Why Everyone Hates Inflation...

...despite what Matt Yglesias says:

Now a fancy-pants economics blogger can tell you that the most important price in the economy is the price of labor and the price of labor is equal to workers' incomes, so a general increase in the nominal price level is necessarily a general increase in nominal incomes. But nobody seems to believe that. Instead people are convinced that gasoline and milk are the main prices in the economy, and that a general increase in the nominal price level is necessarily a general decline in real incomes.

What the "fancy-pants economics blogger" doesn't understand is that the workers are behaving in a rational income.  They intuitively recognize that (a) wages are sticky, both up and down, and (b) they have no bargaining power with enormous numbers of unemployed.  If nominal prices rise due to nominal, inflationary increases, the will suffer a real, immediate loss of purchasing power, and their wages will only rise on a lag, if they rise at all.  The benefits however, are uncertain--being contingent on an economic recovery--and will accrue mainly to the newly employed.  Thus people hate inflation, even though it is theoretically better for everyone, because they bear immediate costs and take on risk, only to share the benefits.

How to Fund a Public Sector Pension

Politicians have a bad habit of promising more than they can deliver--especially if the delivery part happens when someone else is in office.  This is particularly true of public sector pension.  In lieu of raising wages to attract talent, which would in turn require raising taxes, politicians raise the public sector pension instead and defer the raising of taxes.

The reason they can get away with this is the discount rate--a dollar twenty years from now is worth less than a dollar now, in no small part because a dollar now would have twenty years to reap returns on investment.  It only makes sense, therefore, that a dollar in twenty years be valued at only, say, 25 cents now.  So a politician can promise a dollar, but only raise 25 cents.  If they use a particularly steep discount rate (most states assume a staggeringly-high, consistent return of 8% from a conservative portfolio), they can underfund the pension scheme even more severely.

The way to get around this problem is to assume that the discount rate does not exist.  Even though it does not make financial sense, it makes political sense.  If a politician promises a dollar in twenty years, he has to put up a dollar now.  If the fund drops below the 1:1 ratio, the fund will hold any investment return until the 1:1 ratio is regained.  If the fund goes above the 1:1 ratio, the excess investment earning would be paid into the treasury.  In effect, you'd have the opposite impact on a politician's preferences.  Promising a pension would have an immediate impact on spending and would benefit his antecedents.

As side benefits, a pre-funded public sector pension, however, would never go broke--the pension would never need infusions of cash--even if it suffered severe losses, it would have time for investment returns to make up the shortfall.  This is particularly helpful since pension fund bailouts happen during financial crises, making them pro-cyclical.  A fully-funded pension scheme, but contrast, would be contra-cyclical to the market, as funds would be withdrawn during the bull markets and invested during the bear market (which has an additional benefit of letting the fund buy low and sell high).

Airlines Should Charge Baggage Fees for Carry-Ons.

When the airlines introduced the baggage fee for checked baggage, people responded, as economic theory would predict, by reducing their consumption of checked baggage.  The new baggage fees, however, also changed the demand for the substitute good of carry-on baggage.  Since carry-on baggage is still free, people have an incentive to consume as much of it as possible--leading to ever larger carry on bags and "personal items".

However, just because it's free doesn't mean it is without cost:

• The airline bears the cost of creating a separate stream of luggage handling (the gate check).
• All the passengers (and the airline) bear the cost of increased boarding and de-planing times (as people wrestle with luggage).
• The passengers who board last are often shut out of the "free" resource and have to sacrifice their comfort (legroom) because of 

If the airlines did add a carry on fee (or at least enforced the carry-on size limitations), people would value it appropriately, rather than forcing the costs off on the airline and their fellow passengers.

Socially Acceptable Eating Disorders

Have you ever noticed that far more women take up restrictive diets than men do? The vegetarian, vegan, gluten-free, low-sodium, low-this, high-that, diets? (I'm excluding the ones purely for weight loss and those for a legitimate health need, e.g., gluten free for those with Celiac disease.) Maybe it's just that women talk about food a lot more than men do. Maybe it's because women are just naturally more attuned to their health than men are, but maybe not.

Most eating disorders aren't actually about the food: they're about control. When a (usually) woman thinks her life is spinning out of control, she fixates on her diet, one thing she can control. Every time she doesn't eat something, it's a mini-victory. An affirmation that she is in control.

But whereas eating disorders like anorexia are recognized as such and roundly condemned, a woman who goes on a restrictive diet gains not only control, but often a community of like-minded individuals, praise ("I could NEVER do that!"), and innumerable opportunities to set herself apart as special ("Oh, I'm sorry, but I can't eat that.")

In short, more women than men are on restrictive diets because it is a socially acceptable eating disorder.

How to Set Term Limits Without Setting Term Limits

It's really quite simple, every time you run for re-election, you have to win by a greater margin than you did in the previous election. So, the first time you're elected, if "x" is the number of votes cast, you have to win 0.5x + 1 in order to win. If you stand for reelection, you have to win 0.51x + 1 votes to win, a second reelection would require 0.52x + 1 to win, and so on. This would automatically offset the incumbent's advantage in seeking re-election, but it would allow a truly popular and effective leader to win more terms than a strict term limit allows.

Get disenfranchised (like a boss)

I've read innumerable articles about requiring photo ID in order to vote. This week's Economist provided the latest one, and included an argument that is part of pretty much every article on the topic:

"Democrats argue that such provisions have the effect of disenfranchising minorities, young people and the poor, who are more likely to lack suitable ID than other groups (and who mostly vote for them)."

This is fundamentally an identification issue, not a voting issue. Why don't the young and the poor have ID? If the problem is that it is too expensive, then the solution is reducing the fees. If the problem is that they don't have traditional evidence of identity, then the solution is a regulatory change to allow more discretion in evaluating evidence of identity. If the problem is that they don't have access to an issuing office, then the solution is to provide more access.

There is no situation in which improving access to identification is not a better solution than disallowing ID requirements at the polls.

The Syrian Rebellion will be Defeated Before 11/06/2012

Prior to the rebellion, All reporting of Assad's behavior depict him as a relatively enlightened despot. Assad is not a bloodthirsty sadist; he is acting quite rationally:

Assad knows that, if he is going to end the rebellion by force, he has to do it before the U.S. presidential election. Obama has one issue left on which he has not entirely disillusioned his supporters--his role in ending the wars. He used a lot of political capital in Libya, and only survived because it was a quick, clean war in almost ideal circumstances for the U.S. military.

Intervention in Syria would not be such. Indeed, Assad is deliberately making war in such a way to make a quick, clean intervention difficult. He's not using his airpower at all. As part of a divide and conquer strategy, he's mixing his forces in with the rebels. He's moving his armor into the cities (which is not a very good place for armor), because it would then be protected from air strikes (the risk of friendly fire would be too great).

As a result, Obama is waiting. He's waiting until after the election, when either it's somebody else's problem, or he is no longer constrained by facing an election. Once the election is over, he can decide if he wants another messy war in the Middle East. And because Obama is waiting, everyone else is waiting. And while they're waiting, Assad's forces are carefully killing as many rebels as possible, but not so many that it would trigger an incident to which Obama would be forced to respond. If he wins before the November election, he will be invulnerable.

There's a military saying, "In war, the enemy gets a vote." In this case, it is almost literally true. The enemy, Assad, is voting by proxy in the U.S. election through the anti-war faction in the Democratic party.