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?
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