Income inequality and globalization

Stolen directly from marginal revolution: http://www.marginalrevolution.com/marginalrevolution/2009/11/positive-feedback-in-inequality.html

 

Positive feedback in inequality

Here is a very nice summary of some important trends from Arnold Kling.  Arnold buried the lede on this one so a hat tip to Tim Kane at Growthology.

I think that perhaps the most important trend of the past thirty years is the increased importance of cognitive skills relative to physical labor. Obviously, this has been going on for more than just the past thirty years, but during the past thirty years we saw an acceleration. This has had a number of consequences:
1. It changed the role of women. Their comparative advantage went from housework to market work.
2. This in turn, as Wolfers and Stevenson have pointed out, changed the nature of marriage. Men and women look for complementarity in consumption rather than in production.
3. This in turn leads to more assortive mating, with achievement-oriented men looking for interesting mates rather than for good maids.
4. This in turn leads to greater inequality across households. It also fosters greater inequality among children. The children of two affluent parents are likely to have much better genetic and environmental endowments than the children of two (likely unmarried) low-income parents.
5. Inequality is exacerbated by globalization and technological change. If your comparative advantage is basic physical labor, you have to compete with machines as well is with workers from the Third World.
The net result is an economy that has improved considerably for people with high cognitive skills, but which has improved only somewhat for people with relatively low cognitive skills.

I think this is a remarkably interesting area of study.  Paul Krugman did a lot of work on this as well, pointing out that for a specific set of people, economic growth has been significantly more beneficial.

It's most interesting to point out how almost all the people who think this level of inequality is a good thing are those who have the cognitive skills necessary to benefit.  The King always thinks a monarchy is a good idea.

how to have less crime and less punishment

I really need to have this bookmarked for future reference, it's incredible.

 

How to Have Less Crime and Less Punishment: A Checklist

from Volokh Conspiracy by Mark Kleiman, guest-blogging

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As the last in my series of guest-posts on crime and punishment, here’s a list of fairly specific recommendations.  They are designed to simultaneously reduce crime and incarceration, by (1) using prison cells more efficiently; (2) using punishments other than incarceration; and (3) controlling crime by means other than punishment.  The detailed justifications can be found in the book.
General and Budgetary

• Treat arrests and punishments as costs, not benefits.
• Emphasize swiftness and certainty of punishment rather than severity.
• Design punishments with the maximum ratio of deterrent efficacy to (1) the suffering inflicted and (2) the damage to the non-criminal opportunities of those punished.
• Concentrate enforcement rather than dispersing it.
• Directly communicate deterrent threats.
• Shift the burdens of crime and punishment away from otherwise disadvantaged groups, especially poor African-Americans who face much more of both.
• Increase the budgets of criminal justice agencies when doing so will reduce either crime or incarceration.  Money is cheap compared to liberty.
• Shift the mix of correctional budgets away from institutions (prisons and jails) and toward community corrections (probation and parole).  Spend more on controlling the behavior of those awaiting trial.

Policing

• Add police to areas with high ratios of crimes to officers.
• Focus on reducing crime and disorder, not on making arrests.
• Identify and target high-rate serious offenders, with the goal of incapacitating them by incarceration.  Don’t neglect domestic violence in this analysis.
• Identify those who only barely miss being targeted as high-rate serious offenders – the junior varsity – and warn them that continued criminal activity will result in their being added to the varsity list.   Select specific easy-to-observe crimes for “zero tolerance” treatment, either jurisdiction-wide or in specific areas.  Publicize those choices, with “narrowcast” warnings aimed at identified offenders as well as “broadcast” announcements.
• Don’t try to destroy street gangs as social organizations, but warn them that gunfire by any member will bring the wrath of the law down on the entire group.
• Give the service of bench warrants connected with focused enforcement efforts or absconders from community supervision, the highest rather than the lowest priority.

Prosecution, Courts, and Sentencing Rules

• Economize on the use of scarce prison and jail cells.  Focus on high-rate serious offenders and not on people whose crimes are mostly in the past.
• Allow sentencing judges access to juvenile criminal records.
• Substitute probation (and probation-enforced alternative sanctions such as “community service”) for prison.
• Provide some non-trivial punishment even for first-time misdemeanor offenders.
• Enforce bail conditions, including desistance from the use of expensive illicit drugs.
• Move high-rate offenders up the queue for trial dates.
• Consider both the offender’s broader criminal history and the broader driving history – especially a history of accidents with personal injury – in sentencing drunken or reckless drivers.
• Prosecute felonies committed by parolees as new crimes, rather than allowing them to be treated as mere parole violations.
• Coordinate with police to carry out specific deterrent threats aimed at individuals or at classes of behavior.
• Move toward “community prosecution” programs where policies are allowed to vary by neighborhood and are made after active consultation with both police and community leaders.
• Make some period of post-release supervision part of every prison sentence and most jail sentences.

Institutional corrections

• Re-examine the size of individual prisons.  Smaller is probably better.
• Strive to reduce noise and other sources of stress.  A prison should resemble the neighborhoods offenders come from as little as possible.
• Offer every prisoner a tightly-disciplined therapeutic community as an alternative to a conventional cellblock.
• Since skills such as literacy are portable across the boundary between prison and the community, stress skill acquisition rather than attempts at behavior change such as drug treatment.  Put a computer in each cell.
• Stop tolerating inmate-on-inmate violence.
• Experiment with not-for-profit “charter prisons.”
• Make recidivism a key performance measure for prison managers.
• Mine recent releasees for detailed information on prison conditions, using interviewers who are not Corrections Department employees.

Community Corrections

• Impose few rules on probationers and parolees, and enforce every rule consistently and swiftly.
• Avoid revocations for technical violations, other than absconding from supervision. Treat rule violations, and short jail stays as sanctions for them, as routine incidents of community supervision, not as a reason to end it.
• Use GPS monitoring to prevent new crimes and to convert probation and parole into genuine alternatives to incarceration.
• Make more use of “community service” (i.e., unpaid punitive labor).
• Reward good behavior as well as punishing bad behavior.
• Focus on employment.
• Evaluate probation officers, supervisors, and offices based on recidivism.

Juvenile corrections

• Experiment with short periods of isolation (a weekend alone in a room without a television set) as a sanction for juvenile offending.

Drug policy

• Raise alcohol taxes.
• Forbid the use of alcohol, at least for some period, to those convicted of drunken assault, drunken driving, drunken vandalism, or repeated disorderly conduct under the influence.  Enforce this at the seller level.
• Abolish the minimum drinking age.
• Cut back on routine drug law enforcement and associated sentencing. Halve the number of dealers in prison.
• Use low-arrest crackdowns to break up flagrant retail markets.
• Focus enforcement attention and sentencing on violence, disorder, and the use of juveniles, not on the mere volume of drugs sold.
• Expand the availability of drug treatment.  End the prejudice against substitution therapies in diversion programs and drug courts.
• Permit the consumption of cannabis, and its individual or cooperative production for personal use or gratis distribution.
• Force probationers, parolees, and those on bail to desist from the use of expensive or criminogenic illicit drugs.
• In neighborhoods where drug dealing is prevalent, focus in-school and community-based prevention efforts on preventing dealing.

Guns

• Close the private-sale loophole.  [Update: This does not mean banning private sales, but rather requiring private sellers to verify the purchaser’s eligibility to own a firearm, as FFLs must now do.]
• Aggressively trace crime guns back to their last lawful transfer.
• Increase the penalties for gun trafficking.
• Allow concealed carry by anyone who passes a gun-safety course, and require every state to recognize concealed-carry permits from other states.

Social services and other non-punitive anti-crime measures

• Provide a nurse as a “parenting coach” to every first-time mother.
• Replicate the “good behavior game” experiment and make it part of routine teacher training if it works.
• Make preventing vengeance by the victim and his friends a central part of shock-trauma care for gunshot and knife wounds.
• Start middle school and high school later in the day, and end them later.
• Focus TANF management on reducing crime among the children of beneficiaries.
• Minimize exposure to lead with tighter regulations on smelters and public subsidy for scraping the remaining lead paint from dwellings.

food elitism

This week seems to have a wonderful theme.  Having strong opinions about things you don't understand is a) lots of fun and b) a great way to get publicity.

Exhibit A) Natalie Portman.  I understand that you're a vegan (person not evolved enough to consume animal products, to use Al Dunn's comment).  I try to not hold it against you for making bad decisions in life, but as soon as you start throwing out the burning stupid, that's it. So let's consider the hypothetical: you're a vegan attending a dinner party.  do you throw a hissyfit if some of the other guests are eating animal products?

Michael Pollan says no.  You be polite to the hosts and eat what you feel comfortable with.  Unsurprisingly, Natalie Portman offers a lovely analogy--would you do the same thing if someone were being raped?

I'm gonna let that sink in a bit.

On a related note, I was watching a documentary on PBS tonight (Michael Pollan edition) related to food production.  At one point, there were genetically modified potatoes, designed for less pesticide use.  Ultimately, this would cause the cost of potatoes to drop because they have less overhead.  One of the geniuses asked for commentary on this said "this benefits the potato growers but not the consumer."

Presumably, the same person seems to believe that prices can also rise for the producer without being passed on to the customer. 

I'm pretty sure that this is one of those issues that, the stronger your intuition about it, the more likely you are to be really, really wrong.

On why I'm glad I have the job I do

http://freakonomics.blogs.nytimes.com/2009/10/19/financial-illiteracy-among-the-young/

Stephen Dubner, from his Freakonomics blog, points to a study showing my generation to be financially illiterate.

Through my peer-reviewed, purely anecdotal data, this seems to be correct.  It's partly because thinking rationally about finance is not intuitive.  Even worse, the math involved makes it a hassle for someone trying to compute it correctly.

I remember through my training class for securities licenses, many of us had difficulty with the concepts involved. 

If the people who did this for a living had difficulty, what can it be like for the rest of the population?

Kicking things off and the dollar's decline

Every nerd needs a blog.  Especially when you can archive interesting things and keep them for reference!

Regardless of how one feels about the dollar's decline in value against other currencies, there are always ways to make money off what happens.  Most people I've heard with opinions on this seem to think they should switch into bonds, thinking the stock market will inevitably tank from mismanagement.  Either that or they switch into commodities, the holy grail of hedging against inflation.

The real answer, and the one nobody wants to hear, is that there isn't a way to predict this very well.  Strategic management involves being prepared for all things, rather than placing big bets on short term moves.

So how does one prepare for inflation, deflation, robust growth, and a W shaped recovery?

Inflation:  commodities, domestic exporting companies (if your currency flows down, your exports go up because they're cheaper for international markets.  See Japan since the mid 70s.), and international equity/debt (especially emerging markets).  Avoiding import-centric companies, fixed rate long term debt, and short term debt of all kinds.

Deflation: fixed rate long term debt, international equity (developed only, not EM),  short term securities, and import-centric equity.  Specifically avoiding emerging markets of all kinds, commodities.

Robust growth: equity.  all kinds of it.  Avoiding short term debt, newly issued long term debt (if interest rates are low, you might get a discount for high interest long term debt already issued).  avoiding short term securities, you'd be on the sidelines of great chances to make money.

W shaped recovery: Almost nothing but a balanced portfolio.  Investing in everything, not equally, but enough to straddle prices in both directions.

So what is the net effect?  Find a strategy that fits your risk profile.  Stick with it.  Don't try to time the market.  And diversify among all sorts of things.

People hate that kind of advice...