One Scary Thought

As Alex Tabarrok suggested today, Sarah Palin has a greater chance of becoming President than does John McCain.

The betting markets are currently giving McCain about a 16% chance of winning. If McCain wins then let's assume that all things considered Palin has a 40% chance of becoming president (either if McCain dies in office--a 33% possibility given his age and history of melanoma--or as his successor). If McCain loses many people suggest Palin could be a future Republican leader (in fact, most Republicans have labeled her "the future of the GOP") so let's put her chances of becoming president in that scenario at 12%. Thus:

Pr(Sarah Palin as President) = .16*.4 + .84*.12 = 16.48 > 16% = Pr(John McCain as President).

Uh-oh.

There is No Free Lunch

As long as lifestyle, diet, attitude, social standing and exercise are the major determinants of personal health, the expensive American emphasis on discretionary treatment will not always seem sensible. Many people just don’t benefit that much from medical care. Look at the life expectancy around the Mediterranean — it is high but not because of wonderful health care.

But as populations age and the value of medical technology grows, the overhead costs of private insurance will prove an increasingly wise investment. For all its high immediate expenses, the American health care system is looking toward the future rather than the past. In the long run, the hidden and indirect costs of single-payer systems are harder to measure and thus are ultimately harder to control.

Get the rest of Tyler Cowen's excellent article here.

Why Iceland is Screwed

Check it out.

I see similar consequences when comparing modern Iceland to 1919 Germany. I wonder what life is like for a country that is truly, permanently bankrupt.

Christopher Hitchens's Latest

The latest article from Hitchens on Slate hits home with what I've been saying about Sarah Palin ever since she was nominated to the Republican ticket. Some Americans cringe when confronted with Barack Obama's dubious religious past (with many an ignoramus decrying his middle name, Hussein, as evidence of his association with Islam). I, on the other hand, cringe when reminded of Sarah Palin's past as a Pentecostal and an advocate of teaching only creationism in schools and banning books.

With Palin, however, the contempt for science may be something a little more sinister than the bluff, empty-headed plain-man's philistinism of McCain. We never get a chance to ask her in detail about these things, but she is known to favor the teaching of creationism in schools (smuggling this crazy idea through customs in the innocent disguise of "teaching the argument," as if there was an argument), and so it is at least probable that she believes all creatures from humans to fruit flies were created just as they are now. This would make DNA or any other kind of research pointless, whether conducted in Paris or not. Projects such as sequencing the DNA of the flu virus, the better to inoculate against it, would not need to be funded. We could all expire happily in the name of God. Gov. Palin also says that she doesn't think humans are responsible for global warming; again, one would like to ask her whether, like some of her co-religionists, she is a "premillenial dispensationalist"—in other words, someone who believes that there is no point in protecting and preserving the natural world, since the end of days will soon be upon us.

Get the article here.

Expectations of Deflation

A narrowing in the so-called yield spread is an indication that investors expect inflation to slow. The rate of inflation as measured by the consumer price index will likely slow to 2.75 percent next month from 5.6 percent in July, economist at Goldman Sachs Group Inc. said in a report to clients this week.

Yields on some Treasury Inflation-Protected Securities were higher than yields on conventional Treasuries of similar maturity in another sign investors are shedding assets and betting on a deepening U.S. recession.

The difference between yields on five-year Treasuries and five-year TIPS was a negative 0.46 percentage point at one point this week, a record. TIPS typically yield less than Treasuries because their principal payments rise at the rate of inflation. A shrinking yield gap indicates investors expect inflation to slow.

The market "is pricing in deep deflation,'' said Micheal Pond, an interest-rate strategist in New York at Barclays Capital Inc. one of the 17 primary dealers that trade directly with the Fed. He recommends investors bet on a widening yield gap between TIPS and conventional Treasuries of shorter maturities.

Find the story at Bloomberg online.

This has ramifications for the nature of the current crisis beyond merely deflation. As the price of oil has fallen 60% from the record high price in July of $147 a barrel to today's price of $61, we can infer that the market expects the broader monetary aggregates--like credit--to also fall decline during the coming weeks. A rising monetary base (as we have seen recently) will not lead to much inflation; the base has risen so much because the Fed has been trying to avert...a credit crisis. Imagine the boom in credit the recent monetary base increases would have fostered had we not been in...a credit crisis.

Free Online Game Theory Course

Yale University's Ben Polak is offering a free online course in game theory. The course is an introduction to game theory and strategic thinking. Ideas such as dominance, backward induction, Nash equilibrium, evolutionary stability, commitment, credibility, asymmetric information, adverse selection, and signaling are discussed and applied to games played in class and to examples drawn from economics, politics, the movies, and elsewhere.

Troy Davis's Execution Stayed

On Friday, the Georgia Board of Appeals voted to stay the execution of Troy Davis for the third time, the latest legal embarrassment of America's capital punishment system. Find the AJC's coverage here and a great opinion piece about the execution's proponents here.

Heidegger's Conception of "Phenomenon"

The Greek for phenomenon () is derived from the verb “to show itself,” a word which also connoted “bringing something into the light.” For Heidegger, “phenomenon” is “that which shows itself in itself.” Since our access to the phenomenon varies, it is possible for an entity to show itself as something it is not (a mode which Heidegger terms “seeming” or “semblance”). “Showing itself” is therefore a necessary component of “phenomenon.” In addition to the view of “phenomenon” as that “which shows itself in itself,” Heidegger outlines three more connected structures of his conception of phenomenon which, in turn, provide three notions or conceptions of “phenomenon.” As Heidegger states, our point of interest is the phenomenological conception of the word, the Being of Dasein. In other words, the “phenomena” of phenomenology will underlie the particular manifestations of beings.

First, Heidegger states that “phenomena” can show themselves in a private manner if they show what they in themselves are not. This “seeming” or “semblance” is a private modification of “phenomenon.” An example would be a stick floating down a river; it seems broken, yet the seeming of the broken stick is structurally connected to the straight stick. Next, Heidegger discusses appearance, an element involving two structural movements. The general description of appearance is, as Heidegger sets forth, something that shows itself in such a manner for the purpose of announcing that something else does not show itself. Unidentifiable lumps, for example, announce the presence of cancer; the cancer is the ground for the appearance of the lumps. That which appears, the cancer, is what does not show itself, but appears through something that does show itself. On the other hand, the lumps—the appearance—are those things that show themselves in such a way in order to announce that which appears (the cancer). Last, Heidegger discusses “mere appearance,” a reference to Kant’s formulation of “appearance.” In this notion of “phenomenon,” the appearance announces the thing in question in such a way that the “thing in itself” can never become manifest (or appear). The appearance itself radiates forth from the non-manifest in such a way that what is announced is basically covered up.

Heidegger establishes these different senses of “phenomenon” to distinguish phenomenological “phenomena” as “self-showing” from traditional interpretations of “phenomenon” as appearance and “semblance.” This phenomenological sense of “phenomenon” has three structures. The first is the formal conception, which states that a phenomenon is that which shows itself in (or from) itself—a kind of showing. The second structure is the ordinary conception; phenomena are the objects of our intuitions and what we perceive. We ordinarily understand these as appearances and they fall under the formal concept of phenomenon in that they involve a type of showing. Third, Heidegger asserts that the phenomenological concept of phenomenon is related to Kantian intuition more than it is to concrete, “filled in” modes of intuition. Yet the phenomena in this sense show themselves un-thematically, and it is necessary for us to uncover these phenomena so they will show themselves in a direct (thematic) self-showing. Heidegger concludes his section on phenomenology with a simple statement: the phenomenon of phenomenology is nothing less than the Being of beings.

Bush Decides to Keep Guantanamo Open

Very disappointed, to say the least.

My Solution to the Financial Crisis

Here is a economic policy memo I wrote regarding the shortcomings of the bailout and the need to overhaul Paulson's plan. Enjoy...


Congress should not provide capital to banks, bur rather modify existing regulations and give the $700 billion directly to taxpayers. This would prevent socializing Wall Street and infuriating the American taxpayer, eliminate existing bad government regulatory policies, allow markets to accurately and efficiently price securities, and eliminate federal guarantees. The government’s current measures may prevent a total financial meltdown, but they are seeds of another financial crisis. Congress should be concerned about its reactionary regulatory policies because the bailout package has serious shortcomings:

• The proposed bailout has not stopped the markets from slipping; From October 6 through October 10, the Dow Jones Industrial average dropped 22%, the S&P 500 dipped over 17%, and the New York Stock Exchange reached its lowest point in 7 years.

• Other proposed government policies like the ban on short selling have only hurt the markets further, disallowing many companies’ preferred method of safeguarding their portfolios. It has disrupted the ability of institutions such as hedge funds to trade pairs, a strategy involving minimizing risk on correlated stocks by going long on one and short on the other.

• The Congressional bailout package has decreased public confidence in the markets and in Congress; the public has seen endless revisions to the proposal.

• Congressional interference in mortgage lending was the leading cause of the increase in home ownership and, by extension, the economic downturn. In an effort to increase home ownership among the lower classes, several branches of government reduced the mortgage underwriting standards, leading to an increase in housing prices and home ownership. This tempted speculators to purchase homes without putting their money at risk.

• With the bailout package guaranteeing bank loans or assets, banks have less incentive to evaluate loan applicants thoroughly, but more incentive to engage in riskier behavior than they would otherwise. If affairs were good, banks would make high profits but, in the case of today’s economic downturn, it is the taxpayers who pay. This tendency of banks to take on too much risk is exactly what caused the current crisis. Government-sponsored entities Fannie Mae and Freddie Mac guaranteed loans amounting to 50 times their net equity because they knew the Federal Reserve, Treasury Department, and Federal Deposit Insurance Corporation would step in to act as lenders of last resort.

With its recent policies, the government has bailed out guilty institutions, allowed relatively innocent institutions to flounder, and made taxpayers foot the bill.

What Should Be Done Instead

The reserve requirement for investment banks and government-sponsored entities should be raised. This would require that firms value their tradable assets at market prices and maintain a cash balance equal to a percentage of that price. Small banks have fairly high capital ratios (10%), and they have remained both relatively unaffected and innocent in the recent economic crisis. Raising the reserve level allows institutions to navigate tight credit markets by holding enough capital to face sudden increases in their default rates. The bailout bill fails to address this both for short-term economic recovery and future planning.

The federal government should foster savings and investment in the stock market by extending the capital gains and dividend tax cut. Not only would this give a strong incentive to taxpayers to invest in the market but it would also raise the rate of return on financial assets with little cost to the Treasury.

Congress should lift all Roth IRA contribution and eligibility limits for at least one year. This measure also has no immediate cost to the Treasury, since contributions to Roth IRAs are not tax deductible. It would likely pump billions of dollars into the tight market.

These measures would have allowed the market to reorganize its financial sector at no cost to the taxpayer. To stimulate the economy, Congress could authorize half of the bailout amount ($350 billion) to be given in stimulus checks of $1,800 to each of the 191 million taxpayers with the condition that the funds must be deposited into some type of retirement account or subject to the premature distribution rules the IRS has regarding IRAs. Risk-averse people would invest their money in money market accounts, thus preventing a credit crunch. Others would buy mutual funds, helping sustain the market. Investors with a high risk threshold would invest in distressed banks, profiting greatly from the low prices on Wall Street. Such a measure would undoubtedly prove popular with the electorate, even if they had to pay back the Treasury later.

Addressing Objections

What about banks? Shouldn’t we help banks out by restoring their capital?
Bailing out banks would not alleviate the moribund financial system. With unemployment rising, the housing market still deteriorating, and U.S. exports suffering, it is clear that bailing out banks such as Lehman Brothers will not avert the crisis. The government chose to take on $29 billion in risky assets from Bear Sterns in March and that did nothing to prevent the imminent freefall in the financial system. The increased investment in banks as a result of the aforementioned bailing out of taxpayers would increase the value of banks’ stocks, provide capital, and allow them to make more loans to consumers.

Should we not have more regulation in this time of crisis? Isn’t deregulation what got us into this mess?
The culprits in this crisis were not the mortgage lenders, the investment banks that created mortgage-backed securities, or the ratings agencies. The key financiers of the crisis were those who purchased contaminated mortgage products. Had they not bought them, no one would have sold them. U.S. investment banks, regulated by the Securities and Exchange Commission, and commercial banks, regulated by agencies like the Federal Reserve, were the buyers. Hedge funds, which are lightly regulated and sometimes not regulated at all, resisted buying the toxic mortgage products. Because they operate with borrowed money, though, they are still vulnerable to the credit crunch, but no one proposes bailing them out. Columbia Business School’s Charles Calomiris calculates that the over-regulated Fannie and Freddie bought more than a third of the $3 trillion in junk mortgages created during the bubble; they did so because the government push for an increase in home ownership galvanized them to allocate money toward marginal home purchasers, pouring hundreds of billions of dollars of fuel on the fire. Deregulation is not the culprit in the financial crisis.

Krugman Wins Nobel

Many of you know Paul Krugman for his factually inaccurate and acerbic Op-Ed in the NY Times. Well, my friends, guess who won the Nobel in Economics? You betcha (wink)--Paul Krugman. His work in labor markets, my friends, garnered him the award, research that really was quite groundbreaking, even to the average hockey mom and Joe Sixpack. If not for his twice weekly column, many journalists believe he would have won the Prize several years ago. Darn right he is intelligent, but perhaps his idelogy rears its head too often for him to be taken seriously. Perhaps the Nobel will change that, my friends.

The Logos and the Tao

When the civilizations of China and Western Europe first made contact with one another (c. 1600), each culture perplexed the other with their respective political and cultural ideologies. Most noticeable, perhaps, was the Chinese reluctance to embrace nascent colonialism and expansive trade, an aversion reflective of differences in modes of thought and conceptions of the human condition. Prominent French Sinologist Jacques Gernet attributes this intellectual clash to the stark difference between the Western conception of metaphysical order and the historicist “aesthetic” order of the Eastern worldview. Gernet posits that the philosophical edifice underlying each culture is fundamentally different, and he attributes to this the clashes between their respective cultural, religious, and political institutions.

In this essay, I want to argue that Heraclitus, arguably the most influential Pre-Socratic philosopher, and Lao Tzu, the architect of Taoism and much of Chinese philosophy, make analogous metaphysical arguments. After showing the manifold similarities between the two, I want to contend that Eastern and Western (Greek) philosophy developed in tandem with, but independent of, one another. Finally, I will refute Gernet’s assertion that clashes between the East and the West are due to a fundamental difference in their philosophical traditions.

The Tao te Ching extensively describes the unifying principle of the world, the Tao, how it is commonly misunderstood, and how it belies man’s understanding of the world around him. Lao Tzu states that the Tao is, at any one time, what the world is and how it is. “Every being in the universe is an expression of Tao,” Lao Tzu writes. “It springs into existence, unconscious, perfect, free, takes on a physical body, lets circumstances complete it.” It “never does anything, yet through it all things are done.” Lao Tzu contends that the Tao “is ungraspable…dark and unfathomable. It is beyond is and is not.” “Free from desire,” we can “realize the mystery,” but “caught in desire,” we see only “the manifestations.” The Tao also is “formless and perfect…serene. Empty. Solitary. Unchanging. Infinite. Eternally present.” It is such an ambiguous concept that a regular man “half believes it, half doubts it” and the foolish man “laughs out loud. If he didn’t laugh, it wouldn’t be the Tao.” The concept of the Tao, however, is not merely abstract; it bears on our daily interactions with society and our environs. The Tao shows us the necessary interaction of the positive and the negative, the futility of classifying certain things as good or evil, war or peace, concrete or abstract; “The soft overcomes the hard; the gentle overcomes the rigid” To bolster this assertion, the Tao te Ching speaks of the illusion of goals. “We shape clay into a pot,” Lao Tzu writes, “but is the emptiness inside that holds whatever we want.” Indeed, it is ironic how the quest to make life as secure and happy as possible does exactly the opposite; we ignore the present and neglect to savor life itself and the beauty of the Tao. The Yin/Yang model shows that opposites are useless without their counterparts; separately, they are incoherent. Kant speaks to this in the Critique of Pure Reason when he writes, “A light dove parting the air in free flight, feeling its resistance, could get the idea it would succeed even better in a space with no air.”

The ancient Greek philosopher Heraclitus, born in the same decade BCE as Lao Tzu, formulated a universal principle similar to that of the Tao: the logos. This “account” or “word” is something to which everyone should listen; it is the objective account of reality, the fundamental principle of the world, the reason for things being the way they are. The logos guides and adjudicates the cosmos. “The logos,” Heraclitus states, “holds always but humans always prove unable to understand it, both before hearing it and when they have heard it” The logos is the unifying formula of all things, or the proportionate method of arrangement of all things: their individual and collective structural plan. Like the Tao, the logos is available to all and “in continuous contact” with humans. “It is wise to agree that all things are one,” Heraclitus states, for “the Logos, like the stars, is endless, infinite” Foolish men are “like the deaf. Though present they are absent,” for they are like those “who seek gold, dig up much earth, and find little.” “Right thinking,” however, “is the greatest excellence, and wisdom is to speak the truth and act in accordance with nature, while paying attention to it.” The fact that all things are arranged according to a common plan makes all things united in a coherent complex, of which mankind is a part and nature is a paradigm. The unity of this life complex is often hidden and arbitrary. As Heraclitus says, “The most beautiful arrangement is a pile of things poured out at random.” As in the Tao te Ching, there is no absolute division of opposite from opposite; the logos is the constituent that makes all things appear opposed. “The road up and the road down are one and the same,” for different aspects of the same thing justify opposing descriptions. Good things are possible only because of bad ones and thus, “Disease makes health pleasant and good, hunger satiety, weariness rest.” This unity of opposites debunks the classifications of good and evil, war and peace, concrete and abstract: “It is necessary to know that war is common and justice is strife and that all things happen in accordance with strife and necessity.” Most importantly, the unity of all the opposites is hidden. “Nature loves to hide,” because the unseen is stronger than more obvious types of connection.

The similarities between both philosophies are striking, as are their respective impacts upon Eastern and Western philosophy. It is not an overstatement to call Lao Tzu’s work the cornerstone of Taoism and the Chinese zeitgeist throughout the ages. Contemporaries of Lao Tzu (i.e., Confucius) could not avoid the questions he raised in the Tao te Ching, nor could they dismiss or supplant his sophisticated Tao. It is similarly difficult to ascribe too much importance to Heraclitus. He enraged some philosophers that came after him, like Parmenides and Zeno of Elea, while inspiring others, including the pluralists and Democritus. Indeed, some scholars have dubbed him “the impetus of Socrates,” “a bastion of rational thought,” and an “ancient Spinoza.” Regardless of his connection to these thinkers, his influence on Greek philosophy is undeniable. It rings false to suggest, as Gernet does, that Eastern and Western philosophy, both of which followed largely in the footsteps of either Lao Tzu or Heraclitus, do not have common philosophic origins and developments with a compatible view of the human condition.

To deny the parallel development of Eastern and Western philosophy along with their shared belief in a single cohesive force that guides and adjudicates daily life is tantamount to denying the common origin of mankind. While clashes and disagreements between the East and the West have been, are, and will continue to be commonplace, they are not, as Gernet suggests, the result of polarizing metaphysical philosophies, but of cultural and political differences arising from stark differences in geographical location, political ideology, agriculture, industry, and history.


Notes:

i. Lao Tzu, Tao Te Ching, (New York: Harper Perennial), verse 51: lines 1-6.
ii. Lao Tzu, 37:1-2.
iii. Lao Tzu, 21:4,7,12.
iv. Lao Tzu, 1:8-9.
v. Lao Tzu, 25:1-5.
vi. Lao Tzu, 41:2-7.
vii. Lao Tzu, 78.5-6.
viii. Lao Tzu, 11:4-6.
ix. See Immanuel Kant, Critique of Pure Reason, (Cambridge: Cambridge University Press, 1999).
x. See Cohen, Marc, Readings in Ancient Greek Philosophy, (New York: Hackett, 2005). Within, see Sextus Empiricus, Against the Mathematicians, 7.132.
xi. See Cohen, Readings. Within, see Marcus Aurelius, Meditations, 4.46.
xi. Ibid. Within, see Hippolytus, Refutation, 9.9.1.
xii. Ibid. Within, see Clement, Miscellanies, 4.4.2.
xiii. Ibid. Within, see Stobaues, Selections, 3.1.178.
xiv. Ibid. Within, see Theophrastus, Metaphysics, 15.
xv. Ibid. Within, see Stobaeus, Selections 3.1.178.
xvi Ibid. Within, see Origen, Against Celsus, 6.42.
xvii. Ibid. Within, see Themistius, Orations, 5.69b.
xviii. See T.M. Robinson, Heraclitus, Fragments: A Text and Translation with a Commentary, (Toronto, University of Toronto Press, Vol. 2: 1987).