Coyote Blog

I have argued on numerous occasions that government-funded health care is a Trojan Horse for detailed regulation of how we treat our bodies.  The Economist Blog has a great post on this topic:

Why exactly is obesity a public health issue? Well, when,
by force of law, you externalise responsibility for providing a good,
such as health care, then the effects of all individual choices that
affect the cost of providing that good for the individual are thereby
transformed from internal to external effects. If you, like
Mr Dubois, are in the grip of the blithe assumption that reducing
negative externalities by raising the cost of the behaviour that causes
them is simply what government does, then obviously my gluttony and sloth are public problems. Because public policy made them public problems! So, obviously,
it's up to the government to fiddle with prices to manipulate our
behavior in order to minimise its impact on the tax-financed national
budget.

This sort of thing drives me crazy because it's just so
thoughtlessly arbitrary -- intellectual empty calories. Why
specifically a tax on junk food? Yes, one
of the causes of obesity is "the consumption of too many calories."
Another is the failure to burn the calories one consumes. So why not
levy huge fines on people for not showing up at "voluntary"
government-funded yogalates classes? Or if people are consuming too
many calories, then just put a tax on calories. Why tax some calories
but not others? You can get fat eating steak, too. Maybe a national
"cap and trade" system of calorie credits would do the trick. Hey, do
you know who's healthy? Mormons are. Maybe the government should
provide giant tax credits for being Mormon. Or perhaps it would be
easier if the national health care system could just deny services for
ailments it judged to be obesity-related.  You could even decide not to
have a national health care system at all and allow insurance premiums to reflect the actuarial risk of individual behavior! But that would be crazy. 

Hat tip to TJIC, who has more.  I think this would be a great anti-universal-coverage T-shirt:

Ironically, this shirt is produced by the National Organization of Women, who are strong government health care supporters.  Go figure.

I don't have a problem with someone who has had a bankruptcy in the past.  Bankruptcy is not some Scarlet B that should ruin one for life.  Ideally, its bad enough that folks should want to avoid it but forgiving enough that people can move on and get a fresh start.  Via TJIC

"¦ moderator Tim Russert asked former senator Mike Gravel about Gravel's
somewhat troubled financial history. A condominium business started by
Gravel went bankrupt, and Gravel himself once declared personal
bankruptcy. "How can someone who did not take care of his business,
could not manage his personal finances, say that he is capable of
managing the country?" Russert asked.

Here would be my answer:  "Bankruptcy does not necessarily mean that one has managed finances poorly or that one is somehow guilty of malfeasance.  It can mean those things, but it can also mean that one took a risk on a business vision, did the best job possible, but the vision turned out to somehow be wrong.  Some of the greatest names in American business backed Internet ventures that went bankrupt.  Some were just poorly managed, but many just made poor bets as to what would and would not work over the internet.  When people look at Enron, they assume that there must have been malfeasance for the company to go bankrupt.  And while folks were indeed breaking some laws there, those actions had nothing to do with Enron's bankruptcy.  Enron died because they made some huge bets on things like broadband that didn't pan out."

Here, in contrast, is Gravel's response:

"Well, first off, if you want to make a judgment of who can be the
greediest people in the world when they get to public office, you can
just look at the people up here," Gravel said in a nod to his fellow
candidates.

"Now, you say the condo business," he continued. "I
will tell you, Donald Trump has been bankrupt 100 times. So I went
bankrupt once in business.

Doesn't this guy sound like some overweight guy wearing a wife-beater and sitting in his trailer with a cheap beer watching a baseball game on his old black and white TV, railing against all the rich guys that never gave him a chance?  But the best is yet to come:

who did I bankrupt? I stuck the credit card companies with $90,000 worth of bills, and they deserved it "“ "

People in the audience began to laugh.

"They
deserved it," Gravel repeated, "and I used the money to finance the
empowerment of the American people with a national initiative."

That sound you hear is the dying gasps of individual responsibility.  And what the hell is that last part about "empowerment of the American people?"  Sounds like Gravel is channeling Lee Hunsacker.

I don't have a problem with someone who has had a bankruptcy in the past.  Bankruptcy is not some Scarlet B that should ruin one for life.  Ideally, its bad enough that folks should want to avoid it but forgiving enough that people can move on and get a fresh start.  Via TJIC

"¦ moderator Tim Russert asked former senator Mike Gravel about Gravel's
somewhat troubled financial history. A condominium business started by
Gravel went bankrupt, and Gravel himself once declared personal
bankruptcy. "How can someone who did not take care of his business,
could not manage his personal finances, say that he is capable of
managing the country?" Russert asked.

Here would be my answer:  "Bankruptcy does not necessarily mean that one has managed finances poorly or that one is somehow guilty of malfeasance.  It can mean those things, but it can also mean that one took a risk on a business vision, did the best job possible, but the vision turned out to somehow be wrong.  Some of the greatest names in American business backed Internet ventures that went bankrupt.  Some were just poorly managed, but many just made poor bets as to what would and would not work over the internet.  When people look at Enron, they assume that there must have been malfeasance for the company to go bankrupt.  And while folks were indeed breaking some laws there, those actions had nothing to do with Enron's bankruptcy.  Enron died because they made some huge bets on things like broadband that didn't pan out."

Here, in contrast, is Gravel's response:

"Well, first off, if you want to make a judgment of who can be the
greediest people in the world when they get to public office, you can
just look at the people up here," Gravel said in a nod to his fellow
candidates.

"Now, you say the condo business," he continued. "I
will tell you, Donald Trump has been bankrupt 100 times. So I went
bankrupt once in business.

Doesn't this guy sound like some overweight guy wearing a wife-beater and sitting in his trailer with a cheap beer watching a baseball game on his old black and white TV, railing against all the rich guys that never gave him a chance?  But the best is yet to come:

who did I bankrupt? I stuck the credit card companies with $90,000 worth of bills, and they deserved it "“ "

People in the audience began to laugh.

"They
deserved it," Gravel repeated, "and I used the money to finance the
empowerment of the American people with a national initiative."

That sound you hear is the dying gasps of individual responsibility.  And what the hell is that last part about "empowerment of the American people?"  Sounds like Gravel is channeling Lee Hunsacker.

At a recent meeting of the National Associate of State Treasurers
(Yawn), John Podesta, after stating hilariously that what the world
really needed was continued leadership by state treasurers on the
global warming issue, argued: 

"Climate change is a threat to the long-term value of the economy and
failure to calculate its impacts or manage or reduce its harm mean that
our assets are being over valued, and the risks we face are being under
reported."

I have a lot of interest in global warming, which is why I created a second blog Climate Skeptic to deal with these issues.  There is a lot about anthropogenic warming we do not understand.  But what is nearly a total 100% lock is that, at least for the United States, the cost to our economy of regulations to limit CO2 will be far higher than the likely net-negative effects of warming (Al Gore's 20 foot sea level rises and other anti-rational claims notwithstanding).  At its heart, isn't the risk really of damage from government regulation, rather than the climate?

Via Michael Giberson of Knowledge Problem, the NY Attorney General is concerned that certain companies are not disclosing global warming-related risks, but he is at least more honest about what those risks are:

Last Friday, New York Attorney General Andrew Cuomo sent subpoenas
to five power generating companies seeking to find out if the companies
had properly disclosed financial risks associated with proposed new
coal-fired power plants.

All five of the letters accompanying the subpoenas are available from the NYAG's website.  Here is the opening paragraph of the letter to Dominion Resources, Inc.:

We are aware that Dominion Resources, Inc., ("Dominion")
has plans to build a coal-fired electric generating unit that would
generate 585 megawatts of electricity without current plans to capture
and sequester the resulting carbon dioxide (CO2) emissions. The
increase in CO2 emissions from the operating of this unit, in
combination with Dominion's other coal-fired plants, will subject
Dominion to increased financial, regulatory, and litigation risks. We
are concerned that Dominion has not adequately disclosed these risks to
its shareholders, including the New York State Common Retirement Fund,
which is a significant holder of Dominion stock. Pursuant to the
Attorney General's investigatory authority under New York General
Business Law § 352, and New York Executive Law § 63(12), accompanying
this letter is a subpoena seeking information regarding Dominion's
analysis of its climate risks and its disclosures of such risks to
investors.

A little later, the letter gets more specific: "For example, any one
of the several new or likely regulatory initiatives for CO2 emissions
from power plants "“ including state carbon controls, EPA's regulations
under the Clean Air Act, or the enactment of federal global warming
legislation "“ would add a significant cost to carbon-intensive coal
generation, such as the new coal plant planned by Dominion." In
addition to Dominion, the NYAG's office sent subpoenas to AES, Dynegy,
Peabody, and Xcel. Here is the story from the New York Times.

The letter doesn't say so explicitly, but I'm sure the message was
clear, that in addition to new or likely legislative actions and
substantive regulatory initiatives, the companies also faced the risks
and costs associated with being harassed by swarms of officers from the
NYAG's office.

You can see what is going on here -- following in the rich tradition established by the egregious Eliot Spitzer, the NY AG is again overreaching his office's authority and attempting to set regulatory policy rather than enforce it.  But at least he is honest in portraying the main risk to be a government regulatory backlash on these companies.

Thinking about this, couldn't every company put this in their boilerplate?  I mean, for most of us, the number one risk we face all the time is that the government will either do something to us specifically or the economy in general to hurt results.  Let's just have everyone add the line "the government poses a huge risk to our business plan" and be done with it.

One of the arguments for banning adult legal access to drugs like marijuana (and even allergy medications) is that it helps to prevent abuse of these drugs by underage kids.  This would be nice to test in a true control group setting, but we really don't have the opportunity under current laws to do so.  But we can work by proxy.  We can compare drugs that are illicit for everyone, like marijuana, to drugs that are legal for adults but not for minors, like tobacco. 

If drug warriors are correct, teenage tobacco use should be much higher than use of other illicit drugs.  This is particularly true because the proxy is an imperfect one, since the tobacco is a far less intimidating drug to try than, say, heroin.  However, it turns out not to be the case.  The new figures our out from our friendly US Government drug warriors, and it turns out that tobacco use is barely higher among teens than illicit drug use.

For example, the study shows that past month tobacco use among kids 12-17 was 12.9% in 2006, while past month illicit drug use in the same group was 9.8% (tables G.16 and G.7).  That's lower, but certainly not decisively so.  Both of these use numbers have fallen since 2002 at about the same rate.

Even more interesting are the figures for the number of kids 12-17 who had initiated use of certain substances in the past year (table G.26).  In that year, 2.45 million had initiated cigarette use, but 2.79 million had initiated illicit drug use.  Further, when asked if certain substances carried "great risk" in trying to purchase them, 68.7% of underage cigarette smokers said yes (table G.25).   This response was 10 or more points higher than that of teenage occasional users marijuana, cocaine, or even heroin.  In short, teenagers are saying it is more difficult and/or riskier to support cigarette use than it is to support a weekly marijuana, cocaine, or heroin habit -- exactly the opposite of the drug warriors' argument for prohibition  (but consistent with the libertarian argument that bringing these drug sales above ground will make underage purchase more visible and easier to combat).

HT: Hit and Run for the link

I am way, way late in posting this, but there was good news several weeks ago when a judged slapped down federal prosecutors in the KPMG case for essentially following the Thompson Memo and dismissed all charges in the case.  Here was the initial confrontation the judge had with prosecutors over a year ago, which explains key provisions of the Thompson memo:

Those steps were extraordinary in their attempt to
pressure corporate executives: They include waiving attorney-client
privilege to give investigators access to internal documents and
cutting off accused employees from legal and other forms of support. In
short, the Thompson memo said that companies under investigation are
expected to surrender any right against self-incrimination and cut
their accused employees adrift.

In one sense, the memo's guidelines are just that --
internal guidelines for prosecutors. But as a practical matter, only a
rare CEO will risk the death sentence that a corporate indictment
represents. So "cooperation" as defined by Justice is hardly optional.
It was on this point that Judge Kaplan took Assistant U.S. Attorney
Justin Weddle to task last week. When Judge Kaplan questioned the
fairness of pressuring companies to throw their employees overboard,
Mr. Weddle replied that companies are "free to say, 'We're not going to
cooperate.'"

"That's lame," the judge retorted. He then asked Mr.
Weddle "what legitimate purpose" was served by insisting that companies
cut their former employees off from legal support. Companies under
investigation, Judge Kaplan noted, ought to be free to decide whether
to support their employees or former employees without Justice's "thumb
on the scale."

Mr. Weddle replied that paying the legal fees of
former employees charged with crimes amounted to protecting
"wrongdoers." This prompted the judge to remind the young prosecutor
that the accused are still innocent until proven guilty. He also
reminded Mr. Weddle that the Constitution's Sixth Amendment guarantees
the right to counsel. And for good measure, if the government is
confident in its case, it shouldn't be afraid to allow "wrongdoers"
access to an adequate defense.

And this is from his decision to drop all charges:

Just as prosecutors used KPMG to coerce interviews with KPMG personnel
that the government could not coerce directly, they used KPMG to strip
any of its employees who were indicted of means of defending themselves
that KPMG otherwise would have provided to them. Their actions were not
justified by any legitimate governmental interest. Their deliberate
interference with the defendants' rights was outrageous and shocking in
the constitutional sense
because it was fundamentally at odds with two of our most basic
constitutional values "“ the right to counsel and the right to fair
criminal proceedings. But the Court does not rest on this finding
alone. It would reach the same conclusion even if the conduct reflected
only deliberate indifference to the defendants' constitutional rights
as opposed to an unjustified intention to injure them.

Tom Kirkendall has more analysis

A while back, I talked about a conversation I had with a friend of mine that prices for oil were set $20 dollars or more above the natural clearing price because a few oil traders controlled the market.  I argued in a long post that this was absurd, and might be possible for a few minutes in the trading day, but over multiple years it would be just impossible either to store the extra oil supply or hide the efforts to suppress supply from thousands of sources.

Well, another argument I made is that buyers in the oil markets are big boys too, and would not tolerate paying $20 a barrel too much for years or even hours.  After all, it was silver buyers and the exchange owners who stopped the Hunt's famous attempt to corner the silver market.

Anyway, one proof of this latter proposition is this:

The alleged manipulation occured during the so-called "Platts window,"
a 30 minute interval at the end of the trading day when the energy
publishing firm Platts pulls data used to set prices for other foreign
and domestic crudes. CFTC said Marathon tried to sell oil below market
prices during the window in order to get a lower price set for oil it
intended to purchase.

Again note the timing -- trying to influence the market for minutes, not years.  If companies like Marathon are willing to risk criminal prosecution to get lower oil prices for purchase, they certainly are not going to sit back and tolerate a multi-year manipulation that raises prices $20.

Over a decade ago, the German government adopted the goal of reducing the country's CO2 emissions back to 1990 levels as part of the Kyoto process.  That's why its incredible to me that after spending billions on various goofy and questionable conservation and alternative energy programs, someone has finally thought to maybe stop massively subsidizing coal production.

For decades, German lawmakers have propped up the industry,
unwilling to risk massive layoffs and reluctant to eliminate a reliable
energy source as gas and oil supplies become scarcer.

But after spending more than $200 billion in subsidies since the
1960s, the federal government this year decided that the practice had
become unaffordable. The 2018 sunset for the hard-coal industry was set.

Economists and free-market lawmakers have long decried the subsidies
as handouts to the politically influential coal industry and powerful
trade unions. This year, for instance, Deutsche Steinkohle AG, the
owner of the remaining eight mines, will receive more in government
subsidies ($3.3 billion) than it will from selling coal ($2.9 billion).

With just 32,000 miners left, that's the equivalent of more than $100,000 in annual subsidies per worker.

I don't know what is more incredible -- $100,000 per worker or the fact that subsidies actually are larger than revenue from coal sales.  In effect, the government is subsidizing more than half of coal's production costs.

Sometimes we in the US forget just how insane the economy in Europe can be.  I remember doing a consulting project for the French national railroad, the SNCF.   It turned out the SNCF, for it's 100,000 freight cars had ... 125,000 freight car maintenance workers.  The headcount number was so insane I had to check it three times to make sure it was right.  I commented at the time that they could assign one car repair worker full time to each freight car, and have him ride around with that car full time, and still cut staffing by 20%.

I just finished a course on the history of Rome.  The most fascinating era was the Roman revolution, where over about 100 years Rome slid from a Republic to an autocracy.  The final phases of the era, with the Caesars, gets a lot of play in movies and such, but it is actually the early period I found the most interesting.  In effect, Caesar or someone like him was effectively inevitable by that point in time.  The chance to avoid such an outcome actually came a hundred years earlier.

I won't get into the whole history, but suffice it to say that there was a major difference in the Republic between the theoretical power of certain offices and the actual power.  In effect, certain offices could theoretically take some pretty radical actions, but they were circumscribed by tradition and precedent.  However, when these precedents were broken (interestingly by a man who felt he was doing it for a good cause) restraints were removed and politics tended to devolve.

A while back, I wrote a post saying that I would love to see impeachment hearings in the Senate, because it would prevent the Senate from getting anything else done and it would be enormously entertaining. 

I take it back.  Having thought some more about it, I now think that it would be a really bad idea.   Impeachment has always been a power that could be used any time, but was not because the Congress generally recognized that restraint was in order.  The impeachment of Clinton broke with this tradition.  Yes, I know, he lied under oath.  Fine, yank his law license after he leaves office.  Yes, it probably was technically an impeachable offense.  But it falls way, way short of the line that historic precedent has set for when impeachment is appropriate.  And by greatly lowering this line, the Republican Congress took the huge risk of opening the floodgates to impeachment hearings virtually every time the President and Congressional majorities were from opposite parties.

I really would like to see the Democrats exercise restraint here.  I know many libertarians disagree with me, and would love nothing more than to see more frequent impeachments and recalls;  unfortunately, I just don't think that solves the libertarian problem of reducing the power and scope of government.

I don't want to misinterpret Kevin Drum, but he seems to be making a similar plea.  To M.J. Rosenburg, who argues:

The Constitutional remedy of impeachment is no longer
what it once was. For better or worse, the Republicans changed it, for
all time, when they impeached Clinton over, essentially, nothing.

And Clinton changed it as well. Impeachment not only did not end his
Presidency; it did not hurt his standing with the public. His numbers
stayed high, even improved some, and he left office on schedule, a very
popular President.

In other words, impeachment is no longer the political nuclear bomb
it once was, especially if one knows in advance that conviction and
removal from office is unlikely to occur.

Accordingly, impeachment proceedings are essentially the best means
of getting information to the public which is otherwise unavailable.

To this Drum says:

Impeachment should become a routine tool for getting public attention
whenever we disagree with a president of the opposite party? This might
be the worst argument in favor of impeachment of all time.

I agree.  I think Rosenburg is right that the Clinton impeachment changed the precedents around impeachment, but I would like to see the cork put back in the bottle now, before it is too late.

As I wrote in a previous post, state-run health care tends to act as a Trojan Horse for increased government micro-management of our lives by giving the government a financial interest in our health and risk-related decision-making.  A reader sends along this article demonstrating this effect yet again:

An attempt to revive famous TV adverts
from the 1950s that encouraged people to "Go To Work On An Egg"
have been blocked by regulators on health grounds.

The British Egg Information Service (BEIS) had wanted to
bring back the adverts featuring comedian Tony Hancock to mark
the 50th anniversary of the British Lion mark.

But the Broadcasting Advertising Clearance Centre (BACC)
said the famous commercials could not be repeated because
eating eggs every day went against the policy of encouraging
people to eat a varied diet.

"The concept of eating eggs every day for breakfast goes
against what is now the generally accepted advice of a varied
diet and we therefore could not approve the ads for broadcast,"
a BACC spokesman told the BBC.

PS-  Readers who send me stuff - let me know if I can use your name when you email me the post.  When I sit down to blog in short bursts, I am happy to give specific credit but I am always unsure whether to use your real names or not.

This policy at Antioch College, which apparently will soon close its doors due to low enrollment, sounds like the speech I get when I sit in an exit row:

• Consent is required each and every time there is sexual activity.
• All parties must have a clear and accurate understanding of the sexual activity.
• The person(s) who initiate(s) the sexual activity is responsible for asking for consent.
• The person(s) who are asked are responsible for verbally responding.
• Each new level of sexual activity requires consent.
• Use
  of agreed upon forms of communication such as gestures or safe words is
  acceptable, but must be discussed and verbally agreed to by all parties
  before sexual activity occurs.
• Consent is required
  regardless of the parties' relationship, prior sexual history, or
  current activity (e.g. grinding on the dance floor is not consent for
  further sexual activity).
• At any and all times when consent is withdrawn or not verbally agreed to, the sexual activity must stop immediately.
• Silence is not consent.
• Body movements and non-verbal responses such as moans are not consent.
• A person can not give consent while sleeping.
• All
  parties must have unimpaired judgement (examples that may cause
  impairment include but are not limited to alcohol, drugs, mental health
  conditions, physical health conditions).
• All parties must use safer sex practices.
• All
  parties must disclose personal risk factors and any known STIs.
  Individuals are responsible for maintaining awareness of their sexual
  health.

I don't know much about Antioch, despite the fact that I think my mother and father-in-law both attended (are there more than one?).  I will observe that for a private institution nowadays with decent name recognition, it really takes some effort to drive away all the students.  Today, good-but-not-Ivy-League schools like Rice and Vanderbilt get nearly as many great applicants as Ivy League schools did when I attended.  The US is virtually swamped with top-notch kids looking for a private university with a good rep.

The current failures in the subprime mortgage market, both of borrowers and lenders, has become one of those classic Rorschach tests where people self-identify by what description they apply to the market fallout.  Views on capitalism, free interchange, and individual responsibility are all tied up in the choice between:

1. Businesses recognized an opportunity to expand the mortgage market by offering mortgages to poorer, riskier borrowers and managing the risk by securitizing these loans and reselling them in the increasingly robust institutional market for such loan packages.  While certainly in it for the profit, this move was consistent with the long-term trend in the US to wider home ownership.  It turned out, however, that almost everyone involved were working off some poor assumptions.  Borrowers over-estimated their ability to pay and counted too much on the continued upward trajectory of real estate values.  Lenders made a number of bad credit decisions, something not wholly surprising in a new market.  And institutions and other investors under-estimated the risk in these packages, particularly the systematic risk associated with falling housing prices.   The sub-prime market will likely re-emerge, but with everyone smarter the next time around.  Huge losses give lenders and institutions all the incentive they need to change their behavior in the future.
   -- OR --
2. Unscrupulous lenders created the sub-prime market as a way to make a quick buck off of naive and inexperienced borrowers.  They tricked these borrowers into taking on more debt than they could handle in order to get large up-front fees.  Institutions were not arms-length investors, but were explicitly knowledgeable and "in on" this con.  Their goal was to sell worthless bonds to unsuspecting investors.  The fact that the lenders and institutions are taking the biggest losses in the market collapse is not a sign that they are innocent, but that the market fell apart faster than they expected, so they had not had the chance to unload the securities on duped individual investors.  Without regulation, lenders and institutions will continue committing these same crimes and poor people have proven that they need outside help to make good decisions with their money.  Congress needs to step in and prevent poorer borrowers from being offered mortgages in the future, and institutional investors need to be held financially accountable when borrowers take on more debt than they can handle.

Update:  There are several comments that say "can't it be both?"  Surely there can be simultaneous examples of both in the same market, but, as an example, proponents of #2 talk as if theirs is the dominant explanation, and are proposing legislation on that basis. 

Recognize that you have to really believe #2 all the way to even consider some of the draconian measures that Congress is entertaining.  There is legislation that is being seriously considered at this moment
that will fundamentally change the entire mortgage market, not just the
sub-prime piece, for the worse.  In particular, Congress is considering making financial institutions that invest in securitized batches of mortgages liable for any illegal lending practices of the originator.  This will effectively kill the securitization process.  Many of you younger folks won't know what that means, but in effect it will send us back to the mortgage process of the 1970's, which I promise you really, really sucked.  This will make it much harder for everyone to get mortgages.  Since securitization, there are an order of magnitude more mortgage competitors, the mortgage approval and application process take about 1% of the time it used to, rates are lower, and there is much more flexibility in mortgage design. 

John Tamny in TCS Daily:

In a recent Los Angeles Times op-ed, "Overselling Capitalism,"
University of Maryland Professor Benjamin Barber wrote of the "crisis"
in the capitalist mindset, where the "'Protestant ethos' of hard work
and deferred gratification has been replaced by an infantilist ethos of
easy credit and impulsive consumption that puts democracy and the
market system at risk."

Wow, I must not have gotten the memo.  Here I have been plugging negative numbers into my 1040 for three or four years in an attempt to build a business and some future wealth, and it turns out that deferred gratification is out of style.   (TJIC also did not get the memo)

Here is a big reality check for professor Barber:  The fact that a few mortgage companies got overly generous in extending mortgage credit does not mean that the work ethic and entrepreneurship is dead.  In fact, they are virtually unrelated topics.  If the price of something is reduced, more is going to be consumed.  Suppliers of credit reduced the price of credit, too far as it turned out to make a profit, and more was consumed.  This does not represent so tragic change in the human makeup, it is just supply and demand at work, like normal, and some bad business judgement. 

In fact, I can't get over the class-based condescension that seems to fill every nook and cranny of the commentary on the mortgage bubble bursting.  When in the late 1990's, rich VC's provided too much money too cheaply to yuppies running Internet companies, I don't remember anyone lamenting a shift in human motivation or a failure of capitalism.  But when banks provided too much capital too cheaply to lower income people for home mortgages, suddenly all those lower-income people are representative of the failure of capitalism and the work ethic.

I am still getting the hard sell from cold-callers touting securities.  I am told this is because we small business owners are just behind dentists and doctors in terms of our capacity to make bonehead investments.

Before I proceed with this story, there are two things you need to know about me:

• I answer my own phone at the office
• I have never, ever listened to a sales pitch for an investment or security.  If I am in a good mood, I interrupt and say, "sorry, not iterested" before they can even name the stock.  If I am in a bad mood, I just hang up.

So the other day, I accidentally let one of them go further than I usually allow.  He said he was from Olympia Asset Management.  (There is an Olympia Asset Management web page, but I don't know if it is the same company and the web page has not been updated for several years.)  I let him run for a bit because a friend of mine runs a very well-respected financial planning firm with a different name but also with Olympia in the title, and for a moment I thought it might have been one of his folks.

Anyway, he proceeds to try to convince me that we have talked before and discussed a certain security.  "Remember me, we talked six months ago about ____".  Of course, I had never heard of the guy.  At this point I usually hang up, because I have heard this crap before -- it is a common pitch.  The best I can figure is that they are trying to give themselves more credibility by either:

1. Trying to imply that we have some kind of relationship we actually don't have.  Or worse...
2. Trying to convince me that he touted stock A six months ago, so now he can tell me stock A has gone up in price.  Many reputable brokers built their reputation by cold calling people and saying:  Watch these 3 stocks and see how they do and I will call you back in 6 months.  That way, you can evaluate their stock picking without risk.  The modern sleazy approach is to pick a stock that has gone up a lot in the last 6 months, and then call some harried business person and pretend you called them with that pick 6 months ago, hoping that they will give you the benefit of the doubt.

For some reason, maybe because I was bored, I decided to chat with him, and I had to admit that he was trained pretty well never to give up.  I interrupted him after the "do you remember" opening and said that we could not possible have spoken about a stock, because I always hang up on people within 5 seconds of knowing it is a stock pitch.  He said he had sent me a packet of information.  I said that he had not.  He insisted that we had talked, and that I had promised to write down the name of the stock on my calendar.  I told him I don't have a calendar  (which is actually true - I manage myself through a dysfunctional combination of memory and post-it notes).  Sensing weakness, I turned on him and said "gee, I was out of town a lot 6 months ago and am surprised you got hold of me.  What date did you call."  Then he starts getting all vague on me.  Anyway, I finally tired of the game and hung up but he never relented in his assertion that he and I had had a nice chat about some security.

Please, please.  Avoid these guys on the phone like the plague.  Several years ago I had a guy call me with some oil drilling "opportunity."  In that case, I also made an exception to my rule and listened to see just how bad this thing was going to be.  Finally I broke in and said "that's ridiculous, no one in their right mind would send you money for that."  He too was relentless, until I finally said "Look, I know Tony Soprano is standing behind you in the boiler room there and putting pressure on you, but I am not interested."  Then, without a pause, he starts telling me how he once threw a Molotov cocktail into the car of someone he didn't like.  I don't know if he was just having fun with me, but he was either wildly unprofessional or very creepy.  Beware, Beware, Beware.

Via Overlawyered:

They're doing it again in California: "State and federal authorities
have opened an investigation into a Norco housewife, alleging that her
vitriolic protests against a high-risk group home in her neighborhood
may constitute housing discrimination." Federal officials asked state
fair housing regulators to investigate Julie Waltz, 61, who had
protested plans to open a group house next to her home for
developmentally disabled residents; among those eligible to reside
there under state law would be persons deemed not competent to stand
trial on sex crime charges.

Yes, you heard that right.  She is being threatened with a housing discrimination charge by the government for exercising free speech on a public policy issue.

I have had experience on several occasions attempting to bring private solutions (at no cost to the city government) to certain municipal problems.  The general approach to such offers, which seems to be similar in every city I have lived in, is to get together a meeting of every single government authority that could possibly have some tangential jurisdiction over the particular problem (e.g, city, county, state, highways, parks, water, environment, etc. etc.).  In this meeting, the discussion goes around the table, with every single participant adding another reason why the proposal is a problem and/or another roadblock or required approval.  This is not an exaggeration - I can't remember one person in such a meeting try to fix a problem or make something happen.  Everyone in government has an incentive system, it seems, that revolves around avoiding risk and preventing change. 

That is why I know that this story is typical of government, not an aberration:

LSU hospital officials began planning for a temporary network of
neighborhood clinics in early November 2005, barely two months after
Hurricane Katrina knocked Charity Hospital out of commission and threw
health-care services for many of the city's uninsured into disarray.

Eight months later, in late June and early July, FEMA delivered the
trailers to New Orleans, with the $761,000 bill picked up by the
federal government.

It wasn't until last week that the New Orleans City Council agreed
to temporarily waive the city's zoning code to allow the trailers to be
located at six schools around the city -- three on the east bank and
three in Algiers -- for two years.

In between fell more than 100 meetings and dozens of e-mails about
the issue involving LSU executives and officials at the city, state and
federal levels. And the journey is not over. The zoning waivers still
need approval from Mayor Ray Nagin, which cannot occur until next week
at the earliest, as well as permits from the city that could take up to
six months to acquire.

I promise, cross my heart, this is my last post on climate change for a while.  I thought my series of posts last week about the funny math of carbon offsets was the last, but Joe Miller at Catallarchy wrote something that caused me some introspection:

Just one caveat, though: I'm really, seriously, profoundly uninterested
in your skepticism about man-made global warming. Personally, I think
that the debate is just about as fruitful as a discussion of the
relative merits of evolution and Genesis as models of the origins of
the universe. It's called scientific consensus, people. You seem to
like it well enough for every other subject. And even if that
overwhelming scientific consensus turns out to be wrong, it's not like
a debate here is going to help with that. When scientists are wrong,
it's up to, you know, like, other actual scientists to settle
the question. A bunch of non-scientists googling studies that say what
we like them to say isn't accomplishing much, really.

Certainly I have always been in favor of facts and science over hysteria.  I criticized the rampant breast implant litigation in the face of science that showed no real long-term harms.  Ditto vaccinations.  So am I being a Luddite by, as an amateur, being skeptical of the scientific "consensus" on global warming?  Certainly climate change hawks want to paint my positions as "holocaust denial."  I had a few thoughts:

• For what it is worth, I have actually read much of the 2001 IPCC climate report (not the management summary, which is a worthless political document, but the report itself).  Courtesy of JunkScience.com, who has posted some of the 2007 report, I have read key parts of that report as well.  So I have at least informed myself beyond random Google searches.  My original university training was as a scientist, and later an engineer, though neither in climate (physics and mechanical engineering).
• The media has been known to declare a consensus ahead of its actual existence.  One example that comes to mind is a recent letter that a number of economists wrote supporting a Federal minimum wage increase, which much of the media spun into a "consensus" among economists that a minimum wage increase would be desirable and would not reduce employment.  I don't know Mr. Miller, but my bet is that some of the folks at Catallarchy might dispute this particular scientific consensus.
• To even imply that there is a single consensus on something as complex and multi-faceted as anthropomorphic global warming is facile.  I will take the movie "An Inconvenient Truth" as a fair representation of what the media perception of the consensus is  (the IPCC report actually does not agree in full, but we will get there in a minute).  Taking that movie as our straw man, the "consensus" or hypothesis is as follows:

1. The world has been warming for a century, and this warming is beyond any historical cycles we have seen over 1000 years  (ie, the hockey stick)
2. The last century's warming is almost all due to man's burning of fossil fuels and other releases of greenhouse gasses
3. In the next 100 years, CO2 produced by man will cause a lot more warming
4. Positive feedbacks in the climate, like increased humidity, will act to triple the warming from CO2
5. The bad effects of warming greatly outweigh the positive effects, and we are already seeing them today (polar bears dying, glaciers melting, etc)
6. These bad effects, or even a small risk of them, easily justify massive intervention today in reducing economic activity and greenhouse gas production

I believe this is a mostly fair representation of the media reporting of the scientific "consensus", with the exception that the media never really goes into step #4, and assigns all the blame for 6-8 degree temperature rise forecasts to CO2.  But this split between #3 and #4 is important to understand the science at all, and is included in the IPCC report, so I will make it. 

This is a complicated string of logic, with multiple assumptions.  I hope you see why declaring a scientific consensus on all points of this hypothesis is facile.  So where is there a scientific consensus on all of this?  My interpretation from the recent IPCC report and other sources is:

1. The world has been warming for a century, and this warming is beyond
   any historical cycles we have seen over 1000 years  (ie, the hockey
   stick)   There is a strong consensus on the first half.  We can argue about urban heat island corrections and ground vs. satellite all day, but the earth has pretty clearly warmed for a hundred years or so, after cooling before that.  The second half of the proposition is trickier.  The 2001 report relied on the Mann hockey stick to make the point that the 20th century is not just warmer but uniquely warmer.  I sense the 2007 report backing off this -- the Mann analysis has a lot of problems, and ongoing climate research continues to point to the great variability and cyclicallity of climate over time.  There is too much historical evidence, for example, of a warm middle ages for Mann to dismiss it with a few tree rings.
2. The last century's warming is almost all due to man's burning of fossil fuels and other releases of greenhouse gasses.   The 2001 IPCC report implied about half of the century's warming was man-made.  The new report seems to put more of the blame on man.  My sense is this will move over time back to half and half -- the evidence today of increased solar activity is becoming too strong to ignore as a cause along with man-made CO2.  However, I recognize right now that I am out of step with the IPCC and perhaps the "consensus" on this.
3. In the next 100 years, CO2 produced by man will cause a lot more warming.  CO2 production by man will cause more warming.  How much is the subject of models, which any economist or businessperson can tell you are notoriously flaky.  However, here is one fact that is part of the scientific consensus but you never hear in the media -- the relationship between atmospheric CO2 concentration and warming is a diminishing return.  In other words, the next doubling of CO2 in the atmosphere will have less impact on temperatures than the last doubling.  At some point, the effect of CO2 maxes out, and further increases in CO2 have no effect on temperatures.  My reading of the newest IPCC seems to imply that if the models predict about 6 degrees of warming over the next 100 years, of which about 2 is directly from CO2, while the rest are from positive feedbacks (discussed next)
4. Positive feedbacks in the climate, like increased humidity, will act to triple the warming from CO2.  OK, this strikes me as the key point in the scientific consensus.  Hypothesized positive feedback loops in the climate are what take the IPCC models from results that are warmer but probably manageable to results that appear catastrophically warmer.  Their models assume that as the world warms a bit from CO2, other effects take hold, and the world will warm even more.  For example, they posit that if the world is warmer, more water evaporates into water vapor in the atmosphere, which is a strong greenhouse gas, which accelerates the warming.  I think it is absurd to say there is a consensus on this point, which is adding 2/3 or more of the warming.  The notion of positive feedbacks in nature offends my intuition --  there are just not that many such processes in nature, or else nothing would be stable -- but then again Einstein's intution was offended by quantum mechanics and he was wrong.  However, using the IPCC's own findings (starting in section 8.6 here) the IPCC admits to there not even being a consensus on the sign (ie if it is positive or negative feedback) of what they describe as by far the strongest feedback process (cloud cover)!  I don't know how you can declare a consensus if you admit you don't even know the sign of the largest effect.
5. The bad effects of warming greatly outweigh the positive effects,
   and we are already seeing them today (polar bears dying, glaciers
   melting, etc)  It would be absurd to declare a consensus here because no one has really done much definitive work.   Most folks, including me, presume that since substantial warming would take us beyond the temperature range for which our bodies and our civilization has been adapted, the net effect would be bad.  But there are positive offsets to the negative effects (e.g. oceans rising) that you never really hear about in the press (longer growing season, for one) but which are in the IPCC report.  Climate scientists themselves have admitted there is no consensus on what effects that we are seeing today are due to warming.  Part of Antarctica (about 2%) shown in Al Gore's movie is warming, but most scientists now think that this may be due to cyclical variations in ocean currents, while most of Antarctica has actually been cooling of late.  Greenland is warming, but glaciers may not be receding as fast as once feared.  Polar bear populations, despite reports to the contrary, are increasing.
6. These bad effects, or even a small risk of them, easily justify
   massive intervention today in reducing economic activity and greenhouse
   gas production.  Many climate scientists express an opinion on this, often definitively, but if one argues that I am not qualified to test the consensus as a layman on global warming, then certainly climate scientists are far from qualified in drawing any conclusions on this topic.  The effects of a worldwide rollback on CO2 production at current technologies could be catastrophic, particularly for a billion people in India and China just on the verge of emerging from poverty.  Even in some of the most dire forecasts for warming, it is a very open question with little consensus as to whether a cooler but poorer world is better.  In fact, one can argue that even the pious Kyoto-signing countries are voting with their actions, rather than their words, on this issue, since they have resisted taking the hard economic steps necessary to meet their targets.

OK, that is more than I meant to write.  My point is that the word consensus is an absurd word to apply to the topic of anthropomorphic global warming.  Some things we understand pretty well (the world is warming, in part due to man-made CO2) and some we understand less well (the effect of feedback loops).  And some issues, like whether the harms from climate change are worth the cost of avoiding them, are entirely outside the purview of climate science.

Update: Strata-Sphere has a funny bit of related snark:

Global warming on Neptune's moon Triton as well as Jupiter and Pluto, and now Mars has some scratching their heads over what could possibly be in common with the warming of all these planets....

I still don't know. Could there be something in common with all the
planets in our solar system that might cause them all to warm at the
same time?

On a serious note, he has some nifty graphs of historic earth temperature reconstructions (including Mann) vs. sunspot activity reconstructions (sunspot activity generally being a proxy for solar output).  Short answer:  Sunspot activity at historical highs, at the same time as historical highs in temperature. 

Congrats to Peter Austin for making a great point about medical research, particularly the advocacy-driven risk research we see in the media every day:

PEOPLE born under the astrological sign of Leo are 15% more likely
to be admitted to hospital with gastric bleeding than those born under
the other 11 signs. Sagittarians are 38% more likely than others to
land up there because of a broken arm. Those are the conclusions that
many medical researchers would be forced to make from a set of data
presented to the American Association for the Advancement of Science by
Peter Austin of the Institute for Clinical Evaluative Sciences in
Toronto. At least, they would be forced to draw them if they applied
the lax statistical methods of their own work to the records of
hospital admissions in Ontario, Canada, used by Dr Austin.

Dr Austin, of course, does not draw those conclusions. His point was
to shock medical researchers into using better statistics, because the
ones they routinely employ today run the risk of identifying
relationships when, in fact, there are none. He also wanted to explain
why so many health claims that look important when they are first made
are not substantiated in later studies.

Thanks again to TJIC for the link

A while back, at our local libertarian discussion group, we spent an evening discussing centralization vs. decentralization of government, and whether one or the other better protects individual liberties. 

Many libertarians argue for decentralization.  The anarchists in the room will argue for the ultimate decentralization, all the way to the individual level, essentially voiding the concept of government altogether.  Others who are more amenable to some government argue for decentralization because it tends to allow for competition, with citizens voting with their feet and wallets for more favorable tax and regulatory regimes.

On the other hand, the US provides historical examples of the benefits of federalism in protecting individual rights.  Certainly the abolition of slavery and later of Jim Crow laws were a positive outcome from the feds, as are the enforcement of Bill of Rights protections on the states.  I would personally love to see a federal system like our own with all legislative power held as locally as possible, but with a federal government whose main purpose domestically was not taxation/regulation/legislation but instead enforcement of a more robust Bill of Rights and nullification of state and local law that violated protected individual freedoms.

Anyway, one topic related to decentralized authority was jury nullification.  Jury nullification is the ability for juries to rule on the law, rather than guilt or innocence.  An example might be "the jury thinks Joe is guilty of smoking pot, but we don't think smoking pot should be illegal, so we are going to let Joe go."  Most state law technically does not allow juries to rule on the law itself, but as a practical matter there is no way juries can be prevented from doing so  (Prosecutors really go non-linear over jury nullification -- I remember Patterico had a long series inveighing against it.)

Anyway, as you might imagine, the libertarians in the room mostly love jury nullification.  Despite being a good anarcho-capitalist, I disagreed. I understood that most of the examples people brought up did indeed demonstrate that jury nullification could be a tool for protecting individual rights.  However, I believe that nullification could equally be a tool of oppression.  For example, in criminal law, take the Enron-Skilling trial.  I am not saying this happened, but one could certainly imagine a properly inflamed jury saying "well, we don't think he is technically guilty beyond a reasonable doubt on the charges based on the evidence here in court, but he's rich and Enron failed and people lost money and we're pissed off, so we will find him guilty.  They would be saying "what he did was not a violation of the law, but it should be, so we are sending him to jail." This is just as much jury nullification as my previous example.

I don't think this kind of anti-individual-rights jury nullificatin happens often in criminal court, but I do think it is happening a lot in civil court.  In fact, I think one way you could summarize what is wrong with torts and litigation in this country is that we are seeing rampant jury nullification in favor of wealth redistribution.  Juries are ignoring the law, the facts of the case, and all reason for one and only one consideration:  "One guy in the room is rich, one guy is not, and I have a chance to take money from the rich guy and give it to the poor guy."  For while it may be hard in America to get 51% of the voters to support substantial increases in wealth distribution, smart lawyers like Peter Angelos and Jon Edwards have figured out that it is not that hard through voi dire to get at least seven or eight such votes in a room of twelve people.

Particularly if you are good at venue-shopping:

In Race, Poverty and American Tort Awards (and here),
Eric Helland and I show that tort awards increase strongly with county
poverty rates especially with minority poverty.  A 1% increase in black
poverty rates, for example, can increase tort awards by 3-10 percent
with a similar increase in Hispanic poverty rates.   Careful forum
shopping can easily raise awards by 50-100%.

Anthony Buzbee, a famed plaintiff's attorney, inadvertently let the
cat out of the bag recently when talking about Starr county in Texas.

"That venue probably adds about seventy-five percent to the value of
the case," he said. "You've got an injured Hispanic client, you've got
a completely Hispanic jury, and you've got an Hispanic judge. All
right. That's how it is."

In other parts of Texas, Buzbee went on, a plaintiff may have the
burden of showing "here's what the company did wrong, all right? But
when you're in Starr County, traditionally, you need to just show that
the guy was working, and he was hurt. And that's the hurdle: Just prove
that he wasn't hurt at Wal-Mart, buying something on his off time, and
traditionally, you win those cases."

The problem with letting juries write law in the jury room is that there are no Constitutional protections at all.  If they want to make the law, at least for that day, read that homeowners are liable for injuries suffered by burglars trying to break into their house, then that is what the law becomes, fair or not.  If they want to make the law read that drug companies shouldn't sell painkillers that have any risk at all, then that is what the law is, and the rest of us 300 million minus twelve people have to live with fewer choices for managing our migraines. 

Here is all you need to know to understand the two political parties as they are in 2007:  Both parties want to return to the 1950's.  The Republican Party wants to return to Leave-it-to-Beaver type social/sexual options and media offerings.  The Democratic Party wants to return to the large company / heavily union work models and economy of the 1950's. 

Which makes the titles "Conservative" and "Liberal" worse than meaningless, since each vision is inherently small-c conservative.  Both fear change, diversity, and risk, though in different sectors of our lives.  In some sense this is the real culture war, between dynamism and fear of change.

I like reading about the history of science, and one of its more famous chapters is the debate between the Neptunists and the Vulcanists in early 19th century Great Britain.  At the risk of oversimplifying, the debate was over whether the earth's features (and life on it) were formed slowly over long periods, or relatively quickly through catastrophes.  Secondarily, it was about heat and fire vs. water as forces shaping the Earth (thus the names).  Eventually a consensus  (an actual consensus, not a declared one) developed that they were both right in some ways and both wrong in others. 

What struck me reading about this again over the weekend was that it took decades, and sometimes centuries, for this to sort out.  Take the part of this debate over extinction.  The initial consensus was that extinction was due to catastrophes, ala the Biblical flood.  Then Darwin came along and shifted the consensus away from catastrophes, showing that extinctions occurred in the normal order of species action-reaction to threats and opportunities.  And then in the 20th century, revisiting the K-T geologic layer we have come around to dinosaur extinction being catastrophic as a result of a big meteor.  Except nowadays there are scientists who think this is too simplistic.  Geology, in turn, made it all the way until the 1960's before anyone was even talking about plate tectonics, something that was still being derided in the 1970's but is fundamental to our understanding of numerous aspects of the earth today.

And so it goes in normal scientific inquiry.   Scientists expect it to take decades and generations to really shake out new theories and areas of inquiry.  Sometimes, as with Newton's laws of motion, we still accept the theory, though even here we have tweaked at the edges (e.g. relativity when things are moving fast) and exempted certain regions (e.g. quantum mechanics and the very small).  Other times, we have thrown theories that were cherished for decades completely away (e.g phlogistan).   After decades of work, string theory in physics could easily be thrown out completely and looked upon as the 20th century's phlogistan, or it could really be the theory of everything Einstein searched for in vain.

Which is all fine and expected, except when governments are standing by to make trillion-dollar choices, as they are in global warming, a scientific body of inquiry that is barely 20 years old.  Go back to any new scientific theory in its first 20-years, and think about the governments of the world betting the entire global economy on scientific understanding of that theory at that point in time.  It's pretty scary.  We'd probably have a 5-trillion dollar government controlled medical leach industry.

At the risk of being way to geeky here, I would like to ask the computer world if they could find some way for me to have a RAID disk drive array on my custom built PC's without having to also buy and install a floppy disk drive that I only use once.  For those who don't know, a RAID is an array of multiple, usually identical, hard drives that can be combined together for redundancy.  For example, two 250GB hard drives can be combined in a RAID such that they appear to be one 250GB drive to the system, but all data is mirrored on both drives, so if one fails, you still have everything, even without making backups.  I usually build RAIDs into my computers, either for redundancy or, if that is not needed, at least to combine multiple drives into one drive letter.  You can even build a raid where all files are split between the two drives, which is a reliability problem but makes for wicked fast drive access (kind of like splitting calculations between two CPUs)

Unfortunately, on most motherboards, the only way to install the RAID drivers if I want to install Windows onto the RAID is to load them with an old 3-1/2 inch floppy.  Which means I usually install a floppy drive on every build -- OK, its only $20 or so, but it still seems like a waste.   On my own computers, I just have one redundant floppy I pass around, but when I build for others, I don't want to leave them hanging if they have to reinstall the OS. 

I would think that this should be doable via a USB key, but I have never tried it.  Anyone out there know a better way?

</geekiness>  OK, I will now return to economics and business.

Every time I write that government funded health care and health nannyism are becoming a Trojan horse for fascism, I get several emails telling me I am being a paranoid flake.  So I will have to just keep posting this kind of thing (from England), via Overlawyered:

SOCIAL workers are placing obese children on the child protection
register alongside victims thought to be at risk of sexual or physical
abuse.

In extreme cases children have been placed in foster care because
their parents have contributed to the health problems of their
offspring by failing to respond to medical advice.

The
intervention of social services in what was previously regarded as a
private matter is likely to raise concerns about the emergence of the
"fat police".

Some doctors even advocate taking legal action against parents for
illtreating their children by feeding them so much that they develop
health problems.

Dr Russell Viner, a consultant paediatrician at Great Ormond Street
and University College London hospitals, said: "In my practice, I can
think of about 10 or 15 cases in which child protection action has been
taken because of obesity. We now constantly get letters from social
workers about child protection due to childhood obesity."

Last weekend I was watching an NFL game (I forget which one) and the team, which already had a solid lead, was considering going for a TD rather than a field goal at fourth and goal.  The announcer was going "Bad idea, bad decision.  Take the field goal and the sure points.  You don't want to risk getting the other team back in the game with the emotional prop of stopping you at fourth and goal."  Well, the team went for it and made the touchdown, after which the announcer said "I guess it was a good decision after all."

But was it?  If you choose to hit a nineteen in blackjack, and pull a deuce, was it a good decision?  If you  placed a 50-50 bet that a normal die roll will come up with a "6", and it does, was that a good decision?  I would say no.  I would argue that both decisions were bad decisions, despite the fact they happened to yield positive results for the decision-maker.  The reason is that, given the information the decision-maker had at the time of the decision, both moves have an expected value less than zero.

I won't bore my audience with a digression too far into expected value and decision trees.  Suffice it to say that the standard approach for making decisions in uncertainty is to list the possible outcomes of the decision, assign values and probabilities to each outcome, and then total up the sums.  The decision that yields the highest value times probability is the is the one that you would expect, on average, to yield the highest value.   Take the example of the bet on the die roll above.  If you bet a dollar, you would win a dollar on a roll of "6", which is a 16.7% probability.  You would lose a dollar on a roll of 1-5, which is a 83.3% probability.   The value of the "don't bet" decision is zero.  The value of the "bet" decision is 16.7% x $1 plus 83.3% x -$1 equals -$0.67.  So the "no bet" decision is best, since at zero it is higher than the negative outcome of the "bet" decision.  Here is a more complete discussion of the decision tree process.

A couple of provisos:

• When the situation is more complex, the trick of course is to assign the right values and probabilities.  We can assign these exactly for cards and dice, but it's a little harder for something in the business world, like say Enron's decision to enter the broadband business.  But managers are paid the big bucks to do their best.  And managers have tools at their disposal to manage their lack of information.  For example, once you build a base-case, you can ask questions like  "OK, I am not sure about the size of the broadband market, but how large does it have to potentially be to offset the risk involved."
• Like many real-world processes as the approach the asymptotes,  things get a bit squirrelly for really small probability events, particularly when they have very large financial values (positive or negative) attached.  Small probability positive events are essentially a lottery, and many people buy lottery tickets, even though we know the expected value is less than the price.  I play blackjack too, despite a negative expected value, because I get non-monetary benefits from the play.  Small probability negative events are called disasters, and are things we insure for.  Many times the decision to buy insurance has a negative expected value, but we do it anyway because we would sleep better at night knowing that we may be throwing away a little expected value, but we have pre-empted an event that would bankrupt us.  Here we get into interesting topics of risk profiles and risk tolerance, which I will avoid.

Unfortunately, in evaluating historical decisions, we often ignore the state of facts and risks the decision-maker faced at the time of the decision.  We argue Mead should have pursued Lee harder after Gettysburg, because we know now Lee's army got trapped behind a swollen river. The Chargers shouldn't have traded half their assets** to move up one spot in the draft to get Ryan Leaf.  And Enron should not have entered the broadband business.   We treat the decision makers in each of these as boneheads today (we even threw Skilling in jail, as much for his failed business decision as for any fraud).  But all of these evaluations are based on the outcomes, not on what the decision-makers were facing at the time.  Mead had been in charge of the army for less than a week, had driven Lee from a battlefield for the first time ever, and had a primary charge of defending Washington.  It is hard to believe today, but the Peyton Manning and Ryan Leaf were considered nearly equivalent in quality in the '98 draft, and the Chargers trade might have been perfectly appropriate if they had actually gotten a Manning-quality quarterback.  Enron's vision of broadband looked like it would become an enormous business, which in fact it did, just five years too late for them.

** The Chargers traded an inventory of picks and players to the Arizona Cardinals, who, true to form, did nothing with this goldmine.  The Cowboys, by contrast, arguably built a whole dynasty in the 90's off the slew of picks they got in the Herschal Walker trade with Minnesota.

I had to say that this, from Janna Goodrich as quoted by Kevin Drum, is absolutely hilarious:

Education is one of the best engines for upward mobility and poor
students cannot afford to pay for higher education on their own. Their
families don't have the physical collateral to borrow money in the
private financial markets nor the savings to pay for the tuition
outright....But if we gave poorer students mostly grant-based aid we'd
be asking for the rest of the society to subsidize those who are one
day going to be wealthier than the average citizen. Two different
concepts of fairness or equality are at play here and I'm not sure if
both of them could be achieved at the same time.

Can you just see the liberals getting twisted in knots?  Oooh, helping the poor is good, but if we send them to college and they get rich, then we are helping rich people, and that's baaaad.  Its like that logic problem where a card says "the statement on the other side is false" and on the other side says "the statement on the other side is true."  Only a liberal could take the happy story of a poor kid going to college and getting rich and turn it into bad news.  I never thought about what a problem education was for liberal ethics, in that it converts sainted victims (e.g poor) into evil exploiters (e.g. rich).  Maybe that explains why they oppose school choice?

By the way, I have about zero sympathy for this whole grants in education discussion.  From an incentives standpoint, it is perfectly reasonable to ask people who are getting public money for self-improvement to share the risk with the public through the debt and repayment obligation they take on.  A lot of people today already don't take good advantage of the opportunity they have while in college, and this is certainly not going to get any better if we give them a free ride rather than loans.

The second problem I have with public funding of grants for education is that colleges and their alumni groups can decide to fix this problem privately if they so desire.  My school (Princeton) makes a commitment that everyone who gets into the school, not matter how poor, will get a financial aid package that will make it possible to attend.  And, the financial aid is all in grants such that the student graduates from one of the most expensive schools in the country debt-free (and yes, the incentives problem worries me some).  All with private money.  We are able to do this because our school makes it a priority and our alumni give the money to make it happen.

I know what you are going to say -- Princeton is full of rich people, so they can afford this.  Yes and no.  First, our alumni do pretty well for themselves, but they also have to help fund financial aid for the highest tuitions in the country.  Other schools with lower tuitions have a lower bar to clear.  Second, while Princeton alums may be wealthier per capita, our alumni population, because we are a small school, is probably one tenth the size of a Berkley or a Texas.  As a result, schools like Texas almost certainly have a much wealthier alumni group in total.  But few of them give back.  It's not a priority for them to create financial aid money for incoming students (instead, T Boone Pickens gives $125 $165 million to the OU OSU football program).  So don't come crying to me that students at your schools need government grants -- you could have funded such a program at your school privately if you had made it a priority.

Postscript: My dad ran numerous fund raising initiatives at the University of Iowa for years.  After decades of effort, I think he has finally despaired of getting state school alumni to donate money for something other than the sports program.

Update:  OK, that's what I get for making a throw-away statement without fact-checking.  Boone Pickens actually gave $165 million to the athletic programs of Oklahoma State, not OU.  I got a bunch of aggrieved emails on this.  Sorry.  Being from Texas, I get all that stuff up in the trans-Red-River region mixed up.