If "buying local" is your thing, then more power to you. Just don't try and make me do it too.
(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.
Health Care and Power
The always spot-on David Harsanyi cuts through the BS and reveals Pelosi's health care legislation for what it truly is: an unadultered government power grab.
Public Choice in Action
Via David Henderson over at Econlog, keithhennessey.com points out some precarious and perverse incentives facing DC legislators at the moment. In particular:
The Democratic party is unified in wanting a major legislative accomplishment. I know of no Democrat who is saying he or she wants the bill to fail, even if some of them will vote against it. This sounds trivial but is important. Congressional Democrats appear to believe that enactment of a comprehensive law is critical to their re-election. Most seem to believe that a White House signing ceremony is more important than the contents of the bill that becomes law. This helps the Leaders and the President rally votes and creates legislative bargaining flexibility.
Relying on government benevolence is like leaving the front door of your home unlocked 24/7 because you believe everyone around you is good. It's a wonderful thought, but you are going to get robbed.
The Democratic party is unified in wanting a major legislative accomplishment. I know of no Democrat who is saying he or she wants the bill to fail, even if some of them will vote against it. This sounds trivial but is important. Congressional Democrats appear to believe that enactment of a comprehensive law is critical to their re-election. Most seem to believe that a White House signing ceremony is more important than the contents of the bill that becomes law. This helps the Leaders and the President rally votes and creates legislative bargaining flexibility.
Relying on government benevolence is like leaving the front door of your home unlocked 24/7 because you believe everyone around you is good. It's a wonderful thought, but you are going to get robbed.
A Defense of Umpires
With a number of obviously bad calls coming to the forefront in this year’s postseason via instant replays, many fans are calling for the replacement of umpires with a more objectively accurate form of officiating. However, I think that these alternatives are a bad idea for Major League Baseball. In fact, at the moment I am writing this article, there has been yet another terrible call in which a first base umpire determined that Ryan Howard caught a line drive on a fly when in fact the ball short-hopped into his glove. Now, if a baseball fan argues that the sole purpose of officiating in the game is to perfectly regulate the game so that the competition between the two teams is paramount, then there is little I can say. I could argue, as most pro-umpire fans do, that human umpiring is the way it’s always been done, and therefore rely on a conservative argument based on the importance of tradition.
However, I think that this is a weak approach to the defense of human umpiring. Rather, I think that baseball is a rare (perhaps the only) sport in which the purpose of the umpires is not necessarily simply to make sure that the right calls are made, but to in fact be a part of the game. A baseball game may not be just a display to see who is the better team, but a form of entertainment- one in which the umpires figure dramatically. For one, human umpires have contributed to games by in fact nullifying the rules of the game. Umpires have customarily made the definition of the strike zone their own, giving the benefit of an inch or so off the corners to the pitcher. It is umpires who have determined that a check swing is a strike if the batter crosses the plane of the plate (it is not specified in the rules). And it is umpires who have established the neighborhood call at second base on double plays. Similarly, part of the entertainment of a baseball game involves the occasional face-to-face argument between coaches and umpires. Isn’t Lou Piniella kicking dirt on home plate as notorious an event as a cycle or a stolen base? It certainly gets as much airtime on the highlights. Finally, the bad calls are as much a form of baseball lore as the good ones. I’m sure I’ve seen George Brett’s pine tar incident as often as I have Joe Carter’s home run.
It is my opinion that baseball is not just a game; it is a work of art. The purpose of baseball is not solely to see who is best, but to create the entertainment that has justified it as a primary focal point of our culture. Umpires clarify our rules, and defend their calls in entertaining disputes. Even in their worst moments, they have created controversy by inspiring water-cooler conversation, as they have since the birth of our game. If you think the sole objective of the game is to see which team is best, then I have little argument. But if you think, as I do, that baseball is a collective form of entertainment, then umpires are a necessary aspect of the practice that has become our national pastime.
However, I think that this is a weak approach to the defense of human umpiring. Rather, I think that baseball is a rare (perhaps the only) sport in which the purpose of the umpires is not necessarily simply to make sure that the right calls are made, but to in fact be a part of the game. A baseball game may not be just a display to see who is the better team, but a form of entertainment- one in which the umpires figure dramatically. For one, human umpires have contributed to games by in fact nullifying the rules of the game. Umpires have customarily made the definition of the strike zone their own, giving the benefit of an inch or so off the corners to the pitcher. It is umpires who have determined that a check swing is a strike if the batter crosses the plane of the plate (it is not specified in the rules). And it is umpires who have established the neighborhood call at second base on double plays. Similarly, part of the entertainment of a baseball game involves the occasional face-to-face argument between coaches and umpires. Isn’t Lou Piniella kicking dirt on home plate as notorious an event as a cycle or a stolen base? It certainly gets as much airtime on the highlights. Finally, the bad calls are as much a form of baseball lore as the good ones. I’m sure I’ve seen George Brett’s pine tar incident as often as I have Joe Carter’s home run.
It is my opinion that baseball is not just a game; it is a work of art. The purpose of baseball is not solely to see who is best, but to create the entertainment that has justified it as a primary focal point of our culture. Umpires clarify our rules, and defend their calls in entertaining disputes. Even in their worst moments, they have created controversy by inspiring water-cooler conversation, as they have since the birth of our game. If you think the sole objective of the game is to see which team is best, then I have little argument. But if you think, as I do, that baseball is a collective form of entertainment, then umpires are a necessary aspect of the practice that has become our national pastime.
The Importance of Language
Via Reason, Nancy Pelosi now referring to the public option as the "consumer option". This may not strike one as much of a story (it's the last line of the NYT article), but I am reminded of this passage in The Road to Serfdom:
In this particular case [confusing the meaning of freedom with power -ed.] the perversion of the meaning of the word has, of course, been well prepared by a long line of German philosophers and, not least, by many of the theoreticians of socialism. But "freedom" or "liberty" are by no means the only words whose meaning has been changed into their opposites to make them serve as instruments of totalitarian propaganda. We have already seen how the same happens to "justice" and "law", "right" and "equality." The list could be extended until it includes almost all moral and political terms in general use.
Add "choice" and "competition" to the list.
In this particular case [confusing the meaning of freedom with power -ed.] the perversion of the meaning of the word has, of course, been well prepared by a long line of German philosophers and, not least, by many of the theoreticians of socialism. But "freedom" or "liberty" are by no means the only words whose meaning has been changed into their opposites to make them serve as instruments of totalitarian propaganda. We have already seen how the same happens to "justice" and "law", "right" and "equality." The list could be extended until it includes almost all moral and political terms in general use.
Add "choice" and "competition" to the list.
Final Post About Name Change
My Vote:
1. Some Thought for the Soul
2. Non Incautus
Rob, let me know your top two and then we'll make a decision.
1. Some Thought for the Soul
2. Non Incautus
Rob, let me know your top two and then we'll make a decision.
Pro Business vs Pro Market
Luigi Zingales on why Republicans need to abandon their Big Government, Big Business policies and become pro-market. I don't agree with everything he says (the FDA is NOT pro-market; it is about as pro-business as a governement agency can be), but I think it's worth a read.
I Still Don't "Get" It
Caroline Baum of Bloomberg summarizes my ideas of stimulus and government spending far better than I have. She also touches on the morality/consitutionality of this issue, something I hope to weigh in on tonight or later in the week.
Again, maybe I'm just an ignorant layman, but the arguments of Romer, Krugman and other neo-Keynesians strike me as ivory tower, academic economist-in-a-bubble wishful thinking. I'm very open-minded though, so I really want to try and "get" these arguments.
I'm trying to get at the heart of the matter, but every time I think I do, a new layer emerges. So here is where I stand now. The point of stimulus is to keep GDP and employment numbers up. And based on the way economists measure these aspects of the economy, they should go up.
Two problems. The first, as I've alluded to before, is methodology. If economists setup the model GDP = C + I + G + (X - M) and it is accepted as legitimate (whether it actually is legitimate as a measurement is a whole other matter), to counteract the fall in C and I is most easily done by increasing G. So this is done. Then economists measure it, and presto!, GDP is as it was before and G has saved the day. But this is asinine. It's like saying if my income falls dramatically I can just borrow and spend until I'm back on my feet. This isn't how the real world works.
Secondly, and more importantly, and accepting the whole spending/GDP argument to begin with (which I don't), so what? In other words, what are the real effects? What real value is being created? What is the opportunity cost of taking this money out of the private sector? What will the future costs of borrowing be?
The crux of my stance: A "job" is an action (not a thing) one private party pays another private party to perform with that party's own money because they deem the end result of that job more valuable than the price (wage) they are paying for it. When the paying party no longer feels the product of the labor is worth the wage, then the job no longer exists.
A job is not money coercively taken from some (private actors) by another (government) then paid to others (special interests) to perform arbritary tasks government deems worth paying said special interests to perform. This is not valuable. This is not productive. It is only legalized thievery and the redistribution of wealth under the subtle guise of "stimulus" and "helping the common man".
As Milton Friedman said, nobody spends money as wisely as the owner of that money when they spend it on themselves.
Rob, tell me where I'm wrong because I'm sure I'm missing something or am misrepresenting something.
Again, maybe I'm just an ignorant layman, but the arguments of Romer, Krugman and other neo-Keynesians strike me as ivory tower, academic economist-in-a-bubble wishful thinking. I'm very open-minded though, so I really want to try and "get" these arguments.
I'm trying to get at the heart of the matter, but every time I think I do, a new layer emerges. So here is where I stand now. The point of stimulus is to keep GDP and employment numbers up. And based on the way economists measure these aspects of the economy, they should go up.
Two problems. The first, as I've alluded to before, is methodology. If economists setup the model GDP = C + I + G + (X - M) and it is accepted as legitimate (whether it actually is legitimate as a measurement is a whole other matter), to counteract the fall in C and I is most easily done by increasing G. So this is done. Then economists measure it, and presto!, GDP is as it was before and G has saved the day. But this is asinine. It's like saying if my income falls dramatically I can just borrow and spend until I'm back on my feet. This isn't how the real world works.
Secondly, and more importantly, and accepting the whole spending/GDP argument to begin with (which I don't), so what? In other words, what are the real effects? What real value is being created? What is the opportunity cost of taking this money out of the private sector? What will the future costs of borrowing be?
The crux of my stance: A "job" is an action (not a thing) one private party pays another private party to perform with that party's own money because they deem the end result of that job more valuable than the price (wage) they are paying for it. When the paying party no longer feels the product of the labor is worth the wage, then the job no longer exists.
A job is not money coercively taken from some (private actors) by another (government) then paid to others (special interests) to perform arbritary tasks government deems worth paying said special interests to perform. This is not valuable. This is not productive. It is only legalized thievery and the redistribution of wealth under the subtle guise of "stimulus" and "helping the common man".
As Milton Friedman said, nobody spends money as wisely as the owner of that money when they spend it on themselves.
Rob, tell me where I'm wrong because I'm sure I'm missing something or am misrepresenting something.
Stimulus Discussion, Continued
Some thoughts on Rob's responses to questions I raise on stimulus theory. Questions in bold, Rob's answers in regular type, mine in italics.
Price Distortion (Mises): What effects (negative/positive/neither) do you think taking $787 billion out of the private sector and putting into specifically determined areas of the public sector will have on levels of consumption, investment and saving?
1. My best guess is, it depends. Neither Government nor the markets are infallible. The private sector won't necessarily make the best decision about collective action problems. The answer here isn't about Government vs markets so much as it is about the details of Government policy. Some will be likely implemented better than markets could and some will not. Only time will tell if this is a good idea. I think historical evidence from a number of public works projects during the great depression TVA, WPA, etc. can help make the case that Government can help allocate resources to solve a collective action problems and if investment is tanking along with consumption the spender of last resort is the Government. More about this in answer to question 4.
I think I'm with you on this one. First off, you're right, who knows? Only time and brilliant, objective analysis will reveal the truth. The Great Depression and public works is an interesting example because most people praise it as the most positive government intervention in history or deride it as pure government takeover with no benefits. From what I've heard/read, it fall somewhere inbetween. Is this situation the same? I don't think so, and I'm still in the recalculation camp; there is a glut of resources in some areas (capital markets, housing markets, etc...) and shortages in others (now if I knew where I would be a millionaire) and resources should be shifting. Obviously the key word is should. I have no idea if they are. Thus, maybe they do need some government spur. But for the reasons listed below, I'm wary.
2. Knowledge Deficiency (Hayek): Can we reasonably believe that Washington bureaucrats will effectively and efficiently spend this money?
No, but can we reasonably believe that market will either? With markets we have the tools of self incentives that work the vast majority of the time and fail catastrophically on occasion. Government can't fix all our problems, but we do have the tools of democratically elected officials with limited terms to evaluate their policies.
Maybe I'm hopelessly optimistic, but I think we can expect markets will do a better job of this than government officials. I believe this for numerous reasons, but for this question I will just approach one: knowledge. Hayek called planning (which is what stimulus spending is) "the fatal conceit"; the idea that a few "experts" believe they possessed the knowledge to make the infinite number of decisions private market participants make in an unhindered economy.
Of course the flaw in the market theory is the rational actors presumption. I assume Rob think's this is much more of an issue than I. Anticipating Rob's retort I would propose an examination of degree of irrationality and what sparked the change in degree. I would say more often than not it would be due to regulation (but that is only speculation).
3. Public Choice (Buchanan): Can we reasonably expect Washington bureaucrats not to succumb to perverse spending incentives?
A better question might be can we reasonably expect [people] not to succumb to perverse spending. I don't think markets have eliminated greed and replaced it with responsibility to stock holders and neither has Government replaced corruption with duty to constituents.Sometimes Government can do a better job and sometimes not.
Markets will never eliminate greed. Markets don't want to eliminate greed. Like risk-taking, greed was and always will be essential to capitalism. The nuance required here is "how much greed" or "what kind of greed". But self-interest, for the most part is an excellent check on private decision-makers. For public officials, not so much. What makes markets work so well is rational self-interest (a term I imagine Rob loathes) because that is the model. The model for legislating needs to be "purely benevolent". This goes against human nature is completely impractical. As a wise man or woman (Walter Williams?) once said "the road to hell is paved with good intentions."
4. Private Incentives (unknown): How will private actors react when they realize significant amounts of their income will be seized by the government to be spent as said government sees fit because said government does not believe said private actors are capable/responsible/smart enough to spend said money themselves?
It's not so much about arrogance of the Government believing it can plan the economy as it is about Government stepping in to solve a tragedy of the commons. It is in every firm's self interest to hoard capital right now. However, the best outcome for everybody is all acting in unison to ramp up investment and spur the economy. It's a classic prisoner's dilemma that Government can fix by borrowing now and boosting investment. Weighing the costs is difficult, but crowding out is not really a concern when the trepidation firms harbor is creating a positive feedback loop inspiring more fear and less investment.
Whenever someone says "commons" or "American people" or something along those lines, it immediately raises a red flag for me. Is it really in every single firm's self-interest to hoard capital right now? Are there really no good lending opportunities out there, anywhere, at the moment? Maybe you're right and it really is that bad, but I feel like something else is going on. This is obviously a question of data and I don't want to apply too much conjecture. But if your premise is correct, then that is a real serious problem. I just have trouble accepting it really is that awful out there. We should both definetely try and dig up some data on this when we get a chance.
5. Morality/Constitutional (unknown): Under the Rule of Law, is stimulus spending immoral? Under the Constitution, is such a practice unconstitutional?
This may the most interesting point Will raises. I am (sadly) not very knowledgeable about our constitution, but I definitely don't believe stimulus spending is immoral on any grounds. One might make the case that we are taxing the future to spend now, but a more reasonable conclusion is if we do nothing we will end up with a lost decade ala Japan which will hurt future tax payers even more. Stimulus spending, while bad for future generations is not as bad as doing nothing.
I think this is the most interesting question as well and I think I will devote a seperate post to it later in the day.
Good discussion.
Price Distortion (Mises): What effects (negative/positive/neither) do you think taking $787 billion out of the private sector and putting into specifically determined areas of the public sector will have on levels of consumption, investment and saving?
1. My best guess is, it depends. Neither Government nor the markets are infallible. The private sector won't necessarily make the best decision about collective action problems. The answer here isn't about Government vs markets so much as it is about the details of Government policy. Some will be likely implemented better than markets could and some will not. Only time will tell if this is a good idea. I think historical evidence from a number of public works projects during the great depression TVA, WPA, etc. can help make the case that Government can help allocate resources to solve a collective action problems and if investment is tanking along with consumption the spender of last resort is the Government. More about this in answer to question 4.
I think I'm with you on this one. First off, you're right, who knows? Only time and brilliant, objective analysis will reveal the truth. The Great Depression and public works is an interesting example because most people praise it as the most positive government intervention in history or deride it as pure government takeover with no benefits. From what I've heard/read, it fall somewhere inbetween. Is this situation the same? I don't think so, and I'm still in the recalculation camp; there is a glut of resources in some areas (capital markets, housing markets, etc...) and shortages in others (now if I knew where I would be a millionaire) and resources should be shifting. Obviously the key word is should. I have no idea if they are. Thus, maybe they do need some government spur. But for the reasons listed below, I'm wary.
2. Knowledge Deficiency (Hayek): Can we reasonably believe that Washington bureaucrats will effectively and efficiently spend this money?
No, but can we reasonably believe that market will either? With markets we have the tools of self incentives that work the vast majority of the time and fail catastrophically on occasion. Government can't fix all our problems, but we do have the tools of democratically elected officials with limited terms to evaluate their policies.
Maybe I'm hopelessly optimistic, but I think we can expect markets will do a better job of this than government officials. I believe this for numerous reasons, but for this question I will just approach one: knowledge. Hayek called planning (which is what stimulus spending is) "the fatal conceit"; the idea that a few "experts" believe they possessed the knowledge to make the infinite number of decisions private market participants make in an unhindered economy.
Of course the flaw in the market theory is the rational actors presumption. I assume Rob think's this is much more of an issue than I. Anticipating Rob's retort I would propose an examination of degree of irrationality and what sparked the change in degree. I would say more often than not it would be due to regulation (but that is only speculation).
3. Public Choice (Buchanan): Can we reasonably expect Washington bureaucrats not to succumb to perverse spending incentives?
A better question might be can we reasonably expect [people] not to succumb to perverse spending. I don't think markets have eliminated greed and replaced it with responsibility to stock holders and neither has Government replaced corruption with duty to constituents.Sometimes Government can do a better job and sometimes not.
Markets will never eliminate greed. Markets don't want to eliminate greed. Like risk-taking, greed was and always will be essential to capitalism. The nuance required here is "how much greed" or "what kind of greed". But self-interest, for the most part is an excellent check on private decision-makers. For public officials, not so much. What makes markets work so well is rational self-interest (a term I imagine Rob loathes) because that is the model. The model for legislating needs to be "purely benevolent". This goes against human nature is completely impractical. As a wise man or woman (Walter Williams?) once said "the road to hell is paved with good intentions."
4. Private Incentives (unknown): How will private actors react when they realize significant amounts of their income will be seized by the government to be spent as said government sees fit because said government does not believe said private actors are capable/responsible/smart enough to spend said money themselves?
It's not so much about arrogance of the Government believing it can plan the economy as it is about Government stepping in to solve a tragedy of the commons. It is in every firm's self interest to hoard capital right now. However, the best outcome for everybody is all acting in unison to ramp up investment and spur the economy. It's a classic prisoner's dilemma that Government can fix by borrowing now and boosting investment. Weighing the costs is difficult, but crowding out is not really a concern when the trepidation firms harbor is creating a positive feedback loop inspiring more fear and less investment.
Whenever someone says "commons" or "American people" or something along those lines, it immediately raises a red flag for me. Is it really in every single firm's self-interest to hoard capital right now? Are there really no good lending opportunities out there, anywhere, at the moment? Maybe you're right and it really is that bad, but I feel like something else is going on. This is obviously a question of data and I don't want to apply too much conjecture. But if your premise is correct, then that is a real serious problem. I just have trouble accepting it really is that awful out there. We should both definetely try and dig up some data on this when we get a chance.
5. Morality/Constitutional (unknown): Under the Rule of Law, is stimulus spending immoral? Under the Constitution, is such a practice unconstitutional?
This may the most interesting point Will raises. I am (sadly) not very knowledgeable about our constitution, but I definitely don't believe stimulus spending is immoral on any grounds. One might make the case that we are taxing the future to spend now, but a more reasonable conclusion is if we do nothing we will end up with a lost decade ala Japan which will hurt future tax payers even more. Stimulus spending, while bad for future generations is not as bad as doing nothing.
I think this is the most interesting question as well and I think I will devote a seperate post to it later in the day.
Good discussion.
More Stimulus Talk
I think it is worth noting I may have gotten in over my head when discussing some macro issues with Rob. Rob was an economics major who possesses a strong understanding of the technical side of the subject. I on the other hand never found this approach stimulating or interesting and resorted to approaching economic issues from a more philosophical/political perspective. Thus, Rob is the more traditional academic purist, and I'm more of the haphazardly self-taught mutt. This being said, I do not think it restricts either of us, or at least Rob from effectively conversing. Rob and I could have a political philosophy debate mixing in the likes of Keynes, Hayek and Marx for hours on end. Unfortunately I do not think I can say the same for myself when it comes to the more textbook/academic material, particularly on the macro side. So over the next few months during my free time I plan on reviewing some old college textbooks and reacquainting myself with the material so I can become little more useful over here.
That being said, I would like to challenge (though that might not be the right word) Rob's defense of the stimulus by posing five questions based on what I consider the main critiques of central planning [in America].
1. Price Distortion (Mises): What effects (negative/positive/neither) do you think taking $787 billion out of the private sector and putting into specifically determined areas of the public sector will have on levels of consumption, investment and saving?
2. Knowledge Deficiency (Hayek): Can we reasonably believe that Washington bureaucrats will effectively and efficiently spend this money?
3. Public Choice (Buchanan): Can we reasonably expect Washington bureaucrats not to succumb to perverse spending incentives?
4. Private Incentives (unknown): How will private actors react when they realize significant amounts of their income will be seized by the government to be spent as said government sees fit because said government does not believe said private actors are capable/responsible/smart enough to spend said money themselves?
5. Morality/Constitutional (unknown): Under the Rule of Law, is stimulus spending immoral? Under the Constitution, is such a practice unconstitutional?
That being said, I would like to challenge (though that might not be the right word) Rob's defense of the stimulus by posing five questions based on what I consider the main critiques of central planning [in America].
1. Price Distortion (Mises): What effects (negative/positive/neither) do you think taking $787 billion out of the private sector and putting into specifically determined areas of the public sector will have on levels of consumption, investment and saving?
2. Knowledge Deficiency (Hayek): Can we reasonably believe that Washington bureaucrats will effectively and efficiently spend this money?
3. Public Choice (Buchanan): Can we reasonably expect Washington bureaucrats not to succumb to perverse spending incentives?
4. Private Incentives (unknown): How will private actors react when they realize significant amounts of their income will be seized by the government to be spent as said government sees fit because said government does not believe said private actors are capable/responsible/smart enough to spend said money themselves?
5. Morality/Constitutional (unknown): Under the Rule of Law, is stimulus spending immoral? Under the Constitution, is such a practice unconstitutional?
Stimulus Debated, continued (Inflation vs Deflation)
I think Rob and I can both agree that it is extremely difficult, if not impossible, to measure the effects of stimulus spending so far. Rob writes, "I know this claim is not able to be substantiated, but given what we know about liquidity traps I think there is a good chance that using fiscal tools to compliment the Fed funds rate actually prevented substantial illiquidity and damage to GDP." Rob may be right, but again, we don't know. My concern is the combination of zero level interest rates, massive quantitative easing, and unheard of deficit spending. I hesitate to invoke the term hyperinflation, but does this not strike you as the perfect storm?
Rob, what's your take on what is more dangerous: inflation or deflation? Or, more likely, is it more complicated than that?
Rob, what's your take on what is more dangerous: inflation or deflation? Or, more likely, is it more complicated than that?
Hypothetical Rationing
A question Greg Mankiw posed to his freshman economics seminar:
You are a utilitarian social planner. You have a limited number of H1N1 vaccines. How do you allocate them? Do you (A) give them to high-risk populations, or (B) sell them to the highest bidder and rebate the revenue lump-sum to everyone in the population? If you choose (A), do you allow those individuals allocated the vaccine to sell their dose to someone else? Be sure to specify the economic environment as carefully as possible. And remember: Your goal is to maximize total utility.
Thoughts?
You are a utilitarian social planner. You have a limited number of H1N1 vaccines. How do you allocate them? Do you (A) give them to high-risk populations, or (B) sell them to the highest bidder and rebate the revenue lump-sum to everyone in the population? If you choose (A), do you allow those individuals allocated the vaccine to sell their dose to someone else? Be sure to specify the economic environment as carefully as possible. And remember: Your goal is to maximize total utility.
Thoughts?
A Note to a Comment Made by Rob
Rob recently wrote something that I believe is worth responding to. He derided my thoughts on stimulus in part due to my advocating the ideas of economist Russell Roberts, who has only published works of fiction, and stated his [Rob's] ideas were valid because he was advocating the ideas of a Nobel Laureate, Paul Krugman. This was an ignorant and arrogant thing to say, and as I know Rob quite well to not be either of these things, I am surprised he said it. But in my eyes he is reflecting two enormous problems in the mainstream economics community.
The first is methodology. The Nobel Prize in Economics is technically known as The Nobel Memorial Prize in Economic Sciences. So, is economics "science"? If so, is it more like physics or biology? I think with the rise of such folks like Paul Samuelson, economics imported much of the methodology of rigid systems like physics and consequently fostered a culture of mathematical zealotry. I do not believe this is the correct approach to the subject. In my view, economics should be approached from the bottom up and adapt to millions of unique variables and premises. It should focus on the incentives that drive individuals to interact, the consequences of those interactions, and the new incentives those interactions create. Every interaction is unique and to bundle them all together, as macro does, is counterintuitive in my mind. This is why I believe this in turn led to the second large problem in the community today: lack of diversity.
Take a look at Elinor Ostrom recently winning the Nobel Prize in Economics. She was derided by many (I read some particularly harsh comments from graduate students) for being a political scientist and using case studies to advance her studies and conclusions. Or take the smaller issue of Rob downsizing the worth of Robert's contributions for his outside the box approach to the subject. Along with writing works of fiction, all well-reviewed works that focus on individual economic interactions, Roberts regularly blogs, conducts a podcast, writes academic as well as more mainstream articles, and gives seminars. I have been following his work closely for the past three years or so and find it to have played an enormous role in my education; far more than any textbook or formal economics professor has ever done. There is no doubt he and others have done the same for many others. So should his contributions be diminished and marginalized because they do not conform to the mainstream in terms of methodology or ideology? Of course not. But as Ostrom's detractors and my good friend Rob illustrate, that is the close-minded state we are in.
The first is methodology. The Nobel Prize in Economics is technically known as The Nobel Memorial Prize in Economic Sciences. So, is economics "science"? If so, is it more like physics or biology? I think with the rise of such folks like Paul Samuelson, economics imported much of the methodology of rigid systems like physics and consequently fostered a culture of mathematical zealotry. I do not believe this is the correct approach to the subject. In my view, economics should be approached from the bottom up and adapt to millions of unique variables and premises. It should focus on the incentives that drive individuals to interact, the consequences of those interactions, and the new incentives those interactions create. Every interaction is unique and to bundle them all together, as macro does, is counterintuitive in my mind. This is why I believe this in turn led to the second large problem in the community today: lack of diversity.
Take a look at Elinor Ostrom recently winning the Nobel Prize in Economics. She was derided by many (I read some particularly harsh comments from graduate students) for being a political scientist and using case studies to advance her studies and conclusions. Or take the smaller issue of Rob downsizing the worth of Robert's contributions for his outside the box approach to the subject. Along with writing works of fiction, all well-reviewed works that focus on individual economic interactions, Roberts regularly blogs, conducts a podcast, writes academic as well as more mainstream articles, and gives seminars. I have been following his work closely for the past three years or so and find it to have played an enormous role in my education; far more than any textbook or formal economics professor has ever done. There is no doubt he and others have done the same for many others. So should his contributions be diminished and marginalized because they do not conform to the mainstream in terms of methodology or ideology? Of course not. But as Ostrom's detractors and my good friend Rob illustrate, that is the close-minded state we are in.
Stimulus Data
John Taylor looks at the hard data concerning the stimulus package and GDP growth.
His conclusion? Negligible impact.
(via Econlog)
His conclusion? Negligible impact.
(via Econlog)
More on the Pay Caps
Mark A. Calabria of Cato talks sense on the recent pay caps:
Now that the taxpayer is the most significant shareholder in these companies, the top priority for Washington, as representative of the taxpayer, should be to see these companies return to profitability. Quite simply, if these companies are not profitable, that loss will fall on the taxpayer, as shareholder.
And of course, without the ability to retain talent, it is all the more likely that these companies will not maintain profitability. I suspect the competitors of these seven are already eyeing their best talent. And let’s not kid ourselves, leaving these companies stocked with mediocre employees will not help taxpayers get their money back.
Now that the taxpayer is the most significant shareholder in these companies, the top priority for Washington, as representative of the taxpayer, should be to see these companies return to profitability. Quite simply, if these companies are not profitable, that loss will fall on the taxpayer, as shareholder.
And of course, without the ability to retain talent, it is all the more likely that these companies will not maintain profitability. I suspect the competitors of these seven are already eyeing their best talent. And let’s not kid ourselves, leaving these companies stocked with mediocre employees will not help taxpayers get their money back.
And So It Begins...
From the Washington Post, "Top employees leave financial firms ahead of pay cuts". A snippet:
Many executives were driven away by the uncertainty of working for companies closely overseen by Washington, opting instead for firms not under the microscope, including competitors that have already returned the bailout funds to the government, according to executives and supervisors at the companies.
"There's no question people have left because of uncertainty of our ability to pay," said an executive at one of the affected firms. "It's a highly competitive market out there."
(Emphasis added)
Link found via MR.
Many executives were driven away by the uncertainty of working for companies closely overseen by Washington, opting instead for firms not under the microscope, including competitors that have already returned the bailout funds to the government, according to executives and supervisors at the companies.
"There's no question people have left because of uncertainty of our ability to pay," said an executive at one of the affected firms. "It's a highly competitive market out there."
(Emphasis added)
Link found via MR.
Stimulus Expectations
Via Drudge:
A top White House economist says spending from the $787 billion economic stimulus has already had its biggest impact on economic growth and will likely not contribute to significant expansion next year.
A top White House economist says spending from the $787 billion economic stimulus has already had its biggest impact on economic growth and will likely not contribute to significant expansion next year.
Christina Romer, the chair of President Barack Obama's Council of Economic Advisers, said Thursday that the $194 billion already spent gave a jolt to the economy that contributed to growth in the second and third quarters of the year. She told a congressional panel that by the middle of next year, the impact of the stimulus will level off. Romer said spending so far has saved or created 600,000 to 1.5 million jobs but warned that unemployment will remain high, above 9.5 percent, through the end of 2010.
So, was it worth it? Maybe more importantly, as Russ Roberts points out at Cafe Hayek, what is the federal government going to do with the $593 billion that will have minimal impact?
New Blog Name
Another suggestion: "Spontaneous Order".
But as of now I'm leaning toward "Non Incautus". If I don't hear anything over the next few days I think that's what we'll go with.
But as of now I'm leaning toward "Non Incautus". If I don't hear anything over the next few days I think that's what we'll go with.
"Pay Czar to Slash Compensation at Seven Firms"
Here.
I believe the federal government has legal jurisdiction to do this given TARP rules (though, like the bailouts, I don't believe it's constitutional). The tax-payer who is part of the generation that will have to pay for this mess in me should be happy to hear this. But logic always wins out.
I think it was Thomas Sowell who said every economist (or economics enthusiast) should always ask, "then what?" Indeed, then what? This policy strikes me as a major disincentive to any current or potential talented manager who could help revive these failing companies. I mean, wasn't that the whole point of bailing them out in the first place? It's like telling the future general manager of the Pittsburgh Pirates he can only make 90% of what the market charges. For the worst job in baseball. What general manager in their right mind would take that job?
Sure, they'll score some short term political points, but what will be the long-term real effects be? If anything, the Administration should be giving potential execs and managers massive incentives to take on what seems to be terrible positions.
Now I wish Congress and the White House would get out of this situation to begin with. But if they do decide to meddle and tinker, the least they could do is demonstrate a little managing common sense.
I mean, as Alex Tabarrok points out at MR, have any of these guys even glanced at Atlas Shrugged?
I believe the federal government has legal jurisdiction to do this given TARP rules (though, like the bailouts, I don't believe it's constitutional). The tax-payer who is part of the generation that will have to pay for this mess in me should be happy to hear this. But logic always wins out.
I think it was Thomas Sowell who said every economist (or economics enthusiast) should always ask, "then what?" Indeed, then what? This policy strikes me as a major disincentive to any current or potential talented manager who could help revive these failing companies. I mean, wasn't that the whole point of bailing them out in the first place? It's like telling the future general manager of the Pittsburgh Pirates he can only make 90% of what the market charges. For the worst job in baseball. What general manager in their right mind would take that job?
Sure, they'll score some short term political points, but what will be the long-term real effects be? If anything, the Administration should be giving potential execs and managers massive incentives to take on what seems to be terrible positions.
Now I wish Congress and the White House would get out of this situation to begin with. But if they do decide to meddle and tinker, the least they could do is demonstrate a little managing common sense.
I mean, as Alex Tabarrok points out at MR, have any of these guys even glanced at Atlas Shrugged?
James Buchanan Honored
Don Boudreaux comments on 90 year old economist James M. Buchanan. Buchanan is a pioneer in the relatively new field of public choice theory. Public choice theory is one of the most insightful, effective and elementary critiques of socialist theory (although of course it was not conceived as a critique of socialism). Although I have read little of Dr. Buchanan himself, through scholars like Dr. Boudreaux I have become quite familiar with the theory. It has changed my view of the world and in particular politics.
Revision
Sorry, I'm having some technical difficulties posting and editing at the moment. For the most recent "Markets vs Coercion" post, sub-step g of Interaction based on markets should read:
If Z <> or equal to Y+P. If they cannot agree to a price within that criteria, no transaction.
If Z <> or equal to Y+P. If they cannot agree to a price within that criteria, no transaction.
A Logical Understanding of Markets vs Coercion
1. Society = Community
2. Community requires interaction
3. Two types of interaction
a. Voluntary
b. Coerced
4. Two types of voluntary interaction
a. Markets
b. Altruism
5. Altruism not practical
6. Two types of interaction
a. Coercion
b. Markets
7. Interaction based on markets
a. A desires good/service X
b. B recognizes A's demand and produces X
c. B produces X at Y cost
d. A recognizes opportunity to obtain B for Y+P cost
e. A values X at Z amount
f. If Z > or equal to Y+P , A will purchase X from B
g. If Z <> or equal to Y+P. If they cannot agree to that price, no transaction
h. Transactions, even if they fail to occur, result in most beneficial outcome for all parties
involved
i. Interaction is not corrupted
j. Society is not corrupted
8. Interaction based on coercion
a. G has monopoly on application of legal force on all parties
b. G has monopoly control over all terms and conditions of all past, present and future
transactions for all parties
c. Perverts fundamental institutions that all market conditions are based on
d. Interaction is corrupted
e. Society is corrupted
9. Markets are preferable to coercion in terms of societal operation
This is obviously a very simple application of logic towards both of these organizational styles. There are clearly many more variables that need to be taken into account in such analysis. But I do think the underlying premises and conclusions are fair and accurate. Also, to note, I am not advocating anarchy in this analysis. I am simply noting the perversion of markets governments inevitably create when they interfere in areas that markets should solely be involved in. But in areas where markets are not appropriate, the institution of government is not simply preferable, it is necessary. In other words, government is necessary to facilitate effective market interaction. But government should not involve itself in the actual interaction. And that is from everything as subtle as indirect regulation to as blatant as direct competition with private participants.
2. Community requires interaction
3. Two types of interaction
a. Voluntary
b. Coerced
4. Two types of voluntary interaction
a. Markets
b. Altruism
5. Altruism not practical
6. Two types of interaction
a. Coercion
b. Markets
7. Interaction based on markets
a. A desires good/service X
b. B recognizes A's demand and produces X
c. B produces X at Y cost
d. A recognizes opportunity to obtain B for Y+P cost
e. A values X at Z amount
f. If Z > or equal to Y+P , A will purchase X from B
g. If Z <> or equal to Y+P. If they cannot agree to that price, no transaction
h. Transactions, even if they fail to occur, result in most beneficial outcome for all parties
involved
i. Interaction is not corrupted
j. Society is not corrupted
8. Interaction based on coercion
a. G has monopoly on application of legal force on all parties
b. G has monopoly control over all terms and conditions of all past, present and future
transactions for all parties
c. Perverts fundamental institutions that all market conditions are based on
d. Interaction is corrupted
e. Society is corrupted
9. Markets are preferable to coercion in terms of societal operation
This is obviously a very simple application of logic towards both of these organizational styles. There are clearly many more variables that need to be taken into account in such analysis. But I do think the underlying premises and conclusions are fair and accurate. Also, to note, I am not advocating anarchy in this analysis. I am simply noting the perversion of markets governments inevitably create when they interfere in areas that markets should solely be involved in. But in areas where markets are not appropriate, the institution of government is not simply preferable, it is necessary. In other words, government is necessary to facilitate effective market interaction. But government should not involve itself in the actual interaction. And that is from everything as subtle as indirect regulation to as blatant as direct competition with private participants.
Free Markets and Drug Prohibition
I have a philosophical question for conservative drug warriors: Why do you believe rational individuals should not be allowed by government to put any foreign substance they wish into their bodies? Put another way, why do you believe the state has the right to dictate to rational individuals what they can and cannot put into their own bodies?
You cannot call yourself "free-market" and believe in drug prohibition (and other types of prohibition that fall outside the Law). It is intellectually disingenuous to do so.
Welcome Justin
First and foremost let me welcome Justin. A future blood-sucking lawyer, he is sure to add tons to the discussion. And don't let his affinity for the hapless Braves or 23 minute long guitar solos alter your opinion of him.
A couple things before I respond to Justin's post on this piece. One, I'm not a fan of modern jazz but more an avid follower of Cool Jazz and Jazz Standards (was that douchey enough sounding?). On a more serious note, Justin refers to my "blatant conservatism". I do not consider myself a conservative and actually disdain the term. I consider myself a classical liberal or libertarian and disagree with modern American conservatives on a plethora of issues.
I'm not sure I understand Justin's first point. Of course Obama is very smart. Of course he works hard. But so what? What has he ever accomplished that deserves serious recognition? What material substance has he contributed to the world that garners the unbelievable praise, dare I say worship, he constantly receives, which culminated in the granting of this award?
I absolutely disagree with Justin's second argument. Since when is it "arrogant" to hope that the government that rules you fails? Were the founders "arrogant"? Was Thoreau arrogant? King, Jr.? Of course not. They were extremely courageous men who fundamentally disagreed with their government's policies and consequently took action to try and stop their success. To do any less would be to sacrifice their core principles and beliefs.
Concerning your final points:
1. I'm not even sure the award itself really matters. I just find the motives for awarding it and people's reactions to the recipient very interesting.
2. From a practical standpoint, I have great difficulty awarding a "peace" award to someone who has shown little aversion to ending either war, ending the Wars on Drugs, Prostitution, etc..., empowering the federal government to detain virtually anyone they want for whatever they want for however long they want... You get my point. He ain't much different than Bush in any discernible sense (at least not yet).
3. His acceptance or rejection of the award really shouldn't determine peoples' views of him. History and one's own interpretation should do that. But there I'm definitely being too idealistic.
Great post Jbo. Look forward to hearing your thoughts.
A couple things before I respond to Justin's post on this piece. One, I'm not a fan of modern jazz but more an avid follower of Cool Jazz and Jazz Standards (was that douchey enough sounding?). On a more serious note, Justin refers to my "blatant conservatism". I do not consider myself a conservative and actually disdain the term. I consider myself a classical liberal or libertarian and disagree with modern American conservatives on a plethora of issues.
I'm not sure I understand Justin's first point. Of course Obama is very smart. Of course he works hard. But so what? What has he ever accomplished that deserves serious recognition? What material substance has he contributed to the world that garners the unbelievable praise, dare I say worship, he constantly receives, which culminated in the granting of this award?
I absolutely disagree with Justin's second argument. Since when is it "arrogant" to hope that the government that rules you fails? Were the founders "arrogant"? Was Thoreau arrogant? King, Jr.? Of course not. They were extremely courageous men who fundamentally disagreed with their government's policies and consequently took action to try and stop their success. To do any less would be to sacrifice their core principles and beliefs.
Concerning your final points:
1. I'm not even sure the award itself really matters. I just find the motives for awarding it and people's reactions to the recipient very interesting.
2. From a practical standpoint, I have great difficulty awarding a "peace" award to someone who has shown little aversion to ending either war, ending the Wars on Drugs, Prostitution, etc..., empowering the federal government to detain virtually anyone they want for whatever they want for however long they want... You get my point. He ain't much different than Bush in any discernible sense (at least not yet).
3. His acceptance or rejection of the award really shouldn't determine peoples' views of him. History and one's own interpretation should do that. But there I'm definitely being too idealistic.
Great post Jbo. Look forward to hearing your thoughts.
First Blog
Hello all. Will recently invited me to join this blog, and having deeply considered the implications of such participation, I have decided it would be best for Will’s morale to contribute. The tremendous aftershock from taking such a rare firm stance on a personal issue left my mind utterly confused about a topic to blog about, especially since I am decidedly ill-informed on matters that tend to entertain Will, such as the economy, the formative history of the Wu-Tang Clan, modern jazz, and royally beating up rival fraternity members.
Luckily enough for me, as soon as I began traversing this blog, Will’s blatant conservativism manifested itself in the form of an article which Will determines to be “One of the more insightful takes on Obama winning the Nobel Peace Prize that (he) has read.”
Now, I think it would be difficult for me to prove the entire gist of the article wrong, but I do think that I can show that the esteemed writers over at “Chicago Boyz” are in fact, far from insightful. First of all, the writer is determined to show that Obama’s success has been more a result of his race than his accomplishments—that he has never had to “knock down a door with his skill,” but rather has enjoyed the fruits of being the prospective first black person to gain the particular office or accolade. This writer points to Obama’s selection as the first black editor of the Harvard Law Review as an example of this exact situation, but I feel the need to point out that he is not correct. The writer proclaims: “Any black Harvard law student with acceptable grades could have served such a symbolic purpose. Obama was nothing special.” I’m at law school now, so I’ll enlighten you folks on how this works. First of all, to even be considered for a law review, a student has to be in the top ten percent of the class. This means that at Harvard Law School, where students almost entirely attended the nation’s top undergraduate schools, scored in the 99th percentile on the LSAT, and had GPA’s near 4.0, Obama had better scores than nine out of ten students. To be voted the editor (and it’s possible that his race may have helped him here), he would have necessarily had to commit hundreds of hours spent on meticulous research and writing to gain any sort of respect from the other members. If “Obama was nothing special” for accomplishing this task, then I am in fact convinced that he is still a genius for somehow achieving this accolade without skill and hard work.
My second problem with this writer is that he asserts that he would like to see much of Obama’s domestic plans fail. This seems to be one of the most arrogant political statements that anyone could make. This writer determines here that he would rather his own political views be proven correct than the country actually be a better place under an opposing party, and I find this to be a major problem with the current state of politics. Shouldn’t we be rooting for the United States to improve all the time, not just when our guy is responsible for it?
Finally, I have a couple of questions about the main argument concerning the Nobel Peace Prize. First of all, I agree that Obama has compiled very little tangible evidence of promoting peace. However, I would have liked to see this writer respond to common counter-claims: is it possible that the objective to instill peace is sufficient? That such an objective is a symbol of something greater? At the very least, such goals represent the desire to transfer one of the most powerful nations in the world from a state of war to a state of peace, and if we know anything from Vietnam, we know these things take time. Also, doesn’t the argument for refusing the prize carry with it some possibly disturbing implications? Our perception in the world is just now improving from probably its worst point ever under good ol’ GW. Part of this improved perception is the belief that by voting for Obama, we have rejected Bush’s war policies. What does it say to the world if our president rejects the international award for peace? How arrogant do we appear for telling the Nobel Prize Committee that we know better? Where are the answers to these possible solutions in this article? Sorry it’s so long, won’t happen again.
Luckily enough for me, as soon as I began traversing this blog, Will’s blatant conservativism manifested itself in the form of an article which Will determines to be “One of the more insightful takes on Obama winning the Nobel Peace Prize that (he) has read.”
Now, I think it would be difficult for me to prove the entire gist of the article wrong, but I do think that I can show that the esteemed writers over at “Chicago Boyz” are in fact, far from insightful. First of all, the writer is determined to show that Obama’s success has been more a result of his race than his accomplishments—that he has never had to “knock down a door with his skill,” but rather has enjoyed the fruits of being the prospective first black person to gain the particular office or accolade. This writer points to Obama’s selection as the first black editor of the Harvard Law Review as an example of this exact situation, but I feel the need to point out that he is not correct. The writer proclaims: “Any black Harvard law student with acceptable grades could have served such a symbolic purpose. Obama was nothing special.” I’m at law school now, so I’ll enlighten you folks on how this works. First of all, to even be considered for a law review, a student has to be in the top ten percent of the class. This means that at Harvard Law School, where students almost entirely attended the nation’s top undergraduate schools, scored in the 99th percentile on the LSAT, and had GPA’s near 4.0, Obama had better scores than nine out of ten students. To be voted the editor (and it’s possible that his race may have helped him here), he would have necessarily had to commit hundreds of hours spent on meticulous research and writing to gain any sort of respect from the other members. If “Obama was nothing special” for accomplishing this task, then I am in fact convinced that he is still a genius for somehow achieving this accolade without skill and hard work.
My second problem with this writer is that he asserts that he would like to see much of Obama’s domestic plans fail. This seems to be one of the most arrogant political statements that anyone could make. This writer determines here that he would rather his own political views be proven correct than the country actually be a better place under an opposing party, and I find this to be a major problem with the current state of politics. Shouldn’t we be rooting for the United States to improve all the time, not just when our guy is responsible for it?
Finally, I have a couple of questions about the main argument concerning the Nobel Peace Prize. First of all, I agree that Obama has compiled very little tangible evidence of promoting peace. However, I would have liked to see this writer respond to common counter-claims: is it possible that the objective to instill peace is sufficient? That such an objective is a symbol of something greater? At the very least, such goals represent the desire to transfer one of the most powerful nations in the world from a state of war to a state of peace, and if we know anything from Vietnam, we know these things take time. Also, doesn’t the argument for refusing the prize carry with it some possibly disturbing implications? Our perception in the world is just now improving from probably its worst point ever under good ol’ GW. Part of this improved perception is the belief that by voting for Obama, we have rejected Bush’s war policies. What does it say to the world if our president rejects the international award for peace? How arrogant do we appear for telling the Nobel Prize Committee that we know better? Where are the answers to these possible solutions in this article? Sorry it’s so long, won’t happen again.
Obama and Fox News
Over at The Nation, John Nichols makes an excellent point about the Obama Administration's current feud with Fox News:
Obama should sit down with Fox reporters and anchors and do interviews. That does not mean that the president has to put up with the emotional wreckage that is Glenn Beck. But there is no reason why he shouldn't go another round with Bill O'Reilly (as Obama did during the 2008 campaign) or sit down with Chris Wallace (as Bill Clinton did).
Obama should sit down with Fox reporters and anchors and do interviews. That does not mean that the president has to put up with the emotional wreckage that is Glenn Beck. But there is no reason why he shouldn't go another round with Bill O'Reilly (as Obama did during the 2008 campaign) or sit down with Chris Wallace (as Bill Clinton did).
If the Fox interviewers are absurdly unfair, the American people will respond with appropriate consternation. On the other hand, if they are aggressive and pointed in their challenges, Obama will rise or fall on the quality of his responses. His aides, if they have any faith in their man's abilities, should bend over backwards to accept some Fox interviews. They should also accept an invite from PBS' Bill Moyers, who would pose tougher – and, yes, more informed -- questions than the Foxbots.
Now who says leftists don't love markets?
Does Baseball Need Umpires?
WSJ asks the question on every baseball fan's mind. I vote use them as little as possible. The less human error, the more pure the competition.
And here's a truly controversial, ludicrous question (it just came to me). Does an error like Phil Cuzzi's hurt the "purity" of the game (define that as you will) more than a player who uses PEDs? I think it very well may.
And here's a truly controversial, ludicrous question (it just came to me). Does an error like Phil Cuzzi's hurt the "purity" of the game (define that as you will) more than a player who uses PEDs? I think it very well may.
Tyler Cowen on Obama's Nobel Win
And Tyler Cowen's take on what the award will mean for Obama's future "bargaining power".
Obama and the Nobel Peace Prize
One of the more insightful takes on Obama winning the Nobel Peace Prize that I have read.
The Film Industry
Alex Tabarrao's brother Nicholas is guest blogging over at Marginal Revolution. His first post is quite interesting. I recommend it along with the long comments section that follows. Nicholas writes:
One interesting thing that I've always found about the film business from an economic point of view is that unlike in any other business I can think of, the cost of manufacturing the product has no affect on the purchase cost to the consumer. For example Honda can make a cheaper car with less features and cheaper finishes than BMW without losing all of their customers to the superior car because they sell their product for less. You spend less to make something, you charge less for it. Makes complete and obvious sense. Not so in the film business. I am an independent film producer and I make films that typically cost somewhere between $5M and $10M. But when I make, say, an $8M film it has to compete at the same price level as the studios' $80M or $100M film. It costs the consumer the same $12 at the multiplex (and whatever it costs to rent a DVD from Blockbuster these days) for either film. There is no price advantage to the consumer for choosing to see a less expensive film. This naturally makes it terribly difficult for smaller films to find an audience. I find this quite fascinating and I can't readily think of another industry like it.
There are a couple of things to point out here. One is I think he is confusing the idea that production cost is directly correlated with price. It's not. Price is a function of supply a demand, an equilibrium in which cost in various forms is a major variable in ultimately determining that price. Prices, really, are just information. So if costs a lot to make something, he's right, most likely you are going to demand more to compensate for you producing it. But levels of demand and profit models (volume vs margin) have more influence in the long-run.
More practically speaking is how theaters make money. Relatively little profit is earned from ticket sales. Instead concession sales are the real moneymakers. So it makes sense that a theater manager would try and maximize the volume of customers by trading off ticket sale profits for increased concessions revenue.
One interesting thing that I've always found about the film business from an economic point of view is that unlike in any other business I can think of, the cost of manufacturing the product has no affect on the purchase cost to the consumer. For example Honda can make a cheaper car with less features and cheaper finishes than BMW without losing all of their customers to the superior car because they sell their product for less. You spend less to make something, you charge less for it. Makes complete and obvious sense. Not so in the film business. I am an independent film producer and I make films that typically cost somewhere between $5M and $10M. But when I make, say, an $8M film it has to compete at the same price level as the studios' $80M or $100M film. It costs the consumer the same $12 at the multiplex (and whatever it costs to rent a DVD from Blockbuster these days) for either film. There is no price advantage to the consumer for choosing to see a less expensive film. This naturally makes it terribly difficult for smaller films to find an audience. I find this quite fascinating and I can't readily think of another industry like it.
There are a couple of things to point out here. One is I think he is confusing the idea that production cost is directly correlated with price. It's not. Price is a function of supply a demand, an equilibrium in which cost in various forms is a major variable in ultimately determining that price. Prices, really, are just information. So if costs a lot to make something, he's right, most likely you are going to demand more to compensate for you producing it. But levels of demand and profit models (volume vs margin) have more influence in the long-run.
More practically speaking is how theaters make money. Relatively little profit is earned from ticket sales. Instead concession sales are the real moneymakers. So it makes sense that a theater manager would try and maximize the volume of customers by trading off ticket sale profits for increased concessions revenue.
Meyerson's Wrong. Again.
Harold Meyerson of The Washington Post yet again flaunts his economic ignorance as political insight. Meyerson concludes in his latest column:
But is a new federal public works program really that unsalable? Consider the experience of Perry County, Tenn., where the closing of an auto parts factory had increased unemployment to a staggering 27 percent this spring. Tennessee Gov. Phil Bredesen, a Democrat, decided to use federal stimulus funds to immediately subsidize hundreds of new jobs -- some public, some private -- which reduced the local unemployment rate five percentage points by June. "If I could have done a WPA out there," Bredesen told the New York Times' Michael Cooper in July, referring to the New Deal's largest job-creation program, "I would have done a WPA out there."
Yeah, that sounds like the kind of country the Founders had in mind.
But is a new federal public works program really that unsalable? Consider the experience of Perry County, Tenn., where the closing of an auto parts factory had increased unemployment to a staggering 27 percent this spring. Tennessee Gov. Phil Bredesen, a Democrat, decided to use federal stimulus funds to immediately subsidize hundreds of new jobs -- some public, some private -- which reduced the local unemployment rate five percentage points by June. "If I could have done a WPA out there," Bredesen told the New York Times' Michael Cooper in July, referring to the New Deal's largest job-creation program, "I would have done a WPA out there."
Tennessee is not, by most accounts, a sleeper cell of socialists, yet its reversion to New Deal economics has been met with approval from residents. It's too small, though, to do its own Work Projects Administration. Only the federal government can do that -- and it should.
Why should it? Because a politically-motivated governor used money legally plundered funds from a lot of people to artificially deflate the unemployment rate over the short-term for the benefit of a select few people who happen to have enormous control over said governor's political future?Yeah, that sounds like the kind of country the Founders had in mind.
More Stimulus and Unemployment
Wisdom from Chicago Boyz.
In a recent meeting, my boss made the obvious but true point that it would make no sense for us to hire someone who would provide $0.90 worth of value per $1.00 of cost. In a similar vein but from a consumer perspective, I would never spend $1.00 on a candy bar that I valued at $0.90 (trivial prices aside).
I assume the New York Times would agree that the above logic makes sense. So then why do they invoke government to do the exact opposite at taxpayer's expense?
The stimulus bill was $787 billion. The bill is estimated (by Obama administration) to "create" 3 million jobs. Forget the fact that these jobs are all temporary and for the most part are involved in sectors of the economy that see very little current demand, and thus will provide very little short-term value (and more likely than not long-term as well). The fact is each job will cost taxpayer's $262,333.33 per job.
How again does this make sense?
In a recent meeting, my boss made the obvious but true point that it would make no sense for us to hire someone who would provide $0.90 worth of value per $1.00 of cost. In a similar vein but from a consumer perspective, I would never spend $1.00 on a candy bar that I valued at $0.90 (trivial prices aside).
I assume the New York Times would agree that the above logic makes sense. So then why do they invoke government to do the exact opposite at taxpayer's expense?
The stimulus bill was $787 billion. The bill is estimated (by Obama administration) to "create" 3 million jobs. Forget the fact that these jobs are all temporary and for the most part are involved in sectors of the economy that see very little current demand, and thus will provide very little short-term value (and more likely than not long-term as well). The fact is each job will cost taxpayer's $262,333.33 per job.
How again does this make sense?
Stimulus and Unemployment
Professor at the University of California at Berkeley and former Secretary of Labor Robert Reich claims on his personal blog, "the stimulus is working but it is far from adequate. Before the stimulus, we were losing more than 500,000 jobs a month. Now that 40 percent of the stimulus has been spent, we are losing more than 250,000 jobs a month."
There are numerous problems with this assertion with the most significant being the lack of source or explanation of the data. And assuming the data is correct, there is the problem of correlation does not mean causation. However you lean, the jury is clearly still out.
But I would just point out the above graph (discovered via Greg Mankiw's blog) which is now being widely circulated around the net. I would really like to know where Reich found his data and how it was compiled.
Roman Deininger on Healthcare
Roman Deininger comments in a recent The Philadelphia Inquirer op-ed, "if there is to be an honest discussion about universal health care - as provided by nearly every industrialized nation - we must dispel the myth that it infringes on individual rights."
As many of us have come to realize, the term "universal health care" means different things to different people. The difference between the modern liberal's definition of the term and the classical liberal's is not that the classical liberal believes reaching such a goal is impossible, but he believes only that to achieve it through government coercion and against the will of the individual is immoral. Deininger would most likely make the opposite argument, claiming that it would in fact be immoral not to do such a thing; that we have the moral imperative to help others in this vastly important area.
And i do believe we who are more fortunate should help others who are less fortunate. But I think that only should be done through our own voluntary action. To mandate morality, in my eyes, is inherently contradictory and immoral (if one views liberty as a moral principle and end in and of itself).
Deininger's argument is based on the idea of positive rights, that all human beings have the right to basic necessities such as food, water, shelter, health care, education, etc... It is a wonderful notion and one I think we all impulsively believe to be true. But it forgets a fundamental truth: these amenities (yes, as the modern liberal describes they are amenities, not necessities) all come at some cost to other parties. And a right, which is something that cannot be denied, cannot come at a cost to others. If such a system existed then the world would be a system of constant debt where everyone perpetually owe everyone. Individual determinism would have no place in such a world and liberty would cease to exist.
I understand Deininger's sentiment and from reading his well-written article I believe he has his heart in the right place. But I do think he needs to think the issue through on a deeper level.
As many of us have come to realize, the term "universal health care" means different things to different people. The difference between the modern liberal's definition of the term and the classical liberal's is not that the classical liberal believes reaching such a goal is impossible, but he believes only that to achieve it through government coercion and against the will of the individual is immoral. Deininger would most likely make the opposite argument, claiming that it would in fact be immoral not to do such a thing; that we have the moral imperative to help others in this vastly important area.
And i do believe we who are more fortunate should help others who are less fortunate. But I think that only should be done through our own voluntary action. To mandate morality, in my eyes, is inherently contradictory and immoral (if one views liberty as a moral principle and end in and of itself).
Deininger's argument is based on the idea of positive rights, that all human beings have the right to basic necessities such as food, water, shelter, health care, education, etc... It is a wonderful notion and one I think we all impulsively believe to be true. But it forgets a fundamental truth: these amenities (yes, as the modern liberal describes they are amenities, not necessities) all come at some cost to other parties. And a right, which is something that cannot be denied, cannot come at a cost to others. If such a system existed then the world would be a system of constant debt where everyone perpetually owe everyone. Individual determinism would have no place in such a world and liberty would cease to exist.
I understand Deininger's sentiment and from reading his well-written article I believe he has his heart in the right place. But I do think he needs to think the issue through on a deeper level.
Economic Thinking (Or Lack Thereof)
While heating up some pizza I caught part of an MSNBC examination of this video, which I think may be the most watched video on Youtube. If you haven't seen it, watch. It truly is fascinating.
What caught my eye (or ear) though in watching this show, which was mostly an interview of those who filmed the scene and a summary of how it got to be so popular via Youtube, was the characterizing of it. "Feel good story", "Disney-movie like", and "miracle" were three descriptions. And yes, from a Disney movie perspective where typically the higher you are on the food chain the more evil you are as a character perspective, it is very much like that. But this is real life, so what are the real life consequences of this event? Presumably the lionesses and their mates and cubs went hungry that night. While the bull pup's odds of surviving shot up astronomically, the odds of the pride of lions surviving all went down a little.
The point is I think this lack of thinking beyond decision one, to the consequences and economic ratifications of decisions and consequently their ratifications, is a serious problem in both this country and around the world. The minimum wage is a perfect example. Putting a price floor on how much unskilled laborers should be paid sounds like a wonderful idea in theory. But what are the real consequences? Put much too simply, the real cost of unskilled labor is raised by an arbitrarily determined amount for all employers and any employer who does not value their UL at that arbitrarily determined price will lay off workers and/or hire less in the future.
I belive this is one of the fundamental weaknesses of the modern liberal philosophy.
What caught my eye (or ear) though in watching this show, which was mostly an interview of those who filmed the scene and a summary of how it got to be so popular via Youtube, was the characterizing of it. "Feel good story", "Disney-movie like", and "miracle" were three descriptions. And yes, from a Disney movie perspective where typically the higher you are on the food chain the more evil you are as a character perspective, it is very much like that. But this is real life, so what are the real life consequences of this event? Presumably the lionesses and their mates and cubs went hungry that night. While the bull pup's odds of surviving shot up astronomically, the odds of the pride of lions surviving all went down a little.
The point is I think this lack of thinking beyond decision one, to the consequences and economic ratifications of decisions and consequently their ratifications, is a serious problem in both this country and around the world. The minimum wage is a perfect example. Putting a price floor on how much unskilled laborers should be paid sounds like a wonderful idea in theory. But what are the real consequences? Put much too simply, the real cost of unskilled labor is raised by an arbitrarily determined amount for all employers and any employer who does not value their UL at that arbitrarily determined price will lay off workers and/or hire less in the future.
I belive this is one of the fundamental weaknesses of the modern liberal philosophy.
Charter School Success Story
Here's a wonder short reason.tv video on a public school to charter school success story:
Understanding Consumption vs Production
Here's a comment I recent posted on Cafe Hayek:
Hawkins writes: "Production must be the center of policy because it not only provides goods and services but also generates the income for those who work so they can become consumers (and savers). We have before us the ruins of an economy that has for a generation been based on consumption funded by debt rather than on income from production."
The flaws in this paragraph are numerous, but I would just point out the first: "Production must be the center of policy..." Neither production nor consumption should be the "center of policy" (whatever this means). Individuals should simply determine and act on their own preferences and other individuals should meet those preferences via supplying them with what they desire for an agreed upon price. The only role for "policy", (and I assume Hawkins means government here) is to protect property rights, maintain the sanctity of contract, and invoke appropriate judicial measures when necessary. To purport the need for centrist policy, as Hawkins does, is to only advocate the restriction of liberty and prosperity.
Hawkins writes: "Production must be the center of policy because it not only provides goods and services but also generates the income for those who work so they can become consumers (and savers). We have before us the ruins of an economy that has for a generation been based on consumption funded by debt rather than on income from production."
The flaws in this paragraph are numerous, but I would just point out the first: "Production must be the center of policy..." Neither production nor consumption should be the "center of policy" (whatever this means). Individuals should simply determine and act on their own preferences and other individuals should meet those preferences via supplying them with what they desire for an agreed upon price. The only role for "policy", (and I assume Hawkins means government here) is to protect property rights, maintain the sanctity of contract, and invoke appropriate judicial measures when necessary. To purport the need for centrist policy, as Hawkins does, is to only advocate the restriction of liberty and prosperity.
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