Useful Primers on Fiat Money and Banking

Our lives are controlled to a large extent by the rules of the fiat money world that we are immersed within. It is better that we understand these rules so that we can anticipate and plan for at least some of the turbulence that may come our way.

h/t Mish's Global Economic Analysis

Banking and Money from KhanAcademy.org


Ron Paul's view of the US' monetary conundrum.

Gold as Money FAQs from the Mises Institute

Wikipedia: History of Money

Description of "History of Money" by Glyn Davies. This is one of the most highly regarded histories of money available.

Video (and transcript): Chris Martenson Crash Course Chap. 7 -- Money Creation
Note: Later in his crash course, Martenson falls unwittingly into the twin traps of "peak oil" and "climate hysteria," but his chapters on money present some key concepts in useful ways.

Al Fin economists and child care specialists feel that it is a crime that all children are not educated in money, exchange, and markets from the earliest age. Trading and entrepreneurialism should be second nature to all children raised in a free society. Each citizen should have a sound intuitive sense of money, and keep abreast of the actions of elected representatives which may influence the value of money and the freedom of trade and markets.

Most citizens appear to be almost entirely ignorant on these points. A bitter price will be paid for this ignorance.

Child Labor, Price Gouging, Ticket Scalping, Organ Sales, Insider Trading, and Other Examples of Legalizing "Sin"

Overly simple explanations, but worth thinking about.

Emptying the Bottle: Early-August '11 Links

Here is a list of the worthwhile sites I've Bookmarked recently:

• The world's most dangerous zoo [photos].
• Movie plots that technology killed (ex: Trip Adviser vs. Psycho).
• What North Korea's "economy" looks like [audio].
• The story of the first skyscraper [audio].
• The greatest Superman comic strip ever made (earlier).
• "Bad people" get raped too.
• Why some businesses are family businesses [audio].
• Carrots and sticks as incentives can do more harm than good [video].
• No need to drink Gatorade, just gargle it.
• Patents prevent innovation (solution at minute 18 in this lecture) [audio].

As always, feel free to email me anything interesting you come across.

Greenville, My New Home

I'm officially back in the country, less homeless, and ready to get back on the blogging train. There's no where better to start than NPR's recent spotlight on the success of my new home Greenville, SC. Here's the intro:

During the worst of the recession, new development ground to a halt and small businesses closed their doors on many Main Streets throughout the country.

That wasn't the case in Greenville, S.C. And while it seems improbable that a city would thrive during the recession, Greenville's mayor credits a mix of good luck and good fundamentals.

Is 4.9% a Year Growth Rate a Rapid Growth for Africa?

Africa boasts an abundance of riches: 10 percent of the world’s reserves of oil, 40 percent of its gold, and 80 to 90 percent of the chromium and the platinum metal group. Those are just the known reserves; no doubt more lies undiscovered. _MQ

Global Map of Nations by per cent Living Under $1.25 per day
McKinsey Quarterly has published a fascinating look at recent economic growth in the continent of Africa (h/t Brian Wang). According to the report, real GDP growth over the continent averaged 4.9% per year between the years 2000 and 2008. This was twice Africa's growth rate over the decades of the 1980s and 1990s. The report goes on to discuss the many issues leading to such growth, and other factors that will be involved in future African growth. From McKinsey:

Africa’s collective GDP, at $1.6 trillion in 2008, is now roughly equal to Brazil’s or Russia’s, and the continent is among the world’s most rapidly growing economic regions. This acceleration is a sign of hard-earned progress and promise.

While Africa’s increased economic momentum is widely recognized, its sources and likely staying power are less understood. Soaring prices for oil, minerals, and other commodities have helped lift GDP since 2000. Forthcoming research from the McKinsey Global Institute (MGI) shows that resources accounted for only about a third of the newfound growth.1 The rest resulted from internal structural changes that have spurred the broader domestic economy. Wars, natural disasters, or poor government policies could halt or even reverse these gains in any individual country. But in the long term, internal and external trends indicate that Africa’s economic prospects are strong.

...Natural resources, and the related government spending they financed, generated just 32 percent of Africa’s GDP growth from 2000 through 2008.2 The remaining two-thirds came from other sectors, including wholesale and retail, transportation, telecommunications, and manufacturing (Exhibit 1). Economic growth accelerated across the continent, in 27 of its 30 largest economies. Indeed, countries with and without significant resource exports had similar GDP growth rates.

...To start, several African countries halted their deadly hostilities, creating the political stability necessary to restart economic growth. Next, Africa’s economies grew healthier as governments reduced the average inflation rate from 22 percent in the 1990s to 8 percent after 2000. They trimmed their foreign debt by one-quarter and shrunk their budget deficits by two-thirds.

Finally, African governments increasingly adopted policies to energize markets. They privatized state-owned enterprises, increased the openness of trade, lowered corporate taxes, strengthened regulatory and legal systems, and provided critical physical and social infrastructure. Nigeria privatized more than 116 enterprises between 1999 and 2006, for example, and Morocco and Egypt struck free-trade agreements with major export partners.

...The continent’s four most advanced economies—Egypt, Morocco, South Africa, and Tunisia—are already broadly diversified. Manufacturing and services together total 83 percent of their combined GDP. Domestic services, such as construction, banking, telecom, and retailing, have accounted for more than 70 percent of their growth since 2000. They are among the continent’s richest economies and have the least volatile GDP growth. With all the necessary ingredients for further expansion, they stand to benefit greatly from increasing ties to the global economy.

Domestic consumption is the largest contributor to growth in these countries. Their cities added more than ten million people in the last decade, real consumer spending has grown by 3 to 5 percent annually since 2000, and 90 percent of all house-holds have some discretionary income. As a result, consumer-facing sectors such as retailing, banking, and telecom have grown rapidly. Urbanization has also prompted a construction boom that created 20 to 40 percent of all jobs over the past decade.

...If recent trends continue, Africa will play an increasingly important role in the global economy. By 2040, it will be home to one in five of the planet’s young people, and the size of its labor force will top China’s. Africa has almost 60 percent of the world’s uncultivated arable land and a large share of the natural resources. Its consumer-facing sectors are growing two to three times faster than those in the OECD7 countries. And the rate of return on foreign investment is higher in Africa than in any other developing region. Global executives and investors cannot afford to ignore this. A strategy for Africa must be part of their long-term planning. _MQ

The report excerpted and linked above is quite optimistic toward the economic prospects for Africa over the next 3 decades, based upon this "4.9% a year growth rate." But Al Fin economic and social forecasters do not take quite the sanguine view as those of the McKinsey Institute.

As seen in the map at the top of this entry, Africa is quite diverse in terms of economic conditions. It is an act of false parsimony to consider the entire continent of Africa as one unit, economically. Instead, one should look at SubSaharan Africa separate from North Africa, economically and socially. Further, one should subdivide SubSaharan Africa into tropical and temperate regions, when considering investments and partnerships. McKinsey failed to stratify African nations other than by "economic diversification" and "exports per capita." Useful, but not sufficient. It is difficult to draw useful conclusions when data is so badly conflated.

The time period selected by the report for extrapolating Africa's future may not be representative of what to expect from a realistic future Africa. The ongoing instability in Egypt and Libya, for example, suggest that the chronic instability of most of tribal Africa may be spreading into nations where tribal and religious instability had been temporarily suppressed by strong political regimes of long duration.

Urbanisation may bolster GDP growth numbers temporarily, for example, due to the more quantified economic nature of more modern city living vs. quasi-ancient rural life styles. Yet there are limits to how large stable cities can grow under certain demographic conditions. Many of Africa's cities are already pressing those limits. Frequent instances and high rates of crime, disease, poverty, malnutrition, and crumbling infrastructure suggest that many of these cities may already be near the breaking point.

Modern high tech infrastructures -- such as those which allow more advanced nations to enjoy the fruits of modern trade and sci-tech development -- are dependent upon an infrastructure of human capital which is capable of maintaining and improving the underlying technological infrastructure. In the absence of capable maintenance, repair, and construction, societal infrastructure tends to collapse at the most inopportune times.

Here is the blunt truth, which Political Correctness tries to obscure: Modern affluent lifestyles require a high tech infrastructure which can only be maintained by populations with average IQs close to 90 or above. This is an inexorable result of the normal statistical distribution of occupational abilities centering around the mean (for both IQ and EF, both of which are highly heritable). The only way for a society to exceed the "IQ limit" is if the nation hosts a "market dominant minority" -- or smart fraction -- of higher IQ persons capable of maintaining markets and infrastructures -- market dominant minorities such as the Chinese in Malaysia or Indonesia, or the shrinking populations of high-IQ groups still in South Africa.

North Africa's populations have a different evolutionary history than the populations of SubSaharan Africa. For some countries of North Africa, the average population IQs are near 85. But for most SubSaharan African nations, average population IQs are well below 80 -- generally averaging in the 70s. The reasons for such low average IQs involve multiple factors, but the blunt facts of low average IQ (and EF) are clear and stand in the way of large scale indigenous economic development across many chronically underdeveloped parts of the world.

Global IQ Map by Nation
For Africa to grow sustainably, it will need to attract leadership and energy from the outside -- and keep it there rather than driving it out, as was done in Zimbabwe, Kenya, Uganda, etc. An expansion of what it means to be "African" is mandatory -- but it can only be made to last in an Africa of greatly expanded opportunity and radically reduced corruption and populist demagoguery.

Al Fin futurists suspect that perpetually ambitious and corrupt African tribal leaders and strongmen will only accept the changes that are needed under the sanction of a "superior being." In abstract terms, think quasi-theocracy. In real terms, that would mean either an outside (perhaps "extraterrestrial") group of vastly superior technological capacity, a genuine artificial intelligence of superior wisdom and cognition, or a sufficiently convincing imitation of one or the other.

Adapted from an earlier article at Al Fin, the Next Level

The Unseen Costs of Easy Money

For several years now the Federal Reserve has been printing money (quantitative easing) and lowering interests (through the discount window) in attempt to improve the US economy . Here's why that's not that great of a great idea:

More than any other policy action, monetary policy suffers from the sense that there is a free lunch to be had. Yet the interest rate is a price for the savings that are transferred to spenders. To the extent that the Fed manages to push this price down (and some economists will dispute its ability to push any meaningful interest rate down), it taxes the producers of savings and subsidizes the spenders of savings. Clearly, no government considers pushing down the price of any real good an effective way to stimulate the economy – any gain to consumers is a loss to producers, and the loss typically will outweigh the gain if the market price is a fair one.

Do we really want to be discouraging saving and encouraging debt?

Emptying the Bottle: Mid-June '11 Links

Here is a list of the worthwhile sites I've Bookmarked recently:

• Digital factories behind real prison bars (earlier).
• The Post Office is going bankrupt and here's a great solution.
• Judges are more likely to grant parole after lunch.
• Many reasons why I can't wait for driverless cars (earlier).
• Try and spot the fake smile [videos].
• Economics of Fashion Property rights [video] (hat tip to Justin Scott).
• Why you shouldn't talk about movies on the first date (and maybe ever).
• Justin Wehr on why trying to impress others isn't so bad (part II).
• Really good put downs shouldn't feel really good [chart].
• A funny reimagining of what happened to George Lucas.
• The best advice is advice not seen as advice [video] (earlier).
• Why the South still celebrates the Civil War.

As always, feel free to email me anything interesting you come across.

What is Bitcoin?

Update 20 June 2011: Bitcoin suffers its first large crisis, as hackers steal virtual encrypted coin and cause a dramatic plunge in Bitcoin value

What Is Bitcoin?
Bitcoin is a peer-to-peer currency. Peer-to-peer means that no central authority issues new money or tracks transactions. These tasks are managed collectively by the network.

Bitcoin is an encrypted "anonymous" digital currency placed online, beyond the whim and caprice of greedy governments and their corrupt co-conspirators. An anonymous marketplace, where almost anything could be bought or sold, is the dream of free marketeers across time and space. Perhaps Bitcoin will pave the way to this nirvana of free marketdom. More about Bitcoin:

Bitcoin—a pseudonymous cryptographic currency designed by an enigmatic, freedom-loving hacker, and currently used by the geek underground to buy and sell everything from servers to cellphone jammers. No, this isn't a cyberpunk artifact from Snow Crash or Neuromancer; it's a real currency currently valued several times higher than the US dollar, the British pound, and the Euro.

Bitcoin is a virtual currency, designed to allow people to buy and sell without centralized control by banks or governments, and it allows for pseudonymous transactions which aren't tied to a real identity. In keeping with the hacker ethos, Bitcoin has no need to trust any central authority; every aspect of the currency is confirmed and secured through the use of strong cryptography.

Over the last few months, Bitcoin's value has risen by an order of magnitude as the sagas of Wikileaks and Anonymous (among others) have highlighted the limits of a financial system which relies on centralized intermediaries. With a current estimated market capitalization of about $100 million, Bitcoin has recently graduated from a theoretical techno-anarchic project patronized by libertarians and hackers to a full-fledged currency prompting comment from technologists and economists. At the time of this writing, one Bitcoin (BTC) is worth about US$15.

...The Bitcoin solution uses cryptography and an open transaction register. Whenever you spend a Bitcoin, you cryptographically sign a statement saying that you have transferred the coin to a new owner and you identify the new owner by their public crypto key. Whenever they need to spend the coin, the new owner uses his private key to sign it over to some further owner. As soon as a transaction takes place, the recipient (who has a very strong incentive to ensure that you don't spend the coin twice) publishes the transaction to the global Bitcoin network. Now every Bitcoin user has incontrovertible evidence that the coin has been spent, and users won't accept that coin from anyone but the new owner.

...In a process known as mining, individual Bitcoin users attempt to generate new coins by checking the integrity of the transactions list. They confirm the previous transactions and attempt to solve a difficult proof-of-work problem which involves exhaustively trying different solutions. There are a very large number of such potential solutions, so the likelihood of finding the solution depends how many other people are looking for it and how much computing power you devote to the problem. The first client to find the solution announces its good fortune to the whole network and earns a little reward for itself in the form of some shiny new Bitcoins. _ArsTecnica

One new marketplace taking advantage of Bitcoin's anonymity is Silk Road.

Silk Road, a digital black market that sits just below most internet users’ purview, does resemble something from a cyberpunk novel. Through a combination of anonymity technology and a sophisticated user-feedback system, Silk Road makes buying and selling illegal drugs as easy as buying used electronics — and seemingly as safe. It’s Amazon — if Amazon sold mind-altering chemicals.

Here is just a small selection of the 340 items available for purchase on Silk Road by anyone, right now: a gram of Afghani hash; 1/8 ounce of “sour 13″ weed; 14 grams of ecstasy; .1 gram tar heroin. A listing for “Avatar” LSD includes a picture of blotter paper with big blue faces from the James Cameron movie on it.

The sellers are located all over the world, a large portion from the United States and Canada. _Wired

Silk Road accepts Bitcoin as payment, and is accessible only via the Tor network of anonymous proxy servers.

More about Silk Road from Kevin Kelly:

Silk Road is all of four weeks old, so its stealthiness is unproven. In theory it looks viable. But Tor and Bitcoin are open source, so the savvy can see what they are standing upon. But there are inherent challenges with any private currency, and there are inherent challenges with any encryption scheme. At the point where either of these systems touch the legitimate world (and they must to be useful), there is potential for breakdown, scams, break-in, or disruptions.

Bitcoin in particular has serious complexities. It is a private currency, and all private currencies are liable to scams. But an anonymous peer-to-peer one is even more liable, because there is no central enforcement -- by definition. The technicalities of Bitcoin are impressive, complex, and almost beyond the understanding for most lay users. For a sobering critique of Bitcoin, I recommend reading at least one skeptic's take on it before you decide to use it. His argument is that the way Bitcoin is engineered makes it biased towards the earliest users (the value of their "dollars" will increase more than later users) and is therefore a type of pyramid scam. That is a long-term consideration; this deflation probably will not deter a kid who wants to score some speed this week.

And the critique says nothing of the potential weaknesses of Bitcoin's encryption aspect. Usually these cypher schemes are not broken directly, but indirectly via patterns of use. As the cypherpunks say, encryption is economics. Anything can be hacked if you apply enough money. As long as the amount of money in these stealth markets remains modest, they will be secure. But once they rise to some threshold, they will trigger investments into cracking them. Perhaps bit traffic is analyzed network wide, or honey pot sellers rated high by shills set up to pounce on the unsuspecting -- whatever. _KevinKelly

The economic arms war between governments and free marketeers is as old as organised human society. Anonymous online versions of digital currency are likely to take the contest to a new level, as government enforcers devote ever more time and tax resources to stamping out the competition and incorrigible independent minded.

What is Bitcoin?

Previously published at Al Fin, The Next Level

Economic Strategy to Fight Protesters

I've always been skeptical of the benefits of protesting as a way to shout your vote. The infamous Westboro Baptist Church, as I've shared before, is a great example of protest gone bad. This may be the best strategy to get rid of them:

Comedy’s Lovable Queen of Mean Lisa Lampanelli made good on her promise to donate $1,000 to the Gay Men’s Health Crisis for every Westboro Baptist Church member who showed up to protest her recent stand-up show in Topeka, taking to Twitter after the show to say “Thanks to these a-holes, $44,000 will be donated to the GMHC!!!” 

She later bumped it up by $6k, tweeting “WBC inbreds counted 48 protesters, so I won’t quibble. I’ll make it an even $50,000!!!” 

Best part? The donation will be made in the hate group’s name. Thanks WBC!

Apparently this strategy has also worked for Planned Parenthood.

Imaginary Friends May Make Children More Moral

It's obvious that we are less likely to cheat when people are watching. But it's also true if false eyes are watching:

conducted a field experiment demonstrating that merely hanging up posters of staring human eyes is enough to significantly change people’s behavior. Over the course of 32 days, the scientists spent many hours recording customer’s “littering behavior” in their university’s main cafeteria, counting the number of people that cleaned up after themselves after they had finished their meals. In their study, the researchers determined the effect of the eyes on individual behavior by controlling for several conditions (e.g. posters with a corresponding verbal text, without any text, male versus female faces, posters of something unrelated like flowers, etc). The posters were hung at eye-level and every day the location of each poster was randomly determined. The researchers found that during periods when the posters of eyes, instead of flowers, overlooked the diners, twice as many people cleaned up after themselves.

Similarly, in children, it works if invisible eyes are watching:

Two child groups (5–6 and 8–9 years of age) participated in a challenging rule-following task while they were (a) told that they were in the presence of a watchful invisible person (“Princess Alice”), (b) observed by a real adult, or (c) unsupervised. Children were covertly videotaped performing the task in the experimenter’s absence. Older children had an easier time at following the rules but engaged in equal levels of purposeful cheating as the younger children. Importantly, children’s expressed belief in the invisible person significantly determined their cheating latency, and this was true even after controlling for individual differences in temperament.

The Stimulus Package Didn't Work

I've have discussed the stimulus package a lot. Here's the closing data:

Our benchmark point estimates suggest the Act created/saved 450 thousand government-
sector jobs and destroyed/forestalled one million private sector jobs. The large majority of
destroyed/forestalled jobs are in a subset of the private service sector comprised of health,
(private) education, professional and business services, which we term HELP services.

How Advertisers "Trick" Consumers

I've been skeptical about the benefits of advertising, but I've never bought the idea of how they fool us. Yet our memory can fool our brains. I never could articulate the connection, until now:

One way advertisers convince us to buy something is to remind us that we’ve enjoyed their product before. Unfortunately, we can have fond memories of a product that we’ve never even had. Or that doesn’t even exist.

A hundred volunteers looked at print ads for Orville Redenbacher's "Gourmet Fresh" popcorn—a variety that researchers made up. Some subjects saw an ad with a vivid description of the brand's “big white fluffy kernels." Others saw a less evocative ad.

A week later, subjects who saw the vivid ad were twice as likely to believe they'd tried this fictional product as were subjects who saw the plain ad. In fact, the believers were as confident that they had tried the popcorn as were people who actually ate popcorn after seeing the fake ads.

Add this to my battle against self-verification.

Economics of Skirts

Good times equal small skirts:

Urban legend has it that the hemline is correlated with the economy. In times of decline, the hemline moves towards the floor (decreases), and when the economy is booming, skirts get shorter and the hemline increases. We collected monthly data on the hemline, for 1921-2009, and evaluate these against the NBER chronology of the economic cycle. The main finding is that the urban legend holds true but with a time lag of about three years. Hence, the current economic crisis predicts ankle length shirts around 2011 and 2012.

Via Barking up the wrong tree.

Economic History of Gas Prices

Here's some much needed context:

But in constant 2010 dollars, that 1919 price of gas was $3.14. True, at the moment we’re paying a bit more—about $3.96. However, keep in mind that in 1919 there were 7.58 million motor vehicles on America’s roads. Today, Americans own about 254 million vehicles. That means that gas prices have risen 26 percent since 1919, while US vehicle ownership has risen 3,250 percent. And those vehicles are being driven more intensively than their 1919 counterparts. We now drive 6,800 percent more miles per year than in 1919, while gas prices have stayed pretty much stable.

War is Destruction Not Production

From Tyler Cowen:

Put aside Bob Higgs’s points about restricted consumption, Alexander Field has another angle:

Had trends persisted in the absence of war, employment, TFP, and labor productivity would all likely have been higher in 1942…housing construction was robust and growing in 1939, 1940, and 1941, and when the postwar housing boom emerged with full force in 1946, it took off from where it had been arrested in 1941. Since the failure of residential construction to revive fully was one of the major contributors to the persistence of low private investment spending during the Depression, its signs of revival in the years immediately preceding the war suggest that had peace continued, investment, output, and employment growth would have continued as the economy reapproached capacity.

…There continues to be a popular perception that war is beneficial to an economy, particularly if it does not lead to much physical damaged to the country prosecuting it. The U.S. experience during the Second World War is the typical poster child for this point of view. Detailed research into the effects of armed conflict, however, has usually produced more nuanced interpretations…In that spirit, the research reported in this chapter represents a revisionist approach to the analysis of the Second World War, although one that is not entirely unanticipated.

You can buy Field’s excellent book here and here is my previous post on the work. Here is Kling on Field, very useful.

You can't use scarce resources to blow things up and count that as wealth. Just another reason why GDP isn't the best measure of wealth.

Gross Downtime Product

In my two posts on Tyler Cowen's new ebook, The Great Stagnation, I described a concern (but not crisis) about the possibility of future economic growth. But perhaps even if we don't don't get more productive at work, we are getting more productive at play:

recent advances in technology are actually increasing per-hour productivity by much more than we realize. But then workers are absorbing those gains by goofing off more at their desks, spending their time on Facebook and surfing the web, and completing their tasks only marginally faster than they used to despite much greater productivity. Admit it: the typical white collar office worker under 35 is spending at least a quarter of his or her day on social networking, reading blogs and chatting with friends. Hours worked are shrinking much faster than hours “worked,” and we’re enjoying a lot more leisure time than is reflected in the data.

Maybe this is the solution to our money > time problem.

Worthwhile Sentences on Work

From Sallie James: "Oh sure, you can pass lots of laws to creates jobs. You could pass a law saying we can no longer use computers. You can pass a law saying no more use of heavy earth moving equipment; we should all use spoons."

From Bryan Caplan: "In a society of Einsteins, Einsteins take out the garbage, scrub floors, and wash dishes."

From Tim Ferriss' email auto response: "Thank you for your email. Sadly, it will be deleted. To regain sanity, I am taking a break from e-mail until March. If still relevant, please email me again in the month of March."

From David Brooks: "One-fifth of all men in their prime working ages are not getting up and going to work."

From former UC President Clark Kerr: "The chancellor's job had come to be defined as providing parking for the faculty, sex for the students, and athletics for the alumni."

Economics Of The Jetsons

From blogger Matt Yglesias:

Earlier today, Annie Lowrey drew our attention to the fact that George Jetson enjoyed a nine-hour workweek—thee hours a day, three days a week. Mike Konczal rightly connected this to JM Keynes’ essay on “The Economic Possibilities For Our Grandchildren” (PDF) highlighting the consequences of a super-abundance of material prosperity.

Here's the economic reality:

Essentially imagine a world in which productivity grows by an average of 2.5 percent per year for the next fifty years and Mr and Mrs Jetson have chosen to take the cumulative 418 percent increase in income by reducing hours worked to one quarter of present-day standards rather than vastly increased consumption.

Here's the most fascinating conclusion:

You can imagine two different equilibria here. One is that maybe with so many people able to comfortable support themselves on nine-hour workweeks, that entertainment is done entirely on an amateur basis. Maybe Jet Screamer earns $0 from his music, and instead works three days a week at a nursing home to earn a living. He performs music because it’s fun and because he enjoys the groupies.

This would work great for someone (like me) with more hobbies than they know what to do with.

Human Capital or Capital, Comic Book Edition

I recently shared an article about how college debt has just outgrown credit card debt. My general response was that the average $24,000 in college debt doesn't seem that bad, especially if the average starting salary of a college graduate is $48,351. I also know what it's like to pay off school debt in similar income-to-debt proportion above.

But this got me thinking. What's better for an economy, smart people or effective machines? I came across a great thought experiment in this BBC article about Superman. Apparently the last son of Krypton is considering separating himself from the United States. So here's my question, who would be better for US economic growth, Superman (as capital) or his nemesis Lex Luthor (human capital).

In spite of my love for the Man of Steel, I think that Mr. Luthor would be better for long term economic growth. Here's why: Superman is a great asset to any economy. He's super strong, super fast, super everything. He could decrease crime easily. He could do construction is a fraction of the time. He could even help during natural disasters, which we seem to have plenty of recently.

But Superman dies. Although he ages very slowly, he does get older which mean he will eventually die. Lex Luther on the other hand can use his extreme intelligence to create a second Industrial Revolution bring us unimaginable prosperity. This is shown perfectly in my favorite comic book of all time Red Son.

It's a re-imagining of the Superman story as if he was born in Soviet Russia, not the United States. In this alternate storyline Lex Luther (though still power hungry) is the good guy protecting the American way. After Superman is "defeated" (I don't want to spoil too much), Luther goes on to lead America and Earth into great wealth. Whether in comic books or in life, human capital has more long term value than simple capital:

They found that intelligence made a difference in gross domestic product. For each one-point increase in a country's average IQ, the per capita GDP was $229 higher. It made an even bigger difference if the smartest 5 percent of the population got smarter; for every additional IQ point in that group, a country's per capita GDP was $468 higher.

Especially the smartest people:

researchers analyzed test scores from 90 countries and found that the intelligence of the people, particularly the smartest 5 percent, made a big contribution to the strength of their economies.

Chile GDP Growth at 15.2% a Year as of March 2011

"Chile has always been held out as a model for Latin America, but the reality is ... it's now a model for the U.S.," he said.

Corporate taxes are the second lowest in Latin America at 18%, behind Paraguay's 10%. The Latin average is 28%.

Meanwhile, Goldman Sachs' chief economist for Latin America, Alberto Ramos, says Chile has wisely fostered growth by reducing the size of government and not printing too much money.

In 2011, it cut government spending to 5% of GDP, or $700 million, more than its projected 5.5%. So GDP has room to grow 6.4%, rather than 6% as first estimated.

Those lessons could be duplicated here with the ideas found in the Ryan budget, the Tea Party's policy ideas or even from the Chamber of Commerce. _IBD

Chile is a long narrow country along the southernmost strip of the western seacoast of South America. It is one of the few Latin American countries to take capitalism and free markets seriously. Consequently, Chile is on a stronger economic footing than most of the rest of Spain and Portugal's former colonies of the western hemisphere.

A year ago, Chile lay in rubble, victim of the world's fifth most powerful earthquake. So Chile's 15.2% growth is a big bounce from a bad setback.

But it shouldn't be dismissed as an anomaly. It's a showy number, but not the only one.

The same day Chile released its data, Goldman Sachs raised its 2011 growth forecast for the country to 6.4% from 6%. In its annual regional business index, Latin Business Chronicle ranked Chile as having the best business climate in Latin America in 2011.

Such numbers are so alien to the U.S. in the economically debilitated Obama era, it makes sense to look at what Chile has done.

First, Chile's policies for long-term growth were put into effect in the 1980s by the group of Milton Friedman-inspired economists known as the Chicago Boys.

Under them, Chile's pension privatization cost nothing and left the country with no net debt. The private funds now hold assets worth 90% of GNP ($185 billion) — capital used to develop the country. Already, Chile's education and infrastructure are the best in Latin America as a result.

Second, there's free trade, of which Chile is a global champion, signing at least 58 treaties to gain access to 2 billion customers.

That's a big reason Chile is close to full employment and is scrambling to attract growth-hungry U.S. entrepreneurs — and getting them. _IBD

Obama has chosen to rudely yank the US in the opposite direction, toward larger and more expensive government, exploding debt, greater divisiveness in the political and social sphere, and a ruinous expansion of dependency on government handouts and paychecks. Obama's revolution sounds more like the prelude to a new dark ages and reactionary socialist quagmire.

If forced to choose between Obamanomics and Chilinomics, which would you choose? Who is John Galt?