While watching the Colbert Report last night I was struck by a comment by Governor Mike Huckabee. He said, and I unfortunately paraphrase, that when you are in debt, you spend less. His phrasing seemed to imply that this was common sense, and indeed, it is. But I worry that it is the same common sense which, in other circumstances, seems to fail so blissfully.

Take, for instance, stock trading. Acting ‘rationally’ and acting with ‘common sense’ seem to be two entirely different beasts. The rational investor will buy low and sell high. The ‘common sense’ investor will be the person who buys a stock when it is doing well, and sells it when it is doing poorly. In other words, it sounds perfectly sensible, aka follows ‘common sense,’ but in fact is the worst possible investing strategy.

I wonder if what seems like common sense, in this case, is not in fact sensible. Governor Huckabee’s point, that we should spend less when the economy is doing poorly seems to have a corollary: we should spend more when the economy is doing well. This certainly seems false: if the economy is doing well, citizens can buy services privately, and should have less need of public services, such as medicare/aid, food stamps, and heating subsidies.

If the corollary is false, the optimal situation seems clear: during times of plenty we should reduce government spending, and then use excess government capacity to spend during the rough times. This seems politically untenable, though, not least because policy makers rarely plan over time periods that long, but future economic troughs are almost never, ever predicted accurately. One can imagine the day to day political turmoil that must emerge during times of plenty, when tax revenues are high, as various interests jockey for a piece of the pie. The discipline required to do the difficult thing, and create and maintain savings and funds and capacity to deal with downturns seems quite beyond that of most of our political class.

So, in sum, without going into the direct theoretical merits of Keynes, he does seem to be right, from a rational standpoint. We should invest more public money when the economy is soft, and less when things are growing. Simple rational principles, but, unfortunately, not ‘commonly sensible.’

Banning email services such as Gmail and hotmail, to encourage use of China Post

Travel on foreign-produced Boeing and Airbus planes will be illegal, to enhance ridership on Chinese-made trains

Banning computers to enhance domestic-produced paper, filing cabinet, and rolodex sales

Adding a 500% tax on all jackets to protect the tanned animal hide industry

Making metal tools illegal to protect the sharpened stones industry

Sadly, even adding up the math of these apartments makes that seem unlikely. I’ve always understood that the rule of thumb for rent is that monthly rent=the value of the space paid over ten years, give or take. Current rental prices and prices per square meter would take eighty years or more to reconcile, according to rough math done while talking with friends. Such a gap needs to be fixed, but one method seems unlikely (rentx8) while the other seems disastrous (home prices dropping 7/8ths).

I hope I’m wrong. The Chinese certainly have more control over home prices than we do, which might prove the solution.

There is a disturbing similarity to the current state of China’s real estate market and that of the USA five years ago. Two examples have clarified this for me. The first is the example of a Chinese friend who bought a home five years ago, for one million yuan, who now gets frequent calls from real estate agents offering 4-5 million. He refuses to sell, even with the opportunity of pocketing the difference as profit. The second is a particularly telling account: two western friends who live in a fairly high-end apartment, who pay approaching western prices in rent. Recently, without any warning, they were told to move, as “someone had bought the apartment.” This without any visits by the new owners, which is very unusual for a country in which one is loathe to buy even an extension cord without testing it first, with multiple devices.

This leads to two, equally disturbing possibilities: the first, that someone bought this apartment without looking at it, as a purely speculative decision. If lots of investors are being this willing to foolishly ‘buy high,’ once the market turns (and it will turn) they will all run screaming for the doors at once, leading to a crisis the government might not be able to stop. Despite all of its power, the central authorities could not force tens of thousands of people purchase homes at prices FAR over their market value, which would be necessary if the market experienced a decline like America’s.

The second disturbing possibility is that the owners of the building decided to kick my friends out of their apartment for the express goal of realizing appreciation gains due to the real estate bubble. When a country starts to decide that the value of something on the books is worth more than cash flow, it is setting itself up for a crash. It is similar to purchasers of AAA-rated bonds underpinned by subprime loans: the value of the bonds was something only on paper, without any actual cashflow to back it up. The people who made the initial sub-prime loans are just like the owners of this Chinese building: so eager to have something valuable in their balance sheets that they will ignore or even actually discard their sources of real revenue.

On the other hand, of course, the Chinese are skittish of large changes, due to the radical experiments of the last century. So, you have a monolithic nation, afraid of change but on the other hand extremely used to it. An interesting dialectic.

I’ve also, as I’ve grown up, been immeasurably unimpressed with large corporate copyright holders, especially in the music and entertainment industry. I am one of the kids who has grown up with music being something that can exist anywhere, and is not a ‘thing,’ but instead more of creature… something that, once turned loose, grows, develops, and multiplies. It is not a disk, or a cassette, or a performance, it is a file. And, as I see people of my generation, who did something every other person between the ages of 10 and 30 in the USA has done, prosecuted for millions, I lose all sympathy with the rights holders. Only half of the previous demo will admit to file sharing, but that’s because the other 50% doesn’t realize that the RIAA would sue them for half a million dollars for the time they sent that song to their friend in middle school.

I now have reason to moderate my opinion in that respect. The encyclopedia I spent a year and a half on was offered for free, electronically, online. This pisses me off. It’s not their work, they don’t have the right to do what they do. It makes me almost quake in anger, but I’m sure from their standpoint, they are doing the same thing I did when I (hypothetically, don’t sue me RIAA) took an album from a friend’s shared iTunes (also hypothetically, after listening to the hypothetical album, I bought the hypothetical new album on iTunes).

So, today, I find myself torn. I still don’t feel sad for the huge music industry figures, but, honestly, if I didn’t know Berkshire was just a small office in the Berkshire hills, I might have been willing to pirate our encyclopedias just by looking at our perfectly modern and up-to-date website. The justification, internally, is simple. A low risk, high reward crime against people you neither know nor suspect you’d like. Perhaps its time for me to get to know some of the people who work in the music industry…

Buy books!

A cash economy is a mysterious thing, and I don’t know if there have been any direct studies to see how it effects resource usage. I have read that the single most effective method of encouraging efficient driving is to mount a meter on the dashboard constantly letting you know your MPG, and the Chinese system is certainly similar. I am certainly using less electricity today than I did yesterday, slightly more compulsively turning off lights, unplugging the DVD player, and waiting until things start getting real cold before turning on the electric heater.