Wednesday, November 30, 2011

Squirrel Research

While walking around campus to get some sunlight, I saw a lady working with a squirrel trap and talking with two of the groundskeepers. I listened for a bit and then joined the conversation.

The squirrel researcher is a PhD student here, and she obviously had a good rapport with the groundskeepers. I would wager that those two guys were very different from her in terms of political beliefs, lifestyle, culture, and IQ, but they still had the camaraderie of people who work outdoors with living things. There were interested in the capturing and tagging process, and they try to schedule their work so they do not interfere with the research. They know that the squirrels are doing a lot of damage; over the summer a dozen trees had to be removed because the squirrels had stripped the bark. I got the impression that they respected her as one of the team.

She was doing a population study, trapping and tagging the squirrels with ear tags. The best current guess is that there are around 500-600 squirrels on campus, but nobody has done recent research. Her long-term research project is investigating the effects of squirrel population control with an oral contraceptive. In addition to population counts, it will involve toxicology studies, including capturing hawks on campus and drawing their blood to see if they are affected.

People have been deliberately interfering with her squirrel traps, either closing them or stealing them, presumably because they think that the squirrels are being killed. This kind of ignorant emotion-driven action is harming the research, and if she cannot prove that her contraceptive program works, then people will continue to manage squirrel populations by culling.

I commented that these were probably the same people who feed the feral cats. She started complaining about the feral cats, the damage they do, and how the university would not approve any plan to control their numbers. She also mentioned an incident in which a cat was tormenting a trapped squirrel, and said, "I am a vegan, but I wanted to kill that feral cat and eat it for dinner."

I got the impression that she was a serious nature-lover; she really believed in keeping a natural balance, controlling invasive species, and never killing anything without eating it. I am much more sympathetic to that viewpoint than the typical animal-lover who falls in love with cute furry things without any thought for the big picture.

Tuesday, November 29, 2011

Seigniorage and Fractional Reserve Banking

Edited to fix math:

Seigniorage is the income that the government gets by printing money. It costs the government a few cents to print a $20 bill, and they get to spend it to purchase $20 of goods and services. Of course, printing money causes inflation. If the government tries to get too much income from seigniorage, the result is hyperinflation.

However, if the economy is growing, as modern economies typically do, then you need to keep expanding the money supply or there will be deflation. If the population is growing by 2% an year and real per-capita incomes are growing by 2% a year, then the government must increase the money supply by 4% a year to get an inflation rate of zero. There is 4% more actual stuff being produced each year, so in order for money to be worth the same, we need 4% more money. Increasing the money supply by 6% a year would produce an inflation rate of 2% a year, which is about the right amount.

Fractional Reserve Banking is the banking system used in all countries in the modern world. Put bluntly, it means pretending that loans are money. Most of the money in your checking account and savings account is not backed up with actual cash. Your bank probably has cash reserves that are less than 10% of the value of its depositors' checking and savings accounts.  The rest of your money was used to make loans to people. You get to treat your bank accounts like money, but it is not money the government printed. It is money that the bank made up by loaning your money out to people and then telling you that you still have the money.

This system is just as unstable and volatile as it sounds. Many of the economic crises in history have been caused or worsened by the failures of banks using this system. Even when banks do not fail, the economy is harmed by the fluctuations in the money supply that result from changes in the percentage of money kept in reserve by banks.

It would be possible to change the laws so that retail banks that deal with consumers would be forced to keep full reserves. This wound inevitably mean that you would never get any interest on your bank accounts, and would in fact have to pay the bank a fee for storing money and processing transactions. If you wanted to earn interest, you would have to withdraw your money and go to a different company that handled loans. 

People have proposed this as a way to escape the economic volatility of our current banking system. This would be a big and difficult change, and I do not know if it would be worth the cost. A big problem for these proposals is that the creation of 'credit money' is not limited to the retail banking system. There is a 'shadow' banking system used by large corporations and financial institutions that also converts loans into assets and trades those assets like money. The recent financial crisis featured a run on this shadow banking system, which caused a fall in the money supply.

Everything I have said so far is basic monetary economics. Now I will combine the facts about Seigniorage and Fractional Reserve Banking and point out something that I have never seen anyone discuss.

Fractional Reserve Banking means that the money supply increases by much more than $1 for every dollar the government prints. If the government increased the supply of currency by 1% a year, then we could have inflation of as much as 10%. Every dollar the government prints is transformed by the banking system into a lot more dollars.

This means that almost all of the seigniorage in modern economies goes directly to financial institutions. The money supply of the USA increases by about 5% a year, which means that somebody is getting seigniorage income equal to 5% of the money supply each year. The government is only getting a fraction of this. All of the rest goes to banks. Given that the money supply (M2) is around 9 billion dollars, that is over $400 billion every year going to the banks

Some of this subsidy will be passed along to consumers in the form of lower prices for banking services, to the extent that banking is a competitive industry. However, the total profits of the financial industry have between around $350 billion on average for the past 10 years. If the industry was competitive, that number would be a lot smaller. A lot of people who study the issue say that banks are making abnormally large profits.

It is probably a coincidence that financial industry profits are close to the annual amount of seigniorage captured by the financial sector, but it seems clear to me that banks are getting vast quantities of free money on a regular basis. It is not technically a subsidy, but the facts of fractional reserve banking and the money multiplier mean that almost all of the 'inflation tax' must be going straight to them.

If fractional reserve banking were eliminated, you could support all of the operations of a modern state with nothing but seigniorage. Most of the budgets of the USA and other developed countries go to transfer payments like Medicare, Medicaid, Social Security, and other entitlement spending. Operations costs are typically 5-10% of GDP. The USA could support all of its discretionary and military spending with no federal taxes at all, if it could capture all of the seigniorage from an increase in the money supply of about 15% a year. That is very high, and would distort the economy, but the current system of taxation also causes a lot of distortions.

Cutting our military spending to pre-9/11 levels and trimming some of the obvious fat from government would take the required money supply growth down to about 10%, which would give an inflation rate of about 7%. That is still high, but I would definitely take 7% inflation in exchange for no federal taxes.

Huge changes like this are nothing but fantasy thought experiments, of course. But it is possible to imagine a world where all of the operations of all levels of government can be supported with only seigniorage and taxes on externalities like pollution. With proper economic policy, the taxation of productive activity could be swept into the dustbin of history.

Tuesday, November 22, 2011

Reputation versus Credentials

Last Friday I went to the opening of an MFA (Master of Fine Arts) exhibit at the university. It had a sculptor and an engraver showing off their work. I was impressed with the work of the engraver. He was a true craftsman, cultivated an early-1900's feel to his work, and was dressed in vintage clothing. He had set up his studio and tools in the art gallery, so we could learn how he did his work. You could tell that he was good and that he really loved what he was doing.

My grandfather was an engraver. I have one of his engraving tools, although I thought it was a leather-working tool. I now understand more about what he would have been doing. My grandfather never got a college degree. I will ask my family more over Thanksgiving, but as far as I know, he never had any formal training in engraving. I assume that, like most people of that time, he learned his many skills by practicing on his own, doing an apprenticeship, or taking odd jobs.

At the exhibit, I met one of the Tae Kwon Do black belts and started chatting. He had a stainless steel beer stein that he wanted engraved with a coat of arms, and was going to hire the engraver to do it. He was very happy to find someone who could do that kind of work. This is the only time I have ever met an actual paying customer at any of these artist exhibits.

I was also happy to see someone keeping an old craft alive. I hope that the engraver has a good future and that the market rewards him for his work. But it really bothered me that he was getting a Master's degree. He is probably going to end up with a lot of debt as a result of this training, and I do not think that it will really help him. Engraving is not something that you should get a degree in. It is something that you should do, and get paid for, and get better at with practice. There is no theory required, no long period of essential studying and training before you can be trusted, like with science or engineering. In the past, engravers like my grandfather never messed with any of that. 

I see the existence of an MFA in engraving as a symptom of something wrong with our society. We have become obsessed with credentials. Everyone seems to accept that the only way to advance in life is to go to college and get a degree in what you want to do. This is silly. If I wanted to hire an engraver, or any kind of artist, I would not care if he or she had an MFA degree. I would want to see samples of the work and talk with other customers. If the engraver had started engraving work right out of high school in a society that supported this career path, he would probably be a successful businessman by now, and would probably be a better engraver as well.

The area my parents live in supports a vibrant industry of potters. They will often go to pottery shows and buy good, hand-made pottery from these local artists. I am fairly sure that most of these potters do not have any kind of degree. They learned by doing, as part of the family business or an apprenticeship. From what I can tell, the quality of their work, in both technical and artistic terms, is much better than the pottery I see displayed at the exhibitions here.

I know why the obsession with credentials developed. Until the great urbanization of the late 1800's, there was no need for credentials in most things. People knew each other, and they knew who did good work. Even in things like law and medicine, there were no credentials. You were a lawyer if people were willing to pay you to do law. Word of how you did got around, so you had to do good work to maintain your reputation.

When people moved to cities, this source of information disappeared. It became much harder to get information about people, and so it became easier for incompetent and fraudulent people to take advantage of ignorant customers. In response to this, there was a demand for some kind of minimal quality control. If you moved to a new city, you would have no way of knowing which doctors were any good because you did not know any previous patients, but with a credential you would have some assurance that the doctor met a set of professional standards.

Unfortunately, over time the credentialing process was captured by professionals who used them to keep their own wages up. By making it much harder for other people to become doctors or lawyers, the existing doctors restricted competition and got richer. They claimed that the restrictions were for the benefit of consumers, but the restrictions were never applied equally to all of the professionals. They were just imposed on the new ones, and they gained the force of law, so it was impossible to opt out of the system and choose an uncredentialed service provider.

Young people choosing careers saw these high wages, and devoted lots of effort to gaining the credential. Over time, the credential started to lose any meaning; it was just an artificial hoop to jump through, as this article on law school demonstrates:

PHILADELPHIA — The lesson today — the ins and outs of closing a deal — seems lifted from Corporate Lawyering 101.
"How do you get a merger done?" asks Scott B. Connolly, an attorney.
There is silence from three well-dressed people in their early 20s, sitting at a conference table in a downtown building here last month.
But the three people taking notes are not students. They are associates at a law firm called Drinker Biddle & Reath, hired to handle corporate transactions. And they have each spent three years and as much as $150,000 for a legal degree.
What they did not get, for all that time and money, was much practical training. Law schools have long emphasized the theoretical over the useful, with classes that are often overstuffed with antiquated distinctions, like the variety of property law in post-feudal England. Professors are rewarded for chin-stroking scholarship, like law review articles with titles like "A Future Foretold: Neo-Aristotelian Praise of Postmodern Legal Theory."

This credential-seeking is a huge waste of resources. I would guess that 90% of all college degrees, and probably a lot of advanced degrees as well, could be replaced by some combination of an IQ test, personality test, on-the-job training, and a close look at high school performance. 

The system of credentialing, of putting vast amounts of effort into a single line on a resume, is not suited for the modern world. We need to understand that it developed as a temporary fix to a temporary set of social conditions. With modern information technology, we can do much better. We can get something that looks more like the reputation-based system of social interaction that allowed people to start productive careers without wasting so many tears of their lives.

By this point in the semester, I know a lot of information about my students that would be very valuable to an employer. I have a good idea of their intelligence, dedication, discipline, attitudes, work habits, and attendance patterns. Any teacher who does more than lecture and give standardized tests can say the same thing.

But all of that information will be crammed into a sausage maker and turned into a single letter grade. Anyone who actually has any hope of graduating will fall into one of only three categories: A, B, or C. The cutoffs are maddeningly unfair and arbitrary. Sometimes the difference between an A and a B is very small, especially compared to the wide variety of aptitude, from genius slacker to dim workaholic to true overachievers, that all gets thrown in the 'A' bucket. Then that grade will be mixed in with a bunch of others and turned into a GPA. The end result is so worthless that employers have almost no idea about people, and so they force them to go through a long and messy screening process.

Compare that to other systems that have been developed to report information about people. Ebay's feedback system is basically a copy of old-fashioned reputation and gossip, and you can learn a lot about a seller in a short time. A more relevant comparison is credit reports, which do a good job of reporting the relevant information about people. Think about how easy it is for reliable people to get a loan, compared to how hard it is for them to get a job. A visitor from another planet, or from our own past, would be amazed at how easy it is to get people to hand you tens or even hundreds of thousands of dollars based on a promise to repay, compared to how hard it is to get them to agree to give you a regular check for a promise to work.

It would be easy to make transcripts as useful as credit reports. Teachers could rank the students in their class, from best to worst, on attributes like punctuality and reliability in addition to cognitive skills like critical thinking. We could choose a few attributes from a list to describe each student. With good interface design, the entire process would take less effort than grading a single set of essays or free-response tests.

Students should be able to see all of their reports, which would give them useful feedback and allow them to post a complaint if necessary.

This could be combined with a wide array of standardized tests that allow people to demonstrate competence in everything from accounting to welding. Then various reporting agencies would take the raw data and figure out how to analyze it to produce useful reports for prospective employers.

It is easy to envision a world in which the process of job applications, even interviews, becomes redundant. Employers would tell the job requirements to the reporting agency of their choice, and  then get reports that score all high school students on those requirements. As students progressed in their education and accumulated skills and a reputation for a good work ethic, job offers would start to show up the way that credit card offers show up in my mail. Students would quit school whenever they were offered an attractive salary. The employer would then be asked to report information, much like the school did.

It may seem off to skip the interview process, but numerous studies have shown that interviews are much worse at selecting ideal candidates than subject-matter tests. Charismatic narcissists routinely get hired over people with actual skills. Job interviews could someday be seen as a relic of the days when reliable information about people was so scarce that it was seen as necessary to try to guess their character and competence from a five-minute conversation

The concept of such a comprehensive 'digital reputation' might scare people. It should not. This kind of information would allow people to be matched with jobs that are better suited for them, giving a higher salary and quality of life.

Thursday, November 17, 2011


This article presents further evidence that, for many people, swearing (cursing) provides readily available and effective relief from pain. However, overuse of swearing in everyday situations lessens its effectiveness as a short-term intervention to reduce pain.

Wednesday, November 16, 2011

Election Strategy

Some things do not change:

The September 11th speech by Wallace was his first really adroit one. It was a bid to the discontented liberals wavering behind President Truman. What he said publicly they have been saying privately with increasing bitterness - even those who support the President. Henry Wallace appealed to the atavistic fear of all progressives - the fear of "Wall Street". This fear is not the sole property of the progressives. It belongs traditionally to the Democratic Party. It began with the agrarian Jefferson's battle against Hamilton, it continued with Jackson's fight against Nicholas Biddle's bank, it found its Silver tongue in the crusades of William Jennings Bryan, and it came to full flower under Wilson and Franklin Roosevelt. In a very important sense, it is the reason for the Democratic Party -- because the only way to explain the lasting alliance between the South and the West is their mutual fear of domination by the industrial East. Today the South can agree on no issue with the West – except "Wall Street."

from a memo on Truman's 1948 re-election strategy. Note that they are talking about Henry Wallace, not the segregationist governor George Wallace.

Also note that during this time, Southern whites always voted Democratic. As game theory and the median voter theorem would predict, and as the memo describes, this meant that they were basically ignored. Now that they always vote Republican*, they will similarly be ignored.

History buffs will probably want to read the whole thing. The tone of naked political calculation is quite impressive, and there are lots of great bits, like:

The liberals are numerically small. But, similar to manufacturers and financiers of the Republican Party, they are far more influential than mere numbers entitle them to be. The businessman has influence because he contributes his money. The liberal exerts unusual influence because he is articulate. The "right" may have the money, but the "left" has always had the pen. If the "intellectual" can be induced to back the President, he will do so in the press, on the radio, and in the movies. He is the artist of propaganda. He is the "idea man" for the people. Since the rise of the pressure groups, the men of ideas who can appeal to them on their own ground, in their own words, have become an essential ally to the alert candidate in modern American politics.


The leaders of labor must be given the impression that they are once more welcome in the councils of the Administration. Much of this cultivation can be done only by President Truman himself. Immersed in the staggering burden of his work and preoccupied with his day-to-day problems it is easy for the incumbent of the White House to forget the "magic" of his office. The mere extension of an invitation to William Green, Dan Tobin, Philip Murray, Dubinsky or any of the prominent leaders to "came in and talk with me" has a stupendous effect on them and their followers.
One by one they should be asked to '"come by" and the President should ask them for their advice on matters in general. (This is a question of delicate "timing" -- it is dangerous to ask a labor leader for advice on a specific matter and then ignore that advice). No human being -- as every President from Washington on has ruefully learned -- can resist the glamour, the self-important feeling of "advising" a President on anything.


It is said invariably, and always without analysis, that the President is the Chief of State, the Symbol of Government. What the theorists as well as the politicians do not observe is that the public gets its impressions of its President mostly from the actions he takes when performing as Chief of State – as the Head of Government. The masses of the people rarely if ever think of him in his role of Government administrator, or as the responsible policy maker on our national economic problems.
They really form their lasting impressions from watching his incidental gestures – when he appears as the representative of all the American people….
…[A]t home the American people are daily forced to think of their President as a politician for the good reason that the news stories deal only with his activities as a politician – because it is what he is engaged in doing. His calling lists, week in and week out, are filled almost entirely with Government and Congressmen with whom he consults on problems that are important to the nation, but appear to the average reader complicated and dull.

Some things do change, however, The memo discusses Italians as a distinct ethnic group with a distinct political strategy. Nowadays Italians are just 'white people' and nobody thinks of them as a distinct group. Other 'facts' about the political process, like the loyalty of the Presidential cabinet and the public's toleration for the president acting like a politician, have changed.

The economic illiteracy is also astounding. The memo talks at length about the desirability of wage and price controls, like the ones that Nixon passed that caused massive damage to the economy. I shudder to think about what might have happened if these laws were passed. The suburbs might never have been built, and the last half-century would have seen a population crammed in decaying rent-contolled apartments.

* A cynic would say that Southern whites have a long and distinguished history of voting against whichever political party is known as the party of civil rights.

Monday, November 14, 2011

Shakespeare and Kansas

This article about Shakespeare's criminal connections, combined with my knowledge of how much low-class vulgarity is in his plays, made me imagine a future civilization that considers gangsta rap the epitome of civilized refinement, the way we treat opera and Shakespeare plays. It is also easy to imagine our current inner-city gangsters being romanticized the same way our society romanticizes pirates.

On a happier note, this article about Hispanic immigrants revitalizing dying Midwest towns shows how entrepreneurial people can respond to incentives in such a way that society is improved. One person's dying small town is another person's chance to buy a good, cheap house and start a better life:

Wednesday, November 9, 2011

Culture Clash

Be it so. This burning of widows is your custom; prepare the funeral pile. But my nation has also a custom. When men burn women alive we hang them, and confiscate all their property. My carpenters shall therefore erect gibbets on which to hang all concerned when the widow is consumed. Let us all act according to national customs!

Sir Charles James Napier, the British Army's Commander-in-Chief in India from 1849–1851, reacting to a Hindu priest's complaint about making Sati illegal.

A similar even was also recounted in a book about his administration:

A man had been condemned for murdering his wife; his chief sued the general for pardon.
[Napier:] "No! I will hang him." 
[Chief:] "What! you will hang a man for only killing his wife!" 
[Napier:] "Yes! She had done no wrong." 
[Chief:] "Wrong! No! but he was angry! why should he not kill her?" 
[Napier:] "Well, I am angry, why should not I kill him?" 

I have glanced through the book, and it seems to be full of fascinating and disturbing passages like this one:

Sir C. Napier classed under the head of slavery, the dragging young girls from their homes for the harems of the great; and often he rejoiced at being the instrument of Providence to suppress the cruelty exercised towards women, though to do so, he was forced to wield the sword so terribly in battle and give the axe of justice such a sweep; but the feeling respecting the non-right of women and children to their existence and freedom demanded the sternest repression; for the examples of unmitigated cruelty and debauchery given by the numerous ameers, had a wide currency which sharp justice only could counteract. 

I get the feeling that I would have liked Napier, but the not guy who wrote the book. I am not sure which is more alien to modern sensibilities, the Indian culture of shameless patriarchal violence or the British culture that created such self-righteous and overblown prose to justify colonialism. But I am certainly glad that the British culture ended up leaving such a large mark on the world, and then turning into the mindset that we have today.

Wednesday, November 2, 2011

Historical Musings: Byzantine Empire

Popular imagination is an odd thing. Most people in the USA are familiar with the Roman Empire. Even people who paid no attention in history class will know of its existence from movies, and have a vague idea of its culture, power, and place in history. Political commentators often make reference to ancient Rome, usually in the context of its culture, institutions, and values. They often draw parallels between the USA and Rome. It is a common cultural reference point, like Shakespeare and the Bible.

The Byzantine Empire, however, is not nearly as well-known, despite the fact that it was the major cultural, military, and economic power of the early Middle Ages. For hundreds of years after Rome fell, the Byzantines, who called themselves Romans, were a powerful, stable, advanced civilization. And yet, when people think of this era of history, they think of the Dark Ages of Western Europe, with petty kingdoms and Viking raids. I cannot think of any kind of popular entertainment that features the Byzantine Empire. It is almost totally absent from our cultural consciousness, known only to people with a scholarly interest in history.

Americans like to think that they will always be remembered by history, no matter what might happen. We look around and see that we have dominated the last century. We have been the major cultural, military, and economic power of the world. We hope that, even if something happens and our country falls apart, future generations will know and care about us the way we know and care about the Roman Empire.

It is possible, however, that the prize of historical memory will go to the British Empire. They were the ones who started off as a little island nation and went on to rule a quarter of the globe. They were the ones who spread their language, law, and culture all over the world. They were the ones who started modern capitalism and the Industrial Revolution. They were the ones who fought piracy and slavery on a worldwide scale, in a remarkably successful effort to remake the world according to their cultural values. I can easily imagine the British Empire being embedded in the popular culture of a thousand years in the future the way the Roman Empire is in ours, especially if India becomes a world power in the future and has a big effect on that culture.

Compared to the British historical legacy, the century of American power looks rather less impressive. Our biggest achievements were defensive actions against various forms of tyranny, and the continuation of a scientific and economic system that we mainly inherited from the British. Even if we end up being the last outpost of Anglo-American civilization, the way that Byzantium was the last outpost of Roman civilization, that will not guarantee us a place in history.

The USA might share the historical fate of the Byzantine Empire, barely remembered at all in a thousand years, regarded as a mere adjunct to a grand civilization that remade the world. History might remember us as but a dwindling power, an insignificant offshoot of the grand British Empire, that tried to continue the civilization but fell slowly to pieces in a world that grew increasingly chaotic and fragmented. Our very name could be assigned to us by later historians.

If this is depressing, it should not be. The people of Byzantium lived good lives, and their civilization was worth preserving and fighting for. To our modern eyes, they would seem like impoverished savage primitives, but compared to the rest of the people of their world they were the richest and most civilized nation. History is a rather poor judge of what really matters, as I have noted before. If we accept the fact that history might not know or care about anything we do, then it becomes easier to abandon grand ambition and focus on making the lives of individuals as good as possible.