To the protesters who are now protesting the inauguration of Donald Trump as President of the United States of America.
Do you want Donald Trump as President for 8 years? ‘Cause this is how you get Donald Trump for 8 years.
Do you want Donald Trump as President for 8 years? ‘Cause this is how you get Donald Trump for 8 years.
Me; I’m 51. I gained my political awareness in high school when Reagan was in the White House. I remember Reagan, Bush I, Bush II, McCain and Romney being compared to Hitler. At some point today’s college-age students will realize that what they perceive as a Real and Present Danger to Life As We Know It is simply excessive rhetoric by uncaring powerful people in both parties who are simply trying to stir the shit pot.
But meanwhile I’m tired of the stirring of the shit pot, and Facebook seems to be Ground Zero for the shit.
(For the record: I want less government regulatory burdens because I dislike the fact that nearly 30% of all workers in the United States need permission–in the form of a license–to work. And while that may make sense in certain life-and-death professions such as the medical profession, does a florist really need a license? You do if you’re in Louisiana. I honestly believe regulatory burdens (and that’s not the regulation, but the burden to demonstrate compliance with the regulation) hurts the economy, and in many ways is driven by regulatory capture: large businesses setting up the rules to stop smaller job-creating, wealth creating businesses from forming and competing with them. How this makes me a racist, sexist, homophobic pig is beyond me.)
So fuck it. Bye bye Facebook.
Generally when I read a discussion of the supply and demand curve I see something that goes like this:
If we plot price and quantity, supply is this vague curve sloping upwards, demand is this vague curve sloping downwards, and at some point where they meet that intersection point is the balance where supply and demand meet.
The thing that has always bothered me about this representation, however, is that the curves representing supply and demand are always these vague representations, arbitrarily drawn on the chalkboard. There is never an effort to quantify what those curves should look like before we launch into discussions of things like increasing demand for lower-priced goods or what happens when price controls are put into place.
But we can quantify these things to some extent.
In all of the graphs below, I preserve the convention of price along the Y axis and quantity along the X axis, so some of this may seem “sideways.”
First, let’s look at the demand curve.
Let’s suppose we’re selling a thing, and people want one of these things. The question we ask of that population of people is “how much should that thing cost?”
Of course the question is a complex one, but to first order we may expect that overall the answer to that question becomes a bell curve centered around the most expected price for that thing:
Again, note the convention: price is along the Y axis, quantity is along the X axis. This is a bell curve centered around the price B with about 1/3rd of B being the standard deviation in the price people are willing to pay. The equation representing this curve is given by:
The demand curve would then be the integral from +∞ to y; that is, as the price declines more people buy–and the total amount of product sold would be the area under the curve from price y to infinity.
(I’ve scaled the X axis to fit in our graph.)
What this graph represents is what we intuitively already know: that as the price gets cheaper–as we drop down on the Y axis–the amount of product we can sell–that is, the number of people who are willing to buy our product–increases. But also notice a few features at the extreme ends of the curve: there is a point where we won’t sell very much product at all: if our product is priced way out of our audience’s reach, dropping the price a little bit just won’t move stuff off the shelves. And at the other extreme, if we’ve reached market saturation, dropping our price more just won’t move more product–because we’ve reached market saturation.
The equation for this curve is given by:
Where the function erf is the error function.
Now let’s add the supply curve. We can use a similar argument as with the demand curve: if we have a whole bunch of suppliers and they believe they can bring in a price at a given price point, our supply bell curve looks very similar to the demand curve. However, the number of people who are willing to sell at a given price winds up being the integral above, except from -∞ to y. Plotting this on our graph:
There are some interesting things to note here.
First, let’s suppose that our suppliers are able to bring the cost of production down. We get the classic plot showing the supply curve shifting to stimulate demand:
As prices fall because suppliers determine a cheaper way to make their products, demand rises, and in this case they rise considerably.
But, as was noted before, if we are at either extreme: if, for example, we’ve reached market saturation, then the curve simply does not bend that much. We’ve reached saturation–and the incremental effort to sell to the remaining few who haven’t purchased a product can be rather considerable.
The same thing happens at the other end of the curve: if a product is just too far out of the price range of the vast majority of people, dropping the price a little bit just isn’t going to move the needle. You’re not going to sell a lot more $300,000 Ferraris if you drop the price to $290,000.
We can also use this graph to describe price ceilings and price floors.
Suppose, for example, we’re describing raising minimum wages. In this case, “supply” are the workers who are willing to work a given job at a given price, and “demand” is the willingness of employers to employ people at a given price.
So what happens at a given minimum wage?
Well, that depends on if the minimum wage is raised above the natural price given by the supply/demand curve.
Suppose our proposed minimum wage is below the crossing point of our supply and demand curves:
Then our price floor–minimum wage–doesn’t affect things very much at all. If currently workers for a given job are being paid more than the proposed floor, everyone’s going to ignore that floor because already prevailing wages are above the floor.
This is, in fact, the situation in most areas of software development: for me personally you could raise minimum wage to $30/hour and it won’t make a significant impact on my own take-home pay. (It may make some change, because remember: the above graph really represents a narrow slice of the supply/demand curve in a particular profession for a particular market. And as the minimum wage is raised, the shape of the overall market changes, which then affects people’s budgets and that may make them reallocate where they spend money–just as if a sudden sale on steak may make you rethink buying chicken.)
It’s not to say that at this level the minimum wage doesn’t serve a useful social function. In fact, it does: there are undoubtedly employers who are assholes who are trying to convince people to work for nothing–and a minimum wage floor gives those employees another legal tool to prevent abuse. This social function, however, is not really relevant to the economic discussion.
Now, on the other hand, suppose the price floor is raised above the natural supply/demand curve. (I’ve taken the liberty to label the supply and demand curves for what they represent: the willingness of employers to hire at a given wage verses the willingness of people to work at a given wage.)
What happens is simple: as wages go up, more people want to make money at that given wage. However, as wages go up, employers are less likely to want to hire at that wage. And that leads to a gap–a gap between the number of people who want to work and the number of employers willing to hire.
And that is, by definition, unemployment.
Similar arguments can be said about price floors and price ceilings in other economic arenas. For example, the long lines and rationing that had to take place in the 1970’s during the gas shortage came from the government imposing price ceilings. A ceiling then creates a gap between the amount of stuff someone can sell, and the amount of stuff people want to buy–which creates shortages:
And people react to shortages by being willing to stand in long lines; the line becomes an added “price” people are willing to pay.
Now let’s do something completely different.
Suppose I’m a company which makes widgets. I mass manufacture those widgets.
Mass manufacturing is interesting in that it entails a setup cost and a per-product cost. Meaning that, for example, if I’m making chairs using plastic injected moulding, then I have to pay a large setup cost to set up the mould, and then I pay a per-chair charge for the plastic for each chair.
That is, the total price it costs me to make n chairs is:
where n is the number of chairs I’m making, s is my setup cost (such as the cost of the mould), and c is the per-chair cost (such as the cost of the plastic).
Now if I make x chairs and sell them at a price y, this means that I have xy amount of money to make chairs. Subtract out the setup price s, divide by the per-chair cost and this gives me the number of chairs I can make at a given price:
We can solve for the quantity x and the price y to give me the number of chairs I am, as a manufacturer, able to sell at a given price:
Plugging our final formula into our graph for given values of s and c, and we get a completely different curve than we’re used to seeing when drawing supply/demand curves:
Note that our supply curve, instead of sloping upwards from lower-left to upper-right, instead, curves downwards; as we ship more product we can lower our per-product price.
And notice our supply curve intersects our demand curve in two places–at a high price/low quantity point, and at a low price/high quantity point.
In many ways this models very well something many manufacturers do, when they take a high-price premium “luxury” item (at the upper-left) and move it downstream towards the low-price mass-produced point (at the lower-right). As the setup charge pays for itself in the luxury market arena, it becomes easier to then make the product in larger quantities for the mass market arena by reusing the same mould or jigs or manufacturing tools, and cranking the assembly line wide open for the mass market.
Of course, the problem with consumers is that if you sell too many luxury items as mass-manufactured items, it becomes tougher to sell upscale products.
You can tackle this problem one of two ways: either (a) through branding (by having a luxury brand and a mass-manufactured brand, such as Toyota and Lexus), or (b) by simply deciding to sell all your products at the upper-left corner (as Bang-Olufsen does) or the lower-right corner of the curve (as Apple does).
Now we can also use this to explain why certain technologies suddenly “appear”; that is, we can easily describe what happens when some technology waiting in the wings suddenly explodes on the scene:
Suppose we have a new technology, and our setup costs are high and our per-item charge is high–because it’s an all new technology. Perhaps tinkerers play with the technology or it’s something that floats around in the labs–but to get it out there would cost a lot of money.
Then we may see a supply curve that looks like this:
Note the curves never cross.
At no price point does the supply curve ever cross the demand curve, because the item simply cannot be made at a price that anyone would want it at.
This is far different than the traditional supply/demand curve we looked at where we model the supply of something as a gaussian curve; that gaussian assumed a large number of suppliers who could supply a good, and a few could create a handful of items at a high price point.
Using the old supply/demand curve, what happens when the price drops a little bit is what we would expect:
We get a tiny gain in the population willing to buy a product.
But if we use our equation describing the actual manufacturing costs we don’t just get an incremental number of adopters buying a luxury product. Instead, for a small drop in manufacturing price we get an explosion of demand:
This explains how we went from just a handful of mobile smart phones in 2006 to nearly everyone carrying an iPhone less than a decade later. As manufacturing costs dropped, it intersected the demand curve–and suddenly we went to a world were nearly everyone had one. And it wasn’t like the price to manufacture smart phones radically dropped in order to stimulate demand, as would be suggested if we used the traditional supply curve.
I really don’t have a point to all of the above, except to note that some rather interesting things come out of the traditional supply/demand curve if you attempt to actually model what the supply curve actually looks like and what the demand curve actually looks like, rather than just gesturing at the chalk board and drawing an upward and downward sloping line.
I’m sure if a more generalized treatment of the demand curve was done–for example, if we have a population where half are willing to jump on at one price, and the other at a second price, we’d see some other interesting things jump out of the graph. Just as I’m sure if we could model the additional dimensions behind the supply/demand curve, such as the different values different employees have for a corporation, or we could model businesses which use loss leaders to make a profit–we’d get a much deeper insight into how the economy works.
It is virtually a constant of history, so much so that we either forget or take for granted the fact, that one major fault line throughout politics is the politics of the metropolitan urban centers verses the politics of the outlying rural towns.
See, our politics is always informed by what we are used to and what we understand. If we grow up around Jesuits, around homosexuals, around Holy Rollers, around the Amish in rural Pennsylvania–that’s what we are used to and what we understand, and so we may take sides on certain issues depending on what we understand. Someone who grows up around homosexuals, for example, may be more inclined to support gay rights than someone who grew up in an isolated rural town where homosexuality is a sin practiced in the big city.
That gets us to a major political fault line: those who live in a large metropolitan area tend to be surrounded by a variety of folks. Life is made orderly through the intervention of governments and local agencies: governments become something ‘we all do together.’ And because urban centers expose us to a variety of people we become more understanding of different lifestyles and different cultures than our own–we’re constantly surrounded by it so it becomes rather normal to us. Here in Glendale, for example, I’m constantly surrounded by hispanics, by Armenians, by Koreans–it’s normal to be sitting at a sidewalk cafe with my wife and be the only english speakers.
In rural areas, however, things are radically different: you may not be exposed to as much variety of culture or of lifestyle choices. Uniformity of way of life helps to aid in survival: most of your neighbors are probably like you. Government is few and far in-between, so generally you turn to religion as the ordering factor: the Sunday sermons, the Saturday synagog, the daily prayers at the Mosque become the way problems between people are informally handled. You are probably distrustful of outsiders, because in a rural setting you don’t experience a lot of variety of culture–and in many places in the world and across the years of history being different creates friction that makes survival difficult.
Metropolitan areas encourage cultural liberalism: openness to others, reliance on large government agencies (because government becomes the only common factor shared by all residents), a tendency to mind your own business (because privacy is an implicit joint contract rather than a fence or a quarter mile of road between neighbors).
Rural areas encourage cultural conservatism: a drive for informal controls through religious institutions since government institutions are ineffective with low population densities. A tendency to be nosy about your neighbors but judgmental if they fail to live to the community standards. And above all some degree of conformity and voluntary cooperation–if only because rural areas tend to be poorer, closer to the knife’s edge of survival, and requiring mutual aid and assistance to keep from going under.
And all this was true during Roman times (compare the glory of the city of Rome compared to the Visigoths living on the outskirts in late Empire times), this was true at the end of the Dark Ages (note where the Enlightenment started: in urban centers), and it is true today in the United States (where Democrats tend to control urban centers while Republicans tend to be established in more rural districts).
Which brings us to the Muslim Brotherhood and to Egypt.
The Muslim Brotherhood started as a religious social organization, a rural organization which used the rural values of the Middle East (really, the rural values seen anywhere in the world) of voluntary mutual cooperation to provide support to places like Egypt. A socially conservative organization (like most rural organizations anywhere in the world), the Muslim Brotherhood is defined by it’s (rural) conservative Islamic roots–promoting voluntary religious obedience (as do all rural religious movements) to the basic Islamic principles of faithfulness and charity: all survival traits necessary if you are to survive in a rural setting isolated from your neighbors.
In Egypt the Muslim Brotherhood stands in political opposition to the Egyptian Military, which unlike any other military organization in the world, is as much a political and economic force as it is a military force. The Egyptian Armed Forces is an interesting organization: in addition to providing boots on the ground, the Egyptian Military since the 1970’s has had an expanding role in Egypt’s economy: the Egyptian Military is a major manufacturer of a variety of different civilian products, including washing machines, clothing pharmaceuticals and microscopes. The military is also heavily involved in agriculture and in maintaining Egypt’s national infrastructure.
So when we talk about the Egyptian military it’s important to remember its role as a social and economic entity as much as a military presence; Egypt’s military is as much an extension of the will of the people in urban centers as much as it is a military fighting force in the traditional sense.
And this brings me to President Obama’s support of the Muslim Brotherhood.
I just don’t get it.
In a very real sense, as much as analogies translate across international borders, the Muslim Brotherhood is the conservative rural element of Egypt; it stands in direct opposition of the more moderating elements of Egyptian society that comes from her urban centers.
Not that I necessarily have any problem with conservatism of any form; our politics tend to be informed by our own experiences, so to blanket negate someone’s political positions is akin to negating their life experiences. However, as the world tends towards urbanization, we are increasingly evolving into a more culturally liberal world which increasingly relies on government regulation rather than informal religious obedience to maintain social order.
And while there are elements of rural culture (such as self-reliance, voluntary mutual aid, and respect for traditions) which are important to preserve even in urban centers where nihilism tends to be the order of the day, rural conservatism is currently dying–and only a massive depopulation of the planet through a global catastrophe will change this trajectory.
President Obama’s support of the Muslim Brotherhood, in other words, would be akin to his supporting rural Democrats of the 1950’s or rural Republicans today: it just makes absolutely no sense for the consummate urban liberal-progressive politician to do this.
I have a theory, however.
The problem in Washington D.C. is that most modern liberal-progressive politicians today who learned at the knee of their liberal professors after the Left’s grand march through the institutions have been blinded by The Narrative.
And The Narrative is this: today’s modern world is defined by the world’s reaction to The West. That is, Western Civilization, in imposing colonialism in the 19th century and causing two World Wars (and their aftermath) in the 20th century, was the chime that rung the bell of history–and the entire world is still vibrating in reaction.
Take the Middle East, for example. A liberal professor may note that the Middle East was the fault of Western Powers who, around World War II, took a largely nomadic population and drew artificial lines in the sand. We created the modern Middle East and all of its disasters by imposing a western notion of country on a tribal nomadic people–and thus all the wars and disasters in the Middle East today is a direct result of this process.
The Middle East’s ringing, in other words, was because of the British chime.
And today, the United States as inheritor and de-facto guarantor of Western Civilization, is the force that is causing the rest of the world to react.
So look at the Middle East through this prism. Nine-eleven was not a result of 19 terrorists successfully hijacking 4 airplanes–it was triggered in reaction to a U.S. presence perpetuating a British and French-defined political order imposed on the Middle East, causing thousands to live in near poverty as Western imperialists confiscate badly needed oil and prop up puppet regimes in places like Saudi Arabia.
The rise of the Muslim Brotherhood was not because of local conditions on the ground in Egypt; it was in direct reaction to U.S. imperial efforts in that region, perpetuating a British imposed order on Egypt. And the fault-lines between the Egyptian Military and the Muslim Brotherhood is caused by the U.S. playing favorites, king-maker and arbiter to a world order that was imposed externally when that part of the world was drawn up around World War II.
So to the liberal-progressive raised on the tit of post-modernism, on deconstructionism and on modern multi-cultural studies, the answer to Middle East peace is clear.
First, apologize. Not for who we are as a nation, but for the blunders we’ve committed as an unwitting and de-facto successor to Western Civilization, and for our misunderstandings which cause us to impose an alien order on a people who may wish to organize their affairs differently.
Second, reach out to opposition organization, for the express purpose of bringing them to the table and giving them greater regional responsibility. In essence Obama’s support of the Muslim Brotherhood makes sense if you consider them to be akin to a more politically active Red Cross organization whose ties to terrorism is in direct reaction to a hundred years of Western blundering in that region.
Once you do this then eventually you can withdraw–well, not western support, but at least overtly western influence in the region, and allow the region to reach a more natural political equilibrium with all interested parties at the table.
Of course this forgets that the natural state of the world is warfare, destruction and death. Primitive man was not enlightened man living as one with Gaia; primitive man was poor, hungry, on the edge of survival, and at constant battle over necessary resources to survive.
And this worries me because Egypt is running out of food, it’s running out of money, unemployment is at a very high level, and it appears to be descending into civil war.
The real irony is that by believing the U.S. was imposing its will on Egypt, by taking the college-professor liberal-progressive approach of attempted reconciliation and appeasement, the United States runs the risk of triggering the very civil war it sought to prevent–all because Egypt’s civil war has nothing to do with the United States and everything to do with local cultural conditions on the ground, local cultural conditions that are a constant throughout the world–local cultural conditions which a liberal-progressive who studied at the feet of Heigel and Derrida and the like are utterly blind to.
And, ironically, I believe it placed Obama on the wrong side of history.
Second, we should echo the aspirations of these voters. The American immigrant experience is the most aspirational story ever told. Immigrants left all that was familiar to them to come here and make a better life for their families. That they believe this is possible only in America is the best expression of American exceptionalism I know.
I have always been personally a very firm believer that we need to reduce the time table and path to legal citizenship: as an immigrant you should be able to come to this country and qualify for citizenship within a year or two, not the current process when can take a decade or more.
So many of my friends, acquaintances and the folks I run into on the street don’t seem to know the first things about economics, why economics is interesting or important to understand, or the consequences of certain policies on economic behavior.
Heck, most don’t know what “economics” is, other than it involves money and some voodoo graphs or something.
But it really boils down to describing the behavior of a group of people in the face of the things they want, and the things they have to do to get what they want. And that doesn’t necessarily restrict itself to things like “food”, “shelter”, “toys” or whatnot; it can even be used to help shape one’s thinking about intangible things we want and what we have to do to get them: I want to be loved, I want sex, I want to be happy, and to get them I have to change to be more lovable, I have to seek a partner, I have to do things to make myself happy.
It’s why I believe the S-D curve is far more important to politics than politicians, even when dealing with Market Failures where there is a genuine need for government intervention.
2011 was the worst year for new home sales since the Census Bureau started tracking sales in 1963. The three worst years were 2011, 2010, and 2009 – and 2008 is also on the worst ten list. Although sales will probably increase in 2012, this year will probably be high in the list too.
I’m not surprised, really.
The economy collapsed because the housing bubble collapsed. The housing bubble collapsed because starting in 2007, a lot of adjustable rate mortgages made to lower-income families started coming due. (An adjustable rate mortgage is a mortgage which has a low fixed “teaser” rate (in some cases, 1%-2%) which then become an adjustable rate mortgage after 5 years, with interests jumping up in some cases to the 6% to 9% range.) Source, pg 8, figure 1.7, linked from here.
Well, here’s the problem: when the adjustable rate mortgages popped, a lot of people suddenly could no longer afford to make their payments. Suddenly the market was flooded with foreclosures. Home values dropped. And the real estate portfolios of a lot of banks suddenly shrank, making banks unable to loan more money–since what banks can loan is based on the size of their capital portfolios, and capital portfolios in the United States are generally dominated by single-unit residential real estate. Capital holdings shrink, what you can loan shrinks as well.
Now a lot of ink has been spilled as to who should be blamed for this mess. Personally I blame a mentality in 2005 that led a lot of people on the ground to believe real estate prices could not go down because of some “fundamental shift” in the nature of the housing market that didn’t exist. By believing housing prices could only go up but never go down (except perhaps in specific markets due to local forces that overwhelm a global trend), a lot of people made a lot of bad decisions–including bad policy decisions, bad loan decisions, bad banking and regulatory decisions–which exacerbated the disaster.
But here’s the thing: we may not be spilling a lot of ink on the housing crisis and ARM resets. But they’re still resetting. See here, for example.
So long as ARMs are resetting, there is a persistent drag on the economy. Granted government actions have done a lot to reduce this from a nuclear bomb to a forest fire, the forest fire is still burning.
And as you can see from the link above, resets will remain high, though tapering off, through to the end of 2012. Which is why I’ve always asserted if we see a recover, we’ll see one around Q1-Q2 of 2013, after the ARM resets have finished, after the backlog of homes have been sold, after the housing market (which represents a sizable percentage of small business activity in this country) has recovered.
A fear-inducing advertisement, posted around New York City, warning that too much sugary soda will give you diabetes and cause you to lose limbs has come under scrutiny because the amputee in the poster lost his leg due to Photoshop, not diabetes.
I’m a refugee from Facebook.
I’ve left Facebook for a couple of reasons. First, the privacy thing just seems stupid. Second, I want to separate my political musings from my technical blogging, which is done at my development web site. And third, the point of my blogging is to link to things I find interesting and blog about the things that I find frustrating or politically dumb, without the constant commentary from random acquaintances who have decided that because I tend to fall towards the free market capitalist side of the liberal verses conservative spectrum, I’m a closet homophobe or a racist or something equally mind-numbingly stupid.
At some point I’ll put up a more detailed ‘about me’ post. But for now, let me summarize my own political beliefs.
This comes down to a belief that people should be left alone to live their own lives. If we want to overly indulge in salt or sugar, we should be able to do so without the nanny state telling us or regulating salt or sugar or transfats or whatever else out of existence “for our own good.” Yes, this means some people will make bad decisions–but we cannot save people from making bad decisions.
And this also means that in the divide defined by A Conflict Of Visions I firmly come down on the side of those who believe that while individuals may be able to improve, mankind as a whole cannot. Liberal utopian visions ranging from Marx’s Communist end-game to our present-day elites and their visions of a green urbanized utopia all depend on the fundamental axiom that people as a whole can be elevated–if only through the right combination of regulatory burdens, educational programs and nanny-state imposition of external (and elite-approved) values onto the masses.
As an aside, this also means I don’t subscribe to the religious conservative notion that somehow we can impose morality onto the masses through regulatory schemes. Souls must be saved one at a time; God does not provide short-cuts.
When looking at public policy, supply and demand is king: we want what we want, but we’re only willing to pay so much for it, and we want to sell what we want to sell, but only people who want it will buy it.
The consequences of thinking about supply and demand in public choice theory is pretty substantial, especially when you think about how externally imposing either supply, demand, or price control affects market forces, and how incomplete information creates friction in those market forces.
Take teachers, for example. I would contend, as an example, that Teachers Unions, by creating a notion of tenure and making it difficult to fire bad teachers have created the perverse outcomes of lowering teacher salaries (by reducing competition for good teachers and by increasing the pool of bad teachers) while making it harder to attract good teachers to the profession.
So welcome, whomever you are.