Wednesday, August 31, 2011

Definitions: Sport

What, exactly, is a sport?

Most people find questions like that to be annoying. Most people's working definition of 'sport' is 'whatever my culture says a sport is'. Definitions are based on tradition or authority. And most of the time, that works just fine. If you say 'sport' to someone in your culture, they will know what you mean.

But anyone with a philosophical or scientific mindset refuses to accept such definitions. We hate it when concepts are vague and fuzzy, and we hate circular logic and answers based on tradition or tacit knowledge.

Also, people probably agree less than they think. Here is a list of items. For each one, think, "Is it a sport, yes or no?"

American Football
Car Racing
Cross Country Running
Horse Racing
Professional Wrestling
Synchronized swimming
Target shooting
Track and Field
Video Games
Weightlifting contests

I am pretty sure that your answers are different from the answers of most people reading this. How would you resolve a dispute?

One way is to identify things that are definitely sports and find their common attributes. There are probably a few things on the list that everyone would agree on. Then, for things that are not sports, analyze their attributes and see what separates them.

My office mate and I have had a couple conversations about this, and I have thought about it while driving. Here is the definition I came up with that we agreed on:

A sport is an interactive, competitive, physical activity.

Interactive means that you and other people are doing things simultaneously, and that it requires the participation of you and the others. If you can do the thing without anyone else and it is basically the same experience, then it is not interactive.

Competitive means that your goal is to win. It also implies that there is a clear ranking, especially a clear winner, and that anyone can tell who it is. If you need a special judge, or subjective judgment calls, to tell you who the best person or team is, then it was not competitive.

When a thing is both interactive and competitive, strategic thinking is required. The appropriate action to choose depends on what the opponent is doing. You have the ability to disrupt your opponent's plan or performance in some way. There are strategies and counter-strategies, offense and defense.

I could have also said "A sport is something that combines strategic thinking and physical activity." but most people do not really understand what 'strategic thinking' is. They tend to think that any careful planning or optimization is strategic thinking, but that is not the case.

Physical activity means that you will improve your performance by training your body, and that some amount of strength, dexterity, and fitness are required to do well.

Each of those three concepts are important; A thing must have all three to be a sport. If it is not interactive, then it is a contest and not a sport. If it is not competitive, than it is a performance and not a sport. If it is not physical, then it is a game and not a sport. Put another way, a sport is a game and a contest and a performance.

Other people might add the requirement that a sport requires teamwork. That is a defensible argument, but I will leave it aside for now.

When you have a definition like this, you need to test it. The most controversial part of my definition would probably be the fact that it excludes track and field events, calling them contests and not sports. I think that this is reasonable. I argue that any event where you show up, do your best at something, and hope that nobody does better than you is missing a key ingredient of sports. There is no interaction, no strategy.

My definition of 'sport' also includes billiards, and if you stretch the definition of physical activity enough, video games. I don't like that. My gut tells me that video games are definitely not sports and that billiards probably is not. I can probably get around this by fine-tuning the definition of 'physical activity' to mean something that requires more of your body than just manual dexterity.

Now, let's compare my definition to Wikipedia's:

A sport is an organized, competitive, entertaining, and skilful activity requiring commitment, strategy, and fair play, in which a winner and loser can be defined by objective means. Generally speaking, a sport is a game based in physical athleticism.

This definition adds several constraints that I feel are unnecessary. 'Entertaining', and 'skillful' are subjective terms, and in my opinion not essential to the definition. I definitely disagree with the 'requiring commitment'. If I play a game of pickup soccer once a year without any training or preparation, then I have still played a sport. 

'Organized' and 'fair play' are qualifiers that I had not considered. I agree that a sport must be bound by a set of rules in order to avoid degenerating into a brawl. I guess I implicitly assumed that. Now that I think about it, my definition does include random fights, which should not be called a sport. I think 'organized' is unnecessary if 'fair play' is included because the key should be the common set of rules that the participants are using.

I also like the 'requiring physical athleticism' qualifier; it works better than 'physical activity'.

So now we have:

A sport is a competitive activity requiring strategy and fair play, based in physical athleticism, in which a winner and loser can be defined by objective means.

I think that any activity satisfying these definitions will also end up being both entertaining and skillful. Does anyone have a counterexample?

Monday, August 29, 2011

Intro Econ Class Notes

Just like I did last year, I am posting student notes from the class I teach for fast content:

Econ 200 Section 2 notes 8/26


Homework Review

What are your most important values? How do they affect your beliefs and actions? (question 3a)

When you analyze economic things, you first have to identify incentives (what you want) and know how it will affect you.  Also, you have to also know how to get what you want.

Economics is the combination of your personal values and facts about the world.  In order to make an action you have to know what you want and the facts about the world.  For example, if you want people to be loyal, you have to be nice and show that you are a friend.  

How would you explain a billion dollars to a young child? (question 3b)

The young child must know what a huge stack of money is so that they can relate to it.  For example, a child does not understand what it means to wrap dollar bills around

You must use some kind of tangible object that a child can understand, such as candy bars, season tickets, or other valuable objects.

Number game (question 6)

Rationality Levels

0: random

1: you assume other people are 0. So the average is 50, so the answer is 25.

2: assume others are 0. So the average is 25 and the answer is 12.5.

3: assume others are 0. So the average is 12.5 and the answer is 6.25.

Hyperrational (equilibrium solution): 0 ß- best answer

As the game continues, people get smarter and become more rational.  In the third rotation of the game, someone will begin to realize that if everyone answers 0, then everyone gets a point.  As the rotations continue, people begin to guess a lower and lower number.

Economics is about what is the societal result from everyone making their own decisions.  You have to begin to understand others' reactions.






1.       Which event in history played the biggest role in shaping our economy today?

Our American Revolution allowed us to escape from the British system of monopolies, cartels and create a more free society.  We were able to form a very different economic society.  We borrow a lot from English culture.  You need a good set of stable rules for a good economy.  The best set of rules usually comes from the bottom up (traditions).  But in some cases tradition is not best, such as in the case of slavery.  

Common Law is where decisions come from the bottom up.  Decisions are made from knowledge that is known in society for many years.  People use their knowledge to try to make decisions that are best for everyone.  New governments are bound by the existing legal system.

Civil Law is where every law is made by a legislature. 

Common law will win.  In our country, the Supreme Court can strike down a decision that goes against the common law traditions of the country.  But, you have to have some change so that you aren't stuck in the same social situations forever.  The United States is more toward the end of common law than civil law on a scale.  Other countries are at different points on the scale and may be civil law countries.

2.       Is a line of credit better for a business then loans?

Yes.  The bank allows you to borrow money if you need it.  It is like a credit card that has a borrowing limit and you don't have to pay interest rates.  You have to have someone check you out and approve you to get the line of credit so you have to pay money for the process, but it saves money for you in the future.

3.       Is inflation part of a strong economy?

The healthiest amount of inflation is about 2%.  There are costs of both inflation and deflation.  When prices changes suddenly it confuses everyone.  You have prior knowledge about how much things cost and have habits, but when prices change unexpectantly you don't know what you should do and what to buy. There has to be some small amount of inflation for wage adjustment.  If you don't pay people based on how much they produce, you will go out of business.  For example, if people produce 1% less, you can cut their pay by 1%.  A 1% cut and 0 inflation is the same as 1% raise and 2% inflation.  Right now our inflation rate is too low.  Hyperinflation is extremely bad, but deflation is also bad.  Central banking is harad because you have to figure out the perfect amount of inflation.

4.       Does minimum wage cause inflation?

When the minimum wage goes up, it does not cause inflation because it does not change the total amount of money in the economy.  It just means there is less money available for other people.  The minimum wage people have more money, but other people have less.  The distribution of money just changes.

MxV = PxY

M=money supply; V= velocity of money (how people spend their money and how quickly the financial circuit puts it back in circulation); P= price level (the consumer price index); inflation= the % change in the price lever (if the price was 200 in one year and 220 in the next year, then inflation is 10%); Y=GDP

In the short-term, the velocity of money has fallen a lot today.  The government has printed a lot more money today to compensate for the lower velocity.  The increased printing leads to increased prices.  We are having a problem because government has not printed enough money and this has caused our recession.

5.       Why does your credit score take a hit when people check it?

It is a sign that you want to borrow more money.  People think that you are trying to take out a lot of loans and that makes you seem like a higher risk.  The more loans you have, the worse your credit score because it seems like you will be paying a lot of other people.

6.       As the economic situation recovers, will it cost us more now or later (cost of living)?

Houses are cheap now so the cost of living is lower.  A lot of people want houses to be really cheap when you are looking to buy one.  People who have houses don't want prices to drop.  An economic recovery can raise the cost of living because what you want to buy will be more expensive.  Recessions are good for people with lots of cash because things are cheap, but not good for people who don't have a lot of money. However, a better economy means you can get a better job and wages will go up.

7.       Is it better to pay of student loans sooner or later?

Should be the last loan you pay off because it is subsidized.  You should pay off the highest interest loan first.  Pay off your credit card, then house, then student loan.  If stocks and bonds start to recover, you can make more money in returns than you have to pay in interest rates in loans.  If the interest rates are lower than what you get in investments, then pay off the loans first.  You want to minimize the interest rates. 

8.       Should the US start selling some of its gold reserves?

Yes.  Anyone with gold reserves should.  Gold today should not be this high.  Economic bubbles are when prices go up really high then go down (what is happening to gold).  For example, real estate prices went really high then dropped in 2008.  Gold prices could keep rising, but will probably drop.  Gold prices go up when there are indication of high inflation, which will not continue in the US.

Suppose that you knew gold prices would keep going up, you would want to hang onto the gold.  But if you had a credit card charging 17% interest, then you should sell the gold and pay off the debts.

9.       Is it better to invest in a house?

There is a huge opportunity cost.  You tie up a lot of money in a house and you have to pay a lot of interest.  You pay the bank a lot to get a loan.  A lot of times you have to buy a house to get into a better school district or raise your standard of living.  You should try to rent if you can because your money is more liquid and not tied up in a house, unless you plan to stay in the house for 10 years.  You should rent and pay off your debts while your money is in the stock market so you will have more money in the long run.  Every time you buy a house you pay a huge transaction price (6%).  People overestimate the benefits of buying a house, and underestimate the costs.

10.   Is uncertainty is killing the economy?

It may be a little true, but it isn't as big as people are claiming.  Investors and businesses hate risks and uncertainty.  People want to know what the economic situation is so that they know what to do with their money.  For example, if there is a risk that minimum wage will go up, then a person would not want to start a business.  You need to know what regulations and prices will be. 


** There are always deeper causes to things.  Always look at the long term.

Wednesday, August 24, 2011

10-and-Under football

There is a small track and stadium behind our apartment, and during football season have junior league football games there on Tuesday nights. These are often interesting to watch. Here are the thoughts that went through my head as I watched a game last night:

Watching little children play football often seems to be a surreal Kafka-style black comedy. Often, more yards were gained and lost due to fouls and errors than actual plays. During one possession, the ball was snapped way over the quarterback's head, and then two defenders broke through the line, so the quarterback had to run back and dive on the ball to prevent a turnover that would have resulted in a goal. Then the offense lost more yards to a foul. Then there was another bad snap just like the first. Then another foul against the offense. At that point, the announcer said, "Third down, and, um, about two and a half acres."

During one play, two players collided with enough force to make an audible noise. I winced at this while most people were cheering, and it turned out that this had caused a minor injury. Both of the players ended up stunned. The tackler got the worst of it, and after a while I saw that he was a tiny little guy. It was kind of surreal. You see this massive helmet, and huge shoulder pads, and hanging from this is a tiny little matchstick arm. The whole thing felt wrong, and I felt sorry for the kid.

Passing and fancy plays never work. Running back or to the side is a sure way to lose yardage. Even if the kid manages to evade one defender, the rest of the people will converge on him. The only way to make a big play is for the ball carrier to charge straight at the defensive line in the confused first few seconds when they are not sure who has the ball, and hope that nobody manages to grab or tackle him. Even if they do, the momentum will usually gain yardage.

But even with the pointlessness and risk of it all, it is a good thing. If not for this activity, they would probably be rotting away their minds and bodies with television or video games. The children are learning how to think on their feet and follow rules and function as a team in a chaotic and stressful environment. I like the way that everyone respected law and order, nobody ever yelled at the referees and it was always made clear that the children had a responsibility to follow the rules. There was very little negativity; the focus was on good sportsmanship and pride in honest effort rather than winning the contest.

Still, I would prefer that our society glorified something other than a brutal zero-sum physical contest reminiscent of tribal warfare. There was a massive government subsidy to this event in the form of the venue and the time of the multiple police officers and EMS people present. In an ideal world, we would be supporting events and contests that build up science or engineering skill.

But human nature is what it is, and most people enjoy football, no matter how pointless and irrational it seems to me. If we are going to have sports like this, then we are doing a good job of accenting the positive and making it a good thing for the participants. I felt like an anthropologist watching an odd tribal ritual, but in the end I liked what I saw. Little league football is a little slice of America, and even with all of its craziness and flaws I feel better about our country after watching those games.

Saturday, August 20, 2011


During parkour yesterday I was jumping from pole to pole and slipped off one of the poles. I sprained my left ankle and scraped my left knee and my right elbow.

I knew that none of these injuries were serious, and nothing actually hurt, but I had trouble moving, as if someone had punched me in the gut and knocked the wind out of me.

After a couple minutes it seemed better so I limped off to rest and get some water. But then something strange started to happen. The muscles in my arms locked up and got really tight and the arms felt like they were going to sleep. The tightness in my forearm muscles caused my hands to be pulled back and the fingers to be curled up up so they looked like the hands of the squirrel.

I gave one of the guys my car keys and asked him to drive the car to where we were and bring me my bread and water, which I had planned on eating after practice.

While he was gone, the numb tingling got worse and spread to the muscles in my jaw. I could only move my arm or jaw muscles with deliberate effort, and then only slowly.

It is a very odd sensation to hear your voice slurred and know that you're perfectly conscious and lucid. It probably sound like I had a concussion.

But the instant I started eating the bread all of these problems started to go away. All of the muscles loosened up and I could move freely again. I felt better even before any food would have a chance to travel down my esophagus to my stomach.

My body must have sensed the cascade of small injuries and assumed it was being mauled by a tiger or something. It was clearly trying to keep all of the blood out of my extremities, and tensing up the muscles to force the blood back into my core.

I am not sure why eating helped so much. We had been going for a full hour of a high intensity workout when this happened, jogging from one obstacle to another and then going up them without any breaks. So maybe my body had low blood sugar. But maybe the act of eating something convinced my body it was no longer in danger.

After I ate and my muscles recoverwd, I started to feel cold. It was easy to warm up by stepping outside.

Luckily my friend and I had carpooled to school from our apartment building in my car. When it was clear that I would be fine he drove me home and I took a hot shower and ate lots of food.

My ankle is still swollen and sprained but otherwise I feel fine now. I should be back to normal in a few days.

At the time, we called what was happening to me 'shock' but now, after I look up the term, I see that it was not. Shock is something different, and worse, caused by loss of blood. I'm not really sure what happened to me, but if anything similar happens to you, be sure to eat something as soon as possible.

Friday, August 19, 2011

Treasure Gathering

I have a kind of a primal need for treasure gathering. This is not treasure hunting; I do not much like searching for things. I mean the process of rummaging through a collection of stuff looking for something good. The most natural expression of this is berry picking. I like picking berries and fruit, and I am good at it. My mind enters a flow state, as I focus on identifying and selecting the best things to pick. But berries are only in season part of the year, and I need to to this at least once every two months. So I tend to go through thrift stores or discount stores looking for deals.

A few days ago, I went to Amazing Savings and saw, to my dismay, that is was closing down. But the good thing was that there was a 2-for-1 sale on everything in the store, so the already low prices were cut in half again. In one part of the store, there was a lot of stock that was not even priced or sorted. I could go through the boxes, and anything I found would be two for a dollar.

As I searched, my mind entered the same kind of flow state that it does when I pick berries. I went through the stuff, setting aside things I did not want and hunting for the treasures. And there were treasures, including five bottles of premium olive oil and two jars of coconut oil. Those seven things alone were worth what I paid for the entire haul.

After some time, I ended up with three banana boxes worth of high-quality food for $53:

Notice the tall stacks of tomato sauce and spaghetti boxes in the back.

I will probably not get a bargain like that anytime soon. But still, it is amazingly easy to acquire stuff for almost no money. Today I went to two thrift stores, looking for a toy plastic bat for a martial arts demonstration. I found one, but I also found a nice aluminum baseball bat, a game with a collection of good riddles and brain teasers, and a good kitchen knife block full of medium-quality full-tang kitchen knives, all for less than $10.

Wednesday, August 10, 2011

Television Review: Mad Men

Recently I watched the first three episodes of Mad Men. It was highly recommended, it seems to be important culturally, and I was curious.

The main thing I noticed was that the producers of Mad Men went out of their way to portray 1960's America as a toxic and brutal place. Many of the scenes seemed specifically designed to shock the sensibilities of a modern viewer. Everyone, including a pregnant woman, is constantly smoking and drinking. There is rampant sexism and racism. Authority figures and doctors constantly behave in disturbing and unethical ways.

These things might have been necessary to be an accurate portrayal of the era. But then there are vindictive little flourishes like showing a child playing with a dry cleaning bag on her head. The mother responds to this by saying "if the clothes in that bag are on the floor, you will be in trouble." Mad Men is full of things like that, scenes that serve no purpose but to scream that the world is different, and worse, than the one we live in today.

Despair and alienation are the major plot themes in Mad Men. The title theme clearly invokes breakdown and suicide. Everybody is shown as miserable and unhappy. The better characters characters suffer nervous breakdowns, develop psychoses, or cope by weeping openly. The worse ones cope with alcohol, adultery, and inflecting petty cruelties on other people. It is clear that everyone is suffocating in a world that is a virulent stew of idle decadence and primitive savagery.

It seemed obvious to me that Mad Men was a deliberate exercise in smug superiority, a way of saying "Look at how horrible things were in your parents' and grandparents' time. We are so much better than that today. Your life might be bad, but there is no way that it is this bad."

And then I go on Wikipedia and read that Mad Men evokes nostalgia, and that people think of the setting and characters as attractive.

It is Gone With The Wind all over again. A moving picture depicts a nasty brutish world with nasty brutish people and the viewers fall in love with the characters and setting. It seems that all you have to do to make people nostalgic for a time period is to put rich, powerful, and/or physically attractive people in reasonably accurate costumes and settings from that period.

It really amazes me how people are hypnotized by superficial things like beauty and power, and how they form positive associations with anything that seems connected to beautiful and powerful people, no matter how rotten it is at the core.

One of the people who recommended Mad Men was my cousin, a very good, high-quality human being. I find it hard to believe that he would like the show. Maybe he likes it because he sees the rot in it and it makes him feel better about his life. But an incident from my past makes me fear that this is not the case.

This cousin's family brought The Matrix to Thanksgiving for everyone to watch, and they all talked about how much they liked the movie and how good it was.

I watched, and was impressed at first. But then the movie got to the bank lobby scene. The movie had already established that everyone they encounter is a real human being, who will die in real life if they die in the simulated world. It has already established that these people have the ability to jump high and climb walls, and that they have access to advanced technology. Their leader is being held captive in the upper stories of a building. Clearly the best thing to do would be to sneak in as covertly as possible to attempt a rescue.

But instead, they gleefully and remorselessly murder dozens of innocent security guards. This action had no tactical benefit. It wasted valuable time and senselessly alerted everyone to their presence. It would have been trivial to bypass the lobby completely, but they felt a need to instigate an act of wanton carnage.

Sometime later, perhaps after seeing all of the shells raining down from the helicopter, I realized that the The Matrix was doing everything it could to make violence appear beautiful. Even at the age of seventeen, I found this disturbing and abhorrent.

Maybe this is a confabulation. My thoughts on the movie probably took a while to crystallize, and are probably influenced by my current beliefs. Memory is a tricky and unreliable thing. but I know that I did not like the movie, that watching it made me feel uneasy and caused me to question the morality and character of my family members who had recommended it.

All of these three cousins are deeply religious, and have jobs or volunteer positions in churches. They are all very good people. And yet they consistently seem enthralled by entertainment with thoroughly anti-Christian moral messages. It is as if they see no connection between their moral beliefs and their entertainment choices. They see no contradiction in consuming and recommending things that are actively hostile to the values they hold dear.

Maybe such things have no effect on them. Maybe I am just being paranoid about the effects of media exposure on attitudes and actions. But I have seen a lot of research showing that these kinds of things do matter, that people's memories and mental associations are changed by the vivid lies of television and movies. It worries me that so many people are so quick to love rotten things for superficial reasons.

Tuesday, August 9, 2011

Movie Review: Gone with the Wind

A friend mentioned popular conceptions of history, specifically Southern American history, in a recent letter, talking about how people seem to glamorize the antebellum period and focus on it rather than other periods of history.

I thought that I had already written a blog post on 'Gone with the Wind'. I was sure that I had written about it somewhere. But no matter how much I search, I cannot find any blog posts, or even emails or notes, about it. Maybe I composed it in my mind and then forgot to actually write it down. That happens sometimes. Or maybe I was talking about it in a conversation, and said these things then. So let me say what I thought I had already said:

I watched Gone with the Wind a few years ago, and I hated it on almost every level imaginable.

Fifteen minutes into the movie, after seeing the depiction of a spoiled, frivolous, idle aristocracy, I was rooting for Sherman to come and burn the entire society to the ground. I wanted something, anything, to end their pointless, wasteful lifestyle.

Then a lot of stuff happens, almost all of which reveals the main characters to be despicable human beings. Their only redeeming feature is a Nietzsche-style will to power that causes them to be interesting and dynamic, if you ignore the innocent people they crush under their heels.

It was obvious that Rhett and Scarlett hated each other, that they were two greedy and amoral people who only entered into the relationship because they thought they would gain personal advantage from it.

After their daughter died, he raped her. There is no other word to describe what happened. I was appalled both by this action, and the movie's insinuation that she was happier as a result. It was almost as bad as the movie's obvious pro-Klan propaganda.

If I did not know the historical and social context, I would assume that Gone with the Wind was a deliberate attempt to make the viewer hate the characters and the society they lived in.

And yet, people love Gone with the Wind. They specifically love the bits that I find most abhorrent, such as the rape scene and the idle parties of the aristocracy. If you take inflation into account, it is still the best-selling movie of all time. Aside from the technical quality of the movie, which is impressive, I cannot understand this. It must have something to do with 'beauty' and 'glamour' and other such nonsense. Or more worryingly, perhaps people identify with and/or idolize the main characters.

It is always hard to tell the difference between a cause and a symptom in cases like this, but Gone with the Wind must be at least partially responsible for people glorifying the lifestyle and culture of the antebellum South. This is a very bad thing, because when people idolize dysfunctional and abusive social systems they are more likely to make bad decisions about how to organize our country in the future. 

The movie's justification of racial violence and marital rape must also be responsible for at least a few instances of those crimes. I have made this comparison before, but Gone with the Wind is much like Triumph of the Will. Both movies have core values of of pure poison, wrapped in an attractive coating of artistic quality.

I support free speech. There should never be any official attempt to suppress anything. But some things are so toxic and harmful that responsible people should caution against them. I would not want my child to watch Gone with the Wind. It has a proven power to be attractive to simple minds, to distort perceptions of history, and to cause people to form positive associations with despicable things.  A young mind should not be exposed to something like that.

For reference, here are some other blog posts I have written about how I dislike certain popular books and movies:

I also hated Avatar, for reasons that are eloquently explained here.

In my mind, the main unforgivable sin in any work of fiction is to distort the consumer's perception of reality. Anything that is very vivid, yet not representative of reality, will permanently distort the thoughts of anyone exposed to it in harmful ways. Jaws is a perfect example. Shark attacks are very rare, much less common and dangerous than things like car crashes, but people who watch that movie tend to think that shark attacks are a much bigger threat than they really are.

Our brains naturally assume that anything we see is an accurate representation of reality. Our emotions and subconscious thoughts do not know how to deal with the vivid lies of movies and well-written books. Whenever you consume any work of fiction, you must constantly remind yourself that it is a vivid lie, something that is not true yet will be easily recalled in your mind. This easy recall of false information will bias your understanding of reality, potentially causing you to make bad decisions.

In most cases, the effect is mostly harmless. But in cases such as 24 making torture look like a good thing to do, society can be actively harmed by fiction that distorts reality. Gone with the Wind clearly fits into the category of harmful, reality-distorting entertainment. It is something that people love, yet it rots their mind away. It is yet another example of a harmful superstimulus.

Sunday, August 7, 2011

Current Events

My mom asked me what I thought of the recent US downgrade and other economic news. So here goes:

The rating on corporate or government bonds is basically like your personal credit rating. For ordinary people, companies, and small governments, the credit or bond rating determines the interest rate they have to pay. That credit rating is the main source of information that investors use when deciding if they want to lend money. 

However, the case of the US government is a bit different. People and institutions often invest in US treasuries as a kind of automatic action when they do not know what else to do. Even with the downgrade, US treasury bonds are the safest investment on the planet. Some large corporations may have slightly better credit ratings, but the market for their bonds is less liquid. That means it is harder to find someone who will buy them. You can literally sell off billions of dollars of US treasuries in a millisecond without really affecting the price you get for them. Financial institutions value that option.

The interest rate that people demand for holding US treasuries fluctuates all the time. It is not like a personal debt, where the rate gets fixed for years. The fluctuations in this interest rate depend more on overall economic conditions and world events than the actions of the government, but those actions do matter and people take them into account. The 'smart money' has already adjusted the interest rate based on the actions in Washington. The downgrade will not affect their decisions, because it gives them no new information.

The biggest affect of the downgrade will be on fuzzy things like 'consumer confidence' or 'business sentiment'. It will make people less likely to invest, which could hurt the economy. Nothing fundamental has really changed, but people are now more aware of the problems that exist.

One of the main problems with our economy is that there is not enough money. The inflation rate is way too low. The money supply in a country depends both on the central bank (the Fed) and the banks. After the financial crisis and credit crunch, the Fed printed a lot of money to make up for the change in bank lending, but it was not enough. We are in danger of a deflationary spiral, just like the Great Depression and Japan in the last two decades. Anyone who complains about inflation is completely out of touch, like a general fighting the last war.

The biggest problem with our political system is gerrymandering. That is the fundamental cause of the dysfunctional behavior. Politicians are not elected by the median voter anymore; they are elected by the median primary voter in a district designed to be full of people of a certain party. Political scientists have shown that congresscritters from the two political parties are getting more and more polarized over time. Their constituencies are actively rewarding them for this kind of ideological posturing, with the result that things start to fall apart.

Now for come practical advice:

The current situation of low returns on investment, lower economic activity, and high energy prices will probably continue for some time. This means that now is absolutely the best time to do things like improve the insulation in your house or get a more energy-efficient HVAC system. If you invest in these kinds of things, you will get a much higher return, in the form of energy savings, than you could get in a bank. Since the construction sector is still really depressed, you can probably get these things done pretty cheaply.

Getting an electric car is probably not practical now, but it will be in a few years. In the meantime, get a tuneup of your car to improve gas mileage.

In general, when shopping around for things, pay a lot more attention to total cost of ownership, of which energy efficiency is a big part. Paying an extra $200 for the washing machine with the best energy efficiency will earn you a far higher return than letting that $200 sit in the bank.

If you have any kind of medical problems relating to muscles or joints, think about things like buying really good shoes, or upgrading any tools you use frequently. You might find that getting a fancy ergonomic keyboard or high-quality garden tools will make your life better and dramatically reduce future medical costs. At a minimum, ask about tool sharpening at your local hardware store.

If you have any money sitting around the bank, you should seriously consider making these kinds of 'lifestyle investments'. It will be good for you and good for the economy.

Wednesday, August 3, 2011

Natural Experiment: Twins

The best way of finding information about any social issue is to look for an unexpected change in one thing that keeps everything else constant. For example, it is no good comparing a family with three children to a family with two, because the parents who chose the larger family are presumably different in a lot of ways.

But twins are unexpected. They are a shock to the system, one that people only have a few months at most to prepare for. Parents with twins will have less time and money to spend on each child, so you can look at families with twins to see what happens as a result of the children getting less resources:

So what does it mean for an older brother when Mom and Dad come home for the hospital with twins? What's it like to be the younger sister of twins?
First, you get less computer time. Frenette finds that, even after controlling for family income, education, and myriad other factors, having twin siblings reduces the number of computers per child by 14.1 percentage points.
Second, you are less likely to be enrolled in private school — youth are 4 percentage points less likely to in private school when there are twins in the family, all else being equal.
Third, parents are less likely to save money for their children's post-secondary education in families with twins.
And the impact of fewer computers, less private school, and less saving for post-secondary education on children's academic performance is…not much.
Fifteen year olds from families with twins do no worse than other children in international standardized assessments of reading achievement. If anything, they appear to do slightly better — but there are too few families with twins in Frenette's sample to know whether the difference is statistically significant.
As a parent, I find these results encouraging. Even if your resources are stretched, and you can't do everything you've planned for your kids, they might turn out just fine anyways.

There is a lot of evidence that shows that, once their basic needs are met, the life outcomes of children have very little to do with how much time and money is spent on them. There is not really much need to work so hard on raising children.