Warren Buffett on Taxes?

I’m glad others are starting to call out Warren Buffett’s hypocrisy. See here from the Weekly Standard and here from Harvard economist Greg Mankiw.

I’ve been saying this stuff for years. These are from me:

I’m skeptical of the red meat study

We’ve all heard ‘meat and potatoes’ dishes referred to as a ‘heart attack on a plate.’  What we may not have suspected was that it was actually the potatoes that might do the damage, not the meat.

But, I’m sure that’ll be a hard sell after the recent Harvard red meat study.  It’s been getting much press lately. Most press reports say something like: “Eating a lot of red meat will kill you. Guys from Harvard say so.”

The first day that this came out, I asked an associate to identify potential problems with the study. We have to pick apart similar studies all the time for our jobs. I thought this would be good practice. He did a great job.

And so did CNN for including his primary concern in their online article about the study. Something I haven’t seen other media outlets do yet.

Unfortunately you have to make it to the last two paragraphs of the CNN article to read it. Here it is:

Studies like Pan’s are inherently iffy due to red meat’s unhealthy reputation, which makes red-meat consumption difficult to tease apart from a person’s overall lifestyle, Lindeberg says. “Red meat has been perceived as a villain for many years, and people who avoid red meat take all sorts of precautionary measures for their future health,” he says. “It is not possible to statistically adjust for all of these measures.”

Sure enough, Pan and his colleagues found that the men and women in the study who ate the most red meat also tended to be heavier, less physically active, and more likely to smoke and drink alcohol than their peers. However, the researchers did take those and other factors into account in their analysis.

In other words, the researchers may have really found that overall unhealthy people die prematurely. Wow.

For those who would like to know more about the flaws in the diet and health research, I recommend reading Gary Taubes. He has done a fabulous job in his book Good Calories, Bad Calories at casting credible doubts on past health studies like this one, which form the foundation of the of diet and health ‘conventional wisdom’ that has helped drive increases in obesity and Type II diabetes.

Taubes’ book is big. If you don’t have that kind of time, download and listen this Econtalk podcast that had Taubes as the guest (also available on iTunes). The podcast is an 1 hour and 22 minutes. Listen to it while you workout. I do.

Not only does Taubes cast doubts on these studies, he demonstrates that some of these studies never actually proved the hypotheses (that are now conventional wisdom) like “fat is bad for you”.  When the researchers with these hypotheses didn’t prove them, they’d just say, “well, this study didn’t show it, but we’re certain that it’s just a matter of time that other studies will.”

Over time, it was the domineering personalities of these researchers and political connections that eventually thrust their unproven hypotheses into the realm of conventional wisdom.

The nanny government of the 60s and 70s felt they needed to give guidance on healthy eating (hmmm), so they took the conventional wisdom from these researchers (it’s easy to sell BS to the public when you can say things like “research suggests”, even when it doesn’t) and created the food pyramid, which has helped wreck our health and medical system.

For making it to the final paragraphs of this post, I’ll reward you with the hypothesis Taubes’ has to explain our declining health: sugar & flour. Especially refined sugar, starches and flour. Taubes thinks these boost insulin levels, which tells the body to store fat.

When you see an overweight person, don’t think about how much they eat. Rather think about how much sugar and starch they eat. Don’t believe Taubes? Cut back on your sugar (candy, cookies, mochas), flour (bread, pasta) and starch (fries, chips) for a few days, eat a little more fat, protein, fruits and veggies and watch the scale.

Mankiwniversity

Harvard econ professor, econ textbook author and sometimes New York Times columnist, Greg Mankiw points out that his Intro to Econ course, or Econ 10, is the largest course at Harvard.  Story here.

I wonder if Mankiw has given any thought to following in the footsteps of Sebastian Thrun and Peter Norvig, who taught their Stanford intro to computer science course online to 165,000 worldwide students.  Given the demand, Thrun gave up his tenure to start his own online university, Udacity, with novel goal of teaching people who want to learn how to program.

There are a few people who could stand to learn basic economics.  Perhaps Thrun has a spot for Mankiw on his faculty.

People do not know what capitalism is

Even though the video has made its rounds on other blogs, I had to post it here because I think it’s really good.  I credit Speedmaster at The Pretense of Knowledge for directing me to it.

It’s called Top 3 Common Myths of Capitalism from Jeff Miron of Harvard.

Myth 1: Being pro-capitalism is the same as being pro-business.

Miron says:

The point of capitalism is to make sure that businesses have to be compete vigorously against each other.  That benefits consumers.

It’s not good for the businesses, per se, because they have to work really hard.  Many businesses understand this and they hate capitalism.  They’re constantly trying to get government erect various rules, restrictions, regulations that help them, but they are not in the interest of the consumers [though they will say otherwise].

I believe one cause of this myth is that many people don’t fundamentally know what capitalism is.

Just this morning I heard radio DJs criticizing capitalism.  Yet, they were really criticizing disingenuous commercialization.  On that I agree with them.  That bugs me too.  Other things bug me.  Whiny millionaire football players, cheesy car salesmen and endless customer service touch tone menus are not my faves.  But these aren’t capitalism either.

These have emerged from capitalism.  So have many other things.  Things that I like and love and have made my life better than my ancestors and even better than my younger days.  On net, we all come out far ahead.

And, I know that I can turn the channel when it shows whiny football players, I can find a professional car salesmen and I’ve noticed those phone menus getting better.

I also noticed that those DJs didn’t criticize their advertisers.

Another cause of Myth 1 is that few people differentiate between profits earned by capitalism, through competition, and those earned by rent-seeking or politics.

We need to get better at asking if the profit came from providing valuable products that people voluntarily buy or rent-seeking or politics?

For example, sugar tariffs increase the price consumers pay for sugar and results in a higher profit for domestic sugar companies.  Those higher profits are passed to domestic sugar companies directly from consumers.  Those sugar companies should thank their friends in government.  They do.

Without the tariff, sugar and things made of sugar, would cost less and we would spend our savings on something else that could make our lives even better and create more jobs.  That’s rent-seeking.  It’s anti-capitalist and anti-consumer.  But is viewed by most folks as capitalism itself.

Myth 2:  Capitalism results in an unfair distribution of income.

Miron explains that capitalism rewards people based on what they contribute and produce and admits that a downside to capitalism…

…is that some people have very little skill.  They are not able to earn very much, left on their own.  Some reasonable people support anti-poverty spending, but that’s completely different than interfering with capitalism–regulating prices, limiting quantities, etc — those make the economy less productive, give us a smaller pie and makes it harder for us to operate programs that help those who are less fortunate.

I’d add that the anti-poverty spending does not have to be (nor is it an enumerated power) conducted by the Federal government.

Myth 3:  Capitalism was responsible for the recent financial crisis and recession.

Miron explains that we didn’t have unbridled capitalism in housing prior to the meltdown.

We had enormous government interventions — subsidized risk, encouraged over investment in housing.  If one is going to draw a conclusion, it seems to suggest much more clearly that interfering with capitalism generates financial crises…

…because what happened was a result of the market distortions created by government interference.

This goes back to causes of Myth 1, primarily that people do not know what capitalism is.  People see private, for-profit companies operating in the housing and mortgage industry and stop there assuming that’s capitalism.

They don’t understand that those private companies — and private individuals — were responding to incentives distorted by government.

Consider Speedmaster’s example.  If we believe owning a Porsche cause folks to become well-off (which it doesn’t), then government will do things (distort incentives) to make it easier for people to buy Porshes.

Government can tell banks to not worry about lending on Porsches, because if anything happens, the government will help out.  Government sends subsidies to Porsche to encourage them to produce more cars (though they don’t have the capacity to keep up with demand caused by the incentives distorted by government).

Porsche prices rise from the increasing demand.  People buy more because it seems like, even if you can’t afford one, you can sell it two or three months later for a profit.  Why buy just one?  Buy two, maybe three.

It’s not hard to imagine what happens next.  First, few will have achieved success by simply becoming a Porsche owners.  The original thinking was flawed.

Second, prices rise well beyond normal, capitalism-driven, prices for awhile as everybody gets one or two.

Then they look around and wonder, who’s going to buy my Porsche?  Everyone seems to have one of their own now (which also makes it uncool).  They realize they can’t afford to keep it (plus it’s suddenly uncool), so they panic and rush to sell it before anyone else realizes what’s going on.  Supply skyrockets relative to demand.  Prices collapse.  Everyone says this was capitalism’s last hurrah and governments pays off loans with taxpayers money and becomes the proud owner of millions of Porsches.