Defining Pro Market

By now, most everyone knows of China’s recent toy making deficiencies. One of the stories from McClatchy newspapers cites President Bush as saying that he chose not to enforce stiffer production standards in China for the reason that such enforcements would not be pro-market.

“The overall philosophy is regulations are bad and they are too large a cost for industry, and the market will take care of it,” said Rick Melberth, director of regulatory policy at OMBWatch, a government watchdog group formed in 1983. “That’s been the philosophy of the Bush administration.”

However, considering that the regulations to be applied on China would be for the sake of safety, it is important to realize the parallels that could be shown to our president in order to illustrate how he may have missed the point of what “pro-market” really is.

Taking a close look at the automotive industry, many regulations have been enforced for the sake of safety. Yet, no one makes any claims that making seatbelts and air bags mandatory stifles competition. In fact, now auto manufacturers boast about the amount of safety their vehicles carry.

Pro-market competition really was not what President Bush’s comments were about. In reality, Chinese manufactures have to deal with the fact that they will have an increase in production costs in order to make sure their goods are in fact, good enough to be sold. Even if there were no regulation about lead content, then the free market is working anyway due to the fact that no one would buy the product. If it just so happens that people are afraid of China’s products; then China will have to deal with it.

In the same manner, home building, mortgage, and financial firm shares have suffered in the past month. Is the market being held hostage by some unnecessarily gloomy outlook on short to near term future? Well, you will not hear me say that it is not. However, it is in these conditions where those with a sane frame of mind calm themselves and look for opportunities where firms are now being undervalued.

With Chinese toys, with financials, and with homebuilders we are seeing a correction in market pricing, and a complete re-thinking of how the market prices risk. When China threatens retaliatory tariffs on the U.S. we have to remind them that their products are to blame, and that it is the consumer who will ultimately forgive them.

Making sure products are safe is in no way defeating competition so long as the rules and regulations are the same for everyone. Ideally, if consumers had information about all the products and their contents, then the free market would provide roughly the same outcome as a watchdog group taking products off the shelf.

However, sometimes people are not shown the contents of items, and as I have stated before, market failures are sometimes best fixed by an entity whose purpose is not profit. In this case, consumers may not have as much a voice in other countries as a U.S. trade representative.

At the Crux of College Diversity

Vocal critique against bureaucratically sponsored diversity initiatives that come from most college campuses finds its motivation from events such as this linked by Andrew Sullivan, and further questioned by Ben Casnocha. In this instance, the college bureaucracy has lead to an organization taking three years to change its name to be more “inclusive.” Bureaucracy of this sort, and the amount of time wasted on a matter that most people consider trivial is what motivates George Will to continue his op-ed writing. The more government bureaucracy, the more reason George Will - and any person who believes in less government - has to write.

At the crux of college diversity, and whether diversity should be forced upon us with mandatory acceptance quotas, is the gap between achievements of blacks and whites (which I have discussed previously). Essentially, the idea is that the gap comes from a cyclical problem within children’s beginnings and the resources that they may or may not have at a young age. Of course, those circumstances are provided by the parents who most likely had the same, if not less, resources. Therefore, in order to fix the gap, the admission departments of institutions subsidize how many blacks go to college, thereby hoping they will be better off, as well as their children.

But the long road of college diversity does not end at admissions. Once we are in the door, trying to find a social/peer group is another story. For those thinking of fraternities and sororities for answers, Stephen Dubner, from Freakonomics, asked Sudhir Venkatesh, “How do you define a gang?” His response:

Great question. There are a few important legal cases where prosecutors tried to prosecute college fraternities as “gangs.” They suggested that the fraternity was an organization that existed to promote criminal behavior, such as the abuse of women and underage drinking. Most judges threw these cases out because they thought that fraternities were not, by definition, “gangs.” But judges rarely gave a logical reason for excluding (typically white) fraternities from the “gang category.”

Indeed, by any valid social scientific definition of a gang — “an established organization whose members come together for solidarity reasons and who engage in delinquent and/or criminal activities” — a fraternity most certainly qualifies. But race, as we know, can be a factor in shaping judicial outcomes.

What Vankatesh implies in the last sentence is that even in college (and assumingly all throughout life); race places a huge role, which certainly no one would dare argue. The recent studies that have gone on in the black-white achievement gap have important implications. By researching the gap, the goal is to start eliminating the gap early on in children’s educations, thereby eliminating the need in the future for blacks to “need” subsidies in order to receive admission into institutions of higher learning.

Even if the achievement gap is narrowed in the future, it’s unfortunately unknown if racial barriers will be completely eliminated. Nevertheless, showing that, all variables equal, blacks are just as capable as whites - without the kinds of subsidies that are provided by affirmative actions admissions - is crucial. As well, it seems that the mass public’s recognition of this may come in the same time that predominantly white fraternities will also finally be seen as gangs.

On What Grounds?

Prior to the Rogers Masters’ men’s tennis final this past Sunday, I spoke to my friend Kevin on what the final could be like. The following exchange took place.

Kevin: I'm sure Federer is going to own that guy that beat Nadal. I mean really, a weekend in which you beat Nadal and Federer - you wish.

Me: Novak Djokovic has been a man possessed as of late. Really, just because he's been playing loosey goosey. As this year has been his break out year, for the Serb.

Kevin: He ain't winning today's match.

Me: I won't go that far.

For those that are not aware of the outcome of the match, Djokovic won.

Kevin is by no means a tennis expert, nor does his knowledge of the sport come close to mine due in no small part to my love of the game and keeping track of the professionals. But yet, Kevin disregarded what I was saying, and went with his position. This is much the same protocol that actually got us in Iraq and keeps us there.

Sure, the personal and global situations are a stretch to compare, but what is so different concerning the mindset? The answer: not much. In both cases, we have someone of a higher knowledge of the subject having his warnings totally dismissed. And what has made our steps in Iraq all the more worrisome is that the decisions made to go to war seem as nonchalant as picking Federer to always win a match.

Of course the U.S. military is the best, but no one made the public aware of the important caveats and intricacies of Middle East cultural rifts, sectarian strife, and cultural divides. Much of our own Generals’ advice was not heeded. General Shinseki noted:

Beware the 12-division strategy for a 10-division Army. Our soldiers and families bear the risk and the hardship of carrying a mission load that exceeds what force capabilities we can sustain, so we must alleviate risk and hardship by our willingness to resource the mission requirements.

I must catch myself however; someone did mention all the caveats of action in the Middle East. That man was Dick Cheney in 1994:

Once you got to Iraq and took it over, took down Saddam Hussein's government, then what are you going to put in its place? That's a very volatile part of the world, and if you take down the central government of Iraq, you could very easily end up seeing pieces of Iraq fly off. . . .

It's a quagmire if you go that far and try to take over Iraq.

The other thing was casualties. Everyone was impressed with the fact we were able to do our job with as few casualties as we had. But for the 146 Americans killed in action, and for their families -- it wasn't a cheap war. And the question for the president, in terms of whether or not we went on to Baghdad, took additional casualties in an effort to get Saddam Hussein, was how many additional dead Americans is Saddam worth?

Our judgment was, not very many, and I think we got it right.

For those people who most likely do not watch The Daily Show, Jon Stewart confronted Stephen Hayes about Cheney’s past comments and how 9/11 didn’t change the consequences of invading Iraq.

What we end up seeing at the end of this is that the media is rewarding us to take strong stances. Whether the opinions are wrong or right is irrelevant, what matters is the unwavering expression of the opinion.

In fact, look no further than to Hillary Clinton, who still sees no point in thoughtfully addressing her votes for many authorizations of which Bush has asked pertaining to unwarranted surveillance, or authorization for the war in Iraq. Many other presidential candidates refuse to answer the question of going to war in Iraq “knowing what they know now” because, “the question is based on a hypothetical.” On the other hand, the weapons of mass destruction in Iraq were just as hypothetical.

On a Personal Note

In today’s op-ed, I would like to touch on a subject that I have in the past many times over: relationships and dating.

For you today, I do not have much in the way of new research, but I do have a personal note. Truthfully, this would be an effort at sympathizing with everyone in the world who dates. As I’ve stated before on this blog, dating is not a frequent activity for me, so once again, when I again went through the many signals, the feeling of hope for a relationship, and yet the eventual end, I had to realize that everyone else goes through this as well.

When I was speaking to a friend of mine last week that informed me of the amount of people he had to see before he met and started seeing the woman who would eventually be his wife, I breathed deeply in dread. The sheer effort that goes through continuously finding people whom you don’t like, or whom don’t like you is astonishing. I find it difficult for anyone out there who would not want to fool themselves into thinking they have dated more people than they really have so that they could inflate the number and psyche themselves into thinking “Statistically, the next one has a high chance of being the one.”

My married friends tell me that the rollercoaster of emotions does not get any easier because every relationship has its own share of emotional highs and lows. Nevertheless, what keeps a relationship together is good times far outweigh the bad.

Still, some relationships end (for good or bad reasons) because enduring it simply costs too much, either emotionally or otherwise, and the cost of disappointing someone ends up being trivial.

However, we all go through this together, including those that have to do the “dumping.” In fact, since most people believe in free will, this person who has to dump someone probably thinks to themselves that they have control over how that person is going to feel through the choice of ending the relationship, or not. I can imagine this is a burden no one would want to carry.

But who is letting go of whom? I recently spoke to my “masters degree in communication” friend Kevin on an unidentified communication theory that describes six perceptions of self:

• The me that I am

• The me that I think am

• The me that others think I am

• The me that I think others think I am

• The me that others think I think others think I am

• The me that I think others think of what others think I think I am.

So, not only are we dealing with another person, but we are dealing with our own perceptions of self and others. That is to say, even who I think I am, is not who I actually am. If this confuses you, don’t worry because hardly anyone thinks of this while they date, not even communications majors. A long story short, if you are perceived to carry a personality trait that you may or may not actually have, it does not matter; you may as well have it.

For example, if you have not had a date in years, and your timidity and nervousness are there for the sole reason of inexperience, your date may perceive your nervousness as an overall deficiency of your personality. Those are unfortunately, the breaks. Don’t believe me? Then why have men come up with silly rules such as, “Don’t call until two days are the first date”? These rules exist for the perception of power. What can be seen from this is that the power of perception truly lives, and if Scott Ginsberg has anything to say about it, you better know how to sell yourself, and do it quickly. In dating, it does not matter who you are, but who others think you are.

But for those of you who do what you can with whom you are as honestly as possible, it’s tough, I know, but you will get through it, and I certainly still believe that the free market of dating will take care of everyone in the end.

Tax The Carbon, Don't Trade It

Once again, Sebastian Mallaby echoes Greg Mankiw’s sentiment that a cap and trade system for carbon emissions has some externalities that prove inefficient, at least compared to a tax. Mallaby describes the Kyoto effort that many countries have volunteered to take part in.

The takeaway:

The mechanism's clunky procedures are supposed to prevent fraud, but in practice they filter out village-based projects while not preventing fraud in big ones. As Stanford's Michael Wara has demonstrated in a devastating paper, the mechanism appears to encourage industrial producers to emit extra greenhouse gases so they can capture them and pocket extra subsidies. Chinese emitters make such extraordinary profits from this system that the government has imposed a 65 percent tax on the windfall. In effect, the green budgets of the rich world subsidize the Chinese government.

…

There are two snags, however. Inevitably, some voluntary carbon permits have proved fraudulent. They represent carbon reductions that have not actually happened or reductions that have been marketed as offsets to multiple purchasers. As a result, the voluntary market is periodically attacked, and would-be purchasers shy away. Voluntary purchasers buy carbon offsets to be pure. Impure scams defeat their objective.

There is a basic logic that has unfolded before us. As I have written before, one instance of our own market failure with the environment is the externality of degrading our natural habitats, as well as a host of other environmental concerns. If a natural market process can lead to such bad externalities, then why would creating another market for permits do any better? Moreover, the efficiency of cap and trade would pale in comparison to a carbon tax.

One of the possible externalities that comes from cap and trade is that if enough “good” firms trade or sell their permits to less environmentally friendly firms, there would always be a healthy, cheap supply for the less environmentally friendly firm to buy, which would lend that firm to pollute even more. Therefore, I would not be surprised if for certain regions, or locales, their pollution would actually increase. A tax on the other hand is constant, and when the proper rate is found, firms will not find it cost effective to pollute in excess. The only problem would be figuring out the tax rate.

One way to help the cap and trade system would be to consistently readjust and regulate the permit market. Decreasing the permit supply when firms are not polluting, yet making sure that there are still enough permits in the market to keep prices down, or production steady. On the other hand, regulating the cap and trade system beyond just tracking whom pollutes, but also needing oversight and regulatory forces for the market itself would be a waste considering that a tax would not need oversight for a market.

The reason why people like Mallaby, or Greg Mankiw recommend a tax structure is because if the system is made simply enough, we not only reduce overhead, but we also reduce externalities that would otherwise occur from a newly created permit market.

While many experts have stated their opinion on the matter, there is no easy solution, although the easier, more intuitive solutions seem apropos. However, maybe we could trial this within a region. In addition, each system could be reversed, adjusted, or replaced with cap and trade, or vice-versa.

In the end, the question is when will circumstances reach the point where we feel we have no other choice but to enact a tax or a cap and trade system?