The Right To Waste My Own Money

In one of my favorite Two and A Half Men episodes (of which there are many), Charlie takes Jake to the horse racing track instead of helping him with his book report. Jake has $14 to spend and he needs some advice from Uncle Charlie. Charlie recommends putting his money where the other smart money is, on the favorite at 2 to 1. When Charlie explains that Jake will win $28 when the horse comes through, Jake is understandably unimpressed with this total and wants to wager on the 80 to 1 longshot. Charlie, assuming this will teach him a lesson, allows him to do so. And of course the horse wins netting lucky Jake $1120. As the episode continues, Charlie and Allen argue how Jake should spend his money, forgetting to include Jake in the conversation. In the end, not unexpectedly, Jake wastes his money on a dirt bike that immediately falls apart.

The lesson here is two-fold. First, Uncle Charlie thought he knew best how to spend Jake’s money and was in fact completely wrong. Two, Jake blew his money on a worthless piece of crap. While this is painful to Jake, it’s painless to almost everyone else. Personal choice is often like this. I may make all the terrible decisions I like and the person most hurt in the situation will almost always be me (leaving aside obvious choices like shooting people which is already illegal and not germane to the conversation).

If Steven Chu, Nobel prize winning physicist who currently runs the Department of Energy, had his way, he would play the part of Allen, Jake’s paternalistic and know it all father. In doing so, he would make sure you weren’t allowed to waste your own money, feeling that the government of the United States is much more likely to know what’s best for you and your rapidly decreasing in value dollar bills. To sum up the issue, in 2007 Congress passed a law outlawing incandescent bulbs because they aren’t as energy efficient as the newer compact fluorescent bulbs. Not surprisingly, lots of people found that to be a huge overreach, especially given how mediocre CFLs seem to be. Congress is now considering repealing that 2007 law. Steven Chu is unsurprisingly aghast at the people having a choice on how they spend their money.

We are taking away a choice that continues to let people waste their own money.

While I’m not surprised to hear such paternalistic thoughts coming out of this administration, it is nonetheless frightening to think that the officials in power can so brazenly advocate for less choice for us proletarians. Lots of other people have commented on the second part of that awful statement, the ability to waste our own money. I think it’s equally enlightening to examine the first part of it. “We are taking away a choice” is a phrase that should strike fear in almost every American. The taking of choice should be done only with the greatest of consideration. And yet, our political elite wants nothing more than to limit your choices, to be allowed to dictate your actions, to make you much less free all in the name of whatever their slogan of the week is, in this case energy efficiency.

This country was founded largely on choice. It is going the way of the dodo as more and more Americans are less able to make choices for themselves. The ability to make choices drives the economy and spirit of America. Yet, on something so trivial as what lightbulb to buy, this Administration would prefer you to have no choice, instead being told exactly what you can and cannot buy. And it’s not limited to this Administration. The law was passed in 2007. We have been watching our freedoms and choices erode for the past 20 years.

The brazenness with which they are starting to grab power that once rested with the individual is both astounding and terrifying. Perhaps if Mr. Chu would like to really have an effect, he should outlaw 30 year mortgages, surely a much larger and negative waste of the people’s money. Of course, the people (and the banks!) wouldn’t stand for that because no one can afford 15 year mortgage these days. Wasting money is a matter of personal choice. Or at least it should be. Our political elite would prefer you have much less choice in all arenas of your life so that they may tell you the best way to live.

Eventually, I believe this is going to backfire in a huge way. The people will not continue to watch the government grow larger, squandering larger and larger sums of money while being told more and more what they cannot do. At a micro scale, that’s exactly what this issue is about. You cannot tell a man who has been out of work for 99 weeks that he isn’t allowed to buy a significantly cheaper bulb just because over the long run it will cost him more money. People are not concerned with the long run. They are concerned with getting through the day to day and any evidence that the government is preventing that through the restriction of choice will eventually blow up in our faces.

Choice is fundamental to who we are as a people. We cannot allow our choices to continue to disappear into the oblivion of Washington. Change will happen, it’s just hard to say right now what that change will look like.

A Tale of Two Tragedies

Anyone who doesn’t live under a rock has been bombarded by a media assault over the last few days regarding the acquittal of Casey Anthony. For weeks, news about the trial has been pervasive on sites like CNN where apparently their market research shows that the people who go to just can’t get enough of a lurid trial about a woman who may or may not have killed her daughter. Yesterday, after deliberating less than 11 hours, the jury found Anthony not guilty on the charge of first degree murder though they did find her guilty of 4 counts of providing false information to law enforcement officials. When the verdict was read, the reactions were immediate throughout the media. By most counts, almost everyone assumed that Anthony was guilty and would be found as such. The not guilty verdict caused a firestorm from people wondering how the jury could have come to that conclusion. Comparisons to the OJ trial showed up several times in my Twitter feed and in general, people seemed to be actively disgusted at this so-called failure of the justice system.

Last Friday, in a courtroom in Monticello, Mississippi 600 some miles away from the Anthony trial, judge Prentiss Harrell was accepting a new plea bargain in the case of Cory Maye. In 2001, police made a wrong door raid on Mr. Maye’s home on the day after Christmas at just after midnight. Mr. Maye, sleeping at the time in the living room, his toddler daughter asleep in his bedroom, said that he did not know that the men breaking into his house were police officers. He fired back in self-defense killing one of the officers. He was tried and convicted of capital murder and sentenced to death. He proceeded to serve 10 years, 2 of them on death row. Unfortunately, many of the facts surrounding his case land on the side of Mr. Maye’s innocence. In November of 2009, the Mississippi State Court of Appeals found that he should be granted a new trial saying that the trial court was wrong to turn down his request to move the trial back to Jefferson Davis County where the alleged offense had occurred. Before a new trial happened, prosecutors and Maye’s defense team came to the plea bargain of him pleading guilty to a lesser charge. He was sentenced 10 years and released based on time served.

What do these two trials have in common? In both, it appeared that the evidence regarding the alleged offense and the actual verdict were at odds. In one case, the mother of a dead toddler is going free. In the other, a cop, a good cop by all accounts, is dead. But he was killed by a man who thought he was being attacked and that man served 10 years of his life, 2 on death row, for a crime that never should have happened if police had done their job correctly. These are both tragedies. But in at least one of them, the Maye case, justice was eventually served at least to the degree it could be. The evidence against Cory Maye was weak at best. If you read the Reason article linked above, you’ll see that the jury had to essentially suspend all belief in the facts at hand to find Cory Maye guilty of capital murder, a charge that requires the defendant to have known that the man he was shooting was a police officer. On top of that, if the raid was illegal, which much of the evidence supports, Maye had every right to defend himself under Mississippi law.

In the Cory Maye case, we have two definite tragedies, one that a cop is dead and two that Maye lost 10 years of his life for a crime he likely didn’t commit. In the Anthony case, we have one tragedy, that of the death of Caylee and a possible tragedy if her mother actually committed the crime for which she was acquitted. If she did, only she will have to live with that now. But if we are to believe in our justice system, it’s far better to have that tragedy go unknown and unpunished than it is for a man like Cory Maye to have been found guilty of capital murder. In Cory’s case, one tragedy has been corrected. It’s because of who we are, what we believe in and a justice system that supports both that we have to accept the possible unpunished tragedy in the Anthony case.

The End of The Euro For Dummies

Let’s start with a story. You and I are friends. You discover that you’re going to come up a little bit short on the rent this month and ask to borrow $100 from me. I agree, loaning you $100 at 10% interest (we’re just doing that to keep the math simple, I would never loan shark you that bad, you’re my buddy.) So you are going to get $100 this month to pay your rent and pay me back $110 next month when you get paid. That’s a tidy profit for me, relatively speaking, and you don’t get evicted (not that you would get evicted in the US, current averages are well over a year for a foreclosure to go through but that’s another story.)

I however, think that there is a chance, possibly small, possibly large, that you may not be able to pay me back next month and in fact will go into bankruptcy over this $100 I have loaned you. I don’t want to lose my entire investment. Luckily for me, we have another mutual friend who sells insurance on loans, loans he didn’t have any influence over originating. He does this because historically speaking, people like you don’t default on your debts and it’s thought of as an almost risk free way to make some cash.

So I go to this mutual friend and ask to buy insurance against you defaulting. I agree to pay $8 to this guy in return for an insurance policy that says if you default on your $100 loan to me, our little friend will pay me the full value of the loan, $110. This way, I am guaranteed to make money either way. If you pay me back, I make $2, $10 from you minus the $8 I paid for the insurance policy. If you default, I make $10 when our mutual friend pays me my full value, $110. This is a perfect situation for me and assuming I have deep pockets, I’d happily loan all the money I could possibly afford to you because I’m guaranteed to make money. In fact, because of the terms above, I actually make more money if you default. Anyone who believes in the incentives of the market has to see that I’m going to start loaning money regardless of risk because I actually make more money on bad investments. EDIT: As Wes notes in the comments, as described, the math is wrong. I added the risk analysis part and conflated how CDS are typically done where a long or short position is established with my simplified story. It should just say that I make $2 either way to keep things simple. It doesn’t materially change the story so I’m leaving it in.

Our mutual friend however is on the hook in a bad way, though he doesn’t think that. If you default, he has to pay me $110. Even if the risk is low, the punishment for misjudging the likelihood of you defaulting is very, very high. If you lied about your income and in fact have almost no chance of paying, he has badly mispriced the insurance he sold to me. This is not a very good situation.

On the smallest scale, and ignoring a ton of highly relevant but complicated factors, this is exactly what is happening in Greece right now. Banks, predominantly French and German, loaned money to Greece when things were going good. Greece didn’t look like the profligate wastrel now portrayed in the media then. But just in case, those banks sold credit default swaps to other entities just in case Greece didn’t make good on her promises. Suddenly, it’s starting to look like Greece can’t pay things back and may very well have to default. In reality, the prices on Greek debt are already saying Greece WILL have to default. And the kick in the pants is that the entities that sold the insurance policies to those banks for the Greek debt are largely unknown. That is to say, we don’t really have a solid clue who will be left holding the bag with the dead bodies in it if and when Greece defaults.

Here’s another kick in the pants: the people of Greece know that even though the media keeps calling this a bailout, it’s really a loan. They are being asked to accept draconian cuts in services and benefits now with the promise that they will have to pay all this back at some point in the not so distant future. The average Greek knows that their politicians have bent them over in a bad way for decades and that they are now being asked to shoulder the blame, not only for their ruling class’ bad behavior but for the behavior of the idiot banks who never should have been making these loans in the first place. This is why they are rioting and who can blame them.

The thorniness of this situation grows even more tangled when we start to think about what happens if Greek defaults. We really don’t know who is sitting there with billions of dollars in insurance policies against just such an occurrence. What if the Bank of Britain sold some of those swaps? Hell, what if the US government decided to get in the game? Remember AIG? Remember Lehman Brothers? This could be much worse. We’re talking about an entire country’s debts (not to mention Portugal and Ireland) and because the risk associated with that debt has been passed up and up the chain, we won’t know who has to pay back what until we get to the last man standing, currently a complete unknown. This is how a country like Greece, with a tiny 3% of the entire GDP of the EU, could very well cause a systemic crisis at least as large as what we saw in 2008.

On top of all that, we have the issue of the euro as a common currency across nation states that don’t share financial policy. What that means is that when something bad happens in a country in the EU monetarily speaking (say, a country is in terrible debt, has 16% unemployment and an angry populace), individual countries don’t control their own money and thus can’t solve problems in ways a country like the US can (by printing up a bunch of money to pay back the debt.) So all countries in the EU are on the hook for each other, a fact that doesn’t sit to well in Germany who may now have to “bailout” the Greeks (the Germans are not at all blameless in this fiasco but again, a post for another day.) What this means is that if Greece defaults, the risk for a contagion spreading throughout the EU is suddenly very high. If Greece defaults, suddenly the market will wonder if Portugal or Ireland can afford to repay their debts. The price of these bailouts/loans for the Greeks and the Irish are above 5%. Those are terrible terms given the fact that current interest rates in the US hover around 1%. If Greece goes under, no one is going to believe Portugal and Ireland can repay. If those countries go under, suddenly Spain is in line and Spain is a huge chunk of the GDP of the EU. There will be no bailouts for Spain. We’ll just have to kiss the EU goodbye at that point.

When you read the headlines about protests and riots in Greece over the austerity measures and think “Those dumb Greeks, they can’t have their cake and eat it too”, remember this. They are not receiving bailouts. A bailout is what we gave to AIG and GM here in the US. Tax-payer funded cash infusions are bailouts. What the EU is giving to Greece are loans, loans with horribly unfavorable terms. The average person in Greece knows this. That same person also knows that for decades, corruption and cronyism in Greece has been rampant. Rich people in Greece have never paid taxes and they have no plans to start now. This entire burden is being foisted on the lower and middle class Greek. He is being asked to take a pay cut, pay more in taxes and work real hard for the foreseeable future so that German and French banks can get their money back, money he never really saw in the first place because the ruling class of his country absorbed most of it. You can see how he might think that is an exceptionally shitty deal for him.

The only way the euro can continue to survive as a currency is if the German people continue to accept the necessity of the “bailouts” and agree to keep funding them. Germany has a large enough economy that they can do this without too much pain. The Germans benefit greatly from the current arrangement for a variety of reasons and rationally, it’s in their interest to keep the status quo. But electorates are rarely rational. If they stop funding the bailouts, and there is certainly plenty of evidence that they are tired of doing so, the euro is doomed. If Germany refuses to loan money to Greece, Greece defaults followed shortly thereafter by Portugal and Ireland. Then the big hairy elephant of Spain shows up in the middle of the living room and takes a dump on the coffee table. The euro will be gone because no one will be able to afford to keep the debts going.

These are exceptionally tricky times for the EU. What is going on is unprecedented and probably largely unplanned for. Oh sure, there were probably some theoretical games played about “What happens if some country defaults?” but based on how this is being handled, they weren’t very serious about them. The chance of the euro as a currency continuing to exist is falling on a daily basis. This will have huge effects, effects we can’t possibly begin to understand right now. The world economy is going to suffer regardless of what happens until some of the details start to shake out. This would all be a lot of fun to watch if we weren’t all so intricately involved in the result.

Google+ Is What I Want Facebook To Be

While it’s still very early in the process for Google+, already I’m seeing things they are doing that I wish Facebook did. The primary difference for me is the Circles component of Google+. From the description:

Google+ Circles helps you organize everyone according to your real-life social connections–say, ‘family,’ ‘work friends,’ ‘music buddies,’ and ‘alumni’. Then, you can share relevant content with the right people, and follow content posted by people you find interesting.

Part of the problem I have with Facebook is how it treats all my “friends” as the same. I’m either friends with you or I’m not according to Facebook and frankly, that’s not a very subtle distinction when it comes to how I want to interact with people online. This causes me to be very cautious with accepting requests on Facebook. Many times, I either have to choose to ignore someone I’m not that interested in or accept their request and then quietly click the X button when it turns out I’m just not that interested in what they have to say. That’s not to say that I wouldn’t like to accept all requests. I’d just like to have some control over what I read and share beyond the concept of “Everyone is my friend” which they clearly aren’t.

Google+ fixes this with Circles, the concept being that your social circle is actually made up of lots of little circles, some of which overlap, supersede or ignore completely other circles. This is a more accurate portrayal of what goes on in the real world. This may of course be a solution dreamed up by engineering nerds and introverts looking for a problem to solve. I know that many of the people I’ve run into on Facebook have so many friends, they can’t possibly use FB in any meaningful way to keep up with people unless they spend entirely too much time there. Wait, nevermind.

Still, when someone has 1000 friends on Facebook, it’s off putting in a variety of ways to me. For one, chances are they use Facebook as more of a giant online Rolodex, a place where anyone and everyone they have ever encountered can be grouped in one place for easy tracking. That’s fine except that in order for me to be in your Rolodex, you have to be in mine as well unless I specifically do something to pretend like you aren’t there. Not particularly optimal. Not to mention, if you have 1000 friends on Facebook, the likelihood that you actually pay attention in any meaningful way to what I put on Facebook is rapidly approaching zero and since this is all about me, why would I want that?

With Google+ Circles, a lot of those issues vanish. If I accept a request from someone with 1000 friends, I can put them in my “Extroverts are insane” Circle, choose to share almost nothing with them and view almost nothing and be done with it. I’m in their Rolodex, they are in mine, but that’s the limit of it and no one has to get their feelings hurt. They don’t have to listen to me say how much Facebook sucks (not that they were paying any attention anyway) and I don’t have to listen to whatever it is they say on FB. Everyone’s a winner.

The ability to put people in loosely organized groups is a key component of evolutionary biology. It’s important that we are able to know who we can count on, who to share information about drunken orgies with, etc. The evolution of social media from the beginnings in AOL chat rooms to Google+ Circles is an evolution towards better representation online of the relationships we actually have in daily life. I don’t know what the long term chances are for this latest project of Google’s but I personally am rooting for their success.