Why Short-Selling?

In reference to my recent posts on the dueling MLM moguls and their diversity minions, I have a question:  how does short selling work?

I know the textbook answer:  short-selling means “borrowing” stock and selling it, hoping the price goes down so it can be re-purchased at a lower price and returned to its owner.  But . . . what does it mean to “borrow” a stock?  Or more precisely, why would anyone “lend” me their stock?  I assume the lender charges some kind of rent for his loaned stock and a fixed lease time, but is that correct?  And why would I be enthusiastic about lending stock to someone so he can “bet” on a price decrease?  Especially (as in this case) when the short-seller is politically connected, and might be able to drive the price down irrespective of the stock’s value fundamentals, during which time I can’t sell it myself because I’ve loaned it out!

And why, as a regulatory matter, do we allow short-selling in the first place.  I get that, in theory at least, speculators aid in price discovery.  But short-selling is something beyond that, and it’s not really clear how it adds value to the market.

I would be grateful to anyone who can answer these questions.

MLMs and Me

Via Steve, this NYT article on the dueling diversity-mongers betting billions of bucks over the future of Herbalife inspired me to write of my own exposure to “Network Marketing”, a.k.a. multi-level marketing (MLM).

My grandparents were Amway salesmen back in the late 1970s (at least, I think it was the 1970s, but it might have been the early 1980s), recruited by friends into the organization.  They eventually left with a garage full of not-especially-effective laundry detergent, which we were still using well into the 1990s.  I myself was too young to have any appreciation for the Amway business model, although I was old enough to know that Amway products weren’t very good.

I have a stronger recollection of the visit the Shaklee Vitamin people paid to my parents house circa 1980 (plus or minus a couple of years).  As my parents explained later, a (somewhat distant) professional friend of my father called and asked to come by to discuss “a personal problem”.  Invited over to the house, he arrived with what turned out to be a higher-level Shaklee pitchman.  My parents, whose Scots-Calvinist resistance to salesmen puts my own to shame, wouldn’t allow them in the house before asking them straight out if they would be required to buy or sell anything.  They were assured that this was not the case.

I sat in on their presentation, and received my first exposure to  the MLM method of marketing goods to consumers.  For those of you new to the concept, MLMs recruit recruiters of recruiters, an endless chain of representatives who build “downlines” fueled by personal consumption of the MLM’s products, some residual became the sales commission for the “uplines”.  So the Shaklee reps weren’t exactly lying:  my parents had they become involved, would theoretically have not been required to purchase any products, nor would they be selling products as such.  They would have been Shaklee representatives recruiting  further levels of Shaklee representatives.  So while someone obviously would have to buy something for anyone to make any money, no individual would be required to.

Flash forward to the early 1990s at a sizeable military town in the Southwest.  An associate from work called and asked to come by my apartment.  The words “personal problem” may not have been spoken, but that was definitely my impression at the time.  And as in the Shaklee experience, my friend served as a stringer for a higher-level rep who made the bulk of the pitch.

“So . . . it’s a pyramid scheme,” I observed at the conclusion.

“No it isn’t!” exclaimed the rep with no small animation.  “We have a letter from the FTC saying we’re obeying the law!”

“I don’t care about the FTC,” I replied calmly.  “I’m saying that, structurally, the money-making enterprise you are pitching here requires an ever-expanding base of consumer-marketers recruiting and ever-expanding base of consumer-marketers.  Definitionally, this is a process that must end in saturation, leaving the bottom of the pyramid consuming products but not actually making any money.”

We went around and around on this point without much progress.  Several times, I disavowed any interest in being a salesman of any sort but expressed interest in seeing the product catalog.  Several times, the rep replied that while they would be willing to show me the catalog at some future date, what they really wanted was for me to recruit.  Since I worked with the stringer, I think I may have eventually seen a catalog; I am certain I never purchased anything; few of the products advertised were ones for which I was in the market, and none were price competitive.

Flash forward a few months later.  I received my second pitch for network marketing.  A “friend” (in the sense that we attended the same young-adult Bible study group) invited me downtown to a restaurant to discuss a “business proposition”.  This sounds relatively honest, but my specific impression was that it was a business that he himself was creating.  I won’t quibble over definitions, except to say that MLMs encourage their reps to think of themselves as “business owners”.

Our dinner meeting was somewhat frustrating.  I was treated to a list of interview-type questions about my goals, financial objectivds, etc., followed by a fairly lengthy and very general lecture on “residuals”, i.e. profit margins.  It was frustrating because (a) I didn’t see myself as applying to join his “business” and (b) the ECON 101 struck me as pretty obvious, yet my “friend” wouldn’t skip to the part where he actually told me what the business was.  At the end of it, he invited me to another meeting where it would all be explained.  “Why don’t you explain it to me now,” I suggested.  “Sorry, but that’s not how I do business,” my “friend” said.  “If you’re really interested, you’ll come to the meeting.”

I was pretty irritated by this point, but since I didn’t yet smell an MLM and, being single, didn’t really have anything better to do with my evenings anyway, I eventually came to the public school auditorium with 1000 other potential recruits for the “meeting”.  The ushers carefully sat us in the front; the recruiters sat in the rows in the back, making slinking out early extremely difficult.

The “meeting”, as you might expect, was conducted in the spirit of a revival meeting by a man that, I swear, was a spitting image of Wayne Newton.  Apparently, every one in the room worked for him.  There was a long inspirational talk about “financial independence”, the revelation that this was indeed an MLM, and a final revelation that this MLM was called “Amway”.  It was not long after “Amway” that I decided that, conspicuousness be damned, I was walking out the door, but I want to share the one visually striking evidence as to what the opportunities in MLMs really are.  At one point, Wayne Newton asked everyone who had achieved the first level of network growth to stand up, and the back half of the auditorium duly rose.  The first level of growth would earn its recruiter, IIRC, $6 per month in commissions.  Wayne progressed through the levels until reaching the level of “financial independence” at which we could quit work:  $20K per year.  (This isn’t as absurd as it sounds:  in the early ‘90s in the Southwest, there were a whole lot of people scraping by on less than $20K, including, just barely, me.)  There were, I think, two individuals in the back left standing at this level of success.  Everyone else in the auditorium was supporting those two people, who were themselves supporting Wayne Newton.

Those two recruiting attempts within the first six months of my residence were the most aggressive.  Other attempts would follow over the next two years, but they were much more conversational.  By the time I returned from Japan two years after that, my professional status had lifted me out of the target demographic, and/or the enthusiasm for MLMs had cooled in the face of much better job opportunities.

In preparation for this article, I set about researching Shaklee’s multiple run-ins with the FTC.  I failed at this research; indeed, it appears that Shaklee has successfully purged the entire internet of its malodorous legal history.  But I eventually came across this exhaustively compiled political, legal, and regulatory history of MLMs.  The article deserves to be read in its entirety if you have several hours to devote to it.  But I wanted to comment on a few summary points I gleaned.

• The standard MLM pitch as my parents received it from Shaklee and I received it from Amway is, according to formal FTC interpretation of the law, illegal.  This, frankly, had not occurred to me at the time.  I did not believe that anyone was, strictly speaking, lying to me about the income opportunities since the improbability of realizing those opportunities was so immediately obvious.  But as Steve points out, MLMs attract – and exploit – the bottom half of the bell curve, while I sit firmly in the top 5%.  The author writes:

  Most recruits will join because of the "business opportunity" and because they are led to believe the products are not only in high demand but are unique ("always!"), exclusive ("absolutely!"), elite, upscale, innovative, super-concentrated, miraculous, healthier, more environmentally friendly, etc. When the business opportunity fails, they either accept the theft because they've had it drilled into their heads that only losers quit and settle on believing that they're buying these products at some tremendous discount because they're in a "buying club", or quit and feel so guilty they fail to understand they've been robbed. Now imagine an entire legion of MLMers paying for millions of these overpriced, uncompetitive products just so they can participate in a compensation plan they believe is leveraged to help them earn a reasonable part-time supplemental income if not a vast fortune, and you've got MLM's gravity-defying money funnel, which is more aptly compared to a vacuum cleaner sucking the income stream from the bottom up.

• The FTC wields incredible power.  During the Clinton administration, the FTC under Robert Pitofsky pre-emptively shut down a string of MLMs, forcing them on pain of bankruptcy to sign Consent Decrees without ever having to bring a criminal case in court.  You don’t have to love MLMs to be bothered by unaccountable power.
• Contrariwise, MLMs in the 2000s went to some lengths to cozy up to Republican politicians in the name of “free enterprise”.  You don’t have to hate MLMs to be bothered by the prostitution of your philosophy for the bottom-feeders of capitalism.
• We live in a hyper-regulated economy.  As the article makes clear, everything has a set of regulations governing the minutiae of its behavior.  Franchises are regulated.  Buying clubs are regulated.  Independent contractors are regulated.  Commissioned and direct sales are regulated.  And of course, employment is regulated.  Post 2008, I am somewhat less sympathetic than I once was (though not entirely unsympathetic) to the argument that this regulation is as bad in principle and practice as some libertarians will often insist.  But I am pretty sure that no good can come from having the regulations and then allowing MLMs to exploit (or create, or merely assert) loopholes in those regulations to operate with impunity on the grounds that they aren’t actually a buying club, or a franchise, or a sales force.

Econ 11/23/12

I don’t understand the economics of “Black Friday”, so named (apparently) because it’s the day of the year that retailers start turning a profit.  Doesn’t the discounting undermine this objective?

Some possibilities:

• The discounts are only offered to the most price sensitive buyers, screened by their willingness to stand in line outdoors in the cold for a couple of hours waiting for a chance to buy that television for which they would never pay full-sticker.  This is known in economics as “price discrimination”, the same process behind, for instance, coupons.  But it still requires the retailer to sell the television at a profit, even if it is a much reduced profit.  Does the retailer still have a margin after the discounting?
• I would be inclined to think that competition in the age of online shopping would have brought retail profit margins in general down to the “indifference curve” (another econ concept).  Yet the discounts offered on Black Friday are below even the internet pricing, sometimes a lot below.  This means that the retailers are taking a loss or the economy-wide retail markup is huge for the rest of the year.  Neither seems likely.
• Retailers might be counting on shoppers to buy non-discounted items on their visit.  Best Buy, for instance, could sell you a TV at a loss and then charge you $80 for the Rocketfish HDMI cable you need to connect it.  Wal-Mart might count on shoppers with money burning holes in their pockets to buy full-priced items when they learn that the discounted items were sold to the first four people through the door.  If true, it shakes my faith in the financial probity of Black Friday shoppers.

But I don’t actually know the answer.  Any ideas?

Medved’s Foolishness

Michael Medved:

With the president participating in successful last-minute efforts to prevent crushing, automatic, across-the-board tax hikes that would have done disastrous damage to the U.S. economy, it’s time for Barack Obama’s angriest critics to finally give up the paranoid fantasy that he’s some sort of alien agent with a secret agenda to wreck capitalism and weaken the United States.

Everything about this paragraph is wrong.  The tax increases to which Michael refers would take taxes up to the level that they were during the Clinton administration, which happens to be the last truly prosperous era we had.  Odd, though, that he doesn’t mention the spending cuts.

The real “fiscal cliff” is when we exhaust our ability to borrow money.  At that point, whether we cut spending or embrace hyperinflation, we’re all in for a pretty unpleasant drop in living standards.  The string of budget deals preventing us from getting our deficit under control only hasten that day.

No, Obama’s plan for the destruction of America is the same as the Republican plan:  keep importing foreigners through immigration.

What Price Victory?

Petrarch writes:

Scott Walker's gutting of Wisconsin's public-sector unions represents the very first actual, substantive, conservative offensive victory in nearly one hundred years.

Actually, no.  For one thing, I can think of two other substantive victories:

• The momentum behind gun control has been turned back.  In twenty years, liberals have gone from passing actual gun control legislation to pursuing deeply fanciful meta-perception shaping like Fast & Furious.  Meanwhile, the nation has seen a proliferation of liberalized concealed carry laws, the Castle Doctrine, and Stand-Your-Ground.
• Bilingual education has been sharply curtailed.  Once the wave of the future in our rapidly Hispanicizing nation, first California’s Proposition 227, then the NCLB, cut the legs out from under it.

But . . . yeah, I will concede that substantive conservative victories are pretty thin on the ground.  But this brings me to my second point, which is that what happened in Wisconsin isn’t one.

Don’t misunderstand me.  Considering that labor unions are a key component in the Democrat coalition, then restraining them as an electoral force is a Republican victory.  But it is a conservative one only to the extent you believe Republicans actually advance conservative priorities rather than merely slow the rate of surrender.

More compelling is the salutary impact Scott Walker’s success is having on Wisconsin’s public fisc.  The public’s relationship with its public sector unions is structurally untenable in an era of declining tax revenues and shrinking real economic output.  It’s reform therefore needed doing for that reason alone.

But make a mistake:  the reason it needed doing, and the reason we are in such dire fiscal straits, is precisely because of the Left’s more substantive victories – or rather, the victory of the priorities of America’s bifactional ruling class at the expense of middle-class whites.  Revenues are drying up because the elite have imported tens of millions of immigrants, most of them illiterate Mexican peasants whose claims on social services exceed their tax contributions, and all of whom have driven down the wage levels from which those contributions are extracted and driven up the cost of housing in key areas of the country.  Simultaneously, the elite has nearly obliterated small domestic manufacturing with its trade policies.

Had conservatives achieved actual substantive victories on these issues back in the 1990s, then our public revenues would be high enough to pay the wages and benefits “promised” to the unions.  But we didn’t, so they aren’t.

Ace notices that Obama avoided the Walker recall like the plague, and writes:

As a result of Obama's abandonment of Barrett, Wisconsin Democrats have realized something that we could have told them years ago: Obama is in it for himself and he doesn't really care about anyone else.

I will be more specific than that:  Obama realized that the union members affected by this are mostly middle-class whites.  Now, Obama is happy to take their money and votes, and he probably appreciates their efforts at intimidating his opponents.  But he doesn’t care about them as a class.  They aren’t rich.  They aren’t cool.  And they certainly aren’t “diverse”.

Downward Mobility

Trumwill wrote a couple of posts on political tribalism that are worth reading in their entirety.  The context was the issue of “artistic integrity” as applied to (or rather, against) CleanFlicks, a company that issued family-friendly versions of movies until sued into submission.

I commented:

The references to “artistic integrity” brought to mind something I thought about a lot at the time, but lately not so much. When I was a HS Junior, our school produced the play You Can’t Take It With You, by George Kaufman. It was a small school, so everyone had a part. I played Tony Kirby (ironically, the romantic male lead - I didn’t say we performed it well).

The play is devastatingly funny, and while nowadays I recognize it to be an anti-WASP screed, we certainly had a good time with it. But the school required us to purge it of all “objectionable” material, i.e. any references, however oblique, to sex, alcohol, dancing, non-Christian religion, etc. You might not think a play from 1937 would have anything bad in it, but you underestimate our censoriousness.

Pretty central to the play is its open advocacy of a drop-out-kick-back-enjoy-life attitude. At the time, I thought this advice to be, at best, a little silly. I also thought that some of the “objectionable content” left on the cutting room floor might be organically related to it, and I was peeved at school officials for being so obtuse as to embrace the attitude but then squelch an understanding of where it might take you.

Looking back on it, I guess I was kind of invested in the idea of “artistic integrity”, though from the negative perspective in this case.

Since I didn’t want to offend Trumwill’s commenting standards, I reserved elaboration on the bolded section for this post.

This was my climatic soliloquy:

"No, I want to talk about it now.  I think Mr. Vanderhof is right- dead right!  And tomorrow I won't be coming to the office.  I've always hated it and I'm not going on with it.  And I'll tell you something else. I didn't make a mistake last night. I knew it was the wrong night. I brought you here on purpose, because I wanted you to wake up!  I wanted you to see a real family; as they really were.  A family that loved and understood each other.  You don't understand me. You've never had the time!  Well I'm not going to make your mistake. I'm clearing out!...  I'm not going to be pushed into the business just because I'm your son.  I'm getting out while there's still time...  I don't know, maybe I'll be a swing dancer, but at least I'll do something I want to do!"

This pretty much sums up the play’s message to its 1930s audience:  leave the commanding heights of industry, built by your fathers, to others in favor of . . . swing dancing.  Or something.

Whatever its merits, it never seems to occur to anyone that this advice, issued by people with names like Kaufman to the sons of men with names like Kirby, might have been, you know, a little self-interested.

Steve Sailer quotes from the movie Metropolitan:

Take those of our fathers who grew up very well-off. I mean, maybe their careers started out well enough, but just as their contemporaries really began accomplishing things, they started quitting—'I’m rising above office politics,' or refusing to compete and risk open failure . . . or gradually spending more and more time on . . . conservation or the arts, where even if they were total failures no one would know it.”

How’s that working out for you lately?

Conservative Power

In the course of an interesting critique of Charles Murray's book Coming Apart, the substance of which I addressed here, Andrew Gelman (via Steve Sailer) writes:

The conservative elites tend to live in different places than the liberal elites and they tend to have influence in different ways (consider, for example, decisions about where to build new highways, convention centers, etc., or pick your own examples), and those differences interest me.

Let me try to articulate what's wrong with this statement. It may well be that many if not most liberals and conservatives buy into the notion that development per se is a partisan issue; if so, it reflects badly on both of our inability to perform rational cost-benefit analysis. But I will nonetheless assert that there is nothing especially conservative about development.

But let's stipulate that conservatives are "pro development". I don't want to minimize the impact that development projects have on local communities, and making decisions about "where to build new highways" represents the power to materially impact people's lives, for good and ill. But even if we agree that nominal conservatives make these decisions, I can't see how such decisions are made on behalf of conservatism, or at least any conservatism that I would recognize.

“A Scotsman walks into a bordello . . .”

On Ilkka’s recommendation (kind of), I watched the movie Welcome to the Rileys.  To recap:  a middle-aged couple whose daughter had been killed in a car accident attempt to reform a teenaged prostitute in New Orleans.

The movie makes a nod toward illustrating what a wretched creature a teenaged prostitute would actually be . . . though I hasten to add:  only a nod.  This is, after all, Kristen Stewart, whereas in real life (or at least the version as represented on HBO documentaries) retail sex workers are for the most part gross and disgusting.  But here we see Stewart’s prostitute ignorant of what should be common knowledge, like what a UTI is or how to open a checking account.

Through an barely plausible set of events, Riley meets Stewart in the strip club /bordello where she plies her trade.  Now, I guess if I had thought about it, I would have assumed that strip clubs are organized as to extract the maximum amount of money possible out of its clientele.  But the movie shows how this works in practice:  the client is offered a private lap dance.  But then you have to pay for the room.  And the room requires a bottle of house champagne.  And everything requires a tip.  And then you negotiate any, um, special services.  Etcetera.

I’m an unlikely patron of the sex trade, but even if I wasn’t, I couldn’t help but be irritated by all this for them same reason I’m irritated by Celebration Cruise Lines:  I want and expect price transparency for my purchases.  Not bait-and-switch or nickel-and-diming.

The Rich Get Richer

Megan writes:

Income inequality has been rising for so long that people have started to assume that it has just kept rising, even when the data show otherwise. We don't want to spend years focused on income inequality, only to learn that the financial crisis fixed it for us.

But I don’t think the charts she shows support her argument:

These graphs don’t say that “the recession fixed it for us”.  These graphs tell me that income inequality took a cyclical dip as part of a 30+ year rise back to 1920s levels.

I’m inclined to think that, by itself, this trend is probably bad but not catastrophic.  But nothing ever happens by itself, and I’m much more vexed by the percentage of the national wealth going, not to people putting their capital at risk or creating value, but to financiers collecting rents by sitting astride key economic nodes.

Secrets of Success

From The Pawnbroker (1964):

I guess I should object to Sol Nazerman’s assertion that the Jews don’t have a land myth; on the contrary, at 3800 years old, Zionism takes the cake for the most enduring land myth in history.

Otherwise, several things stand out:

• Sidney Lumet made this movie in 1964.  I’m guessing that the image of a Jew operating a small independent shop in an inner city neighborhood resonated with audiences back then in a way that it doesn’t today.  Besides the fact that Gentiles are today actively discouraged from thinking of Jews at all except as yet another victim class, most Jews today have evolved beyond the “middleman minority” role.
• As Andrew Young got himself fired for pointing out, Jewish shopkeepers were replaced in the inner city by Koreans, who were themselves replaced by Persians and Arabs.  Their experiences have much in common with one another:  a high degree of frugality; cultural insularity; and strained relations with the surrounding community.
• Sidney Lumet gives us an unromantic view of the inner city that has more in common with The Wire than with media portrayals of “the black experience” in most of the intervening period.  It shows, not just crime, but a wide range of dysfunction including prostitution and drug addiction.  But this dysfunction, or the perception of it, is behind the negative views that middleman minorities have of most of their customers.
• I was surprised to find nudity in this film.  The MPAA rating system wouldn’t be introduced until 1968, and the Hays Code was still in effect.  Can anybody think of instances of other mainstream films from this area that show a woman’s breasts?

Tech bleg:  I had no sooner uploaded this movie to YouTube when I received an email:

Dear Phi:

Your video, The Pawnbroker (1964) - Secrets of Success, may have content that is owned or licensed by UMG.

Wow!  How did YouTube figure this out so fast?  Could material copied from a DVD, decrypted, and edited in Windows Live Movie Maker still have metadata that would identify its origins?  Because it boggles the mind that YouTube has a computer that can recognize a particular movie scene.

People I Know

Networking.

I had heard about this for years, and it always scared the crap out of me.  Network, I thought.  I don’t have a network.  I just have people I know.

“Well, what do you think a network is?” my father asked me.

I dunno.  I guess I thought it was a set of relationships cultivated for mutual profit.  I never did that.  For one thing, I’m pretty sure I would suck at it.  I have no idea how to start such a relationship, nor how to maintain it.  And how would I hold up my end of the bargain?  I myself never got in anywhere but through the front door.

A while back, my cousin asked me about civil service jobs.  I had never been in the loop on a civil service hire and had no idea how the process worked.  So I asked one:  how do you get in the Civil Service?  USAJOBS.gov, he replied.

This was a rather naïve reply, or perhaps naïve of me to accept it at face value.  First of all, my cousin surely wasn’t interested in the Civil Service without knowing about the federal government’s human resources website.  Second, not all of the jobs advertised therein are “real”, i.e. position for which the government is actively recruiting.  They are rather “potential” job openings that might materialize at some point based on expected attrition.  And third, not all vacancies are filled from applicants to USAJOBS.  Many agencies have what is known as “direct hire” authority:  they can bring in whoever they want without advertising, formal competition or much in the way of outside oversight.  For instance, while I was in Afghanistan, the agency from which I exited the Air Force hired a whole bunch of people I knew from school this way.

And yet . . . when I needed it, the network was there.  Not, mind you, in the obvious place:  my boss.  Or her boss.  But coworkers.  Neighbors.  Friends from church.  My advisor.  People I Know.

What’s scary about this is that, with one exception, all the callbacks I’ve received from potential employers have been with the support of the network I didn’t even know I had.  Supposedly, employers actually prefer to hire people this way, but this strikes me as counterintuitive.  From an employer’s perspective, why would I want to limit my applicant pool to people my current employees happen to know, or to hire people whose loyalty is less to the company than to their own network?

And from an job seeker’s perspective . . . well, what if my next door neighbor hadn’t worked for an engineering firm with a new contract?  What if a friend from church wasn’t a program manager with a research institute and could put my resume in front of the right people?  These all seem like pretty close-run things, especially since my wife usually puts most of the effort into maintaining these friendships in the first place.

I expect that the people most handicapped by this system are fresh graduates.  Not only do they not have a lengthy work history in the field they are just now looking to enter, but the list of People They Know is probably limited to other students also just starting out.  Plus they don’t have wives yet.

Redistribute Sex

For those who haven’t followed it, Robin Hanson called attention to a video in which college students in favor of “wealth redistribution” are asked their opinion about “GPA redistribution”.  Unsurprisingly, their reaction is negative yet largely incoherent.

Robin writes:

My point isn't to say one can't come up with reasons to treat these differently. One could, for example, argue that we prefer differing school signals to help employers sort people into jobs, to achieve higher productivity so that the pie is bigger when we redistribute money. My point is that most people can't think of such reasons, making it pretty unlikely that such reasons are the cause of their opinions.

Robin then allowed that little can be learned from the inability of college students to instantly articulate their objections to such an off-the-wall proposal as GPA redistribution.  On reflection, XPostFactoid lists some objections, which Megan rebuts, although I think she give short shrift to this point:

[I]t's still true that student performance bears a closer relationship to grade than the social utility of the average person's work does to that person's earnings.

More specifically, metrics for assessing student academic performance are specifically contrived to measure individual mastery of the subject matter.  Leaving aside for the moment Half Sigma’s notion of the difference between “value creation” and “value transference” in the modern economy (a notion I find broadly persuasive, by the way), consider that if GPA was accumulated the same way as wealth in the market economy, then students would be free to exchange the answers to test questions they know for answers they don’t know – complete with IP protection!  But of course, this isn’t allowed:  testing conditions are set up to most resemble those of subsistence farming, in which wealth and GPA are only a function of an individual’s ability to extract them from the raw earth.

If we really want students to reconsider the morality of wealth redistribution, then Brandon’s comment on Megan’s post is apropos:

But what about sex redistribution? It's not fair that a small number of people are having lots of sex with many attractive partners while others have sex only infrequently with unattractive partners, if at all. The government needs to step in and do something to address this inequity.

I chimed in:

So much of the welfare/affirmative action/civil-rights apparatus, in effect if not in design, redistributes wealth and opportunity from men (who create and control it) to women.

Yet not only will women object to redistributing the resource they control, they have set about dismantling such equality-inducing arrangements such as marriage / legally enforced monogamy as once existed.

Conservatives believe in economic freedom, and we are prepared to tolerate a fair amount of economic inequality to preserve it.  Yet we frown on social inequality and would enforce social regulation to prevent it.

Liberals, in contrast, believe in economic equality and happily redistribute wealth to that end.  But they believe in “social” (i.e. sexual) freedom and positively revel in the inequality that results.

White Ethnic Cleansing

Via Steve, a WaPo article on white flight from diversity:

More than half of the United States’ 100 largest cities relied on Hispanics and Asians to grow and would have seen their populations decline without them over the past decade, a Washington Post analysis shows.

What seems lost on the WaPo is that these Hispanics and Asians have driven out the extant White population or deterred them from moving there.  Had there not been immigration, the opportunities these cities afforded would have been snapped up by Americans.

The article continues:

“The real energy in cities is going to be from Hispanics coming in,” said William H. Frey, a demographer with the Brookings Institution. “Cities in the industrial Midwest could use an infusion of new immigrant minorities coming in. Cleveland and Detroit haven’t done well; they’re not attracting enough Hispanics.”

This has cause and effect exactly backwards.  The job growth drives the influx, not the other way around.  But if the WaPo is so sure of itself, then let’s make a law forcing immigrants to move to Detroit and Cleveland, just to see what happens.

Democrat Budgeting: The Thelma & Louise Plan

On Paul Ryan’s proposed plan to reduce the deficit, Megan writes:

The wildly disproportionate fury and outrage which greeted both Bowles-Simpson and the Ryan plan from the left indicate that progressives have so far failed to come to grips with the fact that they are going to have to compromise . . . .  [T]hey're going to have to ultimately accede to some spending cuts, because this is one policy area where doing nothing is literally not an option.

Well, the left has to compromise to save the country.  But they don’t have to compromise in an absolute sense, any more than Thelma & Louise have to stop their car at the edge of the cliff.  Bankruptcy and suicide is always an option.  Just ask the Greeks.

Megan continues:

[W]hile some of the gap is going to be closed by tax increases, some of it is going to be closed by spending cuts.  And not just defense cuts, or seemingly trivial changes to physician reimbursement rates that we hope will snowball over time, but actual cuts in services that people currently want and expect to get from government--but do not want or expect to pay for.

I fear Megan understates the problem.  My own assessment is that these very people – the ones who want government services without government revenue – presently hold the balance of power in our country.  In theory, the left and right could reach a compromise on taxes and spending (although even here I may be assuming too much).  In practice, however, the center is determined to prevent exactly that compromise.

Depressions Suck

Three things happened today that struck me as part of a pattern.

1. I received an email from American Express (with whom I have a card that I never use) promoting something called "Small Business Saturday":

Imagine a day when everyone comes together to support small businesses. A day when everyone helps boost our local economies and preserve neighborhood character.

That day is November 27, 2010, the first-ever Small Business Saturday^SM.

JOIN THE MOVEMENT, AND SPREAD THE WORD ABOUT SMALL BUSINESS SATURDAY ON FACEBOOK.

We will donate $1 for each "Like" on Facebook—up to $500,000¹—to Girls Inc. to help teach and empower young women to be the entrepreneurs of tomorrow.

GET $25² FOR SHOPPING ON SMALL BUSINESS SATURDAY.

As part of our commitment to supporting small businesses, we will give you a $25 statement credit when you make a purchase at your favorite local stores and restaurants on Small Business Saturday. Enroll and use your registered American Express® Card. Availability is limited, so enroll today.

2. I received a facebook message from the younger brother of one of my best friends from high school. After a brief how-ya-doin', friend's younger brother's (FYB) email proceeds:

Just recently, I obtained a dealership for an environmental-conditioning technology company that has been one of the fastest growing companies in America, [Company X]. For 23 years, they have been designing and producing cutting edge Environmental and Energy technologies . . . . Clean air, pure water, clean clothes, good nutrition and clean electricity provide long term benefits for not only the earth and the environment but also our loved ones.

The best part is our ability to provide healthy living technologies at your fingertips, without ever leaving the comfort of your own home. Please look over my new online virtual stores and let me know what you think. Right now we have some great holiday specials that you might be interested in. I'd love to hear your opinion and if you care to share it with those you love, feel free to do so.

Would you like to do your shopping online this year, from the comfort of your own home?

Would you like to give a Gift of Health to the people you love with some unique items you won't find anywhere else?

Would you like to skip the shopping traffic, crowds and check-out lines?

Relax in your own home/computer chair and simply browse through our online Healthy Living Stores to select items or gifts for special occasions all year long.

As near as I can tell, this company is basically network marketing.

3. At work today, we had a visit from a representative of an independent research institute that's a pretty big deal in the southwest (big enough for me to have heard about it back when I lived there). She was in town for an "industry day" sponsored by another division of the company I work for, but had secured an opportunity to make a pitch to us. Her own business card identified her simply as a "manager", but she brought up on the speakerphone an engineer who obviously worked in my own area of expertise. The two of us dominated the conversation for about twenty minutes, which wasn't hard since there were only three of us in the room.

Question: What do these three have in common?

Answer: Desperation.

Let's take item 2 first since it's the easiest. I remember my first introduction to modern network marketing. It was in the middle of the recession of the early nineties. I was living in the southwest, and I remember hearing about the pay scale at the research institute in item 3 and being appalled at how much lower it was than the engineering salaries of a few years earlier, and even then it was supposedly difficult to get a job there.

But anyway, I received several network marketing pitches from casual acquaintances in fairly short order. The first guy, before I knew how this thing worked, actually got me to attend a meeting, convened in a massive auditorium, wherein the host (who I swear looked exactly like Wayne Newton) invited everyone who had achieved the "Level 1" level of sales to stand. Hundreds of people stood. He proceeded to work his way up the levels until he arrived at the "full time" level at which participants earned the princely annual salary of . . . $20K. As I remember, only 3 - 4 people were standing at this point.

The second time was actually a personal sit-down. Someone at work, junior to me in the company hierarchy, asked to come by to discuss what I got the impression was a personal problem he was having. He showed up with a fellow network marketeer who made the bulk of the pitch; evidently, this was Training Day.

"So . . . ," I said at some point in the presentation, "this is basically a pyramid scheme."

"NO IT ISN'T!" he hotly denied. "WE HAVE AN FTC RULING THAT SAYS IT ISN'T!"

"Look, I'm not making a moral judgment here," I replied, "but it's mathematically tautalogical that everyone who succeeds at making the kind of income at this you're talking about will need hundreds of people under him also hoping to make this kind of income. At some point you will reach market saturation, and judging by the number of people I already know that are doing something like this, that point is already at hand."

Well, here we are in another recession. FYB originally friended me on Facebook early in the year and his newsfeed was already showing the network marketing symptoms. You know what I mean: the investing the project with quasi- (and not-so-quasi-) religiosity. The self-help jargon about overcoming adversity with hope. The kind of thing that makes a chronically depressive personality like mine think, oh sh!t, I hope this works out for him, but my expectations are low. Sure enough, he's now reduced to pimping his products directly to his real-life friends, friends like me who, were he to call and say that he had a job offer in my city and needed a place to stay while he got settled, would reply without hesitation: Come on up. You and your family are welcome as long as you need.

Now let's consider item 1. I don't have a lot of visibility into whatever scheme AmEx has cooked up here, nor do I know which businesses count as "small" and which do not. I have no idea how much of the promised $25 comes out of the AmEx end of the transaction and how much comes out of the merchant end, but I do know on the face of it that nobody can make money this way. So what's the angle? Incentives to try new stores? Incentives to start using AmEx? I can't imagine a thriving enterprise would be trying stuff like this.

Finally, item 3. What made the presentation so pathetic was that of all the recipients of the invitation, the only person (other than the meeting organizer) who bothered to show up on time was . . . me. We did have a couple of people show up about half way through, one of whom was my boss, but the fact is that none of us do development, nor do we have much influence over how money gets spent. The best the meeting organizer could do was to tell the research institute rep: here's the front door to our acquisition effort. Well, DUH! This manager, who was clearly trying really hard to sell her institute and its services, wouldn't be here if she didn't know where the front door was. I felt really bad for wasting her time.

But this is where the recession has brought us. An increasing number of people putting in an increasing amount of effort to achieve ever diminishing returns. The question crossed my mind, how hungry would I have to be to undertake this kind of work? Pretty hungry, I think.

"All your economy are belong to us . . ."

I happened to catch this on Fox News the other day. Pretty scary.

The video made me remember this song:

Saint Peter, don't ya call me 'cause I can't leave;
I owe my soul to the Red Chinese.

Alas, the song is out of date. Barack Obama has run up three trillion dollars of debt in the last 21 months.

The Consequences of Failure

Lost amid the hubbub surrounding The End of Men was a quote from another Atlantic article from that issue

Sitting in the café [in Antananarivo, Madagascar] with an espresso and a mille-feuille, [former Stanford economist Paul] Romer could see young men, stunted from malnutrition, watching over the cars parked in front of the hotel, hoping for a few tips. A portly European of a certain age walked by with an attractive young Malagasy woman on his arm, and the men outside the hotel stared. The look on their faces expressed all that needed to be said about global inequality.

Working Women Cause Divorce

I know that the Prince of Darkness already reviewed this article in detail, but I wanted to highlight one passage anyway:

Rutgers University biological anthropologist Helen Fisher sees the rise of working women as a cause of women asking more from marriage, but she's not worried.

"Women have always commuted to work to gather fruits and vegetables, and for millions of years women were just as economically, socially and sexually powerful as men. ... Data suggest that many ancestral men and women had two or three spouses across their lives," she wrote on The New York Times' Room for Debate blog.

"The same occurs today: I have examined divorce patterns in 58 societies and everywhere that spouses have some independent means, both sexes leave bad marriages to make better ones."

Put me down in favor of social arrangements that don’t lead to women abandoning their husbands.  But at least we’re not disputing the facts of the case anymore.

Humane Eugenics

What with a 200-post backlog in my Google Reader, I haven’t been keeping up with my blogroll.  Unfortunately, because I still can’t get Google Reader to carry it, Hit Coffee tends to be the last thing I read.  So I missed this exchange when it originally came out  (my comments will follow):

Sheila: 

The [American] Prospect’s theme is that it’s not really the male gender that’s been dealt a blow — it’s lower-class (they call it “traditional” or “working-class”) style of masculinity. So we turn to the question of whether that’s a bad thing. If the economy doesn’t need that kind of man, does society? I was brought up to hold myself above lazy men, violent men, and most of all, dumb men. That didn’t come from shadowy gangs of feminist Illuminati. That came from a dad who grew up without an indoor toilet.

Trumwill: 

I think the question here is “What is society for?” or perhaps “Who is society for?” I am extremely uncomfortable with the notion that because we don’t need a particular type that we should not lament their inability to participate in life. Or, when possible, to help them do so.

By “participate in life” I mean have children and get married, at least for those that wish to do so.

This isn’t just about blue collar men. It’s also why I am uncomfortable with the notion of prohibiting those on welfare to reproduce. To me, that’s a part of life. Just because you are not productive enough to supply for yourself does not mean morally that you should not be able to have a family. It may practically mean that if there is not enough money to help these people, but an inability to help these women have families strikes me as unfortunate just as we are incapable of helping men who cannot have families (because they can’t get married).

Sheila:

I look at it not in terms of morality, but in terms of social utility. If you think people on welfare are substantially capable of having contributing offspring, then your philosophy makes sense. If you believe they aren’t, it makes sense to limit their reproduction for the social good.

Furthermore, if anyone who has a child is entitled to taxpayer support, it’s no stretch to realize there are many people who won’t see an incentive to work to support their children.

Will, do you know what percentage of people receive cash aid? It’s close to 20 percent. And as I’ve explained before, more than 50 percent of new babies nationwide receive food assistance through the Women and Infant Children program. So more than half the babies being born are born to parents who, according to federal guidelines, can’t afford to feed them adequately without taxpayer assistance. This is not something that just started because of the recession; it’s been going on for some time. Does that seem too high to you?

I have bad feelings about every one of the people I grew up with whose parents were on welfare, or who received it themselves (when they became teen parents). Every single one was dishonest, conniving, and abusive, albeit sometimes fun. That’s not to say there weren’t *non*-welfare receipients for whom I had bad feelings, too.

On the other hand, the welfare state *creates* jobs for people. What would a society be like in which the bottom 20 percent just disappeared?

Trumwill:

Pretty bad for that twenty percent.

Can we square this circle?

Here are the three principles with which I approach the problem:

1.  American society is for Americans. All Americans, not just for some Marin County subculture. And not for foreigners.  Trumwill gets this point.

2.  Children are for people paying their own way.  If you’re a long-term net drain on the public fisc and a negative externality in general, then be assured that we don’t want more people like you.  Sheila gets this point.

3.  The social order must be sustainable.  On this, all participants agree.

In Herbert Spencer’s heyday, life operated according to straightforward Darwinian principles:  if you couldn’t support yourself by your own talent and energy, then your genes didn’t survive.  You died of disease and malnutrition, or you didn’t mate, or you left no surviving offspring.  Either way, natural selection bred a better European.

Life hasn’t worked that way in a while, and libertarian fantasies to the contrary, it’s in no danger of making a comeback.

But that’s just it.  Sheila, while not exactly cheering the reduction in marriage and mating prospects of economically marginalized “proles”, is certainly indifferent to it.  Fair enough.  But we mustn't ignore this salient fact:  men don’t make babies.  Women make babies.  And the long-running thrust of government power has been to use civil-rights laws, affirmative action, and public dole to “liberate” women from their economic dependence on husbands.  Thus freed, women mate with and reproduce by the very “dumb, violent and lazy men” Sheila holds herself above.  Until we address female behavior and incentives, Sheila’s and Trumwill’s discussion about men will be entirely beside the point.

Of course, including women in our consideration only makes the problem harder.  Never mind natural selection:  pursuing a policy of voluntary sterilization is advocated by exactly nobody of stature comparable to William Shockley, who was roundly condemned for it when it would primarily have affected blacks.  Does it really become more likely when it affects whites, too?

But as commenter Maria points out, there is another side to this problem: 

The country needs a manufacturing base and that means blue-collar workers. So to say that the economy doesn’t “need” that type of man is wrong. The globalized economy with outsourcing to the lowest labor cost doesn’t “need” blue-collar workers in developed nations. But do we “need” the globalized economy with outsourcing to the lowest labor cost?  We “need” a manufacturing base and blue-collar workers come with that. Without one, we are just consumers of debt and products who have no real wealth to speak of.

Trumwill seconds:

Well, we need to produce. It is theoretically possible to have no manufacturing base by virtue of superior engineering and design. Add enough value through engineering and you can outsource the manufacturing and be okay by transferring wealth (either through welfare or through service industry jobs) from the engineers to those that don’t have the smarts for it.  The question is whether or not this country is capable of producing enough wealth through engineering that it can support everyone else (except for domestic production like food) through a robust service industry and welfare. That’s a pretty tough thing to do. Right now we’re not producing enough money to pay our government for the services (and service jobs) it is providing.

Maria finishes:

The welfare system may have been sustainable if it weren’t for mass unskilled immigration — I can’t say for sure. I do know it is not sustainable when we keep importing new customers for it from foreign countries via mass unskilled immigration.

I don’t mind helping out society’s losers, even permanently, but I really see red when it comes to importing poor people or children or elderly people for me to support from foreign countries.

In addition, importing millions of unskilled workers while at the same time we are exporting millions of relatively low-skilled jobs, is just plain stupid.”

Exactly.  An industrial policy that increases the supply of jobs that require only moderate intelligence, and an immigration policy that reduces the number of people needing those jobs, will go a long way to restoring the economic viability, and thus the reproductive viability, of America’s working class.

Mental Health Break: “The Government Can!”

I’m pretty sure this has made the rounds before, so apologies to whoever I forgot posted it first.

Tim Hawkins has a lot of funny videos on YouTube worth checking out.