; it means nothing at all here. (Rousseau, The Social Contract, Book 1, Ch.3)

It’d be an interesting argument if someone contended morality existed but immorality didn’t. I have not seen such an argument and don’t know if it can be made. Nevertheless, any one that accepts the existence of both morality and immorality logically cannot propose that force creates right.

For proof, consider the following: if you are forced to do something, by definition, you had no choice in the matter. If force created right, then your forced action was also moral.  However, the absence of choice means that you cannot be immoral! Thus, the right of the stronger eliminates the possibility of immorality.

Cenk Uygur Unknowingly Proves His Hypocrisy While Attempting to Disprove It

Here

In a video about gun control laws being introduced in Colorado and Connecticut, Cenk reveals his support for them. In many videos before, Cenk has backed state laws for marijuana but has simultaneously called gun control nullification laws unconstitutional. So he has received a lot of flack from me and others for this apparent inconsistency.

In this video though, he states:

Now, of course, by the way, unlike the hypocritical right-wing, I have always maintained that states’ rights depends. Now if you’re doing experimentation at the state level that does not take away fundamental rights, absolutely, of course you should do experimentation. That’s part of the genius of the founding fathers. Now you can’t take away people’s fundamental rights away. You can’t say “alright, well this is Connecticut, so I’d like to, you know, say that Chinese people don’t have constitutional rights anymore.” Of course you can’t do that. Now I know that some gun rights advocates will say, well, the second amendment’s a fundamental right, but there’s never been an argument made that you can’t regulate it in any way, shape or form. Even the first amendment, which is a fundamental right has some regulations. You can’t yell fire in a crowded theater. So experimenting at the state level with incredibly lax gun control and strict gun control laws makes sense.

So let’s think about this for a second. Cenk thinks state experimentation is fine as long as it doesn’t take rights away. If that’s the case, then the recent states that have nullified federal gun control laws should be completely fine by him. After all, as his last sentence shows, he thinks that some states should have lax gun control laws and others should have strict ones. But the recent nullification proposals were not fine by him. In fact, he reacted extremely emotionally against it.

Fortunately, for Cenk, I can actually think up an answer for him to this from watching previous videos (e.g this and this). Cenk could say, he likes state experimentation, but he also doesn’t want them to come into (real, violent) conflict with federal authorities. So extending this possibility to marijuana, he might say he doesn’t mind states legalizing marijuana, but he doesn’t want them arresting federal agents who try to enforce federal marijuana laws within those states.

So that seems sensible. Has Cenk been acquitted of his hypocrisy?

In fact, no he has not.

Let me explain. According to Cenk, he is for state experimentation as long as it doesn’t take away rights. Let’s say the federal government passes a law regulating cigarettes to a high level. Even if a state passes a law regulating cigarettes to a lower level, it, by the fact of the stricter federal law, is as if there is not even a state law. There is actually no state experimentation, because Cenk says federal law trumps state law. At least that’s how he wants it to be.

Cenk says he likes state experimentation when it comes to marijuana and even gun control now! But this is actually not true. Cenk only likes state experimentation for marijuana and not for gun control. He is in fact, unintentionally deceiving both himself and others.

This is clear because he 1) does not want the current federal marijuana laws and 2) wants federal gun control laws. In other words, he wants state experimentation for marijuana but does not want state experimentation for gun control, as is evident from his claim that federal law trumps state law.

What is our conclusion then? Cenk wants states’ rights for issues he agrees with and doesn’t want states’ rights for issues he disagrees with.

If what I have explained went over your head, let me try to summarize it. Cenk believes in state experimentation, but only under a framework of “federal law trumps state law”. Therefore, he can claim to be for state experimentation everywhere, but at the same time, desire for there to be lots of state experimentation only in some areas and practically none in others. This is evident from the fact that Cenk supports federal marijuana legalization, but wants harsher federal gun control laws. The harsher federal gun control laws get, the less state experimentation in gun control there is, and this is what Cenk really wants. If he actually wants state experimentation and a respect for states’ rights, he must be for lax federal laws not just for marijuana, but for gun control as well.