Delusional
Mario Rizzo is amazed (somewhat) at how the American political system continues to ignore reality. His three issues:
1. The War on Drugs
2. The War on Terror
3. The Bankruptcy of the Welfare State
Anyone familiar with the work and philosophy of banking giant John Allison knows the first tenet of his philosophy is approaching everything from a realistic standpoint. Rizzo's examples are case and point how not to do that, and consequently cause massive collateral damage.
1. The War on Drugs
2. The War on Terror
3. The Bankruptcy of the Welfare State
Anyone familiar with the work and philosophy of banking giant John Allison knows the first tenet of his philosophy is approaching everything from a realistic standpoint. Rizzo's examples are case and point how not to do that, and consequently cause massive collateral damage.
Kindle
I received a Kindle for Christmas. I was a bit skeptical at first, but now I can't put the thing down. I can download close to any book, newspaper, magazine or blog anytime, anywhere for the cheapest price on the market in less than a minute.
Capitalism is wonderful.
Capitalism is wonderful.
Sullum on The Right to Health Care
Jacob Sullum offers his thoughts on the supposed right to health care. A snippet:
While liberty rights such as freedom of speech or freedom of contract require others to refrain from acting in certain ways, “welfare rights” such as the purported entitlement to health care (or to food, clothing, or shelter) require others to perform certain actions. They represent a legally enforceable claim on other people’s resources. Taxpayers must cover the cost of subsidies; insurers and medical professionals must provide their services on terms dictated by the government.
A right to health care thus requires the government to infringe on people’s liberty rights by commandeering their talents, labor, and earnings. And since new subsidies will only exacerbate the disconnect between payment and consumption that drives health care inflation, such interference is bound to increase as the government struggles to control ever-escalating spending. Rising costs will also encourage the government to repeatedly redefine the right to health care, deciding exactly which treatments it includes.
I wrote about this topic here.
While liberty rights such as freedom of speech or freedom of contract require others to refrain from acting in certain ways, “welfare rights” such as the purported entitlement to health care (or to food, clothing, or shelter) require others to perform certain actions. They represent a legally enforceable claim on other people’s resources. Taxpayers must cover the cost of subsidies; insurers and medical professionals must provide their services on terms dictated by the government.
A right to health care thus requires the government to infringe on people’s liberty rights by commandeering their talents, labor, and earnings. And since new subsidies will only exacerbate the disconnect between payment and consumption that drives health care inflation, such interference is bound to increase as the government struggles to control ever-escalating spending. Rising costs will also encourage the government to repeatedly redefine the right to health care, deciding exactly which treatments it includes.
I wrote about this topic here.
Yes, We Still Make "Stuff". And More of It. And It's of Better Quality. And It's Cheaper.
From Mark Perry:
For the year 2008... if the U.S. manufacturing sector were a separate country, it would be tied with Germany as the world’s third-largest economy.
(HT: EconLog)
For the year 2008... if the U.S. manufacturing sector were a separate country, it would be tied with Germany as the world’s third-largest economy.
(HT: EconLog)
Wise, Sobering Words
As the new health care legislation passes through Congress, I felt it was appropriate to link to William Graham Sumner's 1916 essay, The Forgotten Man. Here is the concluding paragraph, though I strongly urge all to read it entirely in its unfettered brilliance:
The fallacy of all prohibitory, sumptuary, and moral legislation is the same. A and B determine to be teetotalers, which is often a wise determination, and sometimes a necessary one. If A and B are moved by considerations which seem to them good, that is enough. But A and B put their heads together to get a law passed which shall force C to be a teetotaler for the sake of D, who is in danger of drinking too much. There is no pressure on A and B. They are having their own way, and they like it. There is rarely any pressure on D. He does not like it, and evades it. The pressure all comes on C. The question then arises, Who is C? He is the man who wants alcoholic liquors for any honest purpose whatsoever, who would use his liberty without abusing it, who would occasion no public question, and trouble nobody at all. He is the Forgotten Man again, and as soon as he is drawn from his obscurity we see that he is just what each one of us ought to be.
The fallacy of all prohibitory, sumptuary, and moral legislation is the same. A and B determine to be teetotalers, which is often a wise determination, and sometimes a necessary one. If A and B are moved by considerations which seem to them good, that is enough. But A and B put their heads together to get a law passed which shall force C to be a teetotaler for the sake of D, who is in danger of drinking too much. There is no pressure on A and B. They are having their own way, and they like it. There is rarely any pressure on D. He does not like it, and evades it. The pressure all comes on C. The question then arises, Who is C? He is the man who wants alcoholic liquors for any honest purpose whatsoever, who would use his liberty without abusing it, who would occasion no public question, and trouble nobody at all. He is the Forgotten Man again, and as soon as he is drawn from his obscurity we see that he is just what each one of us ought to be.
David Harsanyi on Obama's Rhetorical Hype
Here.
Obama clearly isn't the first, only or last politician to engage in such theatrics. The problem is he's so damn good at it.
Obama clearly isn't the first, only or last politician to engage in such theatrics. The problem is he's so damn good at it.
Liquidity Trap/Stimulus/Wages Links
Chicago economist Casey Mulligan on the "paradox of toil", stimulus, unemployment, Krugman, and liquidity trap.
The Marginal Revolution boys offer their thoughts here and here.
Sumner here.
And here's a link to Krugman's blog, where he has a number of posts on the topic.
Question for liquidity trap proponents: can the Fed actively buy debt (as oppose to passively inflate through zero interest rates), both private and public, to further increase the money supply? If so, would this make fiscal stimulation unnecessary?
The Marginal Revolution boys offer their thoughts here and here.
Sumner here.
And here's a link to Krugman's blog, where he has a number of posts on the topic.
Question for liquidity trap proponents: can the Fed actively buy debt (as oppose to passively inflate through zero interest rates), both private and public, to further increase the money supply? If so, would this make fiscal stimulation unnecessary?
Dogmatism vs Pragmatism
Scott Sumner, who is quickly becoming one of my favorite modern thinkers, offers some thoughts and insights on comments made by the BB&T Chairman and dogmatic libertarian John Allison.
I consider myself a dogmatic libertarian with the strong desire to become a pragmatic libertarian. I think it is near impossible to identify one's personal value system and philosophy as pragmatic without first being dogmatic. Let me explain.
By dogmatic, I mean one feels very passionate about what they believe in yet allows that emotion to significently determine their argument. In addition, their exposure to the true depth of the philosophy they are attempting to defend is shallow. Consequently, they have an argument heavy on emotion and light on intellectual depth.
The pragmatic thinker tips the scale. He is heavy on understanding and possesses a deep understanding of his argument, but is able to keep his emotions in check and make the appropriate, practical concessions to his opponent and his environment.
If one were to look at it in terms of Atlas Shrugged, the dogmatic libertarian would only be able to defend the work (and most likely not particularily well), whereas the pragmatic libertarian could both defend and critique it.
I think this view applies to both liberals and libertarians, but not conservatives, as I find much of their thinking contradictory and convoluted.
I consider myself a dogmatic libertarian with the strong desire to become a pragmatic libertarian. I think it is near impossible to identify one's personal value system and philosophy as pragmatic without first being dogmatic. Let me explain.
By dogmatic, I mean one feels very passionate about what they believe in yet allows that emotion to significently determine their argument. In addition, their exposure to the true depth of the philosophy they are attempting to defend is shallow. Consequently, they have an argument heavy on emotion and light on intellectual depth.
The pragmatic thinker tips the scale. He is heavy on understanding and possesses a deep understanding of his argument, but is able to keep his emotions in check and make the appropriate, practical concessions to his opponent and his environment.
If one were to look at it in terms of Atlas Shrugged, the dogmatic libertarian would only be able to defend the work (and most likely not particularily well), whereas the pragmatic libertarian could both defend and critique it.
I think this view applies to both liberals and libertarians, but not conservatives, as I find much of their thinking contradictory and convoluted.
From Freedom to Choose
From p. 179 of Milton and Rose Friedman's Freedom to Choose:
We are told that the nation benefits by having more highly skilled and trained people, that investment in providing such skills is essential for economic growth, that more trained people raise the productivity of the rest of us. These statements are correct. But none is a valid reason for subsidizing higher education. Each statement would be equally correct if made about physicial capital (i.e., machines, factory buildings, etc.), yet hardly anyone would conclude that tax money should be used to subsidize the capital investment of General Motors or General Electric. (1980)
Oh, how the times have changed. Freedom to Choose opens with this quote from former Justice Louis Brandeis:
Experience should teach us to be most on our guard to protect liberty when the Government's purposes are beneficent. Men born to freedom are naturally alert to repel invasion of their liberty by evil-minded rulers. The greatest dangers to liberty lurk in insidious encroachment by men of zeal, well-meaning but without understanding.
Wise words to always keep in mind.
We are told that the nation benefits by having more highly skilled and trained people, that investment in providing such skills is essential for economic growth, that more trained people raise the productivity of the rest of us. These statements are correct. But none is a valid reason for subsidizing higher education. Each statement would be equally correct if made about physicial capital (i.e., machines, factory buildings, etc.), yet hardly anyone would conclude that tax money should be used to subsidize the capital investment of General Motors or General Electric. (1980)
Oh, how the times have changed. Freedom to Choose opens with this quote from former Justice Louis Brandeis:
Experience should teach us to be most on our guard to protect liberty when the Government's purposes are beneficent. Men born to freedom are naturally alert to repel invasion of their liberty by evil-minded rulers. The greatest dangers to liberty lurk in insidious encroachment by men of zeal, well-meaning but without understanding.
Wise words to always keep in mind.
An Unfortunate Incident
Emotion is playing too large a role in much of the health care debate. Ezra Klein, a rising liberal intellectual star, resorts to the level of ignorant hysteria when discussing Senator Joseph Lieberman's recent filibuster move. Klein writes:
Lieberman seems primarily motivated by torturing liberals. That is to say, he seems willing to cause the deaths of hundreds of thousands of people in order to settle an old electoral score.
Michael Cannon promptly takes Klein to task for these comments.
We all feel passionate about what we believe in. It's why Rob and I spend a fair amount of our spare time working on this blog. But though essential as the fuel that drives us to make the world a better place, emotion often clouds our better judgement. In this case it resulted in vitriolic, unwarrented slander and an egregious display of confirmation bias.
This debate is an important and necessary one. But there is no need to call those on the other side murderers simply because they disagree.
Lieberman seems primarily motivated by torturing liberals. That is to say, he seems willing to cause the deaths of hundreds of thousands of people in order to settle an old electoral score.
Michael Cannon promptly takes Klein to task for these comments.
We all feel passionate about what we believe in. It's why Rob and I spend a fair amount of our spare time working on this blog. But though essential as the fuel that drives us to make the world a better place, emotion often clouds our better judgement. In this case it resulted in vitriolic, unwarrented slander and an egregious display of confirmation bias.
This debate is an important and necessary one. But there is no need to call those on the other side murderers simply because they disagree.
Marijuana a Gateway Drug?
I recently got into a brief debate with someone over whether drugs, and in particular marijuana, should be legal or not (the discussion arose after I made the (somewhat) tongue-in-cheek comment that if Detroit wants to survive, it should become the next Sin City).
Anyways, this person said he was against legalizing marijuana because it is a gateway drug. Now the Gateway Drug Theory as I understand it, when it comes to marijuana, is more or less defunct as a legitimate scientific theory. At the very least, it has been acknowledged by most in the scientific community that tobacco and alcohol are much "stronger" gateway drugs than marijuana.
This gateway argument doesn't hold for two primary reasons. The first is the age old rule of statistics: correlation does not equal causation. In other words, substitute the word "milk" for "marijuana" and you have the same exact argument. I believe that substance use or abuse is much more a revealer of who someone is and the conditions that affect their life as oppossed to being causes of a "bad lifestyle." Of course drug use/abuse can contribute to a downward spiral, but I'm unconvinced it is primarily due to drug use or is a chicken/egg problem.
Secondly, I think this argument reveals a great deal of confirmation bias within the proponent. And that confirmation bias is that a lot of people, for whatever reason, hate and are freaked out by weed. Even though marijuana is far less dangerous than tobacco and alcohol, there is a bizarre taboo that surrounds marijuana that has only been perpetuated by decades of federal taxpayer-funded propoganda campaigns. Why people have such an irrational fear of marijuana relative to alcohol and tobacco is beyond me, but if you find yourself discussing this issue with someone and they refuse to acknowledge that tobacco and alcohol are just as gateway-relevant as marijuana and thus should be made illegal as well, than this is most likely the reason why.
If anyone is familiar with scientific papers that find marijuana a more potent gateway drug than alcohol and tobacco, please forward on to me. My searches have been futile so far.
Anyways, this person said he was against legalizing marijuana because it is a gateway drug. Now the Gateway Drug Theory as I understand it, when it comes to marijuana, is more or less defunct as a legitimate scientific theory. At the very least, it has been acknowledged by most in the scientific community that tobacco and alcohol are much "stronger" gateway drugs than marijuana.
This gateway argument doesn't hold for two primary reasons. The first is the age old rule of statistics: correlation does not equal causation. In other words, substitute the word "milk" for "marijuana" and you have the same exact argument. I believe that substance use or abuse is much more a revealer of who someone is and the conditions that affect their life as oppossed to being causes of a "bad lifestyle." Of course drug use/abuse can contribute to a downward spiral, but I'm unconvinced it is primarily due to drug use or is a chicken/egg problem.
Secondly, I think this argument reveals a great deal of confirmation bias within the proponent. And that confirmation bias is that a lot of people, for whatever reason, hate and are freaked out by weed. Even though marijuana is far less dangerous than tobacco and alcohol, there is a bizarre taboo that surrounds marijuana that has only been perpetuated by decades of federal taxpayer-funded propoganda campaigns. Why people have such an irrational fear of marijuana relative to alcohol and tobacco is beyond me, but if you find yourself discussing this issue with someone and they refuse to acknowledge that tobacco and alcohol are just as gateway-relevant as marijuana and thus should be made illegal as well, than this is most likely the reason why.
If anyone is familiar with scientific papers that find marijuana a more potent gateway drug than alcohol and tobacco, please forward on to me. My searches have been futile so far.
Capitalism and Rights
Rob and I are having a bit of a back and forth concerning the subsidization of higher education. I'm having some difficulty following his argument, though, so I want to move it over to a post and get a little more philosophical.
Rob, as you stated earlier, you think capitalism is an amoral system. Yet you believe that the benefits of a capitalistic society establish specific moral standards. Take the case of higher education. Modern, mainstream higher education is made possible by capitalism. Mass production of study materials, construction of buildings and campuses, coordinating of dining services, the instant, all-encompassing spread of ideas around the world and historical amounts of leisure time are just a few indications and example of how capitalism has paved the road for millions to receive a low cost, high quality higher education that they never would have received under any other economic system.
This amoral system, thus, is doing a great deal of good. And you think that individuals have an inherent right to the benefits of this amoral system.
So my question for you is how can an amoral system be the parent of moral standards? In other words, how can higher education be a moral good every citizen has a right to if its creation was the result of amoral forces?
My answer is that it can't, but those in power pretend it can and most people like the simple utopian appeal and buy into it. This, in my opinion, is the essence of politics.
But before I say any more though I am interested in hearing what you have to say.
Rob, as you stated earlier, you think capitalism is an amoral system. Yet you believe that the benefits of a capitalistic society establish specific moral standards. Take the case of higher education. Modern, mainstream higher education is made possible by capitalism. Mass production of study materials, construction of buildings and campuses, coordinating of dining services, the instant, all-encompassing spread of ideas around the world and historical amounts of leisure time are just a few indications and example of how capitalism has paved the road for millions to receive a low cost, high quality higher education that they never would have received under any other economic system.
This amoral system, thus, is doing a great deal of good. And you think that individuals have an inherent right to the benefits of this amoral system.
So my question for you is how can an amoral system be the parent of moral standards? In other words, how can higher education be a moral good every citizen has a right to if its creation was the result of amoral forces?
My answer is that it can't, but those in power pretend it can and most people like the simple utopian appeal and buy into it. This, in my opinion, is the essence of politics.
But before I say any more though I am interested in hearing what you have to say.
Update on Posting
Posting from me is going to be relatively limited for the indefinite future. Combination of work, studying and some personal projects are taking priority.
Carmen Reinhardt on the Financial Crisis
Just listened to an EconTalk episode featuring University of Maryland Professor of Economics Carmen Reinhardt. Very interesting take on the financial crisis, and at one she said the subprime market was (is?) essentially "an emerging market within the United States."
Whether true or not, I think it is healthy to view the crisis from as many angles as possible, and this strikes me as a particularly interesting one.
Whether true or not, I think it is healthy to view the crisis from as many angles as possible, and this strikes me as a particularly interesting one.
Your Public Choice Story of the Day
WSJ reports U.S. Senator Max Baucus nominated his girlfriend for U.S. Attorney.
Important to note that the article also writes:
The spokesman says Mr. Baucus and Ms. Hanes decided during the nomination process that she should withdraw her name because the couple wanted to live together in Washington.
I have very few facts about this case and ultimately I think the right thing was done by withdrawing Ms. Hanes' name after the nomination process began.
But I also think we need to remember that politicians are human beings that face the same self-interested incentives that regular people do. But they have an enormous amount of power relative to the average American, so they deserve an far more scrutiny and skepticism when they make decisions.
Important to note that the article also writes:
The spokesman says Mr. Baucus and Ms. Hanes decided during the nomination process that she should withdraw her name because the couple wanted to live together in Washington.
I have very few facts about this case and ultimately I think the right thing was done by withdrawing Ms. Hanes' name after the nomination process began.
But I also think we need to remember that politicians are human beings that face the same self-interested incentives that regular people do. But they have an enormous amount of power relative to the average American, so they deserve an far more scrutiny and skepticism when they make decisions.
Competing Macro Views
Some would say the current state of macro is in disarray as it is having a great deal of trouble explaining the current economic situation. But I don't think disarray is so much occuring as is intense competition. Right now there are a ton of competing views trying to explain the siuation. Krugman, Kling, and Sumner seem to me to be the big three right now. Here's Kling on the current state of macro and the competing views:
I am prepared to offer pushback against the Sumner-Hetzel viewpoint. However, it really deserves the status of the "null hypothesis." In a more reasonable world, everyone would be starting from the presumption that Sumner and Hetzel are correct. Those of us arguing folk-Minskyism and telling the Recalculation Story should be the ones fighting an uphill battle to bring our ideas into the policy debates. That this is not the case, and that SC is now on the fringe, is one of the most remarkable stories of this whole macroeconomic episode.
I am prepared to offer pushback against the Sumner-Hetzel viewpoint. However, it really deserves the status of the "null hypothesis." In a more reasonable world, everyone would be starting from the presumption that Sumner and Hetzel are correct. Those of us arguing folk-Minskyism and telling the Recalculation Story should be the ones fighting an uphill battle to bring our ideas into the policy debates. That this is not the case, and that SC is now on the fringe, is one of the most remarkable stories of this whole macroeconomic episode.
Structural Evolution is the Root Issue
I don't agree with a whole lot of this Robert Reich post, but he is spot on with this paragraph:
The basic assumption that jobs will eventually return when the economy recovers is probably wrong. Some jobs will come back, of course. But the reality that no one wants to talk about is a structural change in the economy that's been going on for years but which the Great Recession has dramatically accelerated.
Recalcuation Theory, in a very, very small nutshell. The sooner this reality is addressed, the better.
(HT: EconLog)
The basic assumption that jobs will eventually return when the economy recovers is probably wrong. Some jobs will come back, of course. But the reality that no one wants to talk about is a structural change in the economy that's been going on for years but which the Great Recession has dramatically accelerated.
Recalcuation Theory, in a very, very small nutshell. The sooner this reality is addressed, the better.
(HT: EconLog)
My Last Climategate Post (Hopefully)
David Harsanyi's take.
Ronald Bailey, chief science correspondent for Reason, covers the event and offers his thoughts here.
Ronald Bailey, chief science correspondent for Reason, covers the event and offers his thoughts here.
More on Climategate
Via Cafe Hayek, "believer" Clive Crook on Climategate. His final paragraphs:
Megan McArdle adopts a world-weary tone similar to The Economist's: this is how science is done in the real world. If I were a scientist, I would resent that. She has criticised the emails and the IPCC response to them, then says she still believes the consensus view on climate change. Well, that was my position at the end of last week, and I suppose it still is. But how do I defend it? There is far more of a problem here for the consensus view than Megan and ordinarily reliable commentators like The Economist acknowledge. I am not a climate scientist. In the end I have to trust the experts. That is what we are asked to do. "Trust us, we're scientists".
Remember that this is not an academic exercise. We contemplate outlays of trillions of dollars to fix this supposed problem. Can I read these emails and feel that the scientists involved deserve to be trusted? No, I cannot. These people are willing to subvert the very methods--notably, peer review--that underwrite the integrity of their discipline. Is this really business as usual in science these days? If it is, we should demand higher standards--at least whenever "the science" calls for a wholesale transformation of the world economy. And maybe some independent oversight to go along with the higher standards.
Rob thinks this a problem endemic to science. I agree, to a small extent, but believe this particular case is mostly a matter of injecting politics into a place it has no place being. We saw what politics did to the lending industry and finance when it got too entrenched; we're now seeing how it effects the scientific community.
Megan McArdle adopts a world-weary tone similar to The Economist's: this is how science is done in the real world. If I were a scientist, I would resent that. She has criticised the emails and the IPCC response to them, then says she still believes the consensus view on climate change. Well, that was my position at the end of last week, and I suppose it still is. But how do I defend it? There is far more of a problem here for the consensus view than Megan and ordinarily reliable commentators like The Economist acknowledge. I am not a climate scientist. In the end I have to trust the experts. That is what we are asked to do. "Trust us, we're scientists".
Remember that this is not an academic exercise. We contemplate outlays of trillions of dollars to fix this supposed problem. Can I read these emails and feel that the scientists involved deserve to be trusted? No, I cannot. These people are willing to subvert the very methods--notably, peer review--that underwrite the integrity of their discipline. Is this really business as usual in science these days? If it is, we should demand higher standards--at least whenever "the science" calls for a wholesale transformation of the world economy. And maybe some independent oversight to go along with the higher standards.
Rob thinks this a problem endemic to science. I agree, to a small extent, but believe this particular case is mostly a matter of injecting politics into a place it has no place being. We saw what politics did to the lending industry and finance when it got too entrenched; we're now seeing how it effects the scientific community.
Bailouts that Beget Bailouts
Has capitalism, true free-market capitalism, ever been allowed to flourish in history? Probably not, on a major scale. But I can say with near certainty that crony capitalism has become more entrenched in the international economy than ever before.
Read the Sorkin article. This would be funny if it wasn't so scary.
Read the Sorkin article. This would be funny if it wasn't so scary.
Will Wilkinson on Climategate
Here:
The scientific implications of the Climategate files are probably small, but the political implication is certainly large–because of the politicized nature of climate science confirmed by the files. Verification of the existence of conspiring enforcers of orthodoxy weakens the strongest rhetorical weapon in the alarmist arsenal. The idea that the science behind predictions of potentially catastrophic warming is rock solid and that the putative scientific consensus reflects the rock solidity of the science licenses the inference that there is no scientifically respectable excuse for skepticism of or disagreement with the consensus. That is a big stick to thump people with. But the Climategate files strongly suggest that at least some of the science is not rock solid and that the scientific consensus is at least in part the product of silencing or marginalizing those who might upset it. The files have made “How can we be sure that you did not fudge your data” and “How do we know that dissenting voices have been given a fair hearing?” questions that we now must ask rather than questions skeptics can be effectively shouted down for asking. The files show that suspicion is warranted. That’s a big deal.
I've been a climate change skeptic for this exact reason. Injecting politics into science is like having the Yankees act as the employer for all MLB umpires; you just can't trust the results.
The scientific implications of the Climategate files are probably small, but the political implication is certainly large–because of the politicized nature of climate science confirmed by the files. Verification of the existence of conspiring enforcers of orthodoxy weakens the strongest rhetorical weapon in the alarmist arsenal. The idea that the science behind predictions of potentially catastrophic warming is rock solid and that the putative scientific consensus reflects the rock solidity of the science licenses the inference that there is no scientifically respectable excuse for skepticism of or disagreement with the consensus. That is a big stick to thump people with. But the Climategate files strongly suggest that at least some of the science is not rock solid and that the scientific consensus is at least in part the product of silencing or marginalizing those who might upset it. The files have made “How can we be sure that you did not fudge your data” and “How do we know that dissenting voices have been given a fair hearing?” questions that we now must ask rather than questions skeptics can be effectively shouted down for asking. The files show that suspicion is warranted. That’s a big deal.
I've been a climate change skeptic for this exact reason. Injecting politics into science is like having the Yankees act as the employer for all MLB umpires; you just can't trust the results.
Central Planning is Good When It Fits Your Purpose
Bill Easterly hits the nail right on the head when it comes to "military development" and "nation-building."
critics of top-down state plans for economic development are also not fans of top-down state plans for military development. If the Left likes the first, and the Right likes the second, that just shows you how incoherent Left and Right are.
(HT: EconLog)
critics of top-down state plans for economic development are also not fans of top-down state plans for military development. If the Left likes the first, and the Right likes the second, that just shows you how incoherent Left and Right are.
(HT: EconLog)
Unnecessary and Sad
Tim Lynch on the recent murder of four Tacoma, Washington police officers and what it (may) reveal about our criminal justice and prison system.
I would, however, caution against a blanket condemnation of pardons, as well as any hasty move to simply abolish parole. The American criminal-justice system is thoroughly swamped. Right now there are more than 7 million people under criminal-justice “supervision.” About 2.5 million are behind bars, and about 4.5 million are on probation or parole. This system is greatly overburdened by non-violent drug offenders. Conditions vary by jurisdiction, but in general there is no prison space left. So it is unrealistic for us to say, “If a prisoner violates parole, send him back to jail immediately!”...
The best way to curb violent crime is to lock up violent criminals. Sounds like a no-brainer but our system is swamped with drug offenders. Problems fester while the pols try to deflect criticism away from themselves.
I would, however, caution against a blanket condemnation of pardons, as well as any hasty move to simply abolish parole. The American criminal-justice system is thoroughly swamped. Right now there are more than 7 million people under criminal-justice “supervision.” About 2.5 million are behind bars, and about 4.5 million are on probation or parole. This system is greatly overburdened by non-violent drug offenders. Conditions vary by jurisdiction, but in general there is no prison space left. So it is unrealistic for us to say, “If a prisoner violates parole, send him back to jail immediately!”...
The best way to curb violent crime is to lock up violent criminals. Sounds like a no-brainer but our system is swamped with drug offenders. Problems fester while the pols try to deflect criticism away from themselves.
The Other Side
George Melloan on the current state of banking, lending and government interference. Jerry O'Driscoll offers his thoughts here. They are obviously quite different than the story Krugman has been telling.
Deficit Discussion/Clarification
Okay, so I read all of Rob's links concerning Krugman framing his liquidity trap/fiscal stimulus story. And Rob is right, he does frame the argument quite well. It seems I was speaking more out of my own incoherence than Krugman's failure to convey his ideas clearly.
So I propose we drop Murphy as I don't think he adds anything to the discussion (I regret the post) and ignore tax policy (at least for the time being) so we can focus on Krugman's deficit argument.
As I understand it, Krugman's premise is we are in a liquidity trap (interest rates = 0) so monetary policy is a gun without ammunition and fiscal policy needs to step in to make up for what the Fed and private sector can't/won't do. This can be done through tax cuts or increased spending. This is viewed as a short-term issue so it is assumed the deficit can be paid off in the long-run without signifcant inflationary costs. Also, tax cuts will be saved instead of used for investment or saving, and thus government must step in to do the spending. Ala, deficit spending is the best remedy for our current woes.
Rob, is this correct? I don't want to go any further unless I have basics of the story down.
So I propose we drop Murphy as I don't think he adds anything to the discussion (I regret the post) and ignore tax policy (at least for the time being) so we can focus on Krugman's deficit argument.
As I understand it, Krugman's premise is we are in a liquidity trap (interest rates = 0) so monetary policy is a gun without ammunition and fiscal policy needs to step in to make up for what the Fed and private sector can't/won't do. This can be done through tax cuts or increased spending. This is viewed as a short-term issue so it is assumed the deficit can be paid off in the long-run without signifcant inflationary costs. Also, tax cuts will be saved instead of used for investment or saving, and thus government must step in to do the spending. Ala, deficit spending is the best remedy for our current woes.
Rob, is this correct? I don't want to go any further unless I have basics of the story down.
Cowen on Deficits
Tyler Cowen offers some thoughts on the theory of running fiscal deficits. I like this paragraph in particular:
A high deficit often is an unfavorable symptom of bad politics, even if you think the high deficit is economically OK on its own terms. It's a sign that you have dysfunctional institutions and decision-making procedures, as indeed they do in Belgium and Italy. I believe that the not-always-swift American voter in fact understands high deficits -- correctly -- in this light. They don't hold theories about "crowding out," rather they sense something in the house must be rotten. And so they rail against deficits, as do some of their elected representatives. It's a more justified reaction than the pure economics alone can illuminate.
When water regularly overflows from your toilet, you want the toilet fixed, whether or not the water is doing harm.
A high deficit often is an unfavorable symptom of bad politics, even if you think the high deficit is economically OK on its own terms. It's a sign that you have dysfunctional institutions and decision-making procedures, as indeed they do in Belgium and Italy. I believe that the not-always-swift American voter in fact understands high deficits -- correctly -- in this light. They don't hold theories about "crowding out," rather they sense something in the house must be rotten. And so they rail against deficits, as do some of their elected representatives. It's a more justified reaction than the pure economics alone can illuminate.
When water regularly overflows from your toilet, you want the toilet fixed, whether or not the water is doing harm.
Cochrane vs. Krugman
A couple of months old, but John Cochrane takes Paul Krugman to task in this essay.
(HT: The Big Questions)
(HT: The Big Questions)
Kling on Organizational Capital/Fiscal Policy; Shiller on the Herd
Kling on how fiscal policy should be updated to fit our modern economy which is based on the production of organizational capital versus the production of widgets. He expounds on this idea (originally Garett Jones' I believe).
He also provides an interesting quote by Robert Shiller on the herd mentality:
Consider this possibility: after all these months, people start to think it's time for the recession to end. The very thought begins to renew confidence, and some people start spending again -- in turn, generating visible signs of recovery. This may seem absurd, and is rarely mentioned as an explanation for mass behavior late in a recession, but economic theorists have long been fascinated by such a possibility.
He also provides an interesting quote by Robert Shiller on the herd mentality:
Consider this possibility: after all these months, people start to think it's time for the recession to end. The very thought begins to renew confidence, and some people start spending again -- in turn, generating visible signs of recovery. This may seem absurd, and is rarely mentioned as an explanation for mass behavior late in a recession, but economic theorists have long been fascinated by such a possibility.
Utilitarianism and Health Care
Last week Rob asked me this question in response to a post by me questioning the legitimacy of the claim that health care access is a right:
If you could prove that universal education and health care, regardless of being a right or not, created a healthier, better educated society from a utilitarian standpoint, would you still choose not to universalize education and health care in light of your moral position?
This question is more philosophical than economical so I will try and keep my answer in that realm.
Now, what I think Rob is really asking is do the ends justify the means. The means in this case would violate my moral principles, or at least radically diminish them to the point of non-existence, but would also accomplish the ends of attaining the best for the most.
My endorsement for capitalism is two-fold: it is the most efficient and effective economic system we know of and it is, in my opinion, the most moral system we know of. My basis for this assertion is that it, in the long run, capitalism facilitates the maximum amount of freedom for the maximum amount of people and consequently leads to the maximum number of benefits for those said people. Rob's question asks if the economic side of the capitalism argument is false, does the moral side still provide enough value that it should still be advocated?
As one can see (and I'm not writing anything new here), the economic virtues of capitalism directly stem from its moral virtues. By providing individuals with the maximum amount of choice possible, the maximum amount of optimal solutions to whatever problems that face a society have the best chance of being reached. Consequently, we have the largest chance of seeing our lives improve in two ways. Principally, we can follow whatever course of life we deem fit given the choices we are provided with. In a sense, we can say that capitalism is not in and of itself a moral system but an avenue for moral systems to be discovered (invented?), evolve, and compete. And materially, as mentioned before, we can reap the maximum benefits that these choices will inevitably lead to.
Where am I going with this? Maybe it is too much of a stretch, but I think that by eliminating the moral virtues of capitalism in a market as complex and varied as health care, we will by default eliminate the material benefits capitalism provides. Choice is so integral to health care because the market is so varied and complex in all of it demands. Capitalism is thus, by default, the optimal system, both morally and materially, to meet all of these demands.
The inevitable question then is is there a minimum limit of complexity or variation in consumer demand where a centralized approach is more appropriate than the free market model in achieving utilitarian ends? That's a question for another day (and I think the one the Rob is asking and have avoided answering). But I do not think a centralized approach is a plausible model for the our current health care system, and thus cannot answer the original question without basing it on what I think are false premises.
Education strikes me, at least initially, as the better area to look at this question through, I will try and answer that question at some point in the future.
(Note: My knowledge of utilitarianism is very limited, so if I mischaracterized anything about the philosophy forgive me and please correct in the comments section)
If you could prove that universal education and health care, regardless of being a right or not, created a healthier, better educated society from a utilitarian standpoint, would you still choose not to universalize education and health care in light of your moral position?
This question is more philosophical than economical so I will try and keep my answer in that realm.
Now, what I think Rob is really asking is do the ends justify the means. The means in this case would violate my moral principles, or at least radically diminish them to the point of non-existence, but would also accomplish the ends of attaining the best for the most.
My endorsement for capitalism is two-fold: it is the most efficient and effective economic system we know of and it is, in my opinion, the most moral system we know of. My basis for this assertion is that it, in the long run, capitalism facilitates the maximum amount of freedom for the maximum amount of people and consequently leads to the maximum number of benefits for those said people. Rob's question asks if the economic side of the capitalism argument is false, does the moral side still provide enough value that it should still be advocated?
As one can see (and I'm not writing anything new here), the economic virtues of capitalism directly stem from its moral virtues. By providing individuals with the maximum amount of choice possible, the maximum amount of optimal solutions to whatever problems that face a society have the best chance of being reached. Consequently, we have the largest chance of seeing our lives improve in two ways. Principally, we can follow whatever course of life we deem fit given the choices we are provided with. In a sense, we can say that capitalism is not in and of itself a moral system but an avenue for moral systems to be discovered (invented?), evolve, and compete. And materially, as mentioned before, we can reap the maximum benefits that these choices will inevitably lead to.
Where am I going with this? Maybe it is too much of a stretch, but I think that by eliminating the moral virtues of capitalism in a market as complex and varied as health care, we will by default eliminate the material benefits capitalism provides. Choice is so integral to health care because the market is so varied and complex in all of it demands. Capitalism is thus, by default, the optimal system, both morally and materially, to meet all of these demands.
The inevitable question then is is there a minimum limit of complexity or variation in consumer demand where a centralized approach is more appropriate than the free market model in achieving utilitarian ends? That's a question for another day (and I think the one the Rob is asking and have avoided answering). But I do not think a centralized approach is a plausible model for the our current health care system, and thus cannot answer the original question without basing it on what I think are false premises.
Education strikes me, at least initially, as the better area to look at this question through, I will try and answer that question at some point in the future.
(Note: My knowledge of utilitarianism is very limited, so if I mischaracterized anything about the philosophy forgive me and please correct in the comments section)
It's Complicated
Interesting piece by economist Axel Leijonhufvud on macro, where we are, how to explain how we got here and the uncertainty of the future. Here as some nice paragraphs:
We have known about the endogenous instability of fractional reserve banking for some 200 years. It is Hyman Minsky's contribution to have explained that this financial instability extends beyond just the commercial banking system. Minsky argued that a long period without crises – such as the late “Great Moderation” – would lead to an increased willingness to assume risk and thus cause the system to become financially fragile. And the fragile system will sooner or later crash.
and...
Twin dangers looming ahead are Japanese-style stagnation on the one hand and Latin-American-style high inflation on the other. In more normal times, we would regard these prospects as both unlikely and very far apart on a spectrum of eventualities. High levels of public debt, large unfunded liabilities, and large current deficits mean that they are not at all far apart in the current situation. The apparent political difficulties in decisively remedying the public finances are likely to mean that this is not just a temporary predicament. The navigable channel between Scylla and Charybdis has become quite narrow.
and The Big Question...
High leverage has been the big culprit in the current disaster. To reduce the risk of another crash, we must curb leverage. But governments do not want the financial sector to deleverage now because the requisite falling asset prices and curtailed credit would deepen the recession. The question, of course, is: If not now, when?
(HT: EconLog)
We have known about the endogenous instability of fractional reserve banking for some 200 years. It is Hyman Minsky's contribution to have explained that this financial instability extends beyond just the commercial banking system. Minsky argued that a long period without crises – such as the late “Great Moderation” – would lead to an increased willingness to assume risk and thus cause the system to become financially fragile. And the fragile system will sooner or later crash.
and...
Twin dangers looming ahead are Japanese-style stagnation on the one hand and Latin-American-style high inflation on the other. In more normal times, we would regard these prospects as both unlikely and very far apart on a spectrum of eventualities. High levels of public debt, large unfunded liabilities, and large current deficits mean that they are not at all far apart in the current situation. The apparent political difficulties in decisively remedying the public finances are likely to mean that this is not just a temporary predicament. The navigable channel between Scylla and Charybdis has become quite narrow.
and The Big Question...
High leverage has been the big culprit in the current disaster. To reduce the risk of another crash, we must curb leverage. But governments do not want the financial sector to deleverage now because the requisite falling asset prices and curtailed credit would deepen the recession. The question, of course, is: If not now, when?
(HT: EconLog)
Your Government at Work
Rob wrote in a recent comment he wishes to learn more about Public Choice Theory. I don't think I'll be able to provide a better example of PCT at work than this:
Via Cafe Hayek, ABCNews reports:
On page 432 of the Reid bill, there is a section increasing federal Medicaid subsidies for “certain states recovering from a major disaster.”
The section spends two pages defining which “states” would qualify, saying, among other things, that it would be states that “during the preceding 7 fiscal years” have been declared a “major disaster area.”
I am told the section applies to exactly one state: Louisiana, the home of moderate Democrat Mary Landrieu, who has been playing hard to get on the health care bill.
In other words, the bill spends two pages describing would could be written with a single word: Louisiana. (This may also help explain why the bill is long.)
Senator Harry Reid, who drafted the bill, cannot pass it without the support of Louisiana’s Mary Landrieu.
How much does it cost? According to the Congressional Budget Office: $100 million.
(Emphasis mine)
In the real world, we would call something like this a bribe. But I guess because Reid is doing it with other people's money, as opposed to his own, it doesn't fit the precise definition of "bribe." Just business as usual in Washington, D.C.
And this racket is what Matt Yglesias thinks will improve health care.
Despicable.
(Kudos to ABCNews for bringing this to light. No doubt there are many other "provisions" like this that need to be identified and brought into public view)
Via Cafe Hayek, ABCNews reports:
On page 432 of the Reid bill, there is a section increasing federal Medicaid subsidies for “certain states recovering from a major disaster.”
The section spends two pages defining which “states” would qualify, saying, among other things, that it would be states that “during the preceding 7 fiscal years” have been declared a “major disaster area.”
I am told the section applies to exactly one state: Louisiana, the home of moderate Democrat Mary Landrieu, who has been playing hard to get on the health care bill.
In other words, the bill spends two pages describing would could be written with a single word: Louisiana. (This may also help explain why the bill is long.)
Senator Harry Reid, who drafted the bill, cannot pass it without the support of Louisiana’s Mary Landrieu.
How much does it cost? According to the Congressional Budget Office: $100 million.
(Emphasis mine)
In the real world, we would call something like this a bribe. But I guess because Reid is doing it with other people's money, as opposed to his own, it doesn't fit the precise definition of "bribe." Just business as usual in Washington, D.C.
And this racket is what Matt Yglesias thinks will improve health care.
Despicable.
(Kudos to ABCNews for bringing this to light. No doubt there are many other "provisions" like this that need to be identified and brought into public view)
Kling on TARP
Kling on TARP:
On History : The claim that the economy would be much worse off now without TARP has been repeated so many times that I must infer that it has as much ideological significance as the claim that the New Deal ended the Great Depression. And yet, the claim is rarely backed by evidence...
On Today vs 1930's: Ben Bernanke studied the Great Depression, and he found that the loss of banking institutions mattered, because borrower-lender relationship capital was destroyed. But even if we stipulate that his view was correct for the 1930's, it was not necessarily correct for today's economy. What we had last year was not a crisis in ordinary banking, but a crisis in securitization. In my opinion, we can do without securitization. Instead, in my view we can, and probably should, return to ordinary banking...
On Securitization: My view of history is that what TARP accomplished is that it saved the firms that were involved in securitization. If you think that the institutional capital embedded in that industry is really, really valuable, then TARP had benefits that might offset its costs. My own view, having seen first hand how securitization worked when I was at Freddie Mac, is that it relies too much on government guarantees, and old-fashioned banking is a viable alternative. So I would not have been willing to put much effort into saving securitization...
On History : The claim that the economy would be much worse off now without TARP has been repeated so many times that I must infer that it has as much ideological significance as the claim that the New Deal ended the Great Depression. And yet, the claim is rarely backed by evidence...
On Today vs 1930's: Ben Bernanke studied the Great Depression, and he found that the loss of banking institutions mattered, because borrower-lender relationship capital was destroyed. But even if we stipulate that his view was correct for the 1930's, it was not necessarily correct for today's economy. What we had last year was not a crisis in ordinary banking, but a crisis in securitization. In my opinion, we can do without securitization. Instead, in my view we can, and probably should, return to ordinary banking...
On Securitization: My view of history is that what TARP accomplished is that it saved the firms that were involved in securitization. If you think that the institutional capital embedded in that industry is really, really valuable, then TARP had benefits that might offset its costs. My own view, having seen first hand how securitization worked when I was at Freddie Mac, is that it relies too much on government guarantees, and old-fashioned banking is a viable alternative. So I would not have been willing to put much effort into saving securitization...
Our Shameful Federal Government
Via Reason, John McWhorter points out the folly and destructive nature of The War on Drugs. A snippet:
The simple fact is that if there were no profit to be made in selling drugs on the street, no one would bother. For all of the “root causes” reasons so many young black and Latino men turn to this trade instead of seeking legal work, if there were no War on Drugs, they would seek other solutions to the obstacles that face them. And whatever those were, they would involve less murder, fewer crossfire injuries and killings of the kind that have likely ruined Ms. Vasquez’ life at 15, fewer men in prison for long periods, and fewer of their children growing up fatherless and on their way to repeating their father’s mistakes.
What's holding back millions of poor young Americans (black, white, Latino, male, female, whatever) is not lack of healthcare or tax-cuts for the rich or other important but ultimately red herring issues, but is The War on Drugs combined with a disastrous federal school system (no child gets left behind if every child gets left behind!).
You can demonize Wall Street and insurance companies and Bernie Madoff and whatever super-rich entity is the populist flavor of the month, but if you ever want to make a real difference for the most disadvanted in our country, start with the mafia that our federal government has mutated into.
The simple fact is that if there were no profit to be made in selling drugs on the street, no one would bother. For all of the “root causes” reasons so many young black and Latino men turn to this trade instead of seeking legal work, if there were no War on Drugs, they would seek other solutions to the obstacles that face them. And whatever those were, they would involve less murder, fewer crossfire injuries and killings of the kind that have likely ruined Ms. Vasquez’ life at 15, fewer men in prison for long periods, and fewer of their children growing up fatherless and on their way to repeating their father’s mistakes.
What's holding back millions of poor young Americans (black, white, Latino, male, female, whatever) is not lack of healthcare or tax-cuts for the rich or other important but ultimately red herring issues, but is The War on Drugs combined with a disastrous federal school system (no child gets left behind if every child gets left behind!).
You can demonize Wall Street and insurance companies and Bernie Madoff and whatever super-rich entity is the populist flavor of the month, but if you ever want to make a real difference for the most disadvanted in our country, start with the mafia that our federal government has mutated into.
Yglesias is the Naive One
Matt Yglesias doesn't agree completely with Dr. Jeffrey Flier's take on the health care bill, which I linked to earlier. Yglesias writes:
Dealing with this will be hard. If the bill Harry Reid unveiled yesterday is signed into law, it will be easier. It will be easier in part because the bill directly tackles the fiscal problem and reduces the deficit. And it will be easier in part because senators and members of congress who are considering additional ideas to improve the situation will have a recent precedent available of legislative success. If the bill is defeated, tackling the problem gets harder. It doesn’t open the door to a broader national conversation in which citizens lose their bias toward the status quo or interest groups lose their desire to fight for the biggest possible slice of pie.
It would be nice if health reform did more to control costs and reform the delivery system than this bill does. But it does something to control costs and it does something to reform the delivery system. And it improves access for millions of people in need. To hold that latter factor hostage to a pie-in-the-sky belief that if the whole thing goes down in flames more radical change will somehow become possible seems to me to exhibit very strange political judgment.
Yglesias calls Flier naive, but I think it is Yglesias who is the naive one. He just assumes that if this bill is passed things will start to get better. But why so much faith in further government intervention, Matt? What evidence do you have that government intervention has done more good than harm since the 1960's? Faith-based conclusions are about as naive as it gets.
Matt also says that it would "exhibit very strange political judgement" if people were to think that the failing of this bill would lead to more radical change. First off, the current bill is not "radical change". This is further socialization of the market. It is not "reform", as every liberal journalist and politician would have you believe.
Radical change would be implementing a more free-market system. I don't think this will happen, at least not for next few years, but stopping this monstrosity would be a start.
Dealing with this will be hard. If the bill Harry Reid unveiled yesterday is signed into law, it will be easier. It will be easier in part because the bill directly tackles the fiscal problem and reduces the deficit. And it will be easier in part because senators and members of congress who are considering additional ideas to improve the situation will have a recent precedent available of legislative success. If the bill is defeated, tackling the problem gets harder. It doesn’t open the door to a broader national conversation in which citizens lose their bias toward the status quo or interest groups lose their desire to fight for the biggest possible slice of pie.
It would be nice if health reform did more to control costs and reform the delivery system than this bill does. But it does something to control costs and it does something to reform the delivery system. And it improves access for millions of people in need. To hold that latter factor hostage to a pie-in-the-sky belief that if the whole thing goes down in flames more radical change will somehow become possible seems to me to exhibit very strange political judgment.
Yglesias calls Flier naive, but I think it is Yglesias who is the naive one. He just assumes that if this bill is passed things will start to get better. But why so much faith in further government intervention, Matt? What evidence do you have that government intervention has done more good than harm since the 1960's? Faith-based conclusions are about as naive as it gets.
Matt also says that it would "exhibit very strange political judgement" if people were to think that the failing of this bill would lead to more radical change. First off, the current bill is not "radical change". This is further socialization of the market. It is not "reform", as every liberal journalist and politician would have you believe.
Radical change would be implementing a more free-market system. I don't think this will happen, at least not for next few years, but stopping this monstrosity would be a start.
Broken Window Fallacy Logic
Peter Klein on some of the bone-headed logic behind enacting the stimulus plan:
Not to worry [about measuring "created or saved jobs"], says John Irons of the Economic Policy Institute. Indeed, the Obama Administration’s silly attempt to count “jobs saved” may actually underestimate the beneficial effects of stimulus, because “that construction worker [hired by stimulus funds] then goes out and spends money at a local diner, at a local McDonald’s or the local movie theater. That could very well mean an additional job.” Well, yes, but there’s the construction worker who wasn’t hired because investors, spooked by regime uncertainty, wouldn’t fund the construction project; the construction worker who won’t be hired tomorrow when taxes are hiked to pay for today’s stimulus; the construction workers who will sit idle at home when hyperinflation destroys the construction industry; and many other members of Bastiat’s “unseen” who would have spent money at diners and McDonald’s and movie theaters. But we never see those lost jobs, so — poof! — they don’t exist, and shouldn’t be counted against the free lunches wished into existence by Stimuluspalooza.
Some arguments defending the stimulus, such as Rob's fear of too much saving taking place, contain much more merit than what Irons is saying.
Relying on the broken window fallacy is just dumb.
Not to worry [about measuring "created or saved jobs"], says John Irons of the Economic Policy Institute. Indeed, the Obama Administration’s silly attempt to count “jobs saved” may actually underestimate the beneficial effects of stimulus, because “that construction worker [hired by stimulus funds] then goes out and spends money at a local diner, at a local McDonald’s or the local movie theater. That could very well mean an additional job.” Well, yes, but there’s the construction worker who wasn’t hired because investors, spooked by regime uncertainty, wouldn’t fund the construction project; the construction worker who won’t be hired tomorrow when taxes are hiked to pay for today’s stimulus; the construction workers who will sit idle at home when hyperinflation destroys the construction industry; and many other members of Bastiat’s “unseen” who would have spent money at diners and McDonald’s and movie theaters. But we never see those lost jobs, so — poof! — they don’t exist, and shouldn’t be counted against the free lunches wished into existence by Stimuluspalooza.
Some arguments defending the stimulus, such as Rob's fear of too much saving taking place, contain much more merit than what Irons is saying.
Relying on the broken window fallacy is just dumb.
Steve Horwitz on Markets
If anyone is looking for a brief, concise and informative overview of how markets work, check out Steve Horwitz's most recent article over at The Freeman. A key insight:
It’s not that markets do things well because entrepreneurs are smart; rather, entrepreneurs are able to do things well because markets are “smart” in that they are able, through prices and profits, to make more knowledge available to entrepreneurs than political processes do to bureaucrats. This feature of markets is what Nobel Laureate Vernon Smith calls “ecological rationality.” [emphasis mine -ed.]
It’s not that markets do things well because entrepreneurs are smart; rather, entrepreneurs are able to do things well because markets are “smart” in that they are able, through prices and profits, to make more knowledge available to entrepreneurs than political processes do to bureaucrats. This feature of markets is what Nobel Laureate Vernon Smith calls “ecological rationality.” [emphasis mine -ed.]
Healthcare Legislation = Political Power
Via Greg Mankiw, Dr. Jeffrey S. Flier, Dean of the Harvard Medical School, offers his thoughts on the current healthcare legislation. A snippet:
the majority of our representatives may congratulate themselves on reducing the number of uninsured, while quietly understanding this can only be the first step of a multiyear process to more drastically change the organization and funding of health care in America. I have met many people for whom this strategy is conscious and explicit.
Now why would our benevolent elected leaders do such a thing? Randall Holcombe has the fairly obvious answer:
The only answer I can think of is politics. They said they were going to pass health care reform, they ran on that platform, and now they are determined to do it despite the widespread recognition that if they succeed the outcome will make the nation worse off.
the majority of our representatives may congratulate themselves on reducing the number of uninsured, while quietly understanding this can only be the first step of a multiyear process to more drastically change the organization and funding of health care in America. I have met many people for whom this strategy is conscious and explicit.
Now why would our benevolent elected leaders do such a thing? Randall Holcombe has the fairly obvious answer:
The only answer I can think of is politics. They said they were going to pass health care reform, they ran on that platform, and now they are determined to do it despite the widespread recognition that if they succeed the outcome will make the nation worse off.
Roger Koppl and the Future of Macro
Roger Koppl has a new paper coming out on where he thinks macro is headed (the link is only a manuscript). Here's his short post at ThinkMarkets summing up his thoughts. A snippet:
I say the “New Interventionist Economics” will be characterized by five features:
Bubbles
Radical Uncertainty
Animal Spirits
Complexity Dynamics
Extra-Market Control
The comments on his post are also worth reading.
I say the “New Interventionist Economics” will be characterized by five features:
Bubbles
Radical Uncertainty
Animal Spirits
Complexity Dynamics
Extra-Market Control
The comments on his post are also worth reading.
Where Oh Where Did My Stimulus Go?
ABC News reports a recent stimulus report slashed 60,000 reported "created or saved jobs" due to unrealistic job data.
The Washington Examiner, who has been following phony reports of stimulus money "creating and saving jobs" and who we linked to yesterday, writes the following:
Today's report from ABC News tells us that prior to releasing its jobs report, the administration cut out 60,000 additional jobs from unreliable reports, none of which appear to overlap with the ones we've highlighted here. Had those jobs been included in the original count, the number of jobs "created or saved" by the stimulus would have exceeded 700,000, and the number of imaginary or doubtful jobs would have approached 20 percent.
In further controversy, The White House's very own website, recovery.org, is claiming that $6.4 billion of stimulus funds (that is, just to remind you, yours and my money) in Congressional Districts that do not exist.
As the Heritage Foundation points out, that's more Districts than actually do exist.
A of couple things to note.
First: If all of this, in a nutshell, is not incompetency, I don't know what is.
Second: I think the 60,000 jobs report inaccuracy indicates this is not translating very well into the real world. Yes, it may sound great in textbooks and papers and whatnot, but this whole process is absurdly complex to implement, if not impossible to implement, and I don't believe many people in positions of power and who have already staked their careers on this working are willing to acknowledge that.
Third: Public Choice Theory, in terms of spending, has yet to rear its ugly head. Don't worry though; there's still a lot of time...
And Fourth: So what is it again we're getting out of this? Y'know, besides lighter wallets and migraines?
The Washington Examiner, who has been following phony reports of stimulus money "creating and saving jobs" and who we linked to yesterday, writes the following:
Today's report from ABC News tells us that prior to releasing its jobs report, the administration cut out 60,000 additional jobs from unreliable reports, none of which appear to overlap with the ones we've highlighted here. Had those jobs been included in the original count, the number of jobs "created or saved" by the stimulus would have exceeded 700,000, and the number of imaginary or doubtful jobs would have approached 20 percent.
In further controversy, The White House's very own website, recovery.org, is claiming that $6.4 billion of stimulus funds (that is, just to remind you, yours and my money) in Congressional Districts that do not exist.
As the Heritage Foundation points out, that's more Districts than actually do exist.
A of couple things to note.
First: If all of this, in a nutshell, is not incompetency, I don't know what is.
Second: I think the 60,000 jobs report inaccuracy indicates this is not translating very well into the real world. Yes, it may sound great in textbooks and papers and whatnot, but this whole process is absurdly complex to implement, if not impossible to implement, and I don't believe many people in positions of power and who have already staked their careers on this working are willing to acknowledge that.
Third: Public Choice Theory, in terms of spending, has yet to rear its ugly head. Don't worry though; there's still a lot of time...
And Fourth: So what is it again we're getting out of this? Y'know, besides lighter wallets and migraines?
Take Everything With a Grain of Salt...
The Wall Street Journal reports, "White House budget director Peter Orszag, speaking at the Journal’s CEO Council conference, pushed back against the notion that the health-care overhaul will add to the deficit and said next year’s budget will provide a path to a more sustainable budget gap."
You mean the same Peter Orszag who in 2002 was paid by Fannie Mae to contribute to a paper claiming that the probability of Fannie ever getting into serious financial trouble was virtually zero?
The abstract of said paper:
The paper concludes that the probability of default by the GSEs is extremely small. Given this, the expected monetary costs of exposure to GSE insolvency are relatively small -- even given very large levels of outstanding GSE debt and even assuming that the government would bear the cost of all GSE debt in the case of insolvency. For example, if the probability of the stress test conditions occurring is less than one in 500,000, and if the GSEs hold sufficient capital to withstand the stress test, the implication is that the expected cost to the government of providing an explicit government guarantee on $1 trillion in GSE debt is less than $2 million. To be sure, it is difficult to analyze extremely low-probability events, such as the one embodied in the stress test. Even if the analysis is off by an order of magnitude, however, the expected cost to the government is still very modest.
I'm not going to dismiss the guy because of this, but I do think it reveals either significant lack of character or judgment.
You mean the same Peter Orszag who in 2002 was paid by Fannie Mae to contribute to a paper claiming that the probability of Fannie ever getting into serious financial trouble was virtually zero?
The abstract of said paper:
The paper concludes that the probability of default by the GSEs is extremely small. Given this, the expected monetary costs of exposure to GSE insolvency are relatively small -- even given very large levels of outstanding GSE debt and even assuming that the government would bear the cost of all GSE debt in the case of insolvency. For example, if the probability of the stress test conditions occurring is less than one in 500,000, and if the GSEs hold sufficient capital to withstand the stress test, the implication is that the expected cost to the government of providing an explicit government guarantee on $1 trillion in GSE debt is less than $2 million. To be sure, it is difficult to analyze extremely low-probability events, such as the one embodied in the stress test. Even if the analysis is off by an order of magnitude, however, the expected cost to the government is still very modest.
I'm not going to dismiss the guy because of this, but I do think it reveals either significant lack of character or judgment.
Ahh, the Wonders of Technology
Via Reason, the Washington Examiner is using Google Earth to interactively track all bogus reports of jobs "created or saved" by the stimulus package.
As of now the count is north of 75,000.
As of now the count is north of 75,000.
Thoughts on Health Care, Part I: A Right to Health Care Access?
Over the next few months I wish to weigh in on the health care debate with a series of short essays. Here is the first:
One of the most relied upon arguments of proponents of socialized medicine is that health care access is an inherent right all human beings possess. I wish to challenge this assertion.
There are numerous practical arguments one can make against this claim. For instance, who will pay for the costs? How will perverse cost incentives be dealt with? How will the distribution of effective services be done efficiently? How will information be shared? The list goes on and on. But I wish to deal with one distinct issue: the fundamental contradictory nature of a so-called "right" to health care access.
Claiming health care is a right is to give credence to the notion of positive rights; rights which are based on action, or require one party to give and another party to receive. Examples are access to health care, as mentioned, or access to public education. Contrast this with negative rights, which are based on inaction, or the freedom "from" something. Popular examples are the rights of freedom of speech and assembly (freedom from coercive measures). Negative rights are a one party system; positive rights are a two-party system. To clarify, take crime as an example. A negative right application of crime in society would be "freedom from crime." If this right were to be violated, society would take ex post measures to compensate the victim for any damages suffered. A positive right application of crime would be the "right" to be served by a public police force, security cameras, etc... to prevent such violations from occuring in the first place.
The key difference between these two types of rights is that positive rights comes at a cost to some party to maintain the right of another party, whereas negative rights do not come at a cost to any second party. I am free to say what I wish, but no one is required to listen. I am free to assemble with others, but I cannot coerce others to assemble with me. On the other hand, if I have a right to health care access, I do not have to endure any cost to attain the benefits of the services of health care. But because health care is a limited resource, to receive it, it must come at some cost to another party. In this simple scenario, that party would be the provider. The cost would be endured in forms of lack of monetary compensation due to time spent, skill applied, effort applied, emotional capacity spent and others.
At its core, a right to health care access is a violation of property rights. The consequence of this would be the extreme perversion of The Law. Frederic Bastiat writes in The Law, "As long as it is admitted that the law may be diverted from its true purpose - that it may violate property instead of protecting it - then everyone will want to participate in making the law, either to protect himself against plunder or use it for plunder." A right to health care access legitimizes the idea that The Law exists not to protect, but to provide. The consequences of such thinking can only lead to totalitarian ends.
As Michael Cannon and Michael Tanner write in Healthy Competition, "Fundamentally, creating a legal "right" to health care is incompatible with the idea of individual rights. People cannot legitimately claim a right to something if that claim infringes on the rights of another." A right to health care is a seductive idea that thrives in the minds of reality-deluded utopian thinkers. All it will provide is a subtle avenue for government to seize individuals' liberties under the guise of paternal altruism.
Do not be fooled.
One of the most relied upon arguments of proponents of socialized medicine is that health care access is an inherent right all human beings possess. I wish to challenge this assertion.
There are numerous practical arguments one can make against this claim. For instance, who will pay for the costs? How will perverse cost incentives be dealt with? How will the distribution of effective services be done efficiently? How will information be shared? The list goes on and on. But I wish to deal with one distinct issue: the fundamental contradictory nature of a so-called "right" to health care access.
Claiming health care is a right is to give credence to the notion of positive rights; rights which are based on action, or require one party to give and another party to receive. Examples are access to health care, as mentioned, or access to public education. Contrast this with negative rights, which are based on inaction, or the freedom "from" something. Popular examples are the rights of freedom of speech and assembly (freedom from coercive measures). Negative rights are a one party system; positive rights are a two-party system. To clarify, take crime as an example. A negative right application of crime in society would be "freedom from crime." If this right were to be violated, society would take ex post measures to compensate the victim for any damages suffered. A positive right application of crime would be the "right" to be served by a public police force, security cameras, etc... to prevent such violations from occuring in the first place.
The key difference between these two types of rights is that positive rights comes at a cost to some party to maintain the right of another party, whereas negative rights do not come at a cost to any second party. I am free to say what I wish, but no one is required to listen. I am free to assemble with others, but I cannot coerce others to assemble with me. On the other hand, if I have a right to health care access, I do not have to endure any cost to attain the benefits of the services of health care. But because health care is a limited resource, to receive it, it must come at some cost to another party. In this simple scenario, that party would be the provider. The cost would be endured in forms of lack of monetary compensation due to time spent, skill applied, effort applied, emotional capacity spent and others.
At its core, a right to health care access is a violation of property rights. The consequence of this would be the extreme perversion of The Law. Frederic Bastiat writes in The Law, "As long as it is admitted that the law may be diverted from its true purpose - that it may violate property instead of protecting it - then everyone will want to participate in making the law, either to protect himself against plunder or use it for plunder." A right to health care access legitimizes the idea that The Law exists not to protect, but to provide. The consequences of such thinking can only lead to totalitarian ends.
As Michael Cannon and Michael Tanner write in Healthy Competition, "Fundamentally, creating a legal "right" to health care is incompatible with the idea of individual rights. People cannot legitimately claim a right to something if that claim infringes on the rights of another." A right to health care is a seductive idea that thrives in the minds of reality-deluded utopian thinkers. All it will provide is a subtle avenue for government to seize individuals' liberties under the guise of paternal altruism.
Do not be fooled.
Your "Really?!?" Story of the Week
Via The Indepedent Institute's The Beacon Blog, The Washington Post reports:
Former President George W. Bush, outlining plans for a new public policy institute, on Thursday said America must fight the temptation to allow the federal government to take control of the private sector, declaring that too much government intervention will squelch economic recovery and expansion.
I mean... you can't be serious.
Anthony Gregory: So the guy who began the auto bailouts, whose federal “Ownership Society” was key in creating the biggest speculative bubble in memory, who had bragged in 2004 for having “passed the strongest corporate reforms since Franklin Roosevelt,” who trashed the Bill of Rights, inflated the welfare state and expanded government faster and in more directions than any president since Vietnam, if not since World War II — this guy is now promoting free markets and criticizing big government? This would be obscene if it weren’t so laughable.
Doug Bandow: Mr. Big Spender, aka George “ break the budget, expand Medicare, centralize control of education in Washington, bail out anyone and everyone, violate civil liberties, treat the president as an elective dictator, and initiate a needless war” Bush, is worried about government doing too much.
I am not a member of the Republican Party but plan on joining relatively soon. I will do this because I see it as the only viable and practical way of combating the Big Government Democratic Party. But I will bot be joining a party that is defined by the policies of George W. Bush and other Big Government Republicans. For this man to claim that the world should be promoting free-market enterprises after the horrific increase in government power that he oversaw is, quite frankly, sickening. Republicans, true free-market Republicans, should be outraged at this.
Until Republicans break off from the George W. Bush types, the Party will have zero credibility.
Former President George W. Bush, outlining plans for a new public policy institute, on Thursday said America must fight the temptation to allow the federal government to take control of the private sector, declaring that too much government intervention will squelch economic recovery and expansion.
I mean... you can't be serious.
Anthony Gregory: So the guy who began the auto bailouts, whose federal “Ownership Society” was key in creating the biggest speculative bubble in memory, who had bragged in 2004 for having “passed the strongest corporate reforms since Franklin Roosevelt,” who trashed the Bill of Rights, inflated the welfare state and expanded government faster and in more directions than any president since Vietnam, if not since World War II — this guy is now promoting free markets and criticizing big government? This would be obscene if it weren’t so laughable.
Doug Bandow: Mr. Big Spender, aka George “ break the budget, expand Medicare, centralize control of education in Washington, bail out anyone and everyone, violate civil liberties, treat the president as an elective dictator, and initiate a needless war” Bush, is worried about government doing too much.
I am not a member of the Republican Party but plan on joining relatively soon. I will do this because I see it as the only viable and practical way of combating the Big Government Democratic Party. But I will bot be joining a party that is defined by the policies of George W. Bush and other Big Government Republicans. For this man to claim that the world should be promoting free-market enterprises after the horrific increase in government power that he oversaw is, quite frankly, sickening. Republicans, true free-market Republicans, should be outraged at this.
Until Republicans break off from the George W. Bush types, the Party will have zero credibility.
Public Choice Theory in Sports?
Via Fanhouse, Lebron James will be changing his number from 23 to 6 next season and urges other players to do the same. James claims he is doing this out of respect for Michael Jordan.
Hmm, for some reason I doubt that.
In my opinion this is a pure PR play. James knows that #23 is embedded in American culture as the number "His Airness" wore. No matter who wears it after Jordan, even a player who may be better than Jordan, like James, the number will forever be associated first and foremost with Jordan. James recognizes this and is simply maximizing yet another way to promote his image. And good for him.
But please don't buy the altruistic notion that James is doing this out of "respect". If Lebron James is anything, he ain't a basketball player. He's a businessman. And a very shrewd one at that.
Then again, maybe I'm just a miserable cynic.
Hmm, for some reason I doubt that.
In my opinion this is a pure PR play. James knows that #23 is embedded in American culture as the number "His Airness" wore. No matter who wears it after Jordan, even a player who may be better than Jordan, like James, the number will forever be associated first and foremost with Jordan. James recognizes this and is simply maximizing yet another way to promote his image. And good for him.
But please don't buy the altruistic notion that James is doing this out of "respect". If Lebron James is anything, he ain't a basketball player. He's a businessman. And a very shrewd one at that.
Then again, maybe I'm just a miserable cynic.
Some More "The Wire" Related Material
Via Tyler Cown of MR, here is a link to an interesting project involving a UK journalist working the crime beat in Baltimore.
For fans of The Wire, obviously.
For fans of The Wire, obviously.
Dobbs, Out!
Via Dan Griswold of Cato, Lou Dobbs last night (and his last night) on the current state of national affairs:
[national affairs] are now defined in the public arena by partisanship and ideology rather than by rigorous empirical thought and forthright analysis and discussion. I will be working diligently to change that as best I can.
(In my best Seth Meyers impersonation) Really, Mr. Dobbs? Really?
[national affairs] are now defined in the public arena by partisanship and ideology rather than by rigorous empirical thought and forthright analysis and discussion. I will be working diligently to change that as best I can.
(In my best Seth Meyers impersonation) Really, Mr. Dobbs? Really?
WSJ Talks to Cormac McCarthy
Interview with one of my favorite novelists, Cormac McCarthy.
The Road comes out November 25. I urge anyone planning to see the movie who hasn't yet read the book to read it first. Very quick, but very powerful and moving read.
The Road comes out November 25. I urge anyone planning to see the movie who hasn't yet read the book to read it first. Very quick, but very powerful and moving read.
Healthcare Links
John Stossel on the fallacy of a centrally planned health care system
The New York Times on what the Senate bill may include
Michael Tanner on how the most controversial issues are addresed in the recently passed House bill
Mario Rizzo on how the bill will affect him personally.
Uh, Ya Think?
"Treasury pay czar 'very concerned' pay rules could cause bailed-out firms to lose talent."
I blogged about this earlier here, here, and here.
I blogged about this earlier here, here, and here.
Kling's New Book
Arnold Kling has a new book out entitled From Poverty to Prosperity. His brief, basic description:
Overall, compared with what you learn in introductory economics, the book puts much more emphasis on entrepreneurs and innovation. It also puts much more emphasis on both institutions and culture.
Worth a look.
Overall, compared with what you learn in introductory economics, the book puts much more emphasis on entrepreneurs and innovation. It also puts much more emphasis on both institutions and culture.
Worth a look.
Thoughts on the Future of the Global Economy
Rob recently provided some thoughts on the Russian economy and the global economy.
I'm not sure I have much to add. If there is anything I've learned while following the events of the past two years it's how little I actually know. I think Nouriel Roubini (Dr. Doom!) does a good job summarizing where we are now [on a global scale] and where we may be headed.
Here are two very general questions that I think will play an enormous role in determining the future global economy:
1. What will the proper role of the Fed and central banks be?
2. What does the future hold for modern finance? More to the point, how is finance going to be regulated? How will private firms and eventually the entire private market react to such regulation?
I'm not sure I have much to add. If there is anything I've learned while following the events of the past two years it's how little I actually know. I think Nouriel Roubini (Dr. Doom!) does a good job summarizing where we are now [on a global scale] and where we may be headed.
Here are two very general questions that I think will play an enormous role in determining the future global economy:
1. What will the proper role of the Fed and central banks be?
2. What does the future hold for modern finance? More to the point, how is finance going to be regulated? How will private firms and eventually the entire private market react to such regulation?
State Stimulus Difficulties, Inaccuracies
Via Cafe Hayek, The Boston Globe reports of inaccurate stimulus reporting in Massachusetts. The opening paragraph:
While Massachusetts recipients of federal stimulus money collectively report 12,374 jobs saved or created, a Globe review shows that number is wildly exaggerated. Organizations that received stimulus money miscounted jobs, filed erroneous figures, or claimed jobs for work that has not yet started.
While Massachusetts recipients of federal stimulus money collectively report 12,374 jobs saved or created, a Globe review shows that number is wildly exaggerated. Organizations that received stimulus money miscounted jobs, filed erroneous figures, or claimed jobs for work that has not yet started.
Roberts on Mankiw vs Krugman
Russ Roberts offers his thoughts on the recent Mankiw vs Krugman debate. A snippet:
Does anyone (even Krugman or DeLong) think that the $100 billion or so of stimulus money that had been spent at that point had really saved or created one million jobs? (I’m ignoring the “tax cuts” which were mostly saved.) It’s possible of course. But does anyone think that the claim of one million was the result of careful objective analysis to control for everything necessary it would take to measure the number of jobs that would exist in the absence of the stimulus? And it’s not even clear that the exercise is econometrically possible. Yes, economists try to estimate things like the multiplier and the estimates vary widely for purely statistical reasons and not just the challenge of measuring confidence say, or why all government spending is not alike or any of a myriad of other challenges.
Does anyone (even Krugman or DeLong) think that the $100 billion or so of stimulus money that had been spent at that point had really saved or created one million jobs? (I’m ignoring the “tax cuts” which were mostly saved.) It’s possible of course. But does anyone think that the claim of one million was the result of careful objective analysis to control for everything necessary it would take to measure the number of jobs that would exist in the absence of the stimulus? And it’s not even clear that the exercise is econometrically possible. Yes, economists try to estimate things like the multiplier and the estimates vary widely for purely statistical reasons and not just the challenge of measuring confidence say, or why all government spending is not alike or any of a myriad of other challenges.
Krugman Misses the Point
In a recent post on his blog, Paul Krugman disparages Dick Armey for saying the government ran the housing market into the ground (or something along those lines). Krugman writes:
There’s a persistent delusion, on the part of many pundits, to the effect that we’re actually having a rational political discussion in this country. But we aren’t. The proposition that the Community Reinvestment Act caused all the bad stuff, because government forced helpless bankers into lending to Those People, has been refuted up, down, and sideways. The vast bulk of subprime lending came from institutions not subject to the CRA. Commercial real estate lending, which was mainly lending to rich white developers, not you-know-who, is in much worse shape than subprime home lending. Etc., etc.
If you watch the video, you'll see Armey never mentioned the CRA. He simply made a sweeping blanket statement. Now anyone who has followed the decade long critique of government interference in the housing market knows the CRA is the last policy serious critics claim played a role in the debacle. It's pretty much accepted, in all camps, that the policy had a relatively negligible effect on the market.
But what Krugman misses (or most likely chooses to miss) is that the CRA is in and of itself one of the many results of a political mindset that dominated Washington in the 80's, 90's, and 00's that indirectly forced hundreds of thousands, if not millions, of parties to get involved in something they ordinarily never would have gotten involved in.
No doubt a similar thing will happen in healthcare if the same mindset wins out.
(Note: See chapter 2 of Johan Norberg's Financial Fiasco for a detailed analysis of government interference in the housing market)
There’s a persistent delusion, on the part of many pundits, to the effect that we’re actually having a rational political discussion in this country. But we aren’t. The proposition that the Community Reinvestment Act caused all the bad stuff, because government forced helpless bankers into lending to Those People, has been refuted up, down, and sideways. The vast bulk of subprime lending came from institutions not subject to the CRA. Commercial real estate lending, which was mainly lending to rich white developers, not you-know-who, is in much worse shape than subprime home lending. Etc., etc.
If you watch the video, you'll see Armey never mentioned the CRA. He simply made a sweeping blanket statement. Now anyone who has followed the decade long critique of government interference in the housing market knows the CRA is the last policy serious critics claim played a role in the debacle. It's pretty much accepted, in all camps, that the policy had a relatively negligible effect on the market.
But what Krugman misses (or most likely chooses to miss) is that the CRA is in and of itself one of the many results of a political mindset that dominated Washington in the 80's, 90's, and 00's that indirectly forced hundreds of thousands, if not millions, of parties to get involved in something they ordinarily never would have gotten involved in.
No doubt a similar thing will happen in healthcare if the same mindset wins out.
(Note: See chapter 2 of Johan Norberg's Financial Fiasco for a detailed analysis of government interference in the housing market)
Poniewozik on Bias and Reporting
James Poniewozik of Time comments on the state of bias in the modern mainstream media. His last few sentences sum up what I was attempting to convey about Stossel and my support for him and his style:
Pretty plainly, Fox News is full of conservative opinion hosts, while its news wing has fixated on anti-Obama causes célèbres from ACORN to the tea-party protests. (Equally plainly, the White House is not concerned about fighting the bias of, say, MSNBC hosts who agree with it.) But Sean Hannity's Republicanism, Beck's populism and Mike Huckabee's Christian conservatism are very different — as are, say, Rachel Maddow's progressivism and Chris Matthews' Democratic insiderdom. American politics has civil libertarians and Wall Street conservatives and social-justice moralist-populists and much more.
Pretty plainly, Fox News is full of conservative opinion hosts, while its news wing has fixated on anti-Obama causes célèbres from ACORN to the tea-party protests. (Equally plainly, the White House is not concerned about fighting the bias of, say, MSNBC hosts who agree with it.) But Sean Hannity's Republicanism, Beck's populism and Mike Huckabee's Christian conservatism are very different — as are, say, Rachel Maddow's progressivism and Chris Matthews' Democratic insiderdom. American politics has civil libertarians and Wall Street conservatives and social-justice moralist-populists and much more.
And they all, in these unsettled times, have various issues with the centrist establishment — which has its own permutations and camps. All of this promises wild and interesting times for journalists to cover, but they won't be able to do it from the neutral center. Because there isn't one, and there never was.
News and opinion have merged into one product whether we like it or not. At least Stossel admits this.
Horwitz on ObamaCare
Steve Horwitz on ObamaCare:
I continue to be amazed at my friends on the left who think this bill is some sort of victory for the little guy. This will be a feast of lobbying and rent-seeking as it will be tinkered with for years if it passes. Who wins at that game? Not you and me, but Big Insurance, Big Pharma, and Big Corporations in general, who can absorb the costs and engage in the lobbying. It will kill small businesses and it will impoverish and worsen the medical care of the middle class, as well as the poor.
For all the talk on the left of being opposed to corporate power, they just don't seem to get that expanding the state's role is exactly what gives corporations REAL power through lobbying, rent-seeking and the all the rest.
I'll disagree with Steve on one thing; the left definitely gets it. From the minimum wage to agricultural subsidies to mandated benefits to this garbage, the left's economic philosophy (and recently much of the right's) is combining the redistribution of wealth with corporate back scratching, resulting in a duplicitous system that hides behind a veil of populist rhetoric and propaganda, yet ultimately ends up only benefiting the rich and powerful.
Corporate-statism is the greatest threat to liberty, democracy and capitalism, and this bill is a massive step toward that end.
I continue to be amazed at my friends on the left who think this bill is some sort of victory for the little guy. This will be a feast of lobbying and rent-seeking as it will be tinkered with for years if it passes. Who wins at that game? Not you and me, but Big Insurance, Big Pharma, and Big Corporations in general, who can absorb the costs and engage in the lobbying. It will kill small businesses and it will impoverish and worsen the medical care of the middle class, as well as the poor.
For all the talk on the left of being opposed to corporate power, they just don't seem to get that expanding the state's role is exactly what gives corporations REAL power through lobbying, rent-seeking and the all the rest.
I'll disagree with Steve on one thing; the left definitely gets it. From the minimum wage to agricultural subsidies to mandated benefits to this garbage, the left's economic philosophy (and recently much of the right's) is combining the redistribution of wealth with corporate back scratching, resulting in a duplicitous system that hides behind a veil of populist rhetoric and propaganda, yet ultimately ends up only benefiting the rich and powerful.
Corporate-statism is the greatest threat to liberty, democracy and capitalism, and this bill is a massive step toward that end.
Twenty Years Ago The Wall Fell
November 9, 1989 is one of the most important days in modern history. Unfortunately I don't think one out of every ten high school students in the country could tell you why.
Some voices from around the web:
Radley Balko: Today, Berlin celebrates the 20th anniversary of the fall of The Wall. Sadly, much of Europe is already beginning to forget the atrocities wrought by communism. We libertarians regularly make the point that while Nazism is still regularly and justifiably vilified, communism periodically enjoys rebirths of chic. The point can’t be made enough. Not to diminish the horrors of Nazism, but to confront the cultural whitewashing of the horrors of Stalin, Mao, Pol Pot, Il, and the others.
Pete Boettke: Let's remember the sheer joy of that day, and the celebration of life evident in the faces of the young (and old) as the tore down the wall figuratively and literally and reclaimed their basic human freedoms. And let us also remember the intellectual arguments from our discipline of economics and political economy that so thoroughly demonstrated that tyranny fails to deliver the goods, while freedom actually works. Even us cool-headed academics can get passionate about the fact that there is only one economic system that simultaneously delivers individual autonomy, generalized prosperity, and peaceful cooperation among diverse groups. Capitalism is not just ruthlessly efficient, it is civilizing -- must be championed by economists no less than the efficiency properties of a private property order and freedom of exchange. And political capitalism is NOT capitalism, but instead statism that both uses, and is used by, an alliance between business and government to profit some at the expense of others.
Roger Pilon: What does he [President Obama] think? Where does he stand on this fundamental clash of ideas? What meaning is to be drawn from his decision to forgo the commemoration in Berlin today? One can only speculate from what he has said and done, but the record does not inspire.
Matt Yglesias: It’s hard to think of non-cliché things to say on the 20th anniversary of the fall of the Berlin Wall. But I was interested to learn while in the former East Germany, that in the GDR economic system being a waiter was considered a very desirable job. It was apparently disorienting for some ambitious young East Germans who’d achieved the dream of waiterdom to discover that this is a low-status position in a market economy. The guy I heard about this from at greatest length made the transition okay, however, and now works in PR for Volkswagen.
Tyler Cowen: I first visited Berlin in 1985, while traveling with Randall Kroszner. We drove to West Berlin by car and we were terrified for the few hours we were underway in East Germany. Randy did not drive over the speed limit once. I was hardly a communist sympathizer but still I was unprepared for the day trip to East Berlin. I saw soldiers goose-stepping down one of the main streets. In the stores old ladies yelled and swung their brooms at me. Many buildings still had bullet marks or bomb damage from World War II. In a restaurant we ate a rubber Wiener Schnitzel and shared a table with an East German family; they did not have enough trust in their government to speak a word to us. I was unable to spend my mandatory thirty-mark conversion on anything useful; I carried back some Stendahl and Goethe but didn't want the Lenin. This was in the capital city in the showcase of the communist world.
My biggest impression was simply that I had never seen evil before.
Some voices from around the web:
Radley Balko: Today, Berlin celebrates the 20th anniversary of the fall of The Wall. Sadly, much of Europe is already beginning to forget the atrocities wrought by communism. We libertarians regularly make the point that while Nazism is still regularly and justifiably vilified, communism periodically enjoys rebirths of chic. The point can’t be made enough. Not to diminish the horrors of Nazism, but to confront the cultural whitewashing of the horrors of Stalin, Mao, Pol Pot, Il, and the others.
Pete Boettke: Let's remember the sheer joy of that day, and the celebration of life evident in the faces of the young (and old) as the tore down the wall figuratively and literally and reclaimed their basic human freedoms. And let us also remember the intellectual arguments from our discipline of economics and political economy that so thoroughly demonstrated that tyranny fails to deliver the goods, while freedom actually works. Even us cool-headed academics can get passionate about the fact that there is only one economic system that simultaneously delivers individual autonomy, generalized prosperity, and peaceful cooperation among diverse groups. Capitalism is not just ruthlessly efficient, it is civilizing -- must be championed by economists no less than the efficiency properties of a private property order and freedom of exchange. And political capitalism is NOT capitalism, but instead statism that both uses, and is used by, an alliance between business and government to profit some at the expense of others.
Roger Pilon: What does he [President Obama] think? Where does he stand on this fundamental clash of ideas? What meaning is to be drawn from his decision to forgo the commemoration in Berlin today? One can only speculate from what he has said and done, but the record does not inspire.
Matt Yglesias: It’s hard to think of non-cliché things to say on the 20th anniversary of the fall of the Berlin Wall. But I was interested to learn while in the former East Germany, that in the GDR economic system being a waiter was considered a very desirable job. It was apparently disorienting for some ambitious young East Germans who’d achieved the dream of waiterdom to discover that this is a low-status position in a market economy. The guy I heard about this from at greatest length made the transition okay, however, and now works in PR for Volkswagen.
Tyler Cowen: I first visited Berlin in 1985, while traveling with Randall Kroszner. We drove to West Berlin by car and we were terrified for the few hours we were underway in East Germany. Randy did not drive over the speed limit once. I was hardly a communist sympathizer but still I was unprepared for the day trip to East Berlin. I saw soldiers goose-stepping down one of the main streets. In the stores old ladies yelled and swung their brooms at me. Many buildings still had bullet marks or bomb damage from World War II. In a restaurant we ate a rubber Wiener Schnitzel and shared a table with an East German family; they did not have enough trust in their government to speak a word to us. I was unable to spend my mandatory thirty-mark conversion on anything useful; I carried back some Stendahl and Goethe but didn't want the Lenin. This was in the capital city in the showcase of the communist world.
My biggest impression was simply that I had never seen evil before.
Robert Higgs on Hoarding Cash
Robert Higgs speculates on why corporate cash holdings are currently so high. He writes:
The article [WSJ, Nov 3. -ed] attributes the extraordinary cash holdings to long-term trends and to apprehension left over from last year’s so-called credit crunch.
The article [WSJ, Nov 3. -ed] attributes the extraordinary cash holdings to long-term trends and to apprehension left over from last year’s so-called credit crunch.
The large cash holdings may also reflect presently prevailing regime uncertainty — the inability to confidently forecast how the government will treat private property rights in the future. When such uncertainty attained great heights during the years from 1935 to 1940, entrepreneurs reacted by declining to make many long-term investments, putting what investments funds they did commit overwhelmingly into short-term and intermediate-term projects, such as purchases of tools and equipment and additions to inventory. The shortest-term investment of all, of course, is to hold cash.
At present, interest rates are so low that a firm sacrifices little by holding cash, rather than, say, securities or other assets promising payoffs within the next few years. The longer term remains clouded by uncertainties associated with the government’s pending initiatives in energy, environmental policy, health care, financial regulation, taxation, warfare, monetary policy, and other key areas. The possibility exists that policies will be adopted that spell ruin for thousands of firms, especially those that hold illiquid, long-term assets whose values will be adversely affected by the new policies.
It comes as no surprise, then, that firms are clinging to huge hoards of cash. True, it’s only fiat money, and the Fed may destroy a great chunk of its value before long, but with cash one has the ability to move quickly to shift investments and cut the losses, whereas longer-term assets may lock firms into positions from which they will find it difficult to bail out without great losses when the next government-spawned crisis hits.
No doubt there is some truth to this. To what degree is the more interesting question.
Kling on Traditional Keynesianism in 2009 (and some other stuff)
Arnold Kling on Keynesian policies and the 21st century American economy. His concluding paragraphs:
The way I see it, the complexity of today's economy means that old-fashioned Keynesian policies will not restore full employment. Pump-priming and stimulus policies are a good fit for a manufacturing economy with homogeneous labor affected by temporary layoffs. They are not such a good fit for a post-industrial economy with an educated labor force facing permanent structural changes.
The way I see it, the complexity of today's economy means that old-fashioned Keynesian policies will not restore full employment. Pump-priming and stimulus policies are a good fit for a manufacturing economy with homogeneous labor affected by temporary layoffs. They are not such a good fit for a post-industrial economy with an educated labor force facing permanent structural changes.
Over the next ten years, some sectors of the economy on long-term downward trends will continue to shrink. Sectors that became bloated in recent years, notably mortgage finance, will eventually settle back to lower, sustainable levels. Much of the new strength in the economy will come from underlying long-term forces. New workers will be absorbed by businesses that have not yet been launched in industries that we have not even imagined. For this restructuring, what I like to call The Great Recalculation, Keynesian stimulus will be irrelevant.
This is definitely an oversimplification, but I think what Kling is more or less saying is this: If you owned a house today built in the 1930's that had continually been renovated so it was currently modernized, and suddenly it was devastated by a storm, why would you use 1930's technology, design and materials to repair it?
Also, here is an excellent overview by Kling on the history of monetary and fiscal policy since the 1930's and the effects different economic theories had on those policies.
Paul De Grauwe on the State of Macro
Via Taking Hayek Seriously, here is a link to Paul De Grauwe's new paper "Top Down versus Bottom Up Macroeconomics". The introduction to De Grauwe's paper:
In order to understand the nature of different macroeconomic models it is useful to make a distinction between top-down and bottom-up systems. In its most general definition a top-down system is one in which one or more agents fully understand the system. These agents are capable of representing the whole system in a blueprint that they can store in their mind. Depending on their position in the system they can use this blueprint to take over the command, or they can use it to optimize their own private welfare. These are systems in which there is a one to one mapping of the information embedded in the system and the information contained in the brain of one (or more) individuals. An example of such a top-down system is a building that can be represented by a blueprint and is fully understood by the architect.
Bottom-up systems are very different in nature. These are systems in which no individual understands the whole picture. Each individual understands only a very small part of the whole. These systems function as a result of the application of simple rules by the individuals populating the system. Most living systems follow this bottom-up logic (see the beautiful description of the growth of the embryo by Dawkins(2009)). The market system is also a bottom-up system. The best description made of this bottom-up system is still the one made by Hayek(1945). Hayek argued that no individual exists who is capable of understanding the full complexity of a market system. Instead individuals only understand small bits of the total information.
The main function of markets consists in aggregating this diverse information. If there were individuals capable of understanding the whole picture, we would not need markets. This was in fact Hayek’s criticism of the “socialist” economists who took the view that the central planner understood the whole picture, and would therefore be able to compute the whole set of optimal prices, making the market system superfluous.
My contention is that the rational expectations models are the intellectual heirs of these central planning models. Not in the sense that individuals in these rational expectations models aim at planning the whole, but in the sense that, as the central planner, they understand the whole picture. These individuals use this superior information to obtain the “optimum optimorum” for their own private welfare. In this sense they are top-down models.
In this paper I will contrast the rational expectations top-down model with a bottomup macroeconomic model. This will be a model in which agents have cognitive limitations and do not understand the whole picture (the underlying model). Instead they only understand small bits and pieces of the whole model and use simple rules to guide their behavior. I will introduce rationality in the model through a selection mechanism in which agents evaluate the performance of the rule they are following and decide to switch or to stick to the rule depending on how well the rule performs relative to other rules.
To Stimulate or Not to Stimulate? That is the Question...
Investor's Business Daily claims the stimulus has failed. The New York Times believes additional stimulus spending should be pursued.
Both debaters are missing the key point. This is not an economic debate. This is, as I've mentioned before, ex post storytelling. In other words, both groups, pro and con, are constructing ever evolving arguments around underlying theory mixed with the most recently released data. Bad unemployment numbers come out? Anti-stimulus folks instantly claim the spending has failed. Pro-stimulus types retort say it has mitigated more colossal economic destruction and that more is needed to alleviate further pain.
But no one knows for sure. We can't control and lab test any of this. There are no alternative universes to see what would have happened under different conditions and policies.
This was never about economics. This was always about politics. We can honestly debate the merits and faults of Keynesian ideas to no end, a debate well worth having, but let's not pretend the same thing is going on in Washington, D.C.
Both debaters are missing the key point. This is not an economic debate. This is, as I've mentioned before, ex post storytelling. In other words, both groups, pro and con, are constructing ever evolving arguments around underlying theory mixed with the most recently released data. Bad unemployment numbers come out? Anti-stimulus folks instantly claim the spending has failed. Pro-stimulus types retort say it has mitigated more colossal economic destruction and that more is needed to alleviate further pain.
But no one knows for sure. We can't control and lab test any of this. There are no alternative universes to see what would have happened under different conditions and policies.
This was never about economics. This was always about politics. We can honestly debate the merits and faults of Keynesian ideas to no end, a debate well worth having, but let's not pretend the same thing is going on in Washington, D.C.
von Mises, Keynes, and Where We Stand Today
Mark Spitznagel's op-ed in The Weekend Journal on Ludwig von Mises' "Theorie des Geldes und der Umlaufsmittel" ("The Theory of Money and Credit") is well worth a read.
But so is Don Boudreaux's letter to the editor concerning the article, which points out that Keynes' rejection of the work was not "based... on anything as lofty as informed disagreement; it was based instead on incomprehension."
But so is Don Boudreaux's letter to the editor concerning the article, which points out that Keynes' rejection of the work was not "based... on anything as lofty as informed disagreement; it was based instead on incomprehension."
What Will Be the Reaction?
Russ Roberts advises we "remember our Hayek" before the inevitable political/media firestorm erupts over the most recent unemployment numbers. Hayek:
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
We shall see. But I am not confident.
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
We shall see. But I am not confident.
Where is Truth?
John Tamny on politicians and unemployment.
Some points made by Tamny:
1. Employment is a means to an end, not the end itself. Jobs are constantly destroyed in an economically vibrant country, but this is overall a good thing. Bad jobs (for lack of a better term) are destroyed (by technology, outsourcing, etc...), but better jobs, in the long run, result, due to the freeing of capital, time and other factors that stem from growth and production.
2. The benefits of a job (wages) are a cost (capital) to an employer (investor). So an investor will only invest in labor if he feels he will get an adaquete return on his investment.
This paragraph sums up these points nicely:
Harsh as it may sound to some, businesses are only in business thanks to investors willing to support their operations. But what this means is that if businesses successfully destroy jobs on the way to profitability, the act of doing so enables them to attract the capital necessary to enter into new lines of work that almost as a rule will require them to hire people. Production is always the end, while employment is frequently the means to that end.
The part concerning politicians and investors' reactions to said politicians interference in the market gets a bit tricky. Tamny claims:
Corporate bailouts are supported by politicians owing to their belief that they'll save jobs. In the near-term that's true, but over the long-term bailouts repel the capital necessary for true job creation for keeping human and physical capital locked in the hands of failed managers. Investors as a rule invest to make money, and as such, they're logically unwilling to commit capital to the prominent business concepts of the past.
President George W. Bush foisted no less than two stimulus packages on the economy to President Obama's one (so far?), and both did so in name of job creation. But the obvious problem beyond stimulus merely redistributing wealth is that it too is anti-investment.
Investors correctly see that only the politically connected will receive stimulus funds, and they deduce that those in receipt will forever be in thrall to governments who seek to achieve social goals over profits. Stimulus similarly repels investment for those with capital being well aware that far from generating productivity, stimulus rewards the indolent at the expense of the productive.
Lastly, the Obama administration is mimicking the Bush administration in its support of a weak dollar, once again in the name of jobs. Sadly, Obama like Bush before him is failing to consider the investor in possession of capital in pursuing this most foolish of policies. Indeed, investors have to consider inflation before committing job-creating capital, and if monetary debasement is going to erode any returns, they logically invest elsewhere. It seems nearly every politician and economist believes in the power of debased money to create jobs, but reality and rational investors keep proving them wrong.
What this boils down to is supply-side assumptions vs Keynesian assumptions:
Is the private actor rational and emotionless in his decision-making, responding to institutional incentives in the most sensical manner imaginable?
Or is he dominated by his 'animal spirits', the tides of fear and greed, a mere lemming in a herd of irrational exuberant behavior?
No doubt both theories play a role in examining the ever complex human mind. But to what degree does each play a role?
That is the ultimate question.
Some points made by Tamny:
1. Employment is a means to an end, not the end itself. Jobs are constantly destroyed in an economically vibrant country, but this is overall a good thing. Bad jobs (for lack of a better term) are destroyed (by technology, outsourcing, etc...), but better jobs, in the long run, result, due to the freeing of capital, time and other factors that stem from growth and production.
2. The benefits of a job (wages) are a cost (capital) to an employer (investor). So an investor will only invest in labor if he feels he will get an adaquete return on his investment.
This paragraph sums up these points nicely:
Harsh as it may sound to some, businesses are only in business thanks to investors willing to support their operations. But what this means is that if businesses successfully destroy jobs on the way to profitability, the act of doing so enables them to attract the capital necessary to enter into new lines of work that almost as a rule will require them to hire people. Production is always the end, while employment is frequently the means to that end.
The part concerning politicians and investors' reactions to said politicians interference in the market gets a bit tricky. Tamny claims:
Corporate bailouts are supported by politicians owing to their belief that they'll save jobs. In the near-term that's true, but over the long-term bailouts repel the capital necessary for true job creation for keeping human and physical capital locked in the hands of failed managers. Investors as a rule invest to make money, and as such, they're logically unwilling to commit capital to the prominent business concepts of the past.
President George W. Bush foisted no less than two stimulus packages on the economy to President Obama's one (so far?), and both did so in name of job creation. But the obvious problem beyond stimulus merely redistributing wealth is that it too is anti-investment.
Investors correctly see that only the politically connected will receive stimulus funds, and they deduce that those in receipt will forever be in thrall to governments who seek to achieve social goals over profits. Stimulus similarly repels investment for those with capital being well aware that far from generating productivity, stimulus rewards the indolent at the expense of the productive.
Lastly, the Obama administration is mimicking the Bush administration in its support of a weak dollar, once again in the name of jobs. Sadly, Obama like Bush before him is failing to consider the investor in possession of capital in pursuing this most foolish of policies. Indeed, investors have to consider inflation before committing job-creating capital, and if monetary debasement is going to erode any returns, they logically invest elsewhere. It seems nearly every politician and economist believes in the power of debased money to create jobs, but reality and rational investors keep proving them wrong.
What this boils down to is supply-side assumptions vs Keynesian assumptions:
Is the private actor rational and emotionless in his decision-making, responding to institutional incentives in the most sensical manner imaginable?
Or is he dominated by his 'animal spirits', the tides of fear and greed, a mere lemming in a herd of irrational exuberant behavior?
No doubt both theories play a role in examining the ever complex human mind. But to what degree does each play a role?
That is the ultimate question.
Stossel and the MSM
John Stossel on the double-standard of the mainstream media.
Stossel is far and away my favorite member of the MSM. There are two reasons for this.
One, he is the only member of the MSM that is a true and true free-marketer. This is unlike the clowns on Fox News who trumpet free markets when in comes to Wall Street and the broader economy, but then feel only the federal government is capable of handling and regulating the horrors of drugs, gay marriage and the like.
Secondly, Stossel takes a novel approach to his reporting, which he talks about at the end of the linked article. He admits his bias. And he reports based on his biases. But he never hides them. I find that admirable.
There is no doubt in my mind that bias runs rampant throughout the MSM. We can continue the charade and pretend these reporters are doing the nation a service with their objectivity. Or we can admit our biases like Stossel and let the market determine who is providing the most valuable reporting.
Stossel is far and away my favorite member of the MSM. There are two reasons for this.
One, he is the only member of the MSM that is a true and true free-marketer. This is unlike the clowns on Fox News who trumpet free markets when in comes to Wall Street and the broader economy, but then feel only the federal government is capable of handling and regulating the horrors of drugs, gay marriage and the like.
Secondly, Stossel takes a novel approach to his reporting, which he talks about at the end of the linked article. He admits his bias. And he reports based on his biases. But he never hides them. I find that admirable.
There is no doubt in my mind that bias runs rampant throughout the MSM. We can continue the charade and pretend these reporters are doing the nation a service with their objectivity. Or we can admit our biases like Stossel and let the market determine who is providing the most valuable reporting.
Polarization and Cable News
Steve Chapman on the myth of extreme political polarization. He points to cable news as a main culprit in promoting this false idea.
In my eyes cable news is MTV for people who want to feel politically relevant; it'll keep you updated and 'hip', but you will never actually learn anything of substance.
Cable news is like the Jerry Spring Show; entertaining for five minutes, discomforting after ten, and simpy nauseating after a half-hour.
I could do this all day.
In my eyes cable news is MTV for people who want to feel politically relevant; it'll keep you updated and 'hip', but you will never actually learn anything of substance.
Cable news is like the Jerry Spring Show; entertaining for five minutes, discomforting after ten, and simpy nauseating after a half-hour.
I could do this all day.
Logistical Nightmare
Central planning on the extreme micro level.
Now to be fair, if I'm going to criticize the Obama Administration for spending boatloads of other people's money in the first place, I should at least give them some credit for trying to accurately track that spending.
But trying to force the real world to speak Economese is like mandating everyone in the country to only speak Spanish. It just ain't gonna happen.
(HT: Greg Mankiw)
Now to be fair, if I'm going to criticize the Obama Administration for spending boatloads of other people's money in the first place, I should at least give them some credit for trying to accurately track that spending.
But trying to force the real world to speak Economese is like mandating everyone in the country to only speak Spanish. It just ain't gonna happen.
(HT: Greg Mankiw)
Stimulus Tracking
Along with recovery.gov and federalreporting.gov, I recommend the private recovery.org to tracking stimulus spending and reporting.
Mankiw vs Krugman
Greg Mankiw defends himself against (seemingly unjust) charges made by Paul Krugman.
Every Keynesian style defense I've read on the stimulus package, including the White House, confuses modeling with reality. Krugman, the central figure of this group, consistently determines the assumptions he makes about the economy are 100% true and infallible. This is an unbelievably arrogant and dishonest thing for someone as intelligent and influencial as Krugman to do. Mankiw writes:
I do not object to claims such as:
A: "Based on our models of the economy, we believe there would be X million fewer jobs today without the stimulus."
But it is absurd to suggest that you can say:
B: "We have measured how many jobs the stimulus has saved or created, and the number is X."
Economists are capable of making statements such as A, but it is beyond our ken to make statements such as B. Statement B is, of course, much stronger than statement A, as it purports to be based on data rather than on models. Unfortunately, we are hearing statements like B much too often from administration officials. A good example is here, where can you "learn" that 110,185.36 jobs have been created or saved in California alone.
Krugman is disguising politics as economics, and his pedigree is allowing him to get away with it. This is bad news for the discipline of economics.
UPDATE: Mario Rizzo weighs in over at Think Markets.
Every Keynesian style defense I've read on the stimulus package, including the White House, confuses modeling with reality. Krugman, the central figure of this group, consistently determines the assumptions he makes about the economy are 100% true and infallible. This is an unbelievably arrogant and dishonest thing for someone as intelligent and influencial as Krugman to do. Mankiw writes:
I do not object to claims such as:
A: "Based on our models of the economy, we believe there would be X million fewer jobs today without the stimulus."
But it is absurd to suggest that you can say:
B: "We have measured how many jobs the stimulus has saved or created, and the number is X."
Economists are capable of making statements such as A, but it is beyond our ken to make statements such as B. Statement B is, of course, much stronger than statement A, as it purports to be based on data rather than on models. Unfortunately, we are hearing statements like B much too often from administration officials. A good example is here, where can you "learn" that 110,185.36 jobs have been created or saved in California alone.
Krugman is disguising politics as economics, and his pedigree is allowing him to get away with it. This is bad news for the discipline of economics.
UPDATE: Mario Rizzo weighs in over at Think Markets.
Don't Believe What You Hear About the Stimulus in Colorado (or Anywhere for that Matter)
The Denver Post reports stimulus spending claims and jobs "saved" or "created" has been enormously inaccurate in Colorado.
Expect many similar accounting "discrepancies" in the future.
(HT: RCP)
Expect many similar accounting "discrepancies" in the future.
(HT: RCP)
Interview with Austrian Economist Steve Horwitz
Interview with Professor Steve Horwitz of St. Lawrence University. Horwitz is one of the few hard core Austrian economists out there, so it's nice to get his perspective on a wide range of issues.
(HT: The Austrian Economists)
(HT: The Austrian Economists)
More Stimulus Discussion for the Soul (Can You Take It?!?)
I apologize, but it seems this blog is rapidly turning into the stimulus-only blog. I'm sorry, though, I find the debate to be absolutely stimulating. (ha!)
Anyways, here's a link to thoughts on stimulus from economists Jeff Miron, Simon Johnson, Mark Thoma and Russ Roberts. Concluding paragraphs from each:
Miron: The case for additional stimulus is weak. If further stimulus occurs, it should focus on changes in policy that make sense independent of the recession. This means reductions in tax rates rather than increases in expenditure. Repeal of the corporate income tax would be ideal.
Johnson: Global crises need global responses. The Obama administration and current Congress recognized the challenge and stepped up in a sensible and responsible manner. Now they, and the rest of the G20, need to tackle the still urgent problem in our financial system, including the “too big to fail” banks. If this is not addressed — and progress so far is very limited and the prospects do not look good — we remain vulnerable to another debilitating crisis. And next time, we may lack the political will or credibility or luck to pull off another appropriate set of fiscal countermeasures.
Thoma: The fact is, the stimulus programs in place now are probably too small. At some point the private sector will have to sustain growth on its own, but we’re not there yet and we must maintain the stimulus effort in the interim.
Roberts: I think the Keynesian narrative is right about one thing — consumers lack confidence. The crucial question is whether a large increase in government spending financed with borrowed money that swells the deficit to $1.4 trillion is good for confidence or bad for it. No one knows the answer.
Anyone who reads this blog regularly knows I'm squarely in the Miron/Roberts camp, but I don't think any of these guys makes a particularly strong case. But this isn't due to lack of intelligence, in my opinion. It's much more, as Roberts put it, "no one knows the answer."
Note: I believe Thoma is the only trained macroeconomist in this group, but don't quote me on that...
(HT: Cafe Hayek)
Anyways, here's a link to thoughts on stimulus from economists Jeff Miron, Simon Johnson, Mark Thoma and Russ Roberts. Concluding paragraphs from each:
Miron: The case for additional stimulus is weak. If further stimulus occurs, it should focus on changes in policy that make sense independent of the recession. This means reductions in tax rates rather than increases in expenditure. Repeal of the corporate income tax would be ideal.
Johnson: Global crises need global responses. The Obama administration and current Congress recognized the challenge and stepped up in a sensible and responsible manner. Now they, and the rest of the G20, need to tackle the still urgent problem in our financial system, including the “too big to fail” banks. If this is not addressed — and progress so far is very limited and the prospects do not look good — we remain vulnerable to another debilitating crisis. And next time, we may lack the political will or credibility or luck to pull off another appropriate set of fiscal countermeasures.
Thoma: The fact is, the stimulus programs in place now are probably too small. At some point the private sector will have to sustain growth on its own, but we’re not there yet and we must maintain the stimulus effort in the interim.
Roberts: I think the Keynesian narrative is right about one thing — consumers lack confidence. The crucial question is whether a large increase in government spending financed with borrowed money that swells the deficit to $1.4 trillion is good for confidence or bad for it. No one knows the answer.
Anyone who reads this blog regularly knows I'm squarely in the Miron/Roberts camp, but I don't think any of these guys makes a particularly strong case. But this isn't due to lack of intelligence, in my opinion. It's much more, as Roberts put it, "no one knows the answer."
Note: I believe Thoma is the only trained macroeconomist in this group, but don't quote me on that...
(HT: Cafe Hayek)
Kling on the Stimulus Package and Macro
Arnold Kling, my go-to-guy anything macro-related, offers some thoughts on the stimulus package:
It would appear that the great claim to fame of the stimulus is that it kept state and local governments from having to reduce spending. If you combine that with wage stickiness at the state and local level (that is, if you believe that they would cut jobs rather than cut pay for government workers), then the stimulus saved jobs. From a Recalculation perspective, one might ask whether those are the jobs that you would want to save.
Here's an essay by Kling on why he lost faith in traditional macro. Some key snippets:
There are no controlled experiments in macroeconomics. We would like to observe what would happen to employment and output in the United States in 2010 under different stimulus proposals. Ideally, we could construct alternative universes with the exact same initial conditions and try different policies. In practice, this is not possible.
When researchers attempt macroeconometrics, they are attempting to turn different time periods into controlled experiments. In effect, we take the situation in 1980 and 2005 and identify the factors that cause them to be different. We are interested in the effects of particular factors, notably fiscal and monetary policy. This method is valid only if we have properly controlled for other factors. The way I see it, controlling for other factors is impossible, because structural change is too important, too multi-faceted, and too pervasive for any statistical methodology to overcome.
***
Because of the need to impose strong priors, the structural approach is nothing but a roundabout way of communicating the way you believe the economy works. The estimated equations are not being used to discover relationships. Instead, the equations are being used by the econometrician to communicate to others the econometrician's beliefs about how the economy ought to work. To a first approximation, using structural estimates is no different from creating a simulation model out of thin air by making up the parameters.
His concluding paragraph:
We badly want macroeconometrics to work. If it did, we could resolve bitter theoretical disputes with evidence. We could achieve better forecasting and control of the economy. Unfortunately, the world is not set up to enable macroeconometrics to work. Instead, all macroeconometric models are basically simulation models that use data for calibration purposes. People judge these models based on their priors for how the economy works. Imposing priors related to rational expectations does not change the fact that macroeconometrics provides no empirical information to anyone except those who happen to share all of the priors of the model-builder.
It would appear that the great claim to fame of the stimulus is that it kept state and local governments from having to reduce spending. If you combine that with wage stickiness at the state and local level (that is, if you believe that they would cut jobs rather than cut pay for government workers), then the stimulus saved jobs. From a Recalculation perspective, one might ask whether those are the jobs that you would want to save.
Here's an essay by Kling on why he lost faith in traditional macro. Some key snippets:
There are no controlled experiments in macroeconomics. We would like to observe what would happen to employment and output in the United States in 2010 under different stimulus proposals. Ideally, we could construct alternative universes with the exact same initial conditions and try different policies. In practice, this is not possible.
When researchers attempt macroeconometrics, they are attempting to turn different time periods into controlled experiments. In effect, we take the situation in 1980 and 2005 and identify the factors that cause them to be different. We are interested in the effects of particular factors, notably fiscal and monetary policy. This method is valid only if we have properly controlled for other factors. The way I see it, controlling for other factors is impossible, because structural change is too important, too multi-faceted, and too pervasive for any statistical methodology to overcome.
***
Because of the need to impose strong priors, the structural approach is nothing but a roundabout way of communicating the way you believe the economy works. The estimated equations are not being used to discover relationships. Instead, the equations are being used by the econometrician to communicate to others the econometrician's beliefs about how the economy ought to work. To a first approximation, using structural estimates is no different from creating a simulation model out of thin air by making up the parameters.
His concluding paragraph:
We badly want macroeconometrics to work. If it did, we could resolve bitter theoretical disputes with evidence. We could achieve better forecasting and control of the economy. Unfortunately, the world is not set up to enable macroeconometrics to work. Instead, all macroeconometric models are basically simulation models that use data for calibration purposes. People judge these models based on their priors for how the economy works. Imposing priors related to rational expectations does not change the fact that macroeconometrics provides no empirical information to anyone except those who happen to share all of the priors of the model-builder.
GDP and The Descendents of Keynes
Veronique de Rugy cuts through the nonsense of the recent GDP numbers. A snippet:
the way the GDP accounts for government spending is totally biased: It assumes that if the government is spending $200,000 on a contractor to repave a road in the middle of nowhere that it will create $200,000 of genuine economic value. By contrast, GDP measures are tougher on private-sector spending. As my George Mason university colleague Garett Jones explained to me recently “So if Exxon Mobil pays an engineer $200,000 per year, that only shows up in GDP if the engineer finds an extra $200,000 of oil to sell, or builds a new machine that sells for $200,000, something like that. So our GDP measures of “government spending” are awful–and when the government is in a race to spend money as quickly as possible, these measures are going to be even worse than usual.”
Mario Rizzo does an even better job examining the whole of the White House's and Congress' spending strategies. His concluding paragraph:
In sum, at least 2.5 percentage points of the 3.5 percent increase are suspect on their own terms. And then there are the future costs to bear. As long as the stimulus-spending persists the “stuff index” (GDP) will look okay. And as long as the costs are hidden either in the future or in some other way, the politics will look fine for the stimulators.
Keynesian types want to spend as much as quickly as possible because they believe Depression 2.0 will arrive if we don't. Supply siders want the market to reallocate resources on its own to achieve equilibrium. The Keynesian argument is markets are driven by fear and greed, as Rob has pointed out a few times, and will spiral into oblivion without proper government intervention. The consequences of spending nor the creation of value/utility related to said spending do not matter to the Keynesian (though he may claim they do). Supply siders believe a reallocation would be long, tough and painful for many, but ultimately more appropriate and healthier than attempting to manipulate the economy on a grand scale.
GDP is a wonderful tool for the neo-Keynesian to frame and promote his story. But when you seperate the recipe from the final product, I don't think there is a whole lot to trust or like.
the way the GDP accounts for government spending is totally biased: It assumes that if the government is spending $200,000 on a contractor to repave a road in the middle of nowhere that it will create $200,000 of genuine economic value. By contrast, GDP measures are tougher on private-sector spending. As my George Mason university colleague Garett Jones explained to me recently “So if Exxon Mobil pays an engineer $200,000 per year, that only shows up in GDP if the engineer finds an extra $200,000 of oil to sell, or builds a new machine that sells for $200,000, something like that. So our GDP measures of “government spending” are awful–and when the government is in a race to spend money as quickly as possible, these measures are going to be even worse than usual.”
Mario Rizzo does an even better job examining the whole of the White House's and Congress' spending strategies. His concluding paragraph:
In sum, at least 2.5 percentage points of the 3.5 percent increase are suspect on their own terms. And then there are the future costs to bear. As long as the stimulus-spending persists the “stuff index” (GDP) will look okay. And as long as the costs are hidden either in the future or in some other way, the politics will look fine for the stimulators.
Keynesian types want to spend as much as quickly as possible because they believe Depression 2.0 will arrive if we don't. Supply siders want the market to reallocate resources on its own to achieve equilibrium. The Keynesian argument is markets are driven by fear and greed, as Rob has pointed out a few times, and will spiral into oblivion without proper government intervention. The consequences of spending nor the creation of value/utility related to said spending do not matter to the Keynesian (though he may claim they do). Supply siders believe a reallocation would be long, tough and painful for many, but ultimately more appropriate and healthier than attempting to manipulate the economy on a grand scale.
GDP is a wonderful tool for the neo-Keynesian to frame and promote his story. But when you seperate the recipe from the final product, I don't think there is a whole lot to trust or like.
Buying Local. Is Expensive.
If "buying local" is your thing, then more power to you. Just don't try and make me do it too.
(HT: Cafe Hayek)
(HT: Cafe Hayek)
GDP Shortcomings
Via MR, Michael Mandel's article this week in BusinessWeek is a must read. The opening paragraphs:
the official [GDP] statistics are not designed to pick up cutbacks in "intangible investments" such as business spending on research and development, product design, and worker training. There's ample evidence to suggest that companies, to reduce costs and boost short-term profits, are slashing this kind of spending, which is essential for innovation. Without investment in intangibles, the U.S. can't compete in a knowledge-based global economy. Yet you won't see that plunge reflected in the GDP and productivity statistics, which are still too focused on more traditional sectors, such as motor vehicles and construction.
In effect, government statisticians are trying to track a 21st century bust with 20th century tools. Not only is that distorting the critical data that investors, policymakers, and corporate executives use to evaluate the economy, but it might also be creating a false sense of relief as Americans battle a brutal recession.
If increasing GDP is the ultimate goal, but measuring the ultimate goal is structurally flawed, how are policy makers expected to accomplish the ultimate goal in a beneficial and efficient manner?
More on the current state of macro in a bit.
the official [GDP] statistics are not designed to pick up cutbacks in "intangible investments" such as business spending on research and development, product design, and worker training. There's ample evidence to suggest that companies, to reduce costs and boost short-term profits, are slashing this kind of spending, which is essential for innovation. Without investment in intangibles, the U.S. can't compete in a knowledge-based global economy. Yet you won't see that plunge reflected in the GDP and productivity statistics, which are still too focused on more traditional sectors, such as motor vehicles and construction.
In effect, government statisticians are trying to track a 21st century bust with 20th century tools. Not only is that distorting the critical data that investors, policymakers, and corporate executives use to evaluate the economy, but it might also be creating a false sense of relief as Americans battle a brutal recession.
If increasing GDP is the ultimate goal, but measuring the ultimate goal is structurally flawed, how are policy makers expected to accomplish the ultimate goal in a beneficial and efficient manner?
More on the current state of macro in a bit.
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