Is space exploration over?

The Economist has an article about how the age of space exploration is over. They are a little late on this announcement, as the peak distance that any human has traveled from Earth was reached about 40 years ago. The first age of space exploration has been over for a while.

But does that mean that our adventures in the Final Frontier are over forever? I'm not so sure. After all, think about maritime exploration. For thousands of years after the first canoe was launched, the high seas remained basically empty of human ships. Once we got the technology to conquer the seas, however, we quickly did so.

What technology would be needed to conquer space? It's clear that what we use now is too expensive for large-scale use. To reduce launch costs from Earth, we need either mass drivers, laser propulsion, or something of similar energy savings (a "space elevator", sadly, will probably never exist).

But we need more than that, because even with cheaper launch systems, manned space exploration is extremely expensive, especially given the radiation shielding and other add-ons that we'll need for interplanetary travel. What we need is a bigger, better energy source. With the Earth energy-constrained as it is, there are no fossil fuels to spare for Mars missions, and we'll be lucky if we get renewables to the point where they save us from backsliding to the iron age. That means that we need nuclear fusion.

But in addition to the means, we need a reason to go. What is in space that we can use? Well, if fusion becomes a power source, we might want to mine tritium from other planets. And with fusion, terraforming of Mars might one day be possible (fusion is really that good as an energy source!).

As for interstellar travel, that is really and truly off the table without technological breakthroughs so advanced that we currently can barely imagine what they are.

So basically, no fusion, no space adventures. But if we do invent fusion, then the whole equation changes, not just for space travel, but for every conceivable human activity. Hence, we should focus our engineering efforts not on manned space travel, but on fusion power. And if we ever succeed, then the Second Age of space exploration may begin, and the Economist's article may come to look as silly as those medieval assertions that the Atlantic could never be crossed.

Child Booster Seats

The institute for Highway Safety has provided a method to take much of the guesswork out of selecting the proper booster seat for your child. Seat belts are designed with adults in mind- so a child booster seat is an absolute necessity, and extra care needs to be taken when securing young children.

Children usually resist wearing a seatbelt because it is uncomfortable. Boosters elevate children so that the safety belts installed in the vehicles by manufacturers will fit the child better. The booster seat allows the lap belt to fit properly over the child’s thighs and not their abdomen. The shoulder belt should fit across the middle of the child’s shoulder. Not only will the belt be more comfortable, it will provide maximum protection in a crash.

The institute’s researchers used a specially designed test dummy configured as a 6 year old child. The researchers determined the effectiveness of how a 3-point lap and shoulder belt fit the dummy under a range of configurations representing many different automobile models. Based on a range of scores, a booster seat rating was assigned to each seat.

Is education a public good?

 

In response to my "Tamerlane" post, commenter Josh writes:

How are schools public goods?

Good question. I will give you the answer that I gave in my Public Finance field course.

Schools are public goods because of their function as jails. Young boys who are not closely supervised by their parents will tend to form violent gangs; the violence perpetrated by these gangs imposes costs that spill over into every segment of society and the economy (go watch the movie City of God for a demonstration of how this works). By forcing boys into a structured environment for most of the day, public schools keep them off the street, creating huge spillover benefits for third parties. Schools are therefore a public good. Incidentally, this is why your junior high probably felt like a state prison - it was one.

BUT, the public good-ness of schools is not why we spend a lot of government money on them. We spend government money on schools because of an incomplete markets problem.

Human capital is extremely valuable. Some people estimate the return to human capital investment as being around 15% (good luck getting that return from your retirement account!). But human capital suffers from an incomplete markets problem, because the crucial time frame for the purchasing of human capital (i.e. childhood) comes at a time when the owner and main beneficiary of the capital (i.e. the child) is not legally empowered to make his or her own investment decisions. Since as a toddler you can't possibly pay to educate yourself, anyone who does end up footing the bill for your education will probably end up not seeing a positive return on their investment. So if education is purely private, we will probably end up with a lot less human capital investment than is optimal (or than your grown-up self will wish you'd received as a toddler).

Note that this incomplete markets problem, though not a public goods problem in the classic Lindahl-Samuelson sense, nevertheless looks a lot like one. The transaction between whoever pays for your early childhood education (the govt., your parents, the Catholic Church, etc.) and whoever provides the education (teachers) has very important benefits to a third party (you). So it's a similar kind of issue.

What are the solutions to this incomplete markets problem? Well, we could solve it the Coasian way, by giving some older person(s) - e.g. your parents - the right to the proceeds from your future labor. But this would mean you would be born into slavery. It is therefore a solution that society, and also a large number of libertarians, will be unwilling to accept. (Note for all you sci-fi economists out there; when "superbaby" technology comes around, parental rights will be a much bigger and more uncomfortable issue!)

The modern solution to the incomplete markets problem has been to have government step in and buy little kids an education. We've fixed an arbitrary cutoff for legal adulthood (albeit one that we now know is loosely supported by science), and we've decided that before that cutoff, the government will invest in your human capital. So far, the system of universal public education has been a resounding success, and has probably been a huge factor in the development of rich modern economies. It's not hard to see why. Before universal public education, there were some private schools, but most parents opted to keep their kids around the house to do labor for the family. It was a perfectly rational equilibrium. Socialization of education solved the incomplete markets problem and created the vast literate workforces that undergird every moden nation's prosperity.

So I hope that answers the question.

As a final note, I want to point out that this is just one more reason to be wary of the modern American libertarian movement. The philosophy has never had a good answer to the question of children's rights. And yet the question of whether or not the government  and/or or your parents can make you go to school is of crucial importance to the wealth of nations...and hence of crucial importance to our ability to guard our future liberty against Tamerlane.


Update: Lots of EconLog love today. Arnold Kling asks why government needs to provide education instead of just subsidize it. My answer: No reason in principle, but in practice government contractors seem quite hard to monitor. David Henderson says that innocent kids shouldn't be sent to prison/school. My 12-year-old self certainly agreed with him...but society fears gangs more than it loves perfect child liberty. Henderson also asks why people are more willing to vote for public schools than they are to pay for them. The answer to this is simple: people gain a lot from other people's kids being educated, since systemic underinvestment in education makes the country as a whole much poorer (and thus lowers parents' real wages). So they agree to pay taxes to have their kids educated, as long as everyone else does so as well, and the net benefit they receive is far more than if only they themselves were paying to have their own kids educated. So government solves a coordination problem, similarly to the public goods case.

When has stimulus ever been politically feasible?

Brad DeLong says that he and everyone he knows were taken aback by our government's inability to prevent the financial crisis from turning into a protracted recession:

In order to have successfully predicted that we would be where we are now, you would have to have predicted a large number of things:

1. That a global savings glut and a period of low interest rates would produce a housing boom.
2. That the housing boom would turn into a housing bubble.
3. That the housing bubble would lead to a collapse of mortgage underwriting standards.
4. That risk management practices on Wall Street would have been nonexistent.
5. That the Federal Reserve would not be able to construct its usual firewall between finance and the real economy.
6. That the Federal Reserve would not feel itself empowered to take the emergency steps to stabilize demand needed during and in the immediate aftermath of the financial crisis.
7. That the incoming Obama administration would come out of the gate with too small an economic recovery package.
8. That politics would prevent the Obama administration from being able to take a second bite at the apple.
9. That the Obama administration would then give up on pushing the envelope of its powers to try to generate a strong recovery.
10. That the intellectual victory of Keynesian approaches on the level of reality--forecasting and accounting for the course of the Little Depression--would be accompanied by a non-intellectual defeat of Keynesian approaches on the level of politics.

Get all of those 10 right, and you are a wizard.

But I know of nobody who did.

The smart people I know--there imagination failed after number five or so.

Numbers 5-10 on this list deal with the inability of the American government to enact effective countercyclical policy. I have to say that I am not surprised by this at all...and I think that even without the benefit of hindsight, I would not have been surprised (and indeed, I always believed that the government's response would be inadequate). Why? Because we've never really implemented effective countercyclical policy in the past!

First, take the Fed's ability to construct its "usual firewall" between finance and the real economy. What usual firewall? Can you name a systemic financial crisis in our history that was not followed by a protracted economic slump? I am not sure I can. (Caveat: this does not establish that financial crises cause recessions, though I happen to believe that they do.) I suppose the Panic of 1907, but there was no Fed then. Maybe the LTCM collapse?

Now take the Fed's inability/refusal to stabilize nominal GDP growth after the crisis. At the zero lower bound, Fed action pretty much means QE. And when have we (or any country) ever implemented large-scale QE in the absence of out-and-out deflation? I can't think of any example.

Finally, let's consider the political feasibility of stimulus. Has the United States ever purposefully enacted a large countercyclical fiscal stimulus in the past? There's the New Deal, but as DeLong himself has mentioned, it was actually pretty small beer. Clinton's 1993 stimulus bill died a quiet death by filibuster. In fact, the only real example of fiscal stimulus that I can think of was Reagan's military buildup...but that was hardly sold as a stimulus.

So history would seem to indicate that the U.S. government is not very good at protecting the economy from financial crises or implementing countercyclical policy in really deep or prolonged slumps. I suspect, therefore, that Brad's belief in the government's abilities was really more hope than fear, and his reaction to our failure was more disgust than surprise. In other words, he was an optimist regarding the U.S. political economy. Sad to say, that is something I have never been.


Update: Mark Thoma points out that automatic stabilizers are generally politically feasible. That is certainly true.

Libertarianism and the Tamerlane Principle

Still in Japan and working hard, so expect posting to be infrequent...

Anyway, I encourage everyone to read this excellent article by Stephen Metcalf. It's about Robert Nozick and the birth of modern American libertarianism. The piece does a great job of critiquing libertarianism from the standard "social welfare"/"institutions" point of view.

I want to be clear: I think that if the only thing wrong with libertarianism were that it rejects social welfare and ignores real-world institutions, that would be more than enough to allow me to oppose the dogma in good conscience. But I tend to criticize libertarian thought from a very different angle.

My problem with libertarianism is something I call the "Tamerlane Principle." Before I explain it, consider this account of the conquests of the 14th Century Central Asian warlord and conqueror Timur the Lame, commonly known as Tamerlane:

At the news of the [up]rising, [Tamerlane] stayed his march into the mountains, and took a terrible vengeance...he showed himself to be a "hurricane of annihilation"...[H]e commanded cruelty and devastation such as made people shudder even in those cruel days...When he stormed the rebellious city of Sabzevar...he had 2,000 persons walled up alive, as a tower of horror "for a warning for all who should dare to revolt and as an indication of Tamerlane's vengeance"...The sword of the executioner made an end of the dynasty of Herat; the towns of the Sserbedars became heaps of ruin...The mountain cities, which defended themselves valiantly, were crowned with pyramids of skulls; and in the capital city...the inhabitants were put to the sword by the conqueror, "even to the centenarians, and to the baby in the cradle." Then the soldiers carried off everything "down to the nails from the doors"; and whatever was combustible went up in flames. City after city, fortress after fortress, fell into the hands of the conquerors, "until there were no more enemies left in these provinces, and no one who did not obey Tamerlane."

Delightful, isn't it? But this was something that really happened. The truth is, this sort of conquest and destruction was a regular feature of human history for thousands of years. 

What would Robert Nozick say if he read that passage? He probably wouldn't see a strong connection between the conquests of Tamerlane and the question of government intervention in a modern capitalist economy. But I do. The connection is this: 

Tamerlane is always over the horizon, waiting to strike. There will always be conquerors waiting for the chance to conquer and pillage the soft civilized nations of the world. If you think Tamerlane is ancient history, just look up Pol Pot, Joseph Kony, Hitler, etc. This is a recurrent phenomenon. The only thing that can protect people against the Tamerlanes of the world is a strong, economically prosperous, well-organized nation state. And the only way you get a strong, economically prosperous, well-organized nation state is to have a strong, centralized government that provides lots of public goods. Roads, ports, schools, technological R&D. You need these things because everything we know about economic development says that these things are absolutely essential for a nation to have a high GDP. And a high GDP is necessary for a nation to win wars with hypothetical Tamerlanes.

This is why modern American libertarianism is so very, very flawed. The ideology professes to value liberty above all else, but it ignores the dynamic aspect. There is liberty today, and there is liberty tomorrow. Sometimes violations of liberty today (such as an income tax) are necessary to protect the body politic from far, far, far more heinous violations of liberty tomorrow.

Most libertarians recognize this, and freely admit that defense is an exception to the "small government" rule. But an army is not going to be a very effective Tamerlane repellant without a large GDP and advanced technology to back it up. And what modern American libertarians either fail to understand, or refuse to accept, is that public goods are essential for a high GDP. 

Stephen Metcalf declares that Nozick "was able to separate out a normative claim (that liberty is the fundamental value of values, and should be maximized) from an empirical claim (that the most efficient method for allocating goods and services is a market economy)." I wish that this were true, but it is not. Nozick, and his present-day acolytes, make an argument for unfettered capitalism that relies fundamentally on the empirical claim that public goods are not necessary for a strong economy. If public goods are necessary for a strong economy, then maximizing liberty requires that a government tax and spend.

Robert Nozick's radical prescription for a laissez-faire economy, if followed to the extreme, would put us in a position to be overrun by the first Tamerlane that wandered by and noticed our amber waves of grain. If you think this is a silly, alarmist statement, just observe how our recent neglect of public goods, along with our refusal to tax ourselves, is forcing us to make defense cuts (and will soon force us to make many more). This is where decades of trust in Nozick has gotten us. It's not a civilizational crisis yet, but it's not pretty.


Update: Wow, Metcalf's essay really seems to have touched a nerve. Will Wilkinson: "If only a levee separated polite discourse from the sort of ax-grinding indifference to fairness and truth Mr Metcalf displays in his essay." Reihan Salam: "Alas, I have just had the distinct displeasure of reading a critique of Nozick that is, I’m sorry to say, neither provocative nor intelligent. I wish I could get those minutes of my life back." Tyler Cowen: "I agree with Reihan that the recent web critique of Nozick, which I will not link to, was just awful." And here's Jason Kuznicki with an actual rebuttal. But so far, no libertarian bloggers, to my knowledge, have answered the Tamerlane Critique. Can I have been the first person to think of this idea? It seems highly unlikely.

In Japan.

I am in Japan until the end of  summer 2011, doing research at Osaka University and Aoyama Gakuin University. Posting will be sporadic this summer...

Kidproof

The temptations and dangers to today’s children are unfortunately ever growing. The news will attest to this with stories of abductions, kidnapping, facebook driven depressions, internet bullying, etc. It is important that kids and parents today be proactive against such dangers. Being in the business of risk management we are always looking for ways to mitigate and avoid risk. One way to do this when it comes to kid’s safety is through courses put on by Kidproof. Kidproof is an organization that puts on safety courses for children. The courses are geared toward kids ages 5 to mid teens.

Some examples of their courses are:

Cybersafe which teaches kids how to safely use the internet. They teach them how to see warning signs and unsafe situations online.

Another course is all about avoiding being bullied or how to deal appropriately with a bully. The course is called Bully Proofing.

Their most popular class is the Babysitter Training course. This course helps kids develop the skills needed to take care of other children.

Knowledge and education are always a good defense against certain dangers. Kidproof’s classes are a great way for parents to help make children aware and educated on today’s dangers. Visit www.kidproofsaftey.com today.

Kidproof is always looking to expand to help get the word out to parents in different communities in North America. If anyone wishes to start their own Kidproof franchise then contact Darian Richardson of RMC Franchise. Visit his website at www.rmcfranchiseconnect.com.

Obsessed With Adverse Selection

In case you haven’t heard, self-insurance is the gateway to adverse selection in the health insurance marketplace. Federal and state regulators have been sending up warning flares on this subject, but not surprisingly, their aim misses the mark.

This discussion has heated up as policy-makers look ahead to 2014 when state insurance exchanges are slated to come on-line and they try to predict market conditions and that time. For PPACA supporters, there’s a lot riding on making sure the exchanges work as promised so they are taking aim at any real or perceived obstacles. Adverse selection drivers are at the top of the list.

We saw this first in the HHS Report on the Large Group Market, which was published in March. In the report HHS commented that if low attachment point policies in the reinsurance (read stop-loss) market become more widely available by 2014, a significant number of fully-insured employers with “low risk” employees will switch to self-insurance, therefore creating adverse selection in the marketplace.

This section of the report concludes that “these results highlight the importance of closely monitoring the availability and pricing of reinsurance (stop-loss insurance) and closely monitoring decisions made by small employers to self-insure.”

A working draft of a recent NAIC white paper on the subject of adverse selection also points the finger at self-insurance as contributing to adverse selection. The NAIC writes: “Employers with favorable risk demographics have an incentive to self-fund while those with less desirable risks would tend to opt for fully-insured plans either through the exchange or in the outside market.”

Neither HHS nor the NAIC acknowledges one very important fact as part of their analysis, which is that most companies with fewer than 100 employees simply do not know if their group is a good risk because claims data is generally not available to them. In this regard, their “premeditation” argument is compromised.

Now it’s true that employers that switch to self-insurance can often improve the aggregate risk profile of their groups over time, regardless of the baseline at the time of transition, through wellness programs and other innovative plan design strategies, but shouldn’t that be the objective of all group health plans?

Let’s also recognize the importance of the HHS comment about “closely monitoring” the stop-loss market as way to guard against adverse selection. As described in my previous blog posting, Treasury Department Gets Schooled on stop-Loss Insurance, federal regulators now have a keen interest in stop-loss insurance for a variety of reasons.

This new federal attention combined with the ongoing desire by state legislators to expand their authority over self-insured health plans creates a very uncertain environment for future legislative/regulatory activity that could affect the ability of small and even mid-sized companies to self-insure.

There’s one last development on this subject worth mentioning. Some key House Republican staffers have indicated a renewed interest in introducing association health plan (AHP) legislation, but are holding back because of anticipated criticism that self-insured AHPs would contribute to adverse selection. So the education process continues on multiple fronts.

Pools and Insurance

A few weekends ago we all celebrated Memorial Day. Traditionally this is the weekend where many pool owners open up the family pool for the summer. Pools are cleaned, chlorine is checked and pool toys are brought out of storage. There is, however, one other step pool owners should take when opening the pool. That step is to make sure their homeowner insurance is up to date to best protect them if something happens to the pool and or to a summer guest.

The pool itself has coverage on your homeowner policy under Section I, Other Structures. Normally this coverage is 10% to 20% of the amount of insurance you have on your home. Let’s say you have your house insured for $200,000; under a typical homeowner policy you will have $20,000 in coverage for Other Structures. As a pool owner you need to ask yourself, is that enough to cover my pool if it was damaged? If not you may need to increase your Other Structures coverage.

Liability is always a big concern when a pool is involved. It is important for pool owners to know that many insurance companies require pools to be fenced. If they are not the pool owner may find their homeowner carrier canceling their insurance. So if you are someone that currently doesn’t have a pool but plan to add one, make sure to include a fence in your planning process.

Umbrella insurance policies are something we at Fey Insurance Services always recommend but if you are a pool owner we strongly recommend them. Unfortunately drowning is a real risk when you own a pool. Heaven forbid this ever happened at your pool but if tragedy did strike you would want to have all the liability coverage you can to help protect you.

So before you pull the winter cover off your pool, be sure to consult with your insurance agent and do a review of your homeowner insurance. Enjoy the summer!

Homeowner Insurance in a Disaster

With all the devastation that is occurring in the country from tornados, home insurance has become a hot topic. More specifically, having the correct amount of insurance on your home has become a hot topic. A few weeks back we posted a blog article about a house's "Market Value" vs. "Construction Replacement Cost". Just a few days ago USA Today journalist Sandra Block posted a wonderful article in the Money section of USA Today on the same topic. Here is a link to this article:

Will Your Homeowners Insurance Cover You if Disaster Hits? by Sandra Block (June 1, 2011) USA Today