Are Too Many Students Going to College?

Friday, November 13th, 2009

Are too many students going to college? Almost certainly:

Who should and shouldn’t go to college?

Charles Murray: It has been empirically demonstrated that doing well (B average or better) in a traditional college major in the arts and sciences requires levels of linguistic and logical/mathematical ability that only 10 to 15 percent of the nation’s youth possess. That doesn’t mean that only 10 to 15 percent should get more than a high-school education. It does mean that the four-year residential program leading to a B.A. is the wrong model for a large majority of young people.

Marty Nemko: All high-school students should receive a cost-benefit analysis of the various options suitable to their situations: four-year college, two-year degree program, short-term career-prep program, apprenticeship program, on-the-job training, self-employment, the military. Students with weak academic records should be informed that, of freshmen at “four year” colleges who graduated in the bottom 40 percent of their high-school class, two-thirds won’t graduate even if given eight and a half years. And that even if such students defy the odds, they will likely graduate with a low GPA and a major in low demand by employers. A college should not admit a student it believes would more wisely attend another institution or pursue a noncollege postsecondary option. Students’ lives are at stake, not just enrollment targets.

Bryan Caplan: There are two ways to read this question. One is: “Who gets a good financial and/or personal return from college?” My answer: people in the top 25 percent of academic ability who also have the work ethic to actually finish college. The other way to read this is: “For whom is college attendance socially beneficial?” My answer: no more than 5 percent of high-school graduates, because college is mostly what economists call a “signaling game.” Most college courses teach few useful job skills; their main function is to signal to employers that students are smart, hard-working, and conformist. The upshot: Going to college is a lot like standing up at a concert to see better. Selfishly speaking, it works, but from a social point of view, we shouldn’t encourage it.

How much does increasing college-going rates matter to our economy and society?

Caplan: College attendance, in my view, is usually a drain on our economy and society. Encouraging talented people to spend many years in wasteful status contests deprives the economy of millions of man-years of output. If this were really an “investment,” of course, it might be worth it. But I see little connection between the skills that students acquire in college and the skills they’ll need later in life.

Nemko: Increasing college-going rates may actually hurt our economy. We now send 70 percent of high-school graduates to college, up from 40 percent in 1970. At the same time, employers are accelerating their offshoring, part-timing, and temping of as many white-collar jobs as possible. That results in ever more unemployed and underemployed B.A.’s. Meanwhile, there’s a shortage of tradespeople to take the Obama infrastructure-rebuilding jobs. And you and I have a hard time getting a reliable plumber even if we’re willing to pay $80 an hour—more than many professors make.

Vedder: While it is true that areas with high proportions of college graduates tend to have higher incomes and even higher rates of economic growth than other areas, it does not necessarily follow that mindlessly increasing college enrollments enhances our economic well-being. My own research shows that there generally is a negative relationship between state support for higher education and economic growth. Sending marginal students to four-year degree programs, only to drop out, is a waste of human and financial resources, and lowers the quality of life for those involved.

Economists have cited the economic benefits that individual students derive from college. Does that still apply?

Murray: A large wage premium for having a bachelor’s degree still exists. For everything except degrees in engineering and the hard sciences, I submit that most of that premium is associated with the role of the B.A. as a job requirement instead of anything that students with B.A.’s actually learn. The solution to that injustice—and it is one of the most problematic social injustices in contemporary America—is to give students a way to show employers what they know, not where they learned it and how long it took them. In other words, substitute certifications for the bachelor’s degree.

Who should pay for students to attend college?

Nemko: In the same way that shifting medical costs to insurers makes patients cavalier about whether to demand fancy tests and procedures, even when not cost-effective, the more the government and private donors (alumni, private scholarships) pay of the college tab, the less responsibly the student and family need to determine college’s cost-effectiveness. Also, every time the government increases financial aid or a private scholarship is set up, it merely allows colleges to raise their sticker prices more.

Murray: Ideally, students themselves. If that means delaying college for a few years to save money, so much the better—every college professor has seen the difference in maturity and focus between kids straight out of high school and those who have worked or gone into the military for a few years. The ideal is unattainable. But somehow we’ve got to undermine the current system whereby upper-middle-class children go to college without having to invest in it.

Posted in Economics, Education, Policy | No Comments »

Risk-Averse Regulators

Friday, November 13th, 2009

Eric Falkenstein tells a tale of risk-averse regulators:

A friend of mine runs a small bank. He said the regulators came in, and said that they had too much money invested in brokered deposits. Like any businessman he wanted a spotless review, because any negative marks could imply he could not do certain things, such as expand a new office, acquire or be acquired. Bad reviews give the government an undefined option to meddle, veto, who knows? So he asked, what level would be alright with you Fed guys? They said, ‘that’s a business decision”. My business friend noted they were very clear that they do not give advice or anything that could be construed as advice.

Translation. We are suspicious of your exposure, but do not want to defend our suspicions.

This is government in action, afraid to make any hard decisions.

Posted in Business, Eric Falkenstein, Policy | No Comments »

U.S. Military Deaths in Afghanistan by Ethnicity

Friday, November 13th, 2009

You used to hear all the time about how minorities are more likely to die fighting America’s wars than whites are, Steve Sailer notes, but the ethnic distribution of military deaths no longer interests the mainstream media:

This Pentagon document lists military deaths in Operation Enduring Freedom (i.e., Afghanistan) from October 7, 2001 through February 28, 2009.

Leaving out the five ambiguous cases (mixed or unknown), minorities have suffered only 20 percent of the military deaths in Operation Enduring Freedom, despite making up 38 percent of the 20 to 24 year olds in 2008. Per capita, Non-Hispanic whites have been 2.47 times as likely as minorities to die in Afghanistan.

Sailer gets snarky with his take on a headline with the “appropriate” spin:

Minorities Discriminated Against at VA Cemeteries
Whites Get More Free Burials

Posted in Policy, War | No Comments »

Unilateral Disarmament

Friday, November 13th, 2009

Reasonable people can disagree on contentious issues, but this statement from the Brady Campaign wantonly disregards reality:

This latest tragedy, at a heavily fortified army base, ought to convince more Americans to reject the argument that the solution to gun violence is to arm more people with more guns in more places.

The “heavily fortified army base” was, ironically, a gun-free zone. It’s pretty unambiguous how those soldiers would have reacted if armed — and their immediate response would have ended Hasan’s shooting spree long before he killed 13 and wounded 30.

Jacob Sullum notes the folly of universal disarmament:

The first people with guns to confront Hasan, two local police officers, were the ones who put a stop to his rampage. And while Sgt. Kim Munley and Sgt. Mark Todd acted heroically, they did not arrive on the scene until a crucial 10 minutes or so had elapsed and Hasan had fired more than 100 rounds.

If someone else at the processing center had a gun when Hasan started shooting, it seems likely that fewer people would have been killed or injured. Furthermore, the knowledge that some of his victims would be armed might have led him to choose a different, softer target in order to maximize the impact of his attack.

There would have been plenty of targets to choose from: any of the locations in Texas, including public schools, universities, and shopping malls, that advertise their prohibition of gun possession. The problem is that crazed killers tend not to follow such rules.

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So much gained, so much to lose

Thursday, November 12th, 2009

The Economist sees so much gained, so much to lose, with the fall of the Berlin Wall:

Western capitalism’s victory over its rotten communist rival does not ensure it an enduring franchise from voters. As Karl Marx pointed out during globalisation’s last great surge forward in the 19th century, the magic of comparative advantage can be wearing—and cruel. It leaves behind losers in concentrated clumps (a closed tyre factory, for instance), whereas the more numerous winners (everybody driving cheaper cars) are disparate. It makes the wealthy very wealthy: in a global market, you will hit a bigger jackpot than in a local one. And capitalism has always been prone to spectacular booms and busts.

Above all politics remains stubbornly local. All that economic integration has not been matched politically. And to the extent that there is a global guarantor of the current system, it is America, a country which as globalisation works will continue to lose relative power. Thanks to its generosity in exporting the secrets of success, it now has China closer to its shoulder and other emerging giants are catching up. Public support for protectionism has surged in the United States.

In the affairs of man, wounded pride and xenophobia often trump economic reason. Why else would Russia terrorise its gas customers? Or Britons demonise the EU? In a rational world China would not stir up Japanophobia and rich Saudis would not help Islamic extremists abroad. Many businesspeople, too busy on their BlackBerrys to worry about nationalism or fundamentalism, might ponder Keynes’s description of a prosperous Londoner before August 1914: sipping his morning tea in bed, ordering goods from around the world over the telephone, regarding that age of globalisation as “normal, certain, and permanent, except in the direction of further improvement” and dismissing “the politics of militarism” and “racial and cultural rivalries” as mere “amusements in his daily newspaper”.

August 1914 should ring a bell.

(Hat tip to Younghusband.)

Posted in Economics, Policy | No Comments »

The Dead Zone

Thursday, November 12th, 2009

Clifford Thies explores The Dead Zone where the implicit marginal tax rate crests over 100 percent:

To say that antipoverty programs in the United States are perverted may be an understatement. When you take into account the loss of means-tested benefits (e.g., cash assistance, food stamps, housing subsidies, and health insurance), and the taxes that people pay on earned income, the return to working is essentially zero for those in the lower two quintiles of the income distribution.

For many of the working poor, the implicit marginal tax rate is greater than 100 percent. The long-run consequence of undermining the positive incentive to work is, of course, the creation of an underclass acclimated to not working; the supplement of cash and noncash benefits with income from crime and the underground economy; and the government resorting to negative incentives such as mandatory work programs.

Below, I show the relationship between earned income and after-tax income plus subsidies for a hypothetical Virginia family of three, consisting of one adult and two minor children. As you can see, the relationship is essentially flat from $0 to about $40,000 in earned income.

Income Less Taxes Plus Subsidies

To see exactly what is happening, I developed the following chart. It shows the implicit tax paid on the last $10,000 of earned income (initially by comparison to the welfare grant and then by comparison to income less taxes plus subsidies).

Implicit Marginal Tax Rate

At A, the marginal tax rate is quite high, essentially because of the generosity of the package of cash and noncash benefits provided to those on welfare. At B, the marginal tax rate is relatively low (!) because of the Earned Income Tax Credit (EITC). From B to D, we (or, rather, the working poor) are in the Dead Zone, with implicit marginal tax rates mostly exceeding 100 percent.

How stupid and evil must our elected representatives be to do this to the working poor! Actually, this being a democracy, there is nobody to blame but the electorate. Especially the left-liberal do-gooders. Since Milton Friedman developed the negative income tax, waaay back in the 1950s, there can be no excuse for any educated person to not be aware of the fact that taxes and means-tested benefits destroy the lower classes’ positive incentive to work.

Arnold Kling adds that Greg Mankiw shows that health care reform will make this worse.

Posted in Arnold Kling, Economics, Policy | No Comments »

Flu Perspective

Thursday, November 12th, 2009

Younghusband tries to offer some perspective on the current swine flu epidemic:

I find this mildly disingenuous, because the claim is not that swine flu has killed millions, but that a new pandemic flu strain could kill millions, as the 1918 flu did. It’s not that the odds are against us; it’s that the stakes are high.

Posted in Policy, Science | No Comments »

Designing society for posterity

Thursday, November 12th, 2009

The generation ship — a space ship that takes multiple generations to reach its destination — is a classic science-fiction concept that raises the question of designing society for posterity:

We humans are really bad at designing institutions that outlast the life expectancy of a single human being. The average democratically elected administration lasts 3-8 years; public corporations last 30 years; the Leninist project lasted 70 years (and went off the rails after a decade). The Catholic Church, the Japanese monarchy, and a few other institutions have lasted more than a millennium, but they’re all almost unrecognizably different.

(Hat tip to Michael Nielsen.)

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The Great War

Thursday, November 12th, 2009

Arnold Kling looks back at the tragedy of the Great War:

I really think that if more people focused on leadership during that war, the concerns over “market failure” and the faith in political leadership would decline. I challenge anyone to come up with a group of business villains who caused as much death and suffering as the “legitimate” political leaders of 1914.

My proposal for Veterans’ Day observances is that they should include a re-telling of the history of World War I along the lines of the Passover re-telling of the Exodus. My goal would be to help inoculate people from believing in the wisdom of the ruling class.

I have to agree with this comment though:

I venture that re-telling the horrors of World War One would merely further support for a stronger UN or similar international body. A decline in petty nationalism would be replaced by a desire for internationalism or by a desire for universally weaker governments across the board, guess which one is more likely?

The major state to leave the World War One battlefield was of course Russia under Communist revolution, so it’s certainly not instinctively obvious to walk away with a Market Solves Everything solution. I’m sure Kling has a sophisticated argument in mind, but a mere retelling is unlikely to suggest such an argument.

Likewise, war resistors and pacifists during WWI were overwhelmingly drawn from the left and extreme left, not the right.

As far as the US is concerned, libertarian and free-market claims to be anti-war and pro-civil-rights have very little popular credibility because when the chips are down prominent libertarians then decide otherwise. The view that there is a military-industrial complex that needs to be dismantled by a heroic politician has much sympathy; the view that selfish myopic leaders provoke war over the heroic protests of the private sector, not so much. Right or wrong I think this a fair assessment of the popular view.

Posted in Arnold Kling, Policy, War | No Comments »

Cop-Wounder Gun

Thursday, November 12th, 2009

When I first heard that American soldiers had gone on a shooting rampage at Fort Hood, I assumed that the shooters were using American M16 assault rifles — or their smaller cousins, M4 carbines.

When I heard that it was one shooter using a handgun, I assumed he was using the standard-issue M9 pistol.

Later it came out that the shooter had two handguns: a Smith & Wesson revolver, chambered in .357 Magnum, and a mildly exotic semi-auto, the FN Five-SeveN.

The .357 Magnum is a famously powerful round, developed in the 1930s to penetrate car doors and the primitive body armor of the time — the kind of cover bootleggers and gangsters could be expected to use. But it does not look like Hasan fired his revolver in the attack.

The FN Five-SeveN gets its name from its 5.7 mm round and its odd capitalization from its manufacturer, FN Herstal, of Belgium. Its 5.7x28mm round is, in effect, a high-velocity .22, like the M16′s 5.56x45mm round, but much shorter and much less powerful than the assault rifle round, which is itself much less powerful than the rifle rounds used in WWI or WWII — or out in the woods each year during deer season.

The Five-SeveN’s 5.7 mm round wasn’t originally designed for a pistol, but for a “personal defense weapon” — an exotic submachine gun — called the FN P90. Submachine guns use pistol ammunition, but conventional pistol rounds — even fired out of a longer barrel and thus at a higher velocity — have a terrible time penetrating body armor. The small, high-velocity 5.7 mm round — with a steel/aluminium penetrator — could penetrate 48 layers of Kevlar:

With low-impulse recoil significantly less than that of the 9mm, the new cartridge pushed a roughly 30-gr. projectile at around 2,300 feet per second out of a 10-inch barrel and featured a nearly flat trajectory out to 100 yards.

From the Five-SeveN, with its shorter barrel, the armor-piercing bullet reaches 2,100 feet per second — but such armor-piercing handgun bullets are illegal in the US.

Nonetheless, the Brady Campaign declared the Five-SeveN a cop killer handgun — which is especially odd since no police officers have been killed with the Five-SeveN. In fact, Sergeant Kimberly Munley survived three shots from Hasan’s Five-SeveN: twice through the left leg, and once in her right wrist. It’s not clear that the non-armor piercing rounds would have penetrated her armor even if they’d hit it.

Even with its 20-round magazine, the Five-SeveN definitely does not qualify as “an assault rifle that fits in your pocket” — another phrase being bandied about by the Brady Campaign. Without armor-piercing ammo, it’s really just a gun that shoots a light bullet without too much recoil, perfectly dangerous, like any good gun in the “right” hands, but not especially dangerous.

Posted in War, Weapons | No Comments »

Survival of the Weakest

Wednesday, November 11th, 2009

Sometimes survival of the fittest is survival of the weakest:

About 30,000 years ago, the vast forests of Eurasia began to retreat, leaving treeless steppes and tundra and forcing forest animals to disperse over vast distances. Because they evolved in the warm climate of Africa before spreading into Europe, modern humans had a body like marathon runners, adapted to track prey over such distances. But Neanderthals were built like wrestlers. That was great for ambush hunting, which they practiced in the once ubiquitous forests, but a handicap on the steppes, where endurance mattered more. This is the luck part: the open, African type of terrain in which modern humans evolved their less-muscled, more-slender body type “subsequently expanded so greatly” in Europe, writes Finlayson. And that was “pure chance.”

Because Neanderthals were not adept at tracking herds on the tundra, they had to retreat with the receding woodlands. They made their last stand where pockets of woodland survived, including in a cave in the Rock of Gibraltar. There, Finlayson and colleagues discovered in 2005, Neanderthals held on at least 2,000 years later than anywhere else before going extinct, victims of bad luck more than any evolutionary failings, let alone any inherent superiority of their successors.

(Hat tip to Tyler Cowen.)

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Anomaly or Pattern?

Wednesday, November 11th, 2009

The Fort Hood shooting is an example of how an event can be considered an anomaly or a broad pattern, depending on preconceptions:

The major media and the White House have a strong belief that Muslim extremism is idiosyncratic and mainly irrelevant. As Chris Matthews stated, ‘we may never know if religion was a factor at Fort Hood’ (who’s this ‘we’ kemosabe?). Obama cautioned against ‘jumping to conclusions. The New York Times has the headline articles “Army Chief Concerned for Muslim Troops, and also Little Evidence of Terror Plot in Base Killings, and finally, Painful Stories Take a Toll on Military Therapists. The narrative they want to tell is that a poor psychologist was overwhelmed by the stress of listening to troops discuss their stress by going over to Iraq, and that the biggest problem created by this event is anti-Muslim bigotry.

Consider that when 4 college kids were killed at Kent State in 1970 it was quickly decided this was the signature event of how the government war machine was killing unarmed American kids, as opposed to an unintended accident caused by students bent on increasing anarchy until something happened. James Byrd was a black man murdered by some white supremacists in 1998. There are prime time documentaries, foundations, and major references by politicians and pundits on this event, as if it signified a broad issue. Actually it was highly unusual, most interracial violence involves black perpetrators and white victims, the disparity in crime propensity is on the order of the male/female difference.

Events are either anomalies or examples of a pattern based on a simple politically correct view of how the world works, still based on Marx’s class lens: the dominant class is responsible for everything bad done by everyone, either directly or indirectly. The Statistical Abstract of the United States has lots of tables on crime victimization by race, but not the perpetrator by race, because we don’t want to blame the victim.

How does this relate to Falkenstein’s area of expertise, finance?

The Fed keeps easy to read data on mortgage rejection rates by race, but hides default rates by race, which has led to innumerable simplistic newspaper stories that have ‘proved’ rampant discrimination by banks.
[...]
If the statistical disparity was simply due to bigoted discrimination, closing the gap would be costless. As they say, things always end badly, otherwise, they wouldn’t end. Once subprime blew up, sticking with the Marxist narrative right-thinking people were quick to blame banks for forcing ill-advised mortgages on minorities.

The same principle is involved in education, crime, and borrowing, that of seeing any behavior by socially disadvantaged groups as more evidence of their victimization by the dominant majority. Policies predicated on mistaken assumptions make things worse. By promoting the belief that bigotry accounts for most of every disadvantaged group disparity, the PC elites are doing more harm than good to everyone. Their bad solutions are then applied to everyone, creating a race to the bottom based on great intentions.

Posted in Eric Falkenstein, Policy | No Comments »

Brideshead Revisited for heterosexual American grown-ups

Wednesday, November 11th, 2009

Steve Sailer calls Mad Men a sort of Brideshead Revisited for heterosexual American grown-ups:

For Baby Boomers, it’s hard to watch Mad Men without enviously exclaiming: Our parents had it better!

Like the eleven-hour 1981 British adaptation of Evelyn Waugh’s novel about the elegance and indolence of post-Great War Oxford undergrads, Mad Men’s languorous 13-hours per year pace affords viewers the time to wallow in the visual details and manners of a more adult age than our own.
[...]
While Waugh wore his reactionary heart on his sleeve in Brideshead, Weiner maintains plausible deniability in Mad Men by methodically depicting how unenlightened the upper-middle class WASPs of a half century ago were. We in the audience are scandalized to note, for example, that even the most respectable parents in 1960 devoted more time to socializing with other adults than to obsessively overseeing their offspring’s next leap up the steep slope of the meritocratic pyramid.

Moreover, many families in 1960 can afford a home on just one income. As Betty Friedan noted, housewives are imprisoned in their suburban homes, escaping in Mad Men only, well… any time they feel like it.

Worse, firms pay married workers more than equally productive single ones, in violation of all the tenets of Friedan and Friedman. Employers back then felt they had a “duty to society,” a concept with which our advanced cultures are no longer familiar.

Even more shockingly, the employees at the Sterling Cooper ad agency knock off work right at 5:15 PM each day. They appear to have some weird Depression-era relic of a notion of solidarity among American workers: that if the bosses want more work done, they should hire more workers.

Didn’t they understand back then that cheap wages and expensive land are what made America great?
[...]
While watching Mad Men, Weiner affords us ample opportunity to congratulate ourselves on how much progress we’ve made. For example, most of the black characters in Mad Men have servile jobs. Today, of course, things are infinitely better. Black men are seldom seen in servile jobs (unless they are African immigrants or gay). In fact, black men aren’t seen in any jobs as much anymore: ten percent of black men were out of the work force in Don Draper’s 1960 versus 24 percent in booming 2000. Indeed, black men aren’t even seen at all as much anymore because a million are now locked away in prison. (The incarceration rate of black male high school dropouts was one percent in the Bad Old Days of Dwight Eisenhower’s last year in office versus 25 percent in Bill Clinton’s glorious finale.)
[...]
As a social commentator, Weiner is on the winning side in the culture war. Yet, as an artist, he senses a void in the brave new America. While he may lack the vocabulary to articulate it, this longing helps give Mad Men its romantic aura that lifts it above its own soap operaish and soft porn tendencies.

Posted in Media, Policy | No Comments »

The scholarly creative method of JRR Tolkien

Wednesday, November 11th, 2009

Bruce Charlton examines the scholarly creative method of JRR Tolkien:

Tolkien’s remarkable creative method has been elucidated by TA Shippey in his Road to Middle Earth; and amply confirmed by the evidence from the History of Middle Earth (HoME) edited by Christopher Tolkien.

In a nutshell, Tolkien treats his ‘first draft’ as if it were an historical text of which he is a scholarly editor. So when Tolkien is revising his first draft his approach is similar to that he would take when preparing (for example) an historically-contextualized edition of Sir Gawain and the Green Knight, or Beowulf.

So, as he reads his own first draft, he is trying to understand what ‘the author’ (himself) ‘meant’, he is aware of the possibility of errors in transcription, or which may have occurred during the historical transmission. He is also aware that ‘the author’ was writing from a position of incomplete knowledge, and was subject to bias.

This leads to some remarkable compositional occurrences. For example, in the HoME Return of the Shadow (covering the writing of the first part of Lord of the Rings — LotR) Tolkien wrote about the hobbits hiding from a rider who stopped and sniffed the air. The original intention was that this rider was to be Gandalf and they were hiding to give him a surprise ‘ambush’. In the course of revision the rider became a ‘Black Rider’ and the hobbits were hiding in fear — the Black Riders were later, over many revisions, and as the story progressed, developed into the most powerful servants of Sauron.

This is a remarkable way of writing. Most writers know roughly what they mean in their first draft, and in the process of revising and re-drafting they try to get closer to that known meaning. But Tolkien did the reverse: he generated the first draft, then looked at it as if that draft had been written by someone else, and he was trying to decide what it meant — and in this case eventually deciding that it meant something pretty close to the opposite of the original meaning.

In other words, Tolkien’s original intention counted for very little, but could be — and was, massively reinterpreted by the editorial decision.

The specifics of the incident (rider, sniffing) stayed the same; but the interpretation of the incident was radically altered.

By contrast, most authors maintain the interpretation of incidents throughout revisions, but change the specific details.

Actually, Charlton does not describe Tolkien’s method as simplyscholarly, but as shamanistic:

By shamanistic, I mean that I believe much of Tolkien’s primary, first-draft creative, imaginative work was done in a state of altered consciousness — a ‘trance’ state or using ideas from dreams.

This is not unusual among creative people, especially poets. Robert Graves wrote about this a great deal. And neither is it unusual for poets to treat their ‘inspired’ first draft as material for editing. The first draft — if it truly is inspired — is interpreted as coming from elsewhere — from divine sources, from ‘the muse’, or perhaps from the creative unconscious; at any rate, the job of the alert and conscious mind is to ‘make sense’ of this material without destroying the bloom or freshness derived from its primary source.

This is, I believe, why Tolkien did not see himself as inventing, rather as understanding. If key evidence was missing, he could try and interpolate it like a historian by extrapolation from other evidence, or he could await poetic inspiration, which might provide the answer.

Posted in Bruce Charlton, Media | No Comments »

A Polite Bet

Wednesday, November 11th, 2009

Simon Johnson argues that Buffett’s big investment in railroads is a polite way to bet against the dollar:

When China finally gives way to market pressure and appreciates 20–30 percent, their commodity purchases will go through the roof. You can add more land, improve yields, or change the crop mix of choice (as relative prices move), but it all has to run through Mr. Buffett’s railroad.

Of course, Buffett is nicely hedged against dollar inflation — this would likely feed into higher inflation around the world, and commodities will also become more appealing.

And Mr. Buffett is really betting against the more technology intensive, labor intensive, and industrial based part of our economy. If that were to do well, the dollar would strengthen and resources would be pulled out of the commodity sector — the more “modern” part of our production is not now commodity-intensive.
[...]
By betting on commodities, Mr. Buffett is essentially taking an “oligarch-proof” stance. Powerful groups may rise to greater power around the world, fighting for control of raw materials and driving up their prices further. As long as there is growth somewhere in emerging markets, on some basis, Mr. Buffett will do fine.

(Hat tip to Tyler Cowen.)

Posted in Business | No Comments »

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