Thursday, September 30, 2010

The Gold Nugget of Econ: Emerging Order
Cafe reader Walt wrote to me the following: "You and Russell named your blog Cafe Hayek. So what do you recommend as the single best summary by Hayek of his philosophy?"
Great question. I'm tempted to say Hayek's 1945 article, first appearing in the American Economic Review, "The Use of Knowledge in Society." But having just re-read (for two different conferences this summer) Hayek's three-volume work Law, Legislation, and Liberty, I will single out the first chapter of the first volume of L,L, and L. That chapter is entitled "Reason and Evolution." Here are some selections:
"This 'rationalist' approach, however, meant in effect a relapse into earlier, anthropomorphic models of thinking. It produced a renewed propensity to ascribe the origin of all institutions of culture to invention or design. Morals, religion and law, language and writing, money and the market, were thought of as having been deliberately constructed by somebody, or at least as owing whatever perfection they possessed to such design. This intentionalist or pragmatic account of history found its fullest expression in the conception of the formation of society by a social contract, first in Hobbes and then in Rousseau, who in many respects was a direct follower of Descartes [p. 10].
"The fact of our irremediable ignorance of most of the particular facts which determine the processes of society is, however, the reason why most social institutions have taken the form they actually have.  [M]ost of the rules of conduct which govern our actions, and most of the institutions which arise out of this regularity, are adaptations to the impossibility of anyone taking conscious account of all the particular facts which enter into the order of society. We shall see [in Vol. 2], in particular, that the possibility of justice rests on this necessary limitation of our factual knowledge, and that insight into the nature of justice is therefore denied to all those constructivists who habitually argue on the assumption of omniscience [p. 13].
"Yet it is the utilization of much more knowledge than anyone can possess, and therefore the fact that each moves within a coherent structure most of whose determinants are unknown to him, that constitutes the distinctive feature of all advanced civilizations.
"In civilized society it is indeed not so much the greater knowledge that the individual can acquire, as the greater benefit he receives from the knowledge possessed by others, which is the cause of his ability to pursue and infinitely wider range of ends than merely the satisfaction of his most pressing physical needs [p. 14].
"We shall find too that such current notions as that society 'acts' or that it 'treats', 'rewards', or 'remunerates' persons, or that it 'values' or 'owns' or 'controls' objects or services, or is 'responsible for' or 'guilty of' something, or that it has a 'will' or 'purpose', can be 'just' or 'unjust', or that the economy 'distributes' or 'allocates' resources, all suggest a false intentionalist or constructivist interpretation of words which might have been used without such connotation, but which almost invariably lead the user to illegitimate conclusions. We shall see that such confusions are at the root of the basic conceptions of highly influential schools of thought which have wholly succumbed to the belief that all rules or laws must have been invented or explicitly agreed upon by somebody. Only when it is wrongly assumed that all rules of just conduct have deliberately been made by somebody do such sophisms become plausible as that all power of making laws must be arbitrary, or that there must always exist an ultimate 'sovereign' source of power from which all law derives [p. 28].
"Reason is merely a discipline, an insight into the limitations of the possibilities of successful action, which often will tell us only what not to do. This discipline is necessary precisely because our intellect is not capable of grasping reality in all its complexity [p. 32]."
My selection of quotations reflects, of course, my own idiosyncracies. Read the entire chapter. In fact, read the entire volume - as well as volume 2. (But you can skip volume 3; it is surprisingly weak.)"

Wednesday, September 29, 2010

Actions, Intentions

"We judge our selves by our intentions, we judge others by their actions."  Attributed to Ian Percy, but I heard this from Steven R. Covey
Also stated as:  "Remember, people will judge you by your actions, not your intentions. You may have a heart of gold - but so does a hard-boiled egg." - Anonymous

This concept explains a lot about politics.  For example, how can folks who profess to have high standards (as all politicians and political commentators do) accept so many in their own party who behave so poorly?  You name the figure who's behaving badly (best example of all time, Senator Ted Kennedy, who behaved very, very poorly for a very, very long time), they often still enjoy the support of their constituents.  Why?  I think it is because we humans perceive these 'leaders' as 'us.'  "Our party", "my party", "my President", "my candidate".  Once we've allowed someone or some organization to become "ours", we judge him/her/them by our perception of their intentions, much like we judge ourselves. 

Tuesday, September 28, 2010

Surprise? Not Exactly

Imagine a government program not working that well. 

Small Numbers Influential

This author raises an interesting point about the action of a very small number of people, and the political frothing that resulted. Nonetheless, the Republican and Democratic Presidential candidates are selected each year by a few small state who have the early primaries.  Some candidates, which might have played well on a national stage, never stood a chance when their future is determined by Iowa, New Hampshire, and South Carolina (for example, Rudy Giuliani).  Now I shed no tears for the candidates, they are politicians, they deserve no tears.  What I dislike is that a system dominated by two parties is also controlled by those parties, and organized for their benefit, a symptom of which is that by the time most of us get a shot to vote in a primary, the outcome has already been determined.  The small number influence of the Tea Parties is nothing unusual in the gestalt of American elections.

Sunday, September 26, 2010

Perry's Clear Thinking Unmuddies
Here's a little editing fun of Harold Meyerson's article in today's Washington Post:
"This week, committees on both sides of Capitol Hill will plumb the conundrum of Chinese currency manipulation. The conundrum isn't that -- or why -- China is manipulating its currency: By undervaluing it, China is systematically able to underprice its exports, putting American (and other nations') consumers and businesses that purchase China's cheap imports at a significant advantage. The conundrum is why the hell the United States thinks it should do anything about it.
There are certainly plenty of senators and congressmen -- and U.S. producers that compete with China -- who'd like to see the White House place some taxes on American consumers and businesses who purchase the low-priced Chinese imports. If the administration doesn't act, Congress may just consider mandating some punitive taxes against American consumers and business on its own."

Saturday, September 25, 2010

No Evidence Necessary
People believe what they want to believe.

As for me, the idea that anyone believes that money spent by government has a multiplying effect is stupefying.  There are a lot of smart people who DO believe this to be true.  Like the AGW crowd, for some reason, they desperately want to believe it.  Evidence ... optional.

Friday, September 24, 2010

What To Say?

This is a pretty good example of how impossible truth telling is once one is a politician.  You cannot, under any circumstances, say it, if you perhaps think something like this: 

"Well, we won the executive branch and both houses of Congress, and we did everything we could think of in 18 months.  It didn't have the effect we wanted, and we don't know why.  We had exactly what we wanted - all the power and a charismatic leader.  We took action and accomplished what we set out to do - in spades!  No president in history had more legislative victories in as short a time as ours did.  It just didn't work.  Again, we have no idea why.  So, we think the elections in November will be a bloodbath for our party.  It's going to sting, it's going to hurt, we'll never get over wondering where this went wrong.  Sure, we'll come up with some mud and throw it at the GOP, we have to, we can't just roll over and play dead.  But really, come one, you can see what's happening.  We had it all in our hands and we frocked it away."

Vietnam - We Know So Much That Isn't So

Like, for example:

Myth: The media have reported that suicides among Vietnam veterans range from 50,000 to 100,000 - 6 to 11 times the non-Vietnam veteran population.

Mortality studies show that 9,000 is a better estimate. "The CDC Vietnam Experience Study Mortality Assessment showed that during the first 5 years after discharge, deaths from suicide were 1.7 times more likely among Vietnam veterans than non-Vietnam veterans. After that initial post-service period, Vietnam veterans were no more likely to die from suicide than non-Vietnam veterans. In fact, after the 5-year post-service period, the rate of suicides is less in the Vietnam veterans' group."[Houk]"

Why do I care?  Why should you care?  Both sides of the political coercion spectrum take advantage of us through half truths.  

Coburn - "From His Mouth To God's Ears"

"We should boldly argue that in today's economy, restraint is stimulus. Research by economists Carmen Reinhart and Kenneth Rogoff' suggests the size of our debt may already slowing our economy by one point of Gross Domestic Product each year. In 2009, Obama economic advisers Christina Romer and Jared Bernstein told Congress "that a one percent increase in GDP corresponds to an increase in employment of approximately one million jobs ... [t]his has been the rough correspondence over history." In other words, not growing the GDP by one point because of our debt means one million jobs will not be created. Everyone knows this problem will grow much worse as the unfunded liabilities of Medicare, Medicaid and Social Security pile up."

We already know that if the GOP does regain some measure of power, now or in 2012, they will squander it and betray everything they will promise - this is politics we're discussing, after all, we know it is by its nature corrupted.  But if only Coburn's voice and vision could hold sway for a while ...

Biden Speaks the Truth

But I'm not sure if he meant to.
"Three months later, the fiscal punishment that both Paterson and Barbour feared was signed into law. Thanks to the unexpected election of GOP upstart Scott Brown to Teddy Kennedy's old seat in the Senate, which left Democrats for the first time during the Obama administration without a filibuster-proof majority in the upper body-and thus without the ability to pass a revised version of the bill-the House chose to swallow hard and pass the Senate legislation unchanged, making only limited modifications in a follow-up reconciliation bill.
"Much of the language that passed into law was never intended to be final; it was more like beta software. Most of the important elements the authors had intended to include were there, but not always in the final intended form. And the code was still crawling with bugs, particularly on the level of implementation: at the states.
"But Democrats had heard the call of history. Passing any bill-even a creaky, obviously flawed beta version-was better, party leaders decided, than declaring defeat so tantalizingly close to the finish line. And so, on March 23, 2010, President Barack Obama stepped up to a White House podium to memorialize the signing of the Patient Protection and Affordable Care Act.
"As he did, Vice President Joe Biden leaned over and whispered, near a still-hot microphone, "This is a big fucking deal." As with all the best political gaffes, Biden's slip of the tongue revealed the truth. ObamaCare dramatically increases state Medicaid burdens at a time when local budgets are in deep crisis, asks states to participate in a woefully underfunded bridge insurance program, and pushes state governments to set up complex health care "exchanges" that must be designed and run according to the administration's standards-standards it has yet to define and can change at whim. The law is a big deal in every way, and the first institutions to absorb the shock are state governments. That's why so many have already begun to resist."

Thursday, September 23, 2010

"Enjoying an uproariously good time poking fun at the Tea Party, Richard Cohen helpfully explains that its adherents’ insistence on strict interpretation of the Constitution is the result of a “fatuous infatuation” with that document – is the consequence of a yokel-like refusal to recognize that the Constitution is valuable “only because it has been wisely adapted to changing times.  To adhere to the very word of its every clause hardly is respectful to the Founding Fathers” (“Republicans under a spell <> ,” Sept. 21).

"Question for Mr. Cohen: if government officials and the courts are free to choose which words of the Constitution to “adhere to” and which to ignore, what meaning does the Constitution really possess?  And why did the Founding Fathers struggle so hard during the long, hot summer of 1787 over the precise wording of the Constitution?  Why didn’t they – to ensure that they would win the respect of future generations of Very Smart Persons – simply draft a document that reads “Government may do whatever it judges to be best for The People” and leave it at that?  And furthermore, why include Article V <> ?"

"It's too bad that Mr. Boudreaux doesn't understand how wise and benevolent political leaders are, and how we should just trust them to sort out the mundane elements of the Constitution which have been outgrown over time.  That process for Amendments is just so darned cumbersome." 
Special Guest Commentary by Reversoswabbie

Rational and Responsible Assumptions

"In fact the GOP's deficit-detonating tax-cut proposals make the Democrats with their spending look like pikers. The stimulus bill, remember, cost $787 billion. The tax-cut bill that Senate GOP Leader Mitch McConnell unveiled last week—a combination of making permanent the Bush tax cuts and throwing in a host of other tax credits—has a price tag of around $3.9 trillion. For those keeping score at home, the self-styled party of fiscal responsibility wants to blow a hole in the budget nearly five times larger than the alleged profligacy they have spent the last year or more condemning."

This guy is smooth - seems not to even blush when he compares the spending of other peoples' money with refusing to raise taxes in the same breath.
The assumption behind the statement that not raising taxes has a "price tag" is the assumption of the Statist.  The Statist inherently believes in governments goodness, and power to create good outcomes.  He see all through this lens of government's good intentions and capacity for good outcomes.  Blowing a hole in a budget should be viewed as a crime through that lens.
For me, I doubt the the government CAN create good outcomes, and certainly does not in the vast majority of cases.  I wonder why only tax raising can be considered 'responsible.'  It would seem to me that we cannot possibly tax enough to have a 'responsible' government.  I don't know of any case in which a government has taxed its way to prosperity.  I'm perhaps a loonie, but would rather see a government behave responsibly with spending as proof that it deserves more tax receipts.  My assumption is that when taxes or raised, and perhaps moreso when they are not raised, those in the government have only the incentive to spend more money. 
The money they spend is not related in any way to the outcomes that result - it just vanishes into the pockets of the special interests which politicians are elected to represent and benefit. 
The political calculus that governs politican spending is of no benefit to those who's taxes will be raised.
I assume in his mind the spending which is promised with social security and medicare and medicaid is not negotiable - therefore, the only 'reasonable' thing to do is to raise taxes to try to keep pace with the spending.  This approach is pragmatic and seems to be what got us to the position we now enjoy. 
In my mind, no matter how much taxes are raised, politicians will spend more.  It's the priniciple of political calculus applied in Darwinian fashion.  Very few politicians survive by refusing the spend.  Therefore, there will never be enough politicians who refuse to spend to actually stop the spending.  Against that back drop, soaked and even marinaded in that political broth, it seems sane to view increased taxes rates as a 'rational and responsible' choice.

A Tax Cut For the Poor

... is impossible since the poor pay no income taxes. You could of course eliminate the 'payroll taxes" for social security and medicare, but you know of course how essential these programs are for the benefit of the poor.
"...the top 1 percent of earners pay 40 percent of aggregate collected income-tax revenue. Yet many of the people in these brackets were not always so rich and probably won't be for long. Top incomes are transient. Millions of Americans strive to reach them for a few years to provide for retirement, or college expenses, in the expectation that they will fade quickly. A quarter of a million dollars in annual compensation is great money in North Dakota, rather less so in Manhattan or the Bay Area.
"Furthermore, most of these upper-income earners are the owners of small businesses, which simply calibrate proposed taxes in terms of money not available to hire employees and buy equipment. In contrast, the president assumes that a hardware-store owner or a small manufacturer already concedes that he makes too much money. The idea seems to be that, in penance, he will cut his profit margin and, for the public good, will gladly pay more of what profits remain to an Ivy League technocracy that knows far better than he how to spend his ill-gotten revenue on others more deserving."

Wednesday, September 22, 2010

Classic Quotes, May

‎"Begin doing what you want to do now. We are not living in an eternity. We have only this moment, sparkling like a star in our hand - and melting like a snowflake." M.B. Ray

What Makes Something a "Resource"?

No Resources Occur "Naturally"
Posted: 27 Aug 2010 01:35 PM PDT
Commenting on this blog post
"Arrowsmith writes that It's the peoples' natural resources. It's god-given by god. I disagree. Non-human nature supplies a wide variety of atomically and molecularly different things – things that we English speakers now call "petroleum" and "land" and "magnesium" and "helium" and "trees" and "gold" and on and on and on. But none of these things is naturally a "resource" – that is, none of these things is something made exclusively by nature to be useful to human beings. The creative intervention of human beings is necessary to transform any substance found in nature into a resource."

No Brake? Step On the Gas! Do Something!

What is to be done?
Posted: 14 Sep 2010 10:16 PM PDT
"Those of us who are unimpressed with the effectiveness of using debt-financed government spending as a cure for the current state we're in are often asked, OK, so what should we do instead? Would I do nothing for the people who are unemployed?
In January of 2009, I suggested this plan for recovery I like to think it would have done a better job than what we actually did, but there's no way of knowing. I think it's better than anything on the table now. But suppose it's not. Suppose it's politically unviable or simply a bad idea. Isn't it enough to explain that the stimulus doesn't make economic sense?
"It's like someone going down a hill who discovers his brakes aren't working-someone has removed the brake pedal and the rod that connects the pedal to the braking mechanism. What is to be done? Well there isn't a brake pedal, so whatever you suggest isn't going to prevent injury to the driver and the passengers. One of the passengers suggests whistling-he has heard a theory that the expulsion of air by the passengers will slow the car down. Another passenger tells the driver to assume there is a brake pedal and to kick the floor where the brake pedal should be. If I suggest that these theories are wrong, am I heartless? If I suggest that kicking twice as hard will just hurt the driver's leg, is that irrelevant?
One lesson is to keep the brake pedal in place in the future. While it's true that doesn't any thing to help the current driver, it's still useful information.
"We are in the mess we are in because of a combination of policy mistakes-artificially low interest rates, housing policy that distorted the construction industry and the price of housing, and implicit and explicit promises to honor the losses of bad financial bets. When you do those things, you can come to a bad end. It would be great to think that the housing market and the financial sector can be repaired without pain. I don't know how to do it and I don't think anyone does. It would be great to have a theory of what creates confidence in the future. We don't have a theory of what creates confidence.
"Most of what we're hearing from Wahsington is whistling in the dark.
Bring on November and gridlock. Or rollback."

Tuesday, September 21, 2010

Inequality and Fish
"Inequality is a red herring. Or maybe a poisonous herring. It is the symptom, not a disease, and misunderstanding it leads to bad medicine. Here is Alex Tabarrok on what he and others call Winner-Take-All economics:
J.K. Rowling is the first author in the history of the world to earn a billion dollars. I do not disparage Rowling when I say that talent is not the explanation for her monetary success. Homer, Shakespeare and Tolkien all earned much less. Why? Consider Homer, he told great stories but he could earn no more in a night than say 50 people might pay for an evening's entertainment. Shakespeare did a little better. The Globe theater could hold 3000 and unlike Homer, Shakespeare didn't have to be at the theater to earn. Shakespeare's words were leveraged.
Tolkien's words were leveraged further. By selling books Tolkien could sell to hundreds of thousands, even millions of buyers in a year - more than have ever seen a Shakespeare play in 400 years. And books were cheaper to produce than actors which meant that Tolkien could earn a greater share of the revenues than did Shakespeare (Shakespeare incidentally also owned shares in the Globe.)
Rowling has the leverage of the book but also the movie, the video game, and the toy. And globalization, both economic and cultural, means that Rowling's words, images, and products are translated, transmitted and transported everywhere - this is the real magic of Ha-li Bo-te.
Rowling's success brings with it inequality. Time is limited and people want to read the same books that their friends are reading so book publishing has a winner-take all component. Thus, greater leverage brings greater inequality. The average writer's income hasn't gone up much in the past thirty years but today, for the first time ever, a handful of writers can be multi-millionaires and even billionaires. The top pulls away from the median.
The same forces that have generated greater inequality in writing - the leveraging of intellect, the declining importance of physical labor in the production of value, cultural and economic globalization - are at work throughout the economy. Thus, if you really want to understand inequality today you must first understand Harry Potter.
This is actually an old post of Alex's. He dredged it up to respond to an observation by Ezra Klein:
The top 1 percent, for instance, has gone from capturing about 8 percent of the national income to 18 percent. But there's no obvious skills differential between workers in the top 1 percent and the workers directly beneath them. It's not like hedge fund managers are the only guys able to use Excel.
Alex's point is that excellence gets leveraged. Taleb makes the same point between the 14 minute mark and the 25th minute of this podcast. I think he writes about it in the Black Swan.
That's why focusing on inequality per se is so poisonous. Would the world be a better place if JK Rowling hadn't dared to write the Harry Potter series-if she'd given up and waited on tables instead of risking so much? Would the world be a better place if Sergey Brin and Larry Page had never created Google? Would the world be a better place without LeBron James? All of these people create inequality. They also make the world a better place.
Klein might be right about some of the high returns of finance. So let's get rid of the policies that make their returns high but not socially productive. But inequality is not the problem.
My only quibble with Alex is that it's not really a winner-take-all world. It's more of a winner-take-lots kind of world. If LeBron James had decided to be a social worker, yes, someone else (Kobe, maybe) would be considered the best player alive and that person would get some extra rents for being the best. But LeBron's grace (and sometimes lack of it off the court) is unique. The creator of the best search engine gets lots of rents but that creates tremendous opportunities for so many others. JK Rowling's success opened the door to many other fantasy series (Pendragon for one) that would have been less successful. People still enjoy the second best fantasy series. And some disagree that Harry Potter is the best."

Sunday, September 19, 2010

Must Solve It
There's no perfect system to measure teacher performance, but if we want to be wedded to public school, we must find a way to reward those who deliver the goods and to weed out those that do not.

"A growing number of school districts have adopted a system called value-added modeling to answer that question, provoking battles from Washington to Los Angeles — with some saying it is an effective method for increasing teacher accountability, and others arguing that it can give an inaccurate picture of teachers’ work.
The system calculates the value teachers add to their students’ achievement, based on changes in test scores from year to year and how the students perform compared with others in their grade.
People who analyze the data, making a few statistical assumptions, can produce a list ranking teachers from best to worst."

Saturday, September 18, 2010

I remember when I felt that the USSR was always going to be a thorn in the side of liberty.  I remember when a unified Germany seemed like a silly dream.  I remember thinking Leck Walensa's quest seemed noble but pointless.  I remember thinking they would never free Mandela or give up apartheid.

How and what will change this circumstance?

Reminds me of the Sting tune, "I Hope the Russians Love Their Children Too."

Friday, September 17, 2010

Classic Quotes, Mays

"The tragedy of life doesn't lie in not reaching your goal. The tragedy lies in having no goal to reach."
- Benjamin Mays

Thursday, September 16, 2010

Wednesday, September 15, 2010

Trade Balance

Tonelson and Kearns Peddle Ptolemaic Economics
Posted: 10 Sep 2010 01:24 PM PDT
Here's a letter to the New York Times:
Alan Tonelson's and Kevin Kearns's case for taxing or otherwise throwing obstacles in the way of American consumers who seek to buy foreign-made products is a string of errors and misconceptions ("Trading Away the Stimulus" ;  Sept. 10).
For example, these authors assert that America's trade deficit is "a central reason why American growth has lagged and President Obama's stimulus hasn't led to a robust recovery." Nonsense. While it's true that the 2010 trade deficit is higher than it was at the same time in 2009, the 2009 trade deficit was less than half the size of the trade deficit in 2007. Research by Cato Institute economist Dan Griswold reveals that trade deficits grow when the U.S. economy booms and shrink when it slows
Tonelson and Kearns allege that those of us who would repair the economy with tax cuts are naively out-of-touch because we rely on a theory "rooted in" the 1980s. Perhaps. But the thoroughly discredited theory that Tonelson and Kearns rely on - mercantilism - is rooted in the seventeenth century.
Donald J. Boudreaux

Classic Quotes, Kierkegaard

"Life can only be understood backwards, but it must be lived forward."
- Soren Kierkegaard


Tuesday, September 14, 2010

Trust Me, I Just Want to Help You

ObamaCare’s Threat to Free Speech

Here’s a smattering of reactions from others.
  • The Wall Street Journal: “The Health and Human Services secretary…warned that ‘there will be zero tolerance for this type of misinformation and unjustified rate increases.’   Zero tolerance for expressing an opinion, or offering an explanation to policyholders? They’re more subtle than this in Caracas.”
  • Chicago Tribune: “President Obama’s health care reform plan, enacted in March, is not terribly popular with the American people…The administration can’t tell the public to stop grousing. It can, however, try to silence health insurers who have the nerve to say out loud what basic economic theory indicates…Apparently, harsh punishment is in store for anyone who refuses to parrot the administration line. But there is every reason to think this alleged libel is true.”
  • Tyler Cowen: “Nowhere is it stated that these rate hikes are against the law (even if you think they should be), nor can this ‘misinformation’ be against the law…[The letter] is worse than I had been expecting.”
  • Ed Morrissey: “Rarely have we heard a Cabinet official tell Americans to stay out of political debates at the risk of losing their businesses. It points out the danger in having government run industries and holding a position where politicians can actually destroy a business out of spite.”
  • Michael Barone: “Sebelius is threatening to put health insurers out of business in a substantial portion of the market if they state that Obamacare is boosting their costs…The threat to use government regulation to destroy or harm someone’s business because they disagree with government officials is thuggery. Like the Obama administration’s transfer of money from Chrysler bondholders to its political allies in the United Auto Workers, it is a form of gangster government.”

What To Make Of This?

"The study found that people's evaluations of their lives improved steadily with annual income. But the quality of their everyday experiences - their feelings - did not improve above an income of $75,000 a year. As income decreased from $75,000, people reported decreasing happiness and increasing sadness, as well as stress. The study found that being divorced, being sick and other painful experiences have worse effects on a poor person than on a wealthier one."
The Statists are hooked on equality - in other words, as inheritors of the French Revolution, and all of its horror, they obsess over equality as the desired end state, and are more than happy to use the coercive power of the State to get the equality which they think will reduce pain and suffering. Their view is built around the notion that humans are more a product of their environment and/or genetics than of their personal incentives, choices or life lessons. In short - the individual is not powerful enough to attain equality on his/her own. Therefore, to make the world just, you and I, through the monopoly on coercion which the State holds, must shape the world to create an equal, just, painless condition.
And they say those who aspire to individual liberty are utopians.
As for the study, an interesting question would be to study whether the ability to earn $75,000/year derives from a generalized ability to do/choose those things which get the individual what the individual desires (eg, happiness)? Or does the ability to earn $75,000 create a condition from which happiness is more often experienced? In other words, this is a classic chicken/egg scenario.
Either way, liberty is the engine of wealth. More liberty, more happiness.

Monday, September 13, 2010

Classic Quotes, Epictetus

"He is a wise man who does not grieve for the things which he has not, but rejoices for those which he has."
- Epictetus

Courtesy of

Let's All Move to Finnland

"Progressives in America are often keen on promoting the European welfare state as an argument for big government, not least in the healthcare debate (Editor's Note:  nevermind the fact that the Eurozone never had to foot the bill for their post WWII security). They point to European countries, often the social-democratic Nordic countries, as role models, with their universal healthcare, public school system, generous social-safety net, and all the happy people who live there.
This line of argument got a significant boost when Newsweek proclaimed that Finland was the best country in the world to live in, closely followed by Sweden and Switzerland. And of course they are happy. After all, there is no poverty in these great countries, the populace is educated, and people generally don't have a care in the world, because the benevolent government is always there to solve every problem.
Many people have tried to dispel this myth, but it still persists. I don't presume to be able to put this issue to rest, but there are some things that should be known about this mythical utopia, the "best country in the world" - Finland."
"In Finland, the progressives believe, big government works. So do universal healthcare and public, "free" education. And if Finland can do it, so can the United States. The flaw in that argument is that Finland actually can't do it, no more than Obama can keep his promises.
The Finnish welfare state comes at a price we can't afford. The healthcare system is severely inefficient and costly, and stands in the way of normal people's access to the truly great medical care provided by the private sector. The public education is also very costly and constantly short of money. Textbooks are passed on from generation to generation, everybody learning the same fallacies as the ones before them, provided that books are even readable.
The idea of everyone's right to a university degree has resulted in a very high number of university graduates, but their degrees are often of no value on the job market. Due to high taxes and both the legal and financial risks of employing people, an 8 percent unemployment rate is considered normal. And did I mention that the retirement system is every bit as much of a Ponzi scheme as the US Social Security system, and is on the verge of collapse?
The national debt has already reached alarming levels. What's more, there hasn't been an extended period of time when the principal of the debt has been systematically paid off. At best, it has remained fairly stable, only to shoot up by almost 50 percent in the last couple of years, if the projections hold true. Bankruptcy will come unless significant changes are made."

Sunday, September 12, 2010


Prufrockian Political Economy
by Russ Roberts on July 22, 2010

When I talk about risk and safety, I always like to point out that it's easy to make sure that no one ever dies in an airplane crash: ban air travel. The fact that we don't suggests that we really don't want perfectly safe air travel.
Similarly, it's easy to make sure that you luggage is never lost when you fly-fine airlines $1,000,000 for every lost bag. (First heard this example used by Jonathan Skinner) Not only would you never lose a bag, if you could collect the fine as compensation, you'd encourage travelers to try to get their bags lost. But even without that perverse result, travelers don't want a million dollar fine. True, no bag would ever get lost, but the cost of a ticket would become much higher because of all the costs that airlines would incur to avoid lost bags. The bottom line is that we don't want the probability of a bag being lost to be zero.
Similarly, we don't want ratings agencies to be perfect seers. The WSJ reports:
Ford Motor Co.'s financing arm pulled plans to issue new debt, the first casualty of a bond market thrown into turmoil by the financial overhaul signed into law Wednesday.
Market participants said the auto maker pulled a recent deal, backed by packages of auto loans, because it was unable to use credit ratings in its offering documents, a legal requirement for such sales. The company declined to comment.
The nation's dominant ratings firms have in recent days refused to allow their ratings to be used in bond registration statements. The firms, including Moody's Investors Service, Standard & Poor's and Fitch Ratings, fear they will be exposed to new liability created by the Dodd-Frank law.
The law says that the ratings firms can be held legally liable for the quality of their ratings. In response, the firms yanked their consent to use the ratings, hoping for a reprieve from the Securities and Exchange Commission or Congress. The trouble is that asset-backed bonds are required by law to include ratings in official documents.
The result has been a shutdown of the market for asset-backed securities, a $1.4 trillion market that only recently clawed its way back to health after being nearly shuttered by the financial crisis.
Many horrific results of legislation are intended. But this one, I suspect is more in the J. Alfred Prufrock category: That is not what I meant at all. That is not it, at all."
As Hayek said in The Fatal Conceit:
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

Saturday, September 11, 2010

September 11, 2001

Next year marks the tenth anniversary.  It's been an amazing period of time.  I was in training for a flying tour.  My unit deployed less than a year after the event.  It was an incredible time to be in uniform defending our nation.  I never felt like I could do enough, but took comfort in General Lee's advice:

“Duty is the sublimest word in our language. Do your duty in all things. You cannot do more. You should never wish to do less.” 

We lost too many citizens that day, and too many warriors since then.  I wish you all fair winds and following seas on your journey.

Smoot Hawley, Exports, and the Depression;
Market-oriented folk blame Smoot Hawley for worsening the Great Depression. Skeptics point out that trade was a small part of the American economy in the '30s so Smoot Hawley couldn't haven't been very important. Thomas Rustici in this EconTalk podcast argues that the skeptics have missed the monetary impacts of Smoot Hawley-the bank runs of the '30s were concentrated in regions and cities that were dependent on exports.

Friday, September 10, 2010

What's the Purpose of Government?

Natural Reluctance
Elena Kagan's disturbing refusal to acknowledge pre-existing rights
Jacob Sullum | July 7, 2010
According to the Declaration of Independence, people create government to protect their pre-existing, inalienable rights. Yet when Sen. Tom Coburn (R-Okla.) asked Kagan whether armed self-defense is one of those rights, she professed agnosticism.
"I don't have a view of what are natural rights independent of the Constitution," Kagan said. In two days of testimony replete with the evasive maneuvers that she once complained had rendered Supreme Court confirmation hearings a "vapid and hollow charade," her silence on natural rights was one of the most disturbing things she didn't say.
In addition to eschewing statements that might "provide some kind of hints" about how she would vote on a case that could conceivably come before the Court, Kagan declined to offer opinions on subjects, such as natural rights, that she deemed irrelevant to the Court's work. In short, she was happy to answer any question, as long as it was neither related nor unrelated to the positions she would take as a justice.
But was Kagan right to say that natural rights should play no role in constitutional interpretation? "I'm not saying I do not believe that there are rights pre-existing the Constitution and the laws," she said, but "you should not want me to act in any way on the basis of such a belief, if I had one," because "my job as a justice is to enforce the Constitution and the laws."
Although justices should not read their own idiosyncratic notions of natural rights into the Constitution, the concept is essential to understanding what the Framers were trying to do. In addition to the Declaration of Independence, which reflects the Framers' philosophical premises but does not have the force of law, the Constitution itself repeatedly refers to pre-existing rights.
The First Amendment does not say, "The people shall have a right to freedom of speech." It says, "Congress shall make no law.abridging the freedom of speech." Likewise with "the right of the people to keep and bear arms" and "the right of the people to be secure in their persons, houses, papers, and effects against unreasonable searches and seizures."
These are not rights the government creates; they are pre-existing rights the government is bound to respect. There is no other way to make sense of the Ninth Amendment: "The enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the people."
By contrast, here is how Kagan summarized the Supreme Court's conclusion in the 2008 case D.C. v. Heller (emphasis added): "The Second Amendment individual right to keep and bear arms." What the decision actually said is that the Second Amendment acknowledges that right. "It has always been widely understood," the Court explained, "that the Second Amendment, like the First and Fourth Amendments, codified a pre-existing right" that was considered "one of the fundamental rights of Englishmen."
That point was crucial in deciding, as the Court did last week, that the Second Amendment applies to the states via the 14th Amendment. Some theory of pre-existing, fundamental rights is also necessary in applying neglected yet important constitutional provisions such as the Ninth Amendment and the 14th Amendment's Privileges or Immunities Clause.
Constitutional interpretation aside, Kagan's reluctance to endorse the concept of pre-existing rights was troubling because without it we cannot draw moral distinctions between legal regimes. How can we condemn a dictator for legally authorized oppression, or say that our own Constitution is better now that it bans slavery than it was when it tacitly approved the practice? The traditional American answer is that people have certain rights by virtue of being human, regardless of what the law says.

Massachusets Health Care
President Obama said earlier this year that the health-care bill that Congress passed three months ago is "essentially identical" to the Massachusetts universal coverage plan that then-Gov. Mitt Romney signed into law in 2006. No one but Mr. Romney disagrees.
As events are now unfolding, the Massachusetts plan couldn't be a more damning indictment of ObamaCare. The state's universal health-care prototype is growing more dysfunctional by the day, which is the inevitable result of a health system dominated by politics.
In the first good news in months, a state appeals board has reversed some of the price controls on the insurance industry that Gov. Deval Patrick imposed earlier this year. Late last month, the panel ruled that the action had no legal basis and ignored "economic realties."
In April, Mr. Patrick's insurance commissioner had rejected 235 of 274 premium increases state insurers had submitted for approval for individuals and small businesses. The carriers said these increases were necessary to cover their expected claims over the coming year, as underlying state health costs continue to rise at 8% annually. By inventing an arbitrary rate cap, the administration was in effect ordering the carriers to sell their products at a loss.
Mr. Patrick has promised to appeal the panel's decision and find some other reason to cap rates. Yet a raft of internal documents recently leaked to the press shows this squeeze play was opposed even within his own administration.
In an April message to his staff, Robert Dynan, a career insurance commissioner responsible for ensuring the solvency of state carriers, wrote that his superiors "implemented artificial price caps on HMO rates. The rates, by design, have no actuarial support. This action was taken against my objections and without including me in the conversation."

Mitt Romney signs health-care reform into law as Ted Kennedy (third from right) looks on, April 2006.
Mr. Dynan added that "The current course . . . has the potential for catastrophic consequences including irreversible damage to our non-profit health care system" and that "there most likely will be a train wreck (or perhaps several train wrecks)."
Sure enough, the five major state insurers have so far collectively lost $116 million due to the rate cap. Three of them are now under administrative oversight because of concerns about their financial viability. Perhaps Mr. Patrick felt he could be so reckless because health-care demagoguery is the strategy for his fall re-election bid against a former insurance CEO.
The deeper problem is that price controls seem to be the only way the political class can salvage a program that was supposed to reduce spending and manifestly has not. Massachusetts now has the highest average premiums in the nation.
In a new paper, Stanford economists John Cogan and Dan Kessler and Glenn Hubbard of Columbia find that the Massachusetts plan increased private employer-sponsored premiums by about 6%. Another study released last week by the state found that the number of people gaming the "individual mandate"-buying insurance only when they are about to incur major medical costs, then dumping coverage-has quadrupled since 2006. State regulators estimate that this amounts to a de facto 1% tax on insurance premiums for everyone else in the individual market and recommend a limited enrollment period to discourage such abuses. (This will be illegal under ObamaCare.)
Liberals write off such consequences as unimportant under the revisionist history that the plan was never meant to reduce costs but only to cover the uninsured. Yet Mr. Romney wrote in these pages shortly after his plan became law that every resident "will soon have affordable health insurance and the costs of health care will be reduced."
One junior senator from Illinois agreed. In a February 2006 interview on NBC, Mr. Obama praised the "bold initiative" in Massachusetts, arguing that it would "reduce costs and expand coverage." A Romney spokesman said at the time that "It's gratifying that national figures from both sides of the aisle recognize the potential of this plan to transform our health-care system."
An entitlement sold as a way to reduce costs was bound to fundamentally change the system. The larger question-for Massachusetts, and now for the nation-is whether that was really the plan all along.
"If you're going to do health-care cost containment, it has to be stealth," said Jon Kingsdale, speaking at a conference sponsored by the New Republic magazine last October. "It has to be unsuspected by any of the key players to actually have an effect." Mr. Kingsdale is the former director of the Massachusetts "connector," the beta version of ObamaCare's insurance "exchanges," and is now widely expected to serve as an ObamaCare regulator.
He went on to explain that universal coverage was "fundamentally a political strategy question"-a way of finding a "significant systematic way of pushing back on the health-care system and saying, 'No, you have to do with less.' And that's the challenge, how to do it. It's like we're waiting for a chain reaction but there's no catalyst, there's nothing to start it."
In other words, health reform was a classic bait and switch: Sell a virtually unrepealable entitlement on utterly unrealistic premises and then the political class will eventually be forced to control spending. The likes of Mr. Kingsdale would say cost control is only a matter of technocratic judgement, but the raw dirigisme of Mr. Patrick's price controls is a better indicator of what happens when health care is in the custody of elected officials rather than a market.
Naturally, Mr. Patrick wants to export the rate review beyond the insurers to hospitals, physician groups and specialty providers-presumably to set medical prices as well as insurance prices. Last month, his administration also announced it would use the existing state "determination of need" process to restrict the diffusion of expensive medical technologies like MRI machines and linear accelerator radiation therapy.
Meanwhile, Richard Moore, a state senator from Uxbridge and an architect of the 2006 plan, has introduced a new bill that will make physician participation in government health programs a condition of medical licensure. This would essentially convert all Massachusetts doctors into public employees.
All of this is merely a prelude to far more aggressive restructuring of the state's health-care markets-and a preview of what awaits the rest of the country.
Mr. Rago is a senior editorial writer at the Journal.

Tuesday, September 7, 2010

Perry on Productivity v Employment
Check the link, look at the graphs.

"Ron Bullock, chairman of Bison Gear & Engineering Corp, writing in theWashington Examiner: 

"More effective foreign competition has led to increasing manufactured-goods trade deficits and the loss of 7 million U.S. manufacturing jobs since 1980."

Don Boudreaux responds:

"This account – repeated ad nauseam – would be more plausible if it were also the case that U.S. manufacturing output, during this same time, had declined. But this output rose. Manufacturing output today is nearly 100 percent higher than it was 30 years ago (see chart). Importantly, manufacturing output is up while manufacturing employment is down for a reason that is cause not for the pessimism that universally attends accounts such as Mr. Bullock‘s but rather for optimism. That reason is substantial growth in productivity, which is the only source of sustained and widespread prosperity.""

Monday, September 6, 2010

Employer for a Moment
A key concept in any economic discussion is labor. You are the labor when you work for someone. You may be deemed "an employee", but in economic terms, you are "the cost of labor." And to understand the true cost of labor, you must look at what companies truly pay for an employee

To be an effective economic thinker, you cannot think as an "employee". Escape that mindset and think like a CEO. To top management you are "labor" and there are costs to hiring you that reach far beyond your hourly wage.For example, when you get hired, the true cost of hiring you is your hourly rate plus additional costs. In other words, your employer pays you $10 an hour, but it costs him at least an extra five dollars to keep you employed and happy. Again, if you get paid an hourly rate $10.00 you cost your company at least $15.00.

And this additional cost increases every time your company faces health insurance increases and every time the federal government imposes new regulations and various employment taxes.

Let's look at an example. You are paid $10 an hour and you get paid $400 a week. But as a $400.00-a-week employee you really cost your company $626.20 a week.

Sunday, September 5, 2010

So Obvious

With all the talk about growth, or in our case the lack thereof, there's one really obvious piece, which would allow us to retain jobs in the US, would encentivize hiring, and would accelerate growth. The obvious piece - lower tax rates on business. Our tax code creates the incentive to do business elsewhere. We could do much better.

Saturday, September 4, 2010

"Citizen" Of The World

" which he declared himself a "citizen of the world." That was an oxymoronic boast, given that citizenship connotes allegiance to a particular polity, its laws and political processes. But the boast resonated in Europe."

Will's piece is as always pithy and enlightening. However what of this bit that analyses the catch phrase "citizen of the world"?

Here's his next paragraph:
"The European Union was born from the flight of Europe's elites from what terrifies them -- Europeans. The first Thirty Years' War ended in 1648 with the Peace of Westphalia, which ratified the system of nation-states. The second Thirty Years' War, which ended in 1945, convinced European elites that the continent's nearly fatal disease was nationalism, the cure for which must be the steady attenuation of nationalities. Hence the high value placed on "pooling" sovereignty, never mind the cost in diminished self-government."

Friday, September 3, 2010

Classic Quotes, Stevenson

"The best things in life are the nearest: breath in your nostrils, light in your eyes, flowers at your feet, duties at your hand, the path of right just before you." ~ Robert Lewis Stevenson
Courtesy of Cousin Betsy!

Reduce Corporate Taxes, Create Jobs and Growth
"Think of the economy as a pie split among workers, savers and the government, with the government's slice fixed. The savers' slice will equal the after-tax return on each unit of the capital stock, and what's left goes to workers as after-tax wages. The fairness advocates in effect claim that low tax rates on dividends and capital gains increase the share of the pie that goes to high-income savers. But the low tax rates increase the absolute size of the workers' slice by making the entire pie bigger. That's because low tax rates encourage capital accumulation, productivity and wage growth."
"There are at least four channels through which Mr. Bush's tax reform (proposed and passed) raised the long-run productive capacity of the economy-that is, increased the size of the pie. First, since lower taxes mean higher returns to investors, those investors allocate more funds to corporate capital. Corporations can raise capital for investment more cheaply. As a result, the nation's capital stock and output increase.
Second, reducing or eliminating the differential tax treatment between corporate and noncorporate investments means that investment flows are not channeled artificially by tax considerations and the overall productivity of the economy increases.
Third, lowering or eliminating taxes on capital mitigates distortions in our financial structure. Prior to 2003, equity financing was disadvantaged relative to debt financing, with taxes levied twice, at the corporate level and again at the investor level. Because interest payments to debt holders are deductible at the corporate level, debt financing was taxed only once, at the investor level. This system contributed to over-reliance on debt financing. The 2003 tax cuts reduced this bias substantially. Nonfinancial companies went into the recent crisis with lower leverage as a result, a very good thing.
Fourth, low taxes on dividends encourage firms with few growth opportunities to distribute the funds to shareholders. Those shareholders could then reinvest funds in other, more innovative and productive ventures-another very good thing for economic efficiency and growth."

Thursday, September 2, 2010

Classic Quotes, Wallach

'Arm in arm, bruised and bloodied, we walk as champions to battle on fields not of our own choosing. These are the days that forge our spirit.' David "Chef" Wallach

Facts Optional

"The paper argued that fiscal stimulus enacted under both Presidents Bush and Obama lowered the unemployment rate by 1.5 percentage points. But it did not measure either the number of people who found work or the effectiveness with which the Obama stimulus created jobs. Instead, it assumed through the use of economic modeling that the recently enacted stimulus was roughly as effective, dollar for dollar, as similar provisions in the past. It then multiplied the past measures of job creating effectiveness by the number of dollars in the current plan and added the result to the current unemployment rate."

Facts - just so danged tedious. I much prefer the flexibility and utility of assumptions and econometric models. Let's face it, you can't manipulate public opinion - you know it, I know it, everyone knows it - by saying "we don't really know how much good the stimulus bill did, if any."

Wednesday, September 1, 2010

Disagree with Dr. B?

The following posted in response to this post:  Reports of the Earth’s Death are Greatly Exaggerated

I wondered if I would ever disagree w Dr. B. In this case, I do. Industrial agriculture achieves its incredible outputs at great ecological cost - I don't think even Dr. B could argue that point. Among other things, we have an industrial food chain that cost shifts both the environmental costs and the cost of production - that is to say, the low cost we pay at the point of sale hides the real costs of these foods due to the market distorting interventions of the USDA.

The ecological damage of the current USDA manipulated agricultural model is based on a crude oil made into fertilizer system which makes the land unusable for any other purpose, and delivers significant pollution to streams, rivers and the Gulf of Mexico (which, as commons, are not defended well as they would be if they were private property). The industrial model also requires the use of significant irrigation, the long term consequence of which is inarguable over-salinization and therefore sterilization of the land; it has been known since biblical times that 'salting' ruins the agricultural potential of land.
If the USDA/industrial model emerged as a result of markets, I would have some reason to believe it is the best available option, but since it is the direct result of USDA manipulations, and the agricultural cartels (which have undue influence over the more than 150,000 employees of the USDA), there's every reason to believe there are more sustainable methods of agricultural production which might well be both less expensive at the point of sale, but also would produce higher quality food, and have a less negative ecological impact (or positive impact). One excellent example of an alternative farm, which I request that Professor Boudreaux examine, is Joel Salatin's Polyface Farm. His innovative techniques provide outstanding yields with minimal processed feed and no use of ammonium nitrate. The Polyface model does not hide or shift costs, and would beat the industrial model easily in point of sale cost if not for the interventions of the USDA which subjects his model to absurd industrial agricultural policies - making his product slightly more expensive at the point of sale, if far better in quality, than that which the USDA/industrial food chain produces. A very accessible introductory read on the topic is the imperfect but good "Omnivore's Dilemna" by Michael Pollan.
It's far too large a topic to expound upon in this post, but a massive, negative, unintended consequence of the USDA/industrial food system is that low cost at point of sale, poor quality foods - high fructose corn syrup, processed cereal grains, over processed grain fed dairy products - are rapidly driving US health care costs through the roof (hyperinsulinemia and all related 'diseases of the West' -; and the escalating HC costs have become the justification for even greater government intervention and distortions in health care markets. Isn't this always the way it goes ...
In closing - the mixed blessing of the industrial food chain as it operates now is that the very poor can buy very poor quality food at low 'point of sale' costs, but the cost of the system (in terms of total cost, ecological impact, and health impact) is both hidden and shifted. The system exists as it is due market distortions resulting from USDA interventions, including rules that violate your rights to buy food from whomever you would like to. The damage to the average American's health due to over consumption of artificially low priced, low quality food is just another cost of the USDA/industrial food system - paid in human suffering and increasing government intervention in the health care system. The USDA/industrial food production system is "stupidity gone to seed."