We get what we vote for

This made me laugh. Glenn Reynolds wrote on Instapundit:

LIFE IN THE ERA OF HOPE AND CHANGE: NYC police chief: Tensions like ’70s.

You know what else is like the Seventies? The Democratic solutions to the problems they caused: Dem: Cops should focus on gun control. These guys haven’t had a new idea since 1968.

True. Why would they? It’s sounds good enough to get them elected. If a football team scores touchdowns from passing, they’ll keep passing.

Incentives and knowledge

I recall that when I was in 10th grade I held a political view of the world that is much like the politician’s of today. I wondered, why doesn’t some politician wave their ‘magic wand’ and just fix the problems. Get to it. There is no shortage of politicians promising to do just that.

I was reminded of that this morning as I read the Wall Street Journal’s op-ed on Vermont’s failed single payer medical care system.

Since 10th grade I’ve learned why such things fail. But, it took me too long to do so. The answer is elusive and not discussed as often as I think it should be or too deeply buried in other words and phrases.

I never found it helpful to hear things like “that just doesn’t work” or “socialism/communism/central planning has been tried over and over and has failed over and over.”

Or the discussions get sidetracked in unproductive ways. “You don’t want to help the poor!” “Everyone has a right to [fill in the blank with some benefit that costs somebody something].” Or, on the other side, “Markets are just better.” “

I’ve never been satisfied with those discussions. I’ve always been interested in why it doesn’t work.

I wish someone would have told me when I was in 10th grade to consider the incentives and the knowledge problem.

It’s, perhaps, not race

The President and First Lady seem to jump to conclusion that being mistaken for a valet or asked to get something off the shelf had to do with race.

I have news for them. Those types of things happen to me, too.

I’ve been asked to get coffee. I’ve been asked by fellow patrons of stores “Do you work here?” I’ve been mistaken for servers at restaurants. I’ve been asked by others for help.

I’ve noticed such things happen when my clothes reasonably matches with what the employees of the establishment are wearing. When I’ve been asked for help, I always assumed it’s because I looked like a nice, approachable guy who would be more than willing to help.

Maybe the First Lady was asked to take something off the shelf because she is taller than the person who was asking and looks like a nice person that would help someone out.

Perhaps the President was mistaken for a valet because what he was wearing more closely resembled what the valets were wearing than what guests were wearing.

It’s silly when we look at these events and see race as a factor.

It reminds me of a conversation I once had with a friend. We were discussing profiling, I believe, and I had made a similar comment as above that race was probably not even one of the key factors in such cases, maybe not even in the top 5 or 10.

Him: Oh? So, are you telling me if you were walking down a dark alley and ran into two black dudes you wouldn’t be concerned?

Me: Actually, that has happened to me on occasion and sometimes I was concerned and sometimes not.

Him: What do you mean?

Me: First, let me ask you something.

Him: Okay.

Me: Why did you ask me about ‘dudes’? Why didn’t you just say ‘people’? If it was just about race, ‘people’ would have been good. But, even you are admitting that there’s more at play than race.

Him: Huh?

Me: You’re saying that gender has something to do with it, too. Otherwise, you could have just said ‘people’.

Him: Okay.

Me: So, now back to your question. My answer is, it depends.

Him: On what?

Me: What are they wearing? How are they behaving?

Him: What do you mean?

Me: In fact, I have walked down lonely streets and encountered ‘black dudes’ on quite a few occasions and only on a few of those I have had concerns.

When they were dressed professionally or casually and behaving politely, I didn’t have any concerns. When they were dressed like bums and behaving politely, no concerns. Would you?

Him: Oh. I guess I can see that.

Me: I’ve walked down lonely streets before and have encountered people of all races who were dressed like thugs and behaving aggressively, like they were looking for trouble. I had concerns then.

Come to think of I’ve encountered such people who were dressed like thugs, but behaving politely and I was less concerned. So, maybe it wasn’t even the clothes, but the behavior.

So, while ‘what would you do on a lonely street’ is a popular example people like to use because they think it gets at one’s true racial biases, that example typically fails in the asking, but few people recognize that.

Him: I was following. Now you lost me.

Me: Again, you asked me about dudes. Not people. Not ladies. So, in the asking, you admitted — without knowing it (or maybe knowing it and you were just trying to bait me into an answer hoping I wouldn’t notice it) — that gender was a key factor. In fact, probably more of a factor than race. Because if race were the main factor, you wouldn’t have to specify dudes, at all.

I honestly can’t remember if I made any headway. But, he seemed to consider the train of thought.

Don’t encourage the un-encouragable

Alex Tabarrok of Marginal Revolution shares his favorite of Morgan Housel’s Motley Fool article, 122 Things Everyone Should Know About Investing And The Economy.

I especially agree with this one:

For many, a house is a large liability masquerading as a safe asset.

This is important to understand and relates to my previous post.

In the U.S. we (especially politicians) have rose-colored glasses when it comes to home ownership. We think it’s good, always. We think, the more the better, always. We have this same affliction with education.

So, you start to see politicians do things to make it easier to become a home owner, like lowering down payment standards.

Home ownership can be good, but as with all good things, it isn’t good for every situation. And, there is a law of diminishing returns that limits the more is better, always.

Back in 2010, the Wall Street Journal interviewed Canada’s Finance Minister, Jim Flaherty. I wrote about that here. Canada did not have a banking crisis in 2008. Part of the reason why is that they do not see home ownership with rose-colored glasses like we do. This prevents them from doing unwise things like getting people into home ownership when renting is likely the best option for them.

He said:

“They [Canada’s version of Fannie and Freddie] are supposed to have a certain part of the market but they are not supposed to be a dominant player in the market. They do make sure that lower income earners have access to a roof over their heads, but that can mean rental housing.

There’s no stigma to renting there. That kept Canada’s government, mortgage lenders and borrowers from doing things that encouraged risky home ownership.

In the interview, Flaherty points out some of these things

  • Canada’s lenders didn’t securitize (sell off) mortgages, or off load risks of bad mortgages, to others. They lent and held the mortgage, so it was in their best interest to make good loans.
  • Borrowers couldn’t just walk away from a home with a mortgage. “They remained personally liable.” That encourages borrowers to be more prudent about becoming a home owner. If you can’t rid yourself of the debt by simply stopping paying your mortgage and walking way from the house if things go south, then maybe you don’t buy a home or you buy one that better fits your budget.
  • Canada’s tax code also doesn’t treat mortgage interest as a deduction. This policy also tips the scales toward home ownership in the U.S.

Time machine? Sadly, no.

The news reported recently that Fannie Mae and Freddie Mac plan to offer programs to allow young home buyers to buy a home with as little as 3% down to make it easier to buy a home.

Hmm…I thought for sure this was a headline from 1995, but no. It’s from December 2014.

Do they not remember how this ended last time?

Why not start a program that teaches financially responsible behavior young home buyers can use to save up a sizable down payment so they can truly be homeowners and not just renters with a deed.

I know why. That doesn’t sound as good.

That’s what highly improbable events are

Ezra Klein thinks Darren Wilson’s account of the events leading up to Michael Brown’s death is unbelievable.

Klein could benefit from a basic lesson in statistics.

Highly improbable events usually appear unbelievable because they don’t happen often and don’t follow the norms. That’s what makes them highly improbable events.

Trying to make sense of highly improbable event by applying the norms of probable events is a common mistake.

It’s also an unfortunate consequence of a highly connected world that allows us to focus a great deal on highly improbable events. We see the highly improbable events so easily that we are deceived into believing that they are ordinary. We don’t often stop to consider what percentage of similar situations did not end as poorly as this one.

Nassim Taleb writes about this in his book, The Black Swan. He points out that people often delude themselves into believing that they could have predicted what turned out to be a highly improbable event, like a financial crisis, when we look back on it using 20/20 hindsight.

Life would be better if more people understood this

Here’s a great post from Don Boudreaux at Cafe Hayek on the nature of wealth and politics.

In it, he criticizes the all too typical, and wrong, view that wealth is a fixed pie and why the concern that the wealthy use their wealth for political influence is a good marker for someone who seems oblivious to root cause thinking.

Here’s a snippet on the second point:

…Mr. Reich fails to connect the dots by complaining that the rich spend more and more of their wealth in the political arena.  What else to expect when that arena becomes ever more central to Americans’ daily lives and, simultaneously, becomes ever more crowded with redistribution-mongers (such as Mr. Reich) whose squeals to soak the rich grow louder and harsher?

Folks like Mr. Reich think that the solution to their perceived problem of politically powerful wealthy is a more powerful government. But, a more powerful government just raises the stakes for the wealthy to use that power to their advantage.

In other words, without a powerful government, the wealthy could not be politically powerful. The problem is not the wealthy gaining political influence. The problem is that with a powerful government there will always be unsavory characters seeking to gain that power for their own good.

Think about the plot line of every movie that has an object with immense powers. There’s always a fight between multiple groups, good and bad, to get the object so they can use its power to their advantage.

The problem in Reich’s thinking is that he cannot fathom a limited power government. He wants a powerful government, but he just wants to somehow (through even more power for the government) restrict the holders of its powers to people who think like him.

He doesn’t realize that’s a self-fulfilling prophecy. The more power we bestow on the government, the more likely there will be unsavory people seeking to control that power.