04 May 2016

Timeless Profits

Capital & Interest 44 Comments

(That’s a clever title once you realize the true purpose of my exercise.)

In two previous posts (one and two), I claimed that there is something really fishy in how economists typically solve “the firm’s problem.” Namely, they have the firm maximize the absolute amount of money earnings, but don’t take into account the implicit interest cost on the financial capital invested. Specifically, I reproduced a practice exam question the Texas Tech students had been working on, which featured a corn farm vs. a wheat farm.

I’m not going to spell out the whole thing, and my attempted solution; that will be in a journal article I write up. But I had first wanted to make sure I wasn’t attributing to other economists some personal failing on my part.

Now to be sure, there’s nothing mathematically wrong with how economists have been modeling things. But Steve Landsburg says matter of factly that economists assume that workers get paid immediately out of the proceeds of sales from their output; that’s obviously not true. And I don’t think it’s a harmless assumption, I think it makes economists misunderstand what the owner(s) of a firm are actually doing, economically. (In this respect it’s analogous to my critique of the one-good model and how economists “solve” for the real interest rate by setting it equal to the marginal physical product of capital. Yes, the math works in that unrealistic model, but it gives you bad economic intuition.)

Anyway, commenter “baconbacon” claimed I was making a really basic mistake in my analysis, and challenged me to show what would happen if the workers offered to wait until harvest time to get their pay.

I have to be brief (since I have a day job) but here are the figures. Note, I am retaining the original numbers for the corn farm from the exam question, but I invented (for simplicity) the numbers that make the wheat farm have the identical “profit.” (I’m putting “profit” in quotation marks since I want to highlight that that may not be the right term, since we’re ignoring interest.)

So here you go:

Timeless Profits

Now in the original exam question version, my point was that the “correct” answer for the corn and wheat farmers’ optimization problems, has them both earning $2 in revenues-costs, where costs are taken to be the wages paid to the workers. (Landsburg and others agreed with me that that was the “correct answer” to this question.)

But I pointed out that if there is a time lag, then it implies a higher rate of return to the corn versus the wheat farmer. I just made up the fact that it’s a one-year lag, but surely with agriculture we can’t ignore the fact that there is a time lag.

So in that context, I took baconbacon to be claiming that I would see my mistake if I had the workers wait to get paid; if their wages came right out of revenue, then my (alleged) confusion would vanish because there would be no period of invested financial capital. It would not be an issue of “return on investment” but instead would be a simple matter of maximizing the total number of dollar bills in your hand, free and clear, on December 31, 2015.

OK great, I’m happy to play that game. In the second scenario above, we see that the workers defer their payment in order to earn r% interest on what would have been their original paychecks. Thus the corn farmer pockets net income from the deal of [$3 – $1(1+r)], while the wheat farmer pockets [$5 – $3(1+r)].

So, my job is to show that even in this version, it is clearly better to be Farmer A. Thus I want to show that the first expression is bigger than the second, or (equivalently) I will show that the first expression minus the second, is always positive.

Thus the advantage to the corn farmer is given by

$3 – $1(1+r) – $5 + $3(1+r),

which equals

$2(1+r) – $2.

So, can we say that this expression is positive? Yes we can, so long as r>0.

And that makes perfect sense, lining up with my initial intuition. If there is any opportunity cost of tying financial capital up for a period of time, then it is more profitable to be a corn farmer than a wheat farmer. Changing when the workers get paid doesn’t alter that fact, just like paying them in quarters instead of dollars wouldn’t alter which operation is more profitable.

THE IMPORTANT LESSON: Some may have thought Steve Landsburg was arguing that as long as workers happened to get their paychecks at the moment of final sale, then that is sufficient to rescue the traditional approach. However, as I’ve just shown, the actual requirement is that a worker’s output immediately yields the finished product. It’s not the lag between a worker’s paycheck and the final sale that’s the issue. Rather, it’s the lag between the input of worker labor and the physical yield of the output good.

In general that is clearly wrong, and in particular it’s absurd to make that assumption when you’re modeling agriculture. And I don’t think it’s a “harmless” assumption made for “mathematical tractability.” I think it teaches us the wrong intuitions and concepts of how the economy actually works.

04 May 2016

Soul-Eating Dementor

Humor 49 Comments

Do you understand what this kind of thing does to me? (BTW normally I black out people’s identities but I can’t find the right program on my office computer.)

Kill List

03 May 2016


Potpourri 9 Comments

==> On the latest Lara-Murphy Show, I interview Carlos about his decades of experience in keeping business owners out of bankruptcy.

==> Tom Woods brought to my attention this great article by Jeff Deist. I saw Jeff give the lunch keynote at the recent Texas LP convention and it blew me away.

==> BTW, if you’re in the Seattle area, Tom, Jeff, and I will be there–along with Lew Rockwell and Walter Block–for the Seattle Mises Circle.

==> If you’re a financial professional in the St. Louis area, consider attending next week’s “Freedom Advisor” event. I’ll be there with Carlos Lara and Nelson Nash.

==> Keynesians take Free Advice commenter Levi Russell to the woodshed–or do they?

==> This is old news, but someone recently reminded me that the public was led to believe that 16-year-old American citizen Abdulrahman al-Awlaki was killed in a U.S. strike because he was too close to his radical father. But actually, the kid was killed in a totally separate strike.

==> Can’t remember if I’ve already posted this, but anyway Roy Cordato has the single best summary of the North Carolina “bathroom law.” (HT2 David R. Henderson) In particular, the conventional treatment is about exactly backwards. The governor wasn’t forcing businesses to adopt his preferred view of gender sorting. On the contrary, the state came in to prevent smaller jurisdictions from imposing their own views on businesses. If you oppose the law on grounds of decentralization, OK fair enough, but it was not doing what most of the loud opponents claim it was doing. If you want to have a bathroom policy in your store that says people go into whatever room they “self-identify” as, that is perfectly acceptable.

01 May 2016

An Essay for Single Christian Men

Deep Thoughts, Religious 91 Comments

I am an economist, and so this essay may seem totally out of the blue. However, I have noticed certain patterns in the dating arena over the years, and I think some of my observations may enlighten. I am targeting this essay to single, heterosexual Christian men, especially those who are frustrated with the opposite sex, but I’m guessing there are a few tidbits in here that will help others too.

To give you a summary of where this is going: I am writing especially to young men who feel like “nice guys finish last” and that women are forcing them to either (a) be a-holes or (b) be forever lonely and miserable. Let me first agree with you that this dynamic exists; you aren’t imagining things. However, you are only focusing on one sliver of reality. If you continue down this path–which the Devil wants you to do–you will destroy yourself.

In this essay, I hope to clarify what’s really going on, and give guidance on how to recover from your self-absorbed slump. As a Christian you know your current attitude is wrong, and I want to point you back in the right direction.

Final caveats: To keep this essay readable, I’m going to include some salty language and I’m going to engage in broad generalities. I hope you’ll understand this is all coming from a place of love, and that I’m genuinely trying to reduce the needless suffering when it comes to men and women interacting romantically.


Before jumping in to the heavy stuff, I want to convince you that I know exactly what you are going through. This essay isn’t about me, it’s about you, but permit me a brief autobiographical digression to win your trust.

When I was in junior high, they called me “Bob the Brain.” This was not conducive to establishing my reputation as a ladies’ man. In 7th grade I asked out a girl, she said no, and when a group of guys heard about it they were astonished and asked me, “What were you going to do, Bob, take her to the planetarium?”

Things didn’t get much better after that. If you take my initial insecurity and then add in my tremendous creativity, plus raging hormones, the outcome was not good. I made “overanalyzing social situations” into a science. If “What did she mean by that?” had been an Olympic sport, I would now have 18 gold medals in my study.

By the time I was a grad student at NYU, I would be concocting long-range schemes to convince a particular girl to let me pay to take her to a Broadway show. I’m not even saying I was trying to sleep with her. I’m saying, I wanted to go to a Broadway show and felt like a loser going by myself. But I literally did not know how to actually make it happen that someone with bigger breasts than me would accompany me–for free–to an event in this fashion.

Now here’s what was really disheartening. Throughout all of this horrible track record, it wasn’t as if I had been a burn victim, or suffered from really bad body odor. Nope, on paper I was arguably a fairly desirable date. At that time I was getting a PhD from a top-20ish program, and in terms of just being around me, I was not too shabby on the trifecta of “smart, funny, and nice.” And although I had lost some of my mojo by grad school, when I was younger I had been really athletic, for example personally scoring almost half the points of my basketball team in junior high. (Our team sucked though; don’t read too much into that.) So my point is, I wasn’t some skinny nerd playing Dungeons and Dragons; people who didn’t go to school with me thought of me as an athlete.

And yet, it was virtually impossible to find girls who were interested in me romantically. Don’t get me wrong, I was friends with tons of girls–indeed, the best-looking ones in whatever organization we’re talking about. But that’s where it stopped. Over the years I would have dozens of girls tell me how great I was and how some girl out there would be oh so lucky to have me as a boyfriend–just not them. No, they always went for the a-hole who made them cry every other weekend. But man Bob, you’re so funny and sweet! Thanks for cheering me up after he said my thighs were fat. Now if you’ll excuse me, there’s this guy I met at the coffee shop last week who’s playing mind games with me, that I want to get dressed up for.

OK, I’ll stop at this point. I hope you now trust me, and we can proceed. To keep this essay manageable, I’ll break it up into observations on various topics.

Pickup Artists

The growing community of “pickup artists” offers training to men who want to learn how to seduce women very quickly. The alarming thing about this is that it works. I have seen some women argue on the internet that it is a total myth that women fall for a-holes, that this is all in the heads of the whiny lonely guys, and that all you need to do is treat women the way you want to be treated and everything will work out.

Well, you don’t know what you’re talking about–you sound like a white middle-class guy telling young black men, “Well gee whiz, if you just obey the traffic laws you don’t need to worry about getting pulled over.” The reason lonely young men end up delving into the ranks of the pickup artists–either from “professionals” or just in their own peer groups by hanging out with guys who are “good with girls”–is that they have eyes. They can see quite clearly that sending flowers to a crush does absolutely nothing while other guys are known as notorious cheaters and have girls randomly showing up at their apartments.

But since I’m directing this essay at you, a Christian, I can tell you frankly that these techniques and advice are literally FROM THE DEVIL. Yes, it is true that if you can actually train yourself to look at women (except your mom and sisters, of course) as less than human, so that you are no longer afraid of their opinion of you, then your long career of striking out will be over. You will go from being terrified of beautiful women to knowing how to spot the ones that are incredibly insecure, who spend hours getting ready because they think they need to in order to deserve attention from men. You will laugh at your old self, who somehow was intimidated by a half-naked 115 pound creature in heels. What was your problem?!

But to repeat, this is all FROM THE DEVIL. If you go down that path, you will have lost your sympathy for half of humanity. You will be halfway to becoming the devil’s full servant.

Look, if you talk to a bunch of armed robbers, they can show you techniques that “work,” too. If your goal is to get as much cash as possible in the next 3 days, then holding up liquor stores may very well be your best bet. But that is hardly a wise path to follow.

By the same token, if your goal is to have as many sexual partners as possible in the next 3 days, then treating women as objects is the best bet. But that’s a foolish path that will not only hurt them but will destroy you in the process.

You actually don’t want to be a “pickup artist.” You want to end your loneliness by going on dates with women whom you would consider marrying. Instead of looking with awe upon guys that can get a phone number from a hot waitress, look at all the guys you know who are in long-term relationships with super nice girlfriends. I’m guessing these guys weren’t pickup artists who suddenly found their girlfriend on Weekend #16 of one-night stands.

Part of what’s going on here is that you’re looking at only one portion of reality. You are noticing that guys who are complete a-holes have no trouble at all with women. But you are mistaken if you then generalize that to, “Women just like guys who treat them like crap.” No, it would be more accurate to say, “Women are attracted to guys who are confident leaders,” and unfortunately, guys who are complete a-holes are also confident leaders.


I would like to be able to say I don’t know anything about this topic, but alas…

Also from the devil. This is especially obvious when you consider violent pornography, where (say) a guy chokes a woman. Why would that have even occurred to somebody to put in the script? And yet, there it is, so now millions of guys are conditioning themselves to experience sexual pleasure while watching (simulations) of violence against women. Of course you know that is literally from the devil.

[NOTE: I really hope nobody lectures me in the comments about libertarian theory. I’m not saying the State should intervene in voluntary arrangements, and yes I realize that women in this line of work should not be cast out of society etc. But I also don’t think they should ban hot-dog eating contests. Doesn’t mean they’re good for you or that I want my kid doing it.]

Furthermore, beyond the fact that you know watching pornography is sinful, you have to realize how fake it is. Occasionally they lose their footing on the couch or whatever and you can actually catch that they are literally all actors, who have a camera crew right there.

Imagine that you were really thirsty and watched hours of videos on the internet about people chugging gasoline. Would that make any sense? Would that in any way be helping you? Of course not. So by the same token, if you are really lonely and wonder if you’ll ever convince a woman to sleep with you, the last thing in the world you should be doing is watching pornography.

On the contrary, if you want to watch something that might actually help, look at something with a screenplay written by a woman. The point isn’t that you will get a how-to formula. No, the point is that you’ll see there are all kinds of different women, and they have a million-and-one anxieties just like you. Everybody is screwed up. Women, even really attractive ones, are not as powerful as you think.

The Worst That Could Possibly Happen

Speaking of power, it’s helpful to highlight an enormous disparity. Unfortunately, modern feminism has obscured this stark reality. But here goes.

Let’s say you see an attractive woman browsing outside a store window and you are trying to work up the courage to go talk to her. Really, what is holding you back? What are you afraid of? What is the worst that could possibly happen?

OK I’ll answer that. The worst thing she can do is something like this: “Wait–what? Holy sh*t, are you kidding me? At first I thought you were genuinely asking me if I knew what time they opened in the morning. But you’re actually hitting on me?! Hang on, let me take your picture, I want to text my friends so they can see what a d-bag thought he might pick me up. This is rich.”

Right, something like that? That would be awful, but in the grand scheme, it’s really not that big a deal, is it?

In contrast, what’s the worst thing that could happen from her point of view? Well, the worst thing is that you might grab her, pull her into the alley, and murder her with your bare hands.

Now of course, you know you would never in a million years rely on your physical advantage when interacting with women. But they don’t know that when they first meet you. So right off the bat, with this simple point, we see that you need to stop interpreting women’s behavior from the perspective of, “Well shucks, if I did that it would mean…”

Britney and Pamela

While we’re thinking of things from the female perspective, try this train of thought: Suppose you are a young woman who is incredibly attractive but you’re also really insecure. When you go out to the bar or dancing, you get all dolled up because you think you have to. But this just makes you even that much more intimidating and unapproachable.

Oh wait, that’s not quite right. You are approached, just not by any “normal guy.” You are only approached by pickup artists or the rare guy who is a decent human being while also being incredibly confident with women. And so you would go for years with nothing but hookups with guys who were complete a-holes, and this would just make you more insecure and make you diet even more, becoming even more unapproachable by normal people.

Now imagine someone like Britney Spears in her prime. How few men would have thought, “I’m going to sleep with her tonight?” Can you imagine the kind of absolute narcissistic nutjobs who would hit on her, either because they thought they “deserved” her or because they wanted a story to tell their friends? No wonder that poor girl was so messed up.

Or consider Pamela Anderson. In her prime she was arguably one of the most desirable women on the planet. (I’m not of course saying your pastor would have endorsed her as a prom date, I’m talking in terms of the secular culture.) She literally could have chosen from among billions of men who would have adored her. And yet, she ended up marrying a guy who went to jail for 6 months for beating her up. Do you think that outcome was good for Ms. Anderson’s self-esteem?

Now of course, you can say, “Well golly jee Bob, these really attractive women should just stop dating a-holes. They have the power to choose suitors.” And yes that’s true ultimately, but it’s also true that a vicious cycle can develop in which they scare off anybody except the deluded narcissists. If some lingerie model who has “resting b*tch face” (that’s a slang term, people, I don’t use that word myself) waits for 30 guys to ask her out, and then chooses the one guy from that group who treated her with the most courtesy and seems to be the sweetest guy…well, he might still be a narcissistic nutjob. Because 99.9% of normal guys are not even going to bother asking out a lingerie model with resting b*tch face. They’d be afraid to ask her what time it is.

But wait, it gets worse. It’s not just a selection bias. Over the years, our hypothetical lingerie model is going to end up having sexual experiences only with narcissistic nutjobs. So purely for Pavlovian reasons, she will eventually only get aroused when such a man approaches her. She will have trained herself over the years to know “what it feels like” when she starts interacting with a guy like that, knowing that a make-out session or more is imminent. In contrast, she will literally not even know what it’s like to have a conversation with a decent man that eventually leads to something physical. It would be as uncomfortable when a guy like that leans in to kiss her as it would be if her perfectly “nice guy” accountant tried the same thing when she was picking up her tax return.

A Man on a Mission

C.S. Lewis tells us: “Enemy-occupied territory—that is what this world is. Christianity is the story of how the rightful king has landed, you might say landed in disguise, and is calling us to take part in a great campaign of sabotage.”

Suppose you were watching a Cold War movie about an undercover CIA agent working at a munitions factory in the Soviet Union, and then he all of a sudden stops sending in his intelligence reports. And you know why? Because instead of following his orders, he started chasing skirts and some little vixen broke his heart. So now instead of monitoring weapons output he’s moping in bed listening to Sinatra.

Would you have sympathy for this character? No, you’d yell, “What the heck?! You’re on a mission! You ain’t got no time for extracurricular activities!”

Now it just so happens that God’s orders for you may very well involve getting married to a wonderful woman with whom you raise lovely children. But, maybe they won’t. After his conversion, St. Paul didn’t go to a singles bar, did he?

Suck it up. The world is broken and full of sick, hurting people who are utterly lost. Your job is to comfort them and reassure them with the Good News. Some will mock and revile you, and that may include women who think very little of your machismo. So what? Whose opinion do you relish? Theirs, or the Creator of the heavens and earth?

Jesus Was Not a “Nice Guy”

Some people think of Christians as Ned Flanders, doormats who let the world take advantage of them.

Well, Jesus was no Ned Flanders. Remember this episode:

47 While he was still speaking, Judas, one of the Twelve, arrived. With him was a large crowd armed with swords and clubs, sent from the chief priests and the elders of the people. 48 Now the betrayer had arranged a signal with them: “The one I kiss is the man; arrest him.” 49 Going at once to Jesus, Judas said, “Greetings, Rabbi!” and kissed him.

50 Jesus replied, “Do what you came for, friend.”

Then the men stepped forward, seized Jesus and arrested him. 51 With that, one of Jesus’ companions reached for his sword, drew it out and struck the servant of the high priest, cutting off his ear.

52 “Put your sword back in its place,” Jesus said to him, “for all who draw the sword will die by the sword. 53 Do you think I cannot call on my Father, and he will at once put at my disposal more than twelve legions of angels? 54 But how then would the Scriptures be fulfilled that say it must happen in this way?”

Do you understand what a bad*ss Jesus was? He had the option of calling down heavenly slaughter upon His enemies, but refrained from doing so, electing instead to let these ignorant fools mock Him and torture Him to death. And why? Because that’s how much He loved them. That type of moral strength should make your jaw drop.

Now, was Jesus a sucker? Did people take advantage of Him? Did He not know how the world really worked? Did He not know what you had to do to “get ahead in life”?

Final Thoughts

In closing, friends, be like Jesus. He was not a “nice guy.” He was a kind man. If you start acting such that women describe you as a “kind man,” you are going to get out of your rut. I’m not saying you will have a girlfriend, I’m saying you will realize there are more important things to focus on. These other things over which you are currently agonizing will fade away, and what now seems impossible to you may very well fix itself.

But even if it doesn’t, you won’t really have time to dwell on it, because you’ll be too busy serving others.

30 Apr 2016

Tom Woods and I Take on Alexander Hamilton via Krugman

Contra Krugman 4 Comments

The latest episode of Contra Krugman.

30 Apr 2016

Are Economists Wrong When They Solve the “Firm’s Problem”?

Economics 33 Comments

Thanks to those who chimed in for my test question in a previous post (which you will need to review if you want to understand the present post).

So, people agreed with me that in the question I reproduced, the “correct” answer was to have each type of firm maximize profit, meaning the actual amount of dollars.

Then, to answer the second part of the question, you figure out how many firms go into wheat vs. corn production by seeing what number n makes wheat producers earn (roughly) $2 profit just like the corn producers do. (It’s not exactly $2 profit for the wheat producers, but if one more corn producer jumped in then the profit of wheat producers would be lower than $2.)

Now, here’s what’s weird: At the “equilibrium” n, you’ve got (as we said) corn and wheat producers earning (about) $2 profit each. But, they don’t hire the same number of laborers in order to produce that outcome. So that means one type of producer earns a much different *rate* of return on invested capital than the other. So how is this an equilibrium outcome?

(NOTE: I think I know the answer, but I’m just explaining the apparent problem in the way we economists typically solve one of these problems. We have the firm maximize the absolute dollars of profit, when we know in real life investors would shift into an industry where the *rate* of profit is highest. Nobody cares about the dollar-amount of profit, irrespective of how much you need to spend upfront on factor inputs. So, to repeat, I think I know how to resolve this apparent tension, but I will wait to see what others think before I chime in.)

28 Apr 2016

A Possible Flaw in the Way Economists Typically Solve Problems

Economics 26 Comments

I was helping some students study for an exam–the thing I was best at in my life was taking tests, so I always find ways to go back to that activity–and I encountered what may be a subtle inconsistency in the way economists typically solve these types of problems. But, before I decide whether I’ve actually stumbled on something worth pursuing, I first want to make sure other professional economists went down the same path I did.

So, in the comments, if you want to participate please tell me whether you have a degree (and what level) in economics, and then what you think the answers are to the questions.


There are 1,000 firms. Each firm must decide whether to produce corn or wheat. For firm i, the production function for corn is given by:

C_i = 2L_i^(2/3)

where _ denotes subscript and ^ denotes exponentiation. L_i is the number of units of labor hired by firm i.

For wheat the production function is:

W_i = ( 160L_i^(1/2) ) / n

where n is the number of firms who have chosen to go into wheat production.

The market prices for corn and wheat output are $3 and $5 per unit, the wage rate for labor is $4, and the interest rate is 10% per year. Each firm is a price taker in whatever line it goes into.

==> Calculate the profit-maximizing levels of output for a corn- and a wheat-producing firm, respectively.

==> In equilibrium, how many of the 1,000 firms will go into corn and how many into wheat production?

28 Apr 2016

Murphy Twin Spin

Shameless Self-Promotion No Comments

==> An interview on anarcho-capitalism and the liberty movement.

==> My talk on taxes in Bratislava: