Increasing Marginal Utility

A blog so good it violates the law of diminishing marginal utility.

Link Dump

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Pathological Altruism and Pathological Regulation” by Paul Rubin.

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The debacle of philosophy in the 20th century” by Rafe Champion.

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Experts” by Phil Birnbaum. This relates to Bill James.

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The problem with home-cooked meals” by Sarah Kliff.

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The Economics of Fair Trade” by Raluca E. Dragusanu, Daniele Giovannucci, and Nathan Nunn.

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It’s Normal for Regulators to Get Captured” by Megan McArdle.

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Demonstrating the Validity of Twin Research in Criminology” by J.C. Barnes, John Paul Wright, Brian B. Boutwll, Joseph A. Schwartz, Eric J. Connolly, Joseph L. Nedelec, and Kevin M. Beaver.

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“‘Inflation Derps’ Are People from the Concrete Steppes” by Nick Rowe.

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Link Dump

Just because the catharses are on hiatus doesn’t mean I don’t still collect links.

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A Lonely Quest for Facts on Genetically Modified Crops” by Amy Harmon.

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Caramel pork belly recipe.

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The Behavioral Economics Guide 2014.

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Billion-Dollar Billy Beane” by Benjamin Morris.

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America’s License Raj: Unshackle the Entrepreneurs” by The Economist.

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The Role of Policy in the Great Recession and the Weak Recovery” by John Taylor.

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A good economic bet: Pundits who make wagers may look grubby but at least they are accepting a cost for failure” by Tim Harford

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What ‘Stand Your Ground’ Laws Actually Mean” by Eugene Volokh

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Tyler Cowen’s positive account of Transformers 4.

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Libertarianism as if (The Other 99 Percent of) People Mattered” by Loren Lomasky

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Life isn’t fair: the people who practice the most aren’t the most successful” by Joseph Stromberg.

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Inflation Targeting: A Monetary Policy Regime Whose Time Has Come and Gone” by David Beckworth

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Measuring Institutional Quality in Ancient Athens” by Andreas Bergh and Carl Hampus Lyttkens

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5 Hated Groups That Are Going Out of Their Way to Be Awesome” by C. Coville

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Ritual and Its Consequences: An Essay on the Limits of Sincerity” by Adam B. Seligman, Robert P. Weller, Michael J. Puett, and Bennett Simon

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Social Science Suffer from a Severe Publication Bias” by Mark Peplow

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E.T.: ‘The Worst Game Ever’” by Yahtzee Croshaw

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Consumer City” by Ed Glaeser, Jed Kolko, and Albert Saiz

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How to Make Maps” by Lee Crawfurd

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Tips 4 Economists” by Masayuki Kudamatsu

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Utilitarian Moral Judgment in Psychopathy” by Michael Koenigs, Michael Kruepke, Joshua Zeier, and Joseph P. Newman

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Freud, Carnap, Nietzsche, and Marx play Monopoly.

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Apologies for not citing who I got some of these from.

Idle Thoughts About Ordoliberalism

Please excuse some thinking aloud here. I think it might be instructive, when thinking about a public policy perspective, to evaluate how neatly it fits in with what we might be able to call “ordoliberalism.” By this I mean the standards of public policy you would see advocated in an introductory economics textbook, but at a much higher intellectual level. Or, you can think of it as Hicksian efficiency maximization with lump sum transfers. To what extent can a given policy proposal be viewed as an attempt at making the economy more efficient, and to what extent does it make transfers more like lump sum transfers (setting aside whether it increases the total amount of transfers or not)?

In some ways this is very banal, i.e., to what extent does the public policy readily fit in with what “the” economist thinks about these things? Then, to whatever extent it does not fit in with what “the” economist thinks, what are the ends the policy is seeking to achieve? How well will it achieve those ends? At what cost?

To give this some teeth, consider:

-This is a clear break from market socialist-lite that was near mainstream (if not mainstream) in mid-century economics. After all, that is where the term “ordoliberalism” originates from! This is Ludwig Erhard, not Paul Samueslon.

-By that standard, Friedman and yes Hayek (though not all “Hayekians”) are readily labeled “ordoliberals.”

-This can be viewed as a reaction to the arguments in favor of the government running key industries, as opposed to trying to make the industry better as someone like Marshall or Harberger would approach it. Do taxes and subsidies, not Commanding Heights.

-Regarding, for example, Obamacare, a lot of it can be boiled down to increasing transfer payments, which “the” economist is agnostic about. But its transfer payments are in-kind, or essentially in-kind, which “the” economist says is a stupid way of doing it. Some of Obamacare is trying to support more experimentation on the public side of things, which “the” economist may approve of (for reasons analogous to basic science). But much of Obamacare, including the core of it, looks like Commanding Heights, certainly not keyhole solutions. It’s not the nationalization of an industry, but the style is pure command and control.

-Medicare Part D, of course, should be viewed simply as a collection of poorly executed in-kind transfer payments.

There are many free market advocates who keep their language anchored to this framing. Greg Mankiw does (outside of his explicitly philosophical posts). Scott Sumner is actually excellent on this. Every op-ed of the late Gary Becker did this. However, obviously on the right, many can quickly get very deonotological (not just Rothbardians either), even when ostensibly talking about “economics.” And I offer quite a bit of incredulity to free market advocates who imply that the EITC cannot allow the poor to achieve a higher level of consumption that they would otherwise.

However, regarding economics pundits and bloggers on the left, while it seems clear that they have something like ordoliberalism as the background model for the arguments they are making, they are not clear about 1) when what they are saying simply falls in line with ordoliberalism, 2) when it is the result of other concerns (which they are no expert on), like fairness, and 3) when it is simple party politics. Counterexample? Perhaps Justin Wolfers, but I am not sure.

I think the best, clearest, and most consistent ordoliberals are free market advocates, but among free market advocates there is higher variance. Greg Mankiw is better at it than Paul Krugman, but Walter Block is worse at it than James Galbraith.

Maybe this is completely off base, but it’s a thought.

Rationalization Versus Criticism in Economics

There are two fundamentally opposed viewpoints of what we should be doing when we “do economics.”

  • One can think of economics as a means of rationalization - the use of reflection, logic, and empirics to determine how certain actions, even if counterintuitive, serve some rational end. This is the basic idea motivating much of “economic imperialism.” 
  • The second way to think about it is criticism. We work from assumptions about what the ends of agents are and determine whether their chosen means are appropriate. Cost-benefit analysis, behavioral economics, and the most successful application ever of applied econometrics, sabermetrics, are all examples.

I tend to think the second is more fruitful than the first, which in some way puts me on the left of the spectrum when it comes to economic methodology, if that is a sentence that makes sense. But of course I use that paradigm to criticize many things correlated with the left (even if they are non-political, narrowly speaking), which is perhaps what explains my ostensible eccentricity.

On the other hand, I do not object to “economic imperialism” even though I believe many of its conclusions reach way too far. The way I square rationalization with criticism is to stay within Becker’s z-good approach, but to assert we must keep the number of z-goods we accept as “legitimate” to a very limited scope. Otherwise, “rationalization” ceases to be a generator of interesting hypotheses and takes on its pejorative definition instead.

Consider vaccination opponents. We can point out that many of their empirical beliefs are simply wrong. But there are obviously deeper motivations than their empirical beliefs – the use of vaccines as a scapegoat for various childhood illnesses confirms certain worldviews (and there is no more bitter pill to swallow than to accept evidence that you worldview is wrong), the intuitive preferences for what is perceived to be natural (“I don’t like the idea of you putting all those chemicals in my son’s body”), and so on. The point is, that I can come up with perfectly legitimate rationalizations, perhaps even “preferences” that are entirely inherent to what it means to be human, to defend one of the most irrational norms we have in Western culture as somehow rational.

If we limit z-goods, we are allowed to still say that vaccination opposition is wrong on one of two grounds. One, people are improperly matching their means and ends. The z-good is the well-being of family members (which is obviously an essential z-good), and they are not perceiving how to address it correctly.

But this seems incomplete. One potential z-good I would accept is preferences over beliefs (although I would state it more broadly), which is why you get booing crowds when you present scientific evidence to opponents of vaccines. I think it’s important to realize that this is both a real human preference and a bias (confirmation bias); the two are simply different ways to label it depending on whether you want to call it a preference or call it a bias. In either case, it is not a “good” thing for vaccine opponents if this is their motivation, even if this “rationalizes” the behavior.

Additionally, this can be thought of in terms of expressive consumption. Expressive consumption instrumentally serves a number of functions. It may serve “identity,” likely a z-good which is so deeply intermingled with strange sociological phenomena it is hard to get a handle on in. It may also serve a variety of signaling mechanisms, including cooperativeness (you are a vigilant member of your community, not a stooge for the corrupt medical establishment) and yes, status. But with any signaling, people are probably incentivized to do too much of it, so in that sense this “rationalization” too may imply it is anti-social.

And clearly, when you state it in these terms, it implies that vaccine opponents are prioritizing their preferences over beliefs or engaging in a backwards form of expressive consumption in place of keeping their children healthy. That too would be grounds for criticism.

Vaccine opposition is only the clearest example of many choices I see, and I have remarked on them extensively on this blog. I think if you go through a similar exercise with them, you would come to similar conclusions.

The charge of libertarian authoritarianism

Brad DeLong has an otherwise interesting post in which he says,

Mont Pelerin neoliberals tend to be social conservatives, and to at least play with endorsing fascist and authoritarian dictators like Mussolini and Pinochet.

Whether libertarians are somehow intermingled with authoritarians is one of those one or two hundred topics that gets recycled once every couple of years in this corner of the internet. So I don’t mean to play reruns (a clip show?), but let’s go through all the examples of libertarians purportedly doing so that I can think of. This includes, by the way, examples that don’t generally get brought up by the left.

LEGITIMATE EXAMPLES

1. Hans-Hermann Hoppe is a racist pseudo-intellectual punk who somehow got tenure in an economics department during an age that radical libertarians in academia seemingly did nothing but revisionist history. He wrote a book called Democracy: The God That Failed in which he argues that, while no government at all is the first-best option, historically monarchies are preferable to democracies. Libertarians who have followed in his footsteps are either harmlessly quixotic, attempting to publish academic articles from their mom’s basement, or both. The last I heard he had been ostracized from even the most extremes of the extremes of the movement and was writing some racist history on a boat somewhere. Oh, and by the way, Hoppe founded an organization in reaction to MPS because MPS was too moderate, so his inclusion here is almost the exception that proves the rule.

EXAMPLES THAT ARE ONLY LEGITIMATE UNDER VERY UNCHARITABLE READINGS

1. Mises once said some things that sound vaguely pro-fascism if you take him completely out of context. At worst, if you read the full paragraph, he sounds blase about fascism, which is exactly the same thing you can say about Keynes (whether you treat the comments of Keynes and Mises as equivalent is a good test of how much much ideology clouds your reading, imo). Both of their comments were made in an era where many intellectuals were blase about fascism – this was decades before Nazis were the bad guys in Indiana Jones movies, after all. Regardless, even if you insist on reading Mises as uncharitably as possible, it is less legitimate to use his comments to demonize today’s MPS than it would be to use the comments regarding eugenics of nearly every progressive of the early twentieth century to demonize the Center for American Progress. So there’s that.

2. Hayek on Pinochet, oy vey. This is another example of probably simply being blase, but it is worse. If you state Hayek’s position upfront – “hey, maybe if democratic governments are clearly circling the gutter, it’s useful to have an authoritarian step in and force better institutions in place” – it doesn’t really sound like an endorsement of fascism, or even like “toying” with it, but an undue extrapolation of some positive side effects of one particular monstrous brute coming into power. To the best of my knowledge, this notion is raised on occasion within the movement, but more as a history of thought thing than anything else. If you want to go all Naomi Klein on it and claim that this depressed, lonely academic engineered Bush II’s invasion of Iraq thirty years in advance to deregulate financial markets or whatever, so be it. The more realistic portrayal is that, when Hayek made these comments, he was gradually turning into Mr. Magoo.

3. When public choice was first developing as a field, James Buchanan was chased from a couple academic institutions by other academics there who called him and his colleagues fascists. This was like the 1960s, so I don’t think it’s unfair to summarize this as Marxists getting pissed off at the implications of the rational choice model to democracy and leave it at that.

ACTUAL EXAMPLES OF THE MODERN MPS

1. There is a skepticism of democracy as an institution that you get in MPS that you won’t get elsewhere. Of course, and I don’t think I’m “outing” anyone when saying this, that’s because many of them are anarchists. They are not very impressed with the outcomes you get from democracies, but that isn’t because they want an American Pinochet to take over the government and force neoliberalism (*evil laugh*) down everyone’s throat. Rather, they believe that no government at all is optimal. That’s it, really.

2. There’s a strain of democracy skepticism that goes like this: tell me something good that democracy does that is not tautological. In other words, what is something that democracy does that is positive that is not the direct result of democracy? According to some, the only good answer to this is that democracies are less likely than autocracies to allow a famine to take place. They are very skeptical of the literature claiming that democracy encourages economic growth (I see the evidence as pretty mixed). But all this results from a very instrumentalist interpretation of democracy. You don’t care about democracy per se; it is only a method of achieving effective governance, not the end in itself. If you equate the instrumentalist interpretation of alternative political institutions with “toying with fascist and authoritarian dictators,” you have that, but you’ve shifted from uncharitable readings to smear campaigns and propaganda. 

In other words, these charges of dabbling in authoritarianism are barely superior in quality to Kengor/D’Souza charges of Obama of communism. It’s embarrassing that the intellectual left takes it at all seriously. 

Two stupid opinions of mine

1. If North Korea is selling weapons to Hamas, we are sorta living the plot of Team America: World Police.

2. Tyler Cowen’s brief blog post on food in China touches on an attitude I find to be of very bad taste, though my cynicism toward what I perceive others may find my opinion to be of bad taste. He suggests that the quality of food (from the perspective of the traveler-foodie) will fall as refrigeration proliferates as China gets richer. While I don’t lump Cowen in with this crowd, to me, many foodies effectively take pleasure in the poverty of others. It’s as if the traveler-foodie asserts unabashedly, “I’m sad people are rich enough to own refrigerators, because then maybe when I travel more of my food will have been frozen at some point.” Third world countries are places of suffering, not freaking amusement parks. Celebrate when that sleepy impoverished village gets its first McDonald’s – the people living there have more important things to do than making sure your children and your children’s children can experience the street food there as you remember it.

Browsing Catharsis – 07.04.14

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“We provide evidence on the nature of the monetary transmission mechanism. To identify policy shocks in a setting with both economic and financial variables, we combine traditional monetary vector autoregression (VAR) analysis with high frequency identification (HFI) of monetary policy shocks. We first show that the shocks identified using HFI surprises as external instruments produce responses in output and inflation consistent with both textbook theory and conventional monetary VAR analysis. We also find, however, that monetary policy surprises typically produce ‘modest movements’ in short rates that lead to ‘large’ movements in credit costs and economic activity. The large movements in credit costs are mainly due to the reaction of both term premia and credit spreads that are typically absent from the standard model of monetary policy transmission. Finally, we show that forward guidance is important to the overall strength of the transmission mechanism.”

-Mark Gertler and Peter Karadi, “Monetary Policy Surprises, Credit Costs and Economic Activity.”

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“How one understands dog ownership from this perspective is a mystery to me. If you own a dog and take the trouble to keep it alive, healthy, and happy, you have to sacrifice a great deal. There are the simple financial realities of feeding a dog and vet visits and medication or treatment when necessary, and often dog walkers as well. Then there is the sacrificed freedom—it is much harder to be spontaneous after work in terms of going out or seeing people; someone has to make sure to dog goes out, gets fed, and so on. And, for many people, there’s the added anxiety of having a life that depends on you—you invest emotions in your dog in a way that makes you vulnerable. It’s hard to imagine a world of commensurable values where this arrangement makes sense. If you get $10,000 of value from owning a dog, wouldn’t it be easier to just seek out $10,000 of value through going out to restaurants, or watching more movies, or any number of other ways that is less expensive financially and emotionally? Commensurability is fundamentally about interchangeability; the high cost value of dog ownership should, in this world, have available substitutes.”

-Adam Gurri, “Can Utilitarianism Explain Dog Ownership?

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“This paper reports on recent research showing that the severe recession of 2007-2009 and the weak recovery have been due to poor economic policies and the failure to implement good policies during the past decade. Monetary policy, fiscal policy, and regulatory policy became more discretionary, more interventionist, and less predictable in comparison with the previous two decades of better economic performance. At best these policies led to growth spurts, but were followed by retrenchments, averaging to poor performance. The paper also considers alternative views-that the equilibrium interest rate declined during the decade and that the seriousness of financial crisis caused the slow recovery.”

-John Taylor, “The Role of Policy in the Great Recession and the Weak Recovery.”

Browsing Catharsis – 07.03.014

“Evidently, Mr. Grant’s enchantment with gold has led him into incoherence. Is gold money or isn’t it? Obviously not — at least not if you believe that definitions ought to correspond to reality rather than to Platonic ideal forms.”

-David Glasner, “The Enchanted James Grant Expounds Eloquently on the Esthetics of the Gold Standard.” Oh Rothbardian essentialism, I have not missed you.

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“Monetary policy affects the real economy in part through its effects on financial institutions. High frequency event studies show the introduction of unconventional monetary policy in the winter of 2008-09 had a strong, beneficial impact on banks and especially on life insurance companies. I interpret the positive effects on life insurers as expansionary policy recapitalizing the sector by raising the value of legacy assets. Expansionary policy had small positive or neutral effects on banks and life insurers through 2013. The interaction of low nominal interest rates and administrative costs forced money market funds to waive fees, producing a possible incentive to reach for yield to reduce waivers. I show money market funds with higher costs reached for higher returns in 2009-11, but not thereafter. Some private defined benefit pension funds increased their risk taking beginning in 2009, but again such behavior largely dissipated by 2012. In sum, unconventional monetary policy helped to stabilize some sectors and provoked modest additional risk taking in others. I do not find evidence that the financial institutions studied formented a tradeoff between expansionary policy and financial stability at the end of 2013.”

-Gabriel Chodorow-Reich, “Effects of Unconventional Monetary Policy on Financial Institutions.”

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“I HAVE PARTICIPATED IN not one but three separate, and increasingly disillusioning, international health brigades, short-term visits to developing countries that involve bringing health care to struggling populations. Such trips—critically called voluntourism—are a booming business, even though they do very little advertising and charge people thousands of dollars to participate. How do they attract so many paying volunteers? Photography is a big part of the answer. Voluntourism organizations don’t have to advertise, because they can crowdsource. Photography—particularly the habit of taking and posting selfies with local children—is a central component of the voluntourism experience. Hashtags like #InstagrammingAfrica are popular with students on international health brigades, as are #medicalbrigades, #globalhealth, and of course the nostalgic-for-the-good-days hashtag #takemeback.”

-Lauren Kascak and Sayantani Dasgupta, “#InstagrammingAfrica: The Narcissism of Global Voluntourism.”And here I spent all this time thinking the Paul Farmer types weren’t narcissistic assholes.

Browsing Catharsis – 06.27.14

“The Botswana metalheads (complete with amazing nicknames like Bone Machine, Apothecary Dethrok, and Venerated Villain) are a small, 1,500-strong subculture devoted to music normally associated with white American kids from the suburbs whose parents totally don’t understand them. But they don’t just look the part of insane Roadie Warriors; they’re pretty damn metal in practice, too. They carry around knives and drink from hollow cow horns. Shake their hands, and they’ll shake your entire body…But despite their scene, wardrobe, and general behavior centering entirely on power and aggression, they insist they’re not thugs or bullies. They see themselves as role models and do all they can to help both their communities and their ‘brothers in metal.'”

-Antonio Arrieta and JM McNab, “5 Real Subcultures Way Crazier Than Anything from Japan.” Well I already heard that Botswana has really good informal institutions.

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“Noting that it has had thousands of years to develop a more agreeable option, humankind expressed bewilderment this week that it has yet to devise a better alternative to governing itself than always letting power-hungry assholes run everything, sources worldwide reported. Individuals in every country on earth voiced their frustration that, in spite of generations of mistreatment, neglect, and abuse they have suffered at the hands of those in positions of authority, they continue to allow control over the world’s governments, businesses, and virtually every other type of organization and social group to fall to the most megalomaniacal pricks among them.”

-The Onion, “Humanity Surprised It Still Hasn’t Figured Out Better Alternative To Letting Power-Hungry Assholes Decide Everything.”

Browsing Catharsis – 06.24.14

“I would put it this way: climate change is like neither the financial crisis nor the Obama health care plan, but above all it is an international problem requiring an international solution.  And it’s not like banning land mines, where most countries have little reason to continue with the practice.  It is also not like ozone, where a coordinated solution is relatively low cost, more or less invisible to voters, threatens few jobs, and involves few incentives for defection.  A climate change solution requires a lot of countries to turn their back on coal-generated pollution long before we did (as measured in per capita income terms) and long before the Kuznets curve suggests they otherwise are going to.  A climate change solution, if done the wrong way, will look to China like a major attempt to unfairly deindustrialize them and, if it is backed by trade sanctions, it will look like an act of war.  Trade agreements do best when most or all of the countries already wish to act cooperatively toward much lower tariffs.  For a green energy solution, China (among others) in fact has to want to solve the problem, as do we.  And the already-installed or in-process coal base in China is…forbidding.”

-Tyler Cowen, “How good a climate change solution do we need?

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“The Chicago Sun-Times got it from the Clinton Library. In it he gives the president all kinds of advice about how to score big political points out of triangulating the issue of crime and drugs. And it is ALL political points, of course. He doesn’t seem to care too much about the issue. He cares everything about the politics of the issue. Which I assume is pretty common among people like him. The baseball part is his advice about how the Clinton White House should nose itself into baseball and drugs. Not steroids — no one cared about that yet — but about players abusing recreational drugs. Specifically, Daryl Strawberry… Pro tip: if George Steinbrenner comes off as the most reasonable guy in your interaction, you got some serious problems.”

-Craig Calcaterra, “As a Clinton staffer, Rahm Emanuel wanted to go after Daryl Strawberry for drugs.”

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“1. Take your savings and start stockpiling the steel that foreigners are producing below cost. Get a home equity line of credit or something and borrow money if you have to. 2. Once the foreigners decide to jack up the price, undercut them by selling your steel stockpiles. Pocket a handsome profit from the difference between the below-cost price you paid and the just-below-what-the-evil-foreigners-are-charging price at which you sell the steel. 3. If you have enough money to do it, keep buying steel until you drive the evil foreigners out of business. After all, they won’t be able to sell steel at a loss forever. If they have to start raising prices, then you can match them or undercut them and make a pile of money. You might not be able to do it individually, but I’m sure US Steel or the steelworkers’ union can mobilize the resources to make an impact.”

-Art Carden, “How To Protect Yourself From ‘Dumping’ and Profit in the Process.”

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