Herman Daly on the zero interest rate

Herman Daly weighs in with a brain twister on money, interest rates, economic growth, and environmental degradation.

There are many things wrong with a zero interest rate. Remember that the interest rate is a price paid to savers by borrowing investors. At a zero price, savers will save less and receive less return on past savings. Savers and pensioners are penalized. At a near zero price for borrowed funds, investors are being subsidized and will invest in just about anything, leading to many poor investments and negative returns, furthering the economy’s already advanced transition from economic to uneconomic growth. Zero interest promotes an infinite demand for savings with zero new supply. But the “supply” is provided artificially by the Fed printing money. The infinite demand would be checked by the rising costs of natural resources and environmental damage if those costs were internalized, but they are not. Yet the environmental costs are real and do not disappear just because they are not counted. With free money and uncounted environmental costs, why not invest heavily in fracking? A very unequal distribution of income does check demand, at least for non-luxury goods. Rich people have an increasing surplus of money to invest, which also helps hold down the interest rate. Yes, mortgage rates fall, and that benefits citizens as home buyers, but they lose more in terms of their retirement accounts. And there is still a significant spread between the zero rate paid to savers and the positive rates charged on credit card and other debt, so the banks are doing quite well.

I’m with Mr. Daly all the way on his concept of “uneconomic growth”. Our primary measure of economic activity, GDP, is simply a sum of how much money changes hands. Some of the reasons money changes hands are good (benefits), and some are bad (costs). Let’s take the example of a factory that makes something that makes peoples’ lives happier or better. The money that changes hands to buy the product is a reasonable estimate of the value of that product, so since it is good we can call this the benefit. However, if the factory produces pollution, that is a cost. However, if people get sick and have to go to the hospital because of the pollution, we will count the money they spend as part of GDP. We will add the cost and benefit, when we should be subtracted the cost from the benefit, to get a net benefit. So we could try to measure net benefits each year and see if they are increasing, and that would be a better measure of human wellbeing than GDP. There are some attempts to do this, but they don’t have widespread acceptance.

I am basically agnostic on monetary policy though, because (like 99.9% of the population) I just don’t understand it well enough. My basic understanding is simply that turning the printing press over to the politicians is very risky, so we allow it to be controlled by a technocratic public/private hybrid entity instead. When money is created, it has to be repaid with interest, which creates some level of discipline and restraint in its creation. If there is not enough money, that creates a serious problem. If there were no discipline or restraint in its creation, it would cease to have any value at all. Both are dangerous. This may be a case of “if it ain’t broke, don’t fix it”, although the system is clearly imperfect. To be fair, Herman Daly’s proposal appears to be to create some sort of technocratic rule based on inflation (which he also has ideas on how we can measure better) that politicians can’t override. Maybe that would work, I will leave it to the experts.

 

regime change and refugees

Here’s an article that asks whether the Iraq War and calls for regime change in Syria are root causes of the current war and refugee crisis. This reminds me of something I have always struggled with – is it really ever possible for war to reduce suffering, or does it always hurt more people than it helps? Even in the case of a Saddam or the Taliban or possibly even a Hitler, it’s possible that intervening ultimately caused more pain and suffering than not intervening would have. It’s a difficult question.

Philadelphia rowhouses

I didn’t realize just how unusual the Philadelphia rowhouse is. Baltimore is really the only city that has something similar on a similar scale, with D.C. a distant third. I didn’t grow up here and was skeptical at first, but now I am living in my third one and I am completely sold. They are high density, yet low rise and to me, don’t feel as cramped as high rise apartments would. They are pretty social – people sit on their front stoops and get to know their neighbors, especially in good weather. They have back yards big enough to enjoy but small enough to be low maintenance. They are not conducive to driving and parking (a source of frustration to many), and are extremely walkable as a result. People walk to their jobs and shopping. Kids walk to school. There isn’t a whole lot of open space, I admit, but a few good parks and trails within easy walking distance make up for that.

WAPO-HOUSING-CHART

The End of Traffic and the Future of Transport

From Amazon:

In this book we propose the welcome notion that traffic–as most people have come to know it–is ending and why. We depict a transport context in most communities where new opportunities are created by the collision of slow, medium, and fast moving technologies. We then unfold a framework to think more broadly about concepts of transport and accessibility. In this framework, transport systems are being augmented with a range of information technologies; it invokes fresh flows of goods and information. We discuss large scale trends that are revolutionizing the transport landscape: electrification, automation, the sharing economy, and big data. Based on all of this, the final chapters offer strategies to shape the future of infrastructure needs and priorities.

We aim for a quick read–and to encourage you and other readers to think outside your immediate realm. By the end of this book (today, if you so choose) you will appreciate the changing times in which you live, what is new about transport discussions, and how definitions of accessibility are being reframed. You will be provided with new ways of thinking about the planning of transport infrastructure that coincide with this changing landscape. Even if transport is not your bailiwick, we like to think there is something interesting for you here. We aim to share new perspectives and reframe debates about the future of transport in cities.

There’s a somewhat skeptical review of this book on Planetizen, with a ton of links you could drill down into.

more on homework

NPR has a roundup of recent research on homework. One near-consensus seems to be that about 10 minutes per grade level is kind of sweet spot. This is the U.S. system we’re talking about, which goes up to 12 grades so therefore two hours. I did a lot more homework than this in high school.

Let’s start with something called the spacing effect. Say a child has to do a vocabulary worksheet. The next week, it’s a new worksheet with different words and so on. Well, research shows that the brain is better at remembering when we repeat with consistency, not when we study in long, isolated chunks of time. Do a little bit of vocabulary each night, repeating the same words night after night.

Similarly, a professor of psychology at Washington University in St. Louis, Henry “Roddy” Roediger III, recommends that teachers give students lots and lots of little quizzes, which he says strengthen the brain’s ability to remember. Don’t fret. They can be low-stakes or no-stakes, says Roediger, it’s the steady recall and repetition that matter. He also recommends, as homework, that students try testing themselves instead of simply re-reading the text or class notes.

There’s also something known as interleaving… there’s evidence that students learn more when homework requires them to choose among multiple strategies — new and old — when solving problems. In other words, kids learn when they have to draw not just from what they learned in class that day but that week, that month, that year.

One last note: Experts agree that homework should generally be about reinforcing what students learned in class (this is especially true in math). Sometimes it can — and should — be used to introduce new material, but here’s where so many horror stories begin.

Atlas Shrugged vs. Red Plenty

I finally got around to reading Atlas Shrugged (confession: I read an abridged version because life is short). It’s a childish book in many ways. It depicts a naive vision of perfect competition and innovation between large corporations, then suggests that any government interference is a mistake. Government is as incompetent and corrupt as private industry is virtuous and innovative. The government interference in question is not the environmental regulation and anti-trust regulation of today, but rather an extreme form of anti-competitive central planning that sounds very much like the vision that would have prevailed in the Soviet Union at the time. In fact, I think Atlas Shrugged makes the most sense through a Cold War lense. At the time the book was written, the early 1950s, the Soviet model did seem to be producing fast growth, and if it had been able to stay on that trajectory for decades it could have theoretically overtaken the west. Some people probably admired it for this, and some people were terrified of the implications. Ayn Rand was somewhat prescient in foreseeing how such an extreme form of central planning would eventually destroy incentives for productivity and innovation, and she even foresaw the risk of the military industrial complex managing to hijack such a system. Of course, what she gets wrong is the idea that large corporations engage only in perfect competition and innovation. They do their best to avoid competition whenever they can because it is cheaper to buy political influence. This means that capitalism is creating exactly the kind of government corruption that Ayn Rand railed against! It shouldn’t be surprising though, if we look at ecological analogs to how competition actually works. Plants and animals occasionally compete head to head for the exact same resources at the exact same place and time (thing Coke and Pepsi), but more often they try to find and exploit niches where they are complementing or at least not interfering with each other (think Coke itself versus bottlers, trucking companies, restaurants, etc.) Parasitism and gangsterism also are strategies that work pretty well in the natural world. So in summary I think Ayn Rand was prescient for her time on certain things, but overall the book is just childishly dumb and not even all that entertaining.

I’ve just started Red Plenty, which is a historical novel about Soviet central planning in the 1950s. The book tries to capture a moment in history when people were really excited about this model, thought it was working, and didn’t see that it would lead to ruin and military-industrial domination. You know how the story ends, and yet you are sympathetic to the characters (some actual historical leaders, like Nikita Krushchev), and actually pity them because they are so full of hope and have no way of knowing their story will end in tragedy. And unlike Atlas Shrugged, this book is well written and entertaining.

enjoying the festive papal atmosphere

Here is some helpful advice from the state of Pennsylvania (our friends in rural Pennsylvania, I’m thinking) on how to enjoy yourself at the papal visit.

If you get caught up in a crowd of people:

  • Try to walk around crowds, rather than through them.
  • Stay on your feet – do not sit down or bend down to pick up something.
  • If you fall down, get back up on your feet as quickly as possible.
  • Move with the flow of people, rather than against the flow.
  • Carefully and safely make your way toward the edge of the crowd.

It bears repeating – when in the big city, be aware of your surroundings at all times, tuck your wallet into one of your socks, and do not…repeat…do not under any circumstances bend over.

Brad Pitt at the World Meeting of Families

Today was a pretty tranquil scene in Philadelphia. Although parts of the city resembled a sort of soft military occupation – police, uniformed soldiers (who were polite and helpful), TSA and border patrol (who weren’t), it was actually quiet in the absence of traffic and with a lot of people staying home from work. In the morning, people seemed to confine themselves to sidewalks out of habit, then gradually during the day, they fanned out into the streets.
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Contrast this with what is expected tomorrow…

Okay, so that’s the Philadelphia scene from World War Z… which was actually filmed in Scotland with some Philadelphia landmarks photo-shopped in.

happiness and boredom

In this FInancial Times article, John Kay accuses happy cities of being boring.

Liveability and happiness are complex concepts. The happiest countries identified by the UN are those of “Jante Law”, the stifling conformity described by Danish author Aksel Sandemose: “You are not to think you are anything special, you are not to think you can teach us anything.” Yet there is much that is good about social homogeneity, shared values, peaceful coexistence and honest government. Life in unhappy countries — Myanmar, Syria, Zimbabwe — is not boring, but much of the population desperately wishes it was.

Yet boring is not enough. Security, hygiene, good public transport — the factors that enter the assessment of liveability — are necessary for a fulfilling life, but they are not sufficient for it. That is why so many young people from Melbourne or Toronto go to London or New York in search of the excitement and creativity of the great, rather than the liveable, city. For the technology writer Jonah Lehrer, cities are the knowledge engine of the 21st century. And he wasn’t talking about Düsseldorf.

The most intriguing studies of the determinants of happiness are those of psychologist Mihaly Csikszentmihalyi. The moments at which people are happiest are when they are in “flow” — when they are engaged in a challenging task and doing it well: the lecture in which you realise the audience is hanging on your ever word, the tennis game in which every shot takes the ball where you want it to go. For many people, bringing up children is a source of endless demands and frustrations, but taken as a whole it is one of the most satisfying experiences of their lives. There is more to the good life than clean water and trains that arrive on time.

I don’t know. I like a little excitement when I travel, but I like a certain calmness and predictability when it comes to the broad strokes of my day in my home city. Then I can enjoy the fun and interesting little happenstances that happen within that larger sea of calmness. Provide some walkable streets, some small-scale commerce, some open space and some contact with nature and I think you can create this atmosphere. And I don’t know why he picks on Myanmar, they might be able to teach us Westerners a thing or two about happiness.