Octavo Dia

Wednesday, November 30, 2011

Sacred Cows and the Super-committee

If nothing else, the failure of the super-committee has taught us a valuable lesson about deficit reduction--how to slaughter sacred cows. What the super-committee did, in effect, was line up all the sacred cows together and slaughter them en mass. (Presuming, of course, that Congress won't find some way around it. People do fight for their sacred cows, after all, or they wouldn't be sacred cows.) Cutting any one of those items individually would have required a large and bruising battle on Capitol Hill. Cutting them together happened with a whimper.

Monday, November 28, 2011

How to Fix the Student Loan Problem

Even if you declare bankruptcy, you can't be rid of your student loans. The rationale is that, unlike a car, your education isn't an asset that can be seized to pay your creditors. And, unlike other unsecured loans, appropriate interest rates (think credit card interest rates) would be politically untenable.

There is, however, a better analogy we could use. When a bank goes bankrupt, it also has few assets to seize. We could try the bailout approach or the good bank/bad bank approach, but neither of them are terribly effective or applicable to people. What you can do, however, is forcibly convert bonds to stocks. When this happens to a bank, those who loaned the bank money can either sell their bank shares for what they can get for them, or they can hold on to them in hopes of a recovery.

If you apply this to people, you'd convert the bond (the student loan) into a stock (a percentage claim on future income). For example, every $1,000 of student loans would be converted into a 0.2% claim on future earnings. If the student is holding down a full-time, minimum wage job, that $1,000 would earn $29 annual in "dividends," which is well below the interest they would have paid on the student loan--and that's assuming their employed full time. However, if the student gets a good job, earning $80,000, the $160 in "dividends" would be well above the interest rate available, so the creditor shares in the upside as well as the downside. And the student could take part in this as well, buying back shares of "stock" (though when prosperity struck the value would go up).

In order to have a worthwhile market for these, however, you'd have to have reporting requirements. Those who went through bankruptcy would have to disclose financial information so that they could be valued accordingly (though most of what they'd need is available on a tax form).

However, the real impact is on the front end. The banks who write the student loans would take a much closer look at what the student is studying and how they're doing--it would introduce market discipline into education. Students who were coasting along through college drinking and studying underwater basket weaving would quickly discover that loans were in short supply, and they'd better start cracking the books as well as the beer.

Tuesday, November 08, 2011

How I Vote

In the last election, every single candidate I voted for lost. The preliminary results from Virginia's state elections today show me running about 50/50. I suppose that's what happens when you move to a swing state. My poor showing in the last round, however, could have been a result of my voting technique--how I deal with imperfect information about candidates and issues.

So here's my voting algorithm:

If I know the candidates, I'll vote for my preferred candidate.

If I know the party, I'll vote for my preferred party.

If I don't know the candidate or the party, I'll vote against the incumbent (Wisconsin was very helpful in this regard. They listed "Incumbent" next to the name on the ballot.)

If I don't know the candidate or the party or who is the incumbent, I'll leave it blank. Better not to vote than to pick a random name and cancel the vote of someone who actually cares about the issue and the candidate.

If someone is running unopposed, I'll leave it blank for two reasons. First, if someone is running a write-in campaign that I don't know about, checking a box just because I'm ill-informed doesn't help anyone. Second, I dislike "mandates." The politician in question will take the result in the poll as validation of their policies. I don't want to validate a program I haven't bothered to learn about.

Of course, the voting machines I was using today were terribly angry at me for leaving slots on the ballot blank. "You have not voted in every race. Are you sure you want to submit your ballot?" "Are you really sure?" "Are you really, really sure?" "Are you really, truly, positutely sure?"

And that's how I justify my own apathy and ignorance.

Wednesday, November 02, 2011

Proportionality in War and Signalling

First, let me be clear that I am not talking about the proportionality as defined in international law. I'm speaking of the mass media or man-on-the-street understanding--roughly defined as "Let the punishment fit the crime." While there's a place for that understanding--it makes starting a war on a pretext untenable--it is also profoundly harmful to the conduct of war as a whole.

Only a very few wars in history were won by a pure military victory. The rest was determined by posturing, by signaling. By convincing the enemy that your strength and willingness to fight are greater than theirs, you can seek a negotiated settlement. However, when one side limits its military action in mis-guided proportionality, the signaling effect is lost. What one side considers the judicious use of force, the other side may interpret as weakness or timidity. If one side displays weakness and timidity, real or not, the other side would be tempted to continue the conflict, if for no other reason than the eventual negotiated settlement may be more advantageous. Thus judicious force can extend wars and cause all of the associated harms.

On the other hand, the much-derided "Shock and Awe" of the Iraq War shows the limits of signalling for signaling's sake. Since they understood the campaign's function, it had much less impact than it would have otherwise.