Month: February 2005

Socialist Calculation and the Turing Test

“The socialist calculation debate” is a provocative post by Tyler Cowen at Marginal Revolution. Cowen links to a review he wrote of G.C. Archibald’s Information, Incentives and the Economics of Control: A Reexamination of the Socialist Calculation Debate. The jacket flap says:

This book examines methods for controlling or guiding a sector of the economy that do not require all the apparatus of economic planning or rely on the vain hope of sufficiently “perfect” competition, but instead rely entirely on the self-interest of economic agents and voluntary contract. The methods involved require trial-and-error steps in real time, with the target adjusted as the results of each step become known. The author shows that the methods are equally applicable to industries that are wholly privately owned, wholly nationalized, mixed or labor-managed.

The suggestion seems to be that one can emulate the outcomes that would be produced by competitive markets — if not something “better” — by writing rules that, if followed, would mimic the behavior of competitive markets. The problem with that suggestion — as I understand it — is that someone outside the system must make the rules to be followed by those inside the system.

And that’s precisely where socialist planning and regulation always fail. At some point not very far down the road, the rules will not yield the outcomes that spontaneous behavior would yield. Why? Because better rules cannot emerge spontaneously from rule-driven behavior. (It’s notable that the book’s index lists neither Hayek nor spontaneous order.)

Where, for instance, is there room in the socialist or regulatory calculus for a rule that allows for unregulated monopoly? Yet such an “undesirable” phenomenon can yield desirable results by creating “exorbitant” profits that invite competition (sometimes from substitutes) and entice innovation. (By “unregulated” I don’t mean that a monopoly should be immune from laws against force and fraud, which must apply to all economic actors.)

I suppose exogenous rules are all right if you want economic outcomes that accord with those rules. But such rules aren’t all right if you want economic outcomes that actually reflect the wants of consumers.

It reminds me of the Turing test:

The Turing test is a proposal for a test of a machine’s capability to perform human-like conversation. Described by Alan Turing in the 1950 paper “Computing machinery and intelligence“, it proceeds as follows: a human judge engages in a natural language conversation with two other parties, one a human and the other a machine; if the judge cannot reliably tell which is which, then the machine is said to pass the test. It is assumed that both the human and the machine try to appear human. In order to keep the test setting simple and universal (to explicitly test the linguistic capability of some machine), the conversation is usually limited to a text-only channel.

And so, the machine might — sometimes — emulate human behavior, but only then if it can engage in an interaction that’s limited to textual conversation. And that’s as far as it goes. The machine cannot be human, nor can it emulate the many, many other aspects of human behavior.

If you want to interact with a human, don’t talk to a rule-based computer. If you want an economy that produces outcomes desired by humans, don’t rely on an economy that’s run by the equivalent of rule-based computer. Why settle for a machine when you can have the real thing?

Of course, the whole point of socialist planning is to produce outcomes that are desired by planners. Those desires reflect planners’ preferences, as influenced by their perceptions of the outcomes desired by certain subsets of the populace. The immediate result may be to make some of those subsets happier, but at a great cost to everyone else and, in the end, to the favored subsets as well. A hampered economy produces less for everyone.

Lincoln, the Poet President

Abraham Lincoln ended his First Inaugural Address (March 4, 1861) with these words:

We are not enemies, but friends. We must not be enemies. Though passion may have strained it must not break our bonds of affection. The mystic chords of memory, stretching from every battlefield and patriot grave to every living heart and hearthstone all over this broad land, will yet swell the chorus of the Union, when again touched, as surely they will be, by the better angels of our nature.

Lincoln’s Gettysburg Address (November 19, 1863) is no less majestic:

…we can not dedicate—we can not consecrate—we can not hallow—this ground. The brave men, living and dead, who struggled here, have consecrated it, far above our poor power to add or detract. The world will little note, nor long remember what we say here, but it can never forget what they did here. It is for us the living, rather, to be dedicated here to the unfinished work which they who fought here have thus far so nobly advanced. It is rather for us to be here dedicated to the great task remaining before us—that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion—that we here highly resolve that these dead shall not have died in vain—that this nation, under God, shall have a new birth of freedom—and that government of the people, by the people, for the people, shall not perish from the earth.

Lincoln’s poetry soared again in his Second Inaugural Address (March 4, 1865), weeks before Lee surrendered to Grant (April 9, 1865):

Fondly do we hope, fervently do we pray, that this mighty scourge of war may speedily pass away. Yet, if God wills that it continue until all the wealth piled by the bondsman’s two hundred and fifty years of unrequited toil shall be sunk, and until every drop of blood drawn with the lash shall be paid by another drawn with the sword, as was said three thousand years ago, so still it must be said “the judgments of the Lord are true and righteous altogether.”

With malice toward none, with charity for all, with firmness in the right as God gives us to see the right, let us strive on to finish the work we are in, to bind up the nation’s wounds, to care for him who shall have borne the battle and for his widow and his orphan, to do all which may achieve and cherish a just and lasting peace among ourselves and with all nations.

The Real Meaning of the "National Debt"

UPDATED 02/12/05 (new text in bold)

The so-called national debt is really the debt of the government of the United States of America. I have written before about the debt and why it isn’t all that important, in spite of the hysterics it invokes. Some writers (The Skeptical Optimist via EconoPundit, for instance) try to diminish the importance of put the debt in perspective by comparing its size with GDP, which they take as an indication of “our” is analogous to a standard measure of a private debtor’s ability to service the debt.

I have two problems with that depiction of the debt. First, that depiction assumes it might be taken by as a suggestion that it’s necessary to pay off the debt* — as if it were a home mortgage — which is a notion that I have previously debunked. (Steve Conover, The Skeptical Optimist, doesn’t mean to suggest that the debt must be paid off. In fact, he has written several excellent pieces about the debt and why it needn’t be repaid.**) My second objection arises from the first, and is more fundamental. The debt really is a measure of the extent to which spending by the U.S. government has exceeded taxes collected by the U.S. government since 1789. In other words, the damage has already been done: first, by government spending, which on balance diverts resources from productive uses; second, by the inflationary effects of government spending, which deficits merely aggravate. (For more on those two points, see the preceding post — especially the final four paragraphs.)

The notion of paying off the debt — or measuring “our” ability to pay it off — is an unfortunate and inappropriate carryover from personal and corporate finance. (The notion persists in spite of the writings of sensible thinkers like Steve Conover.) We, the citizens of the United States, already have paid off the debt of the United States government by allowing that government to commandeer resources from the private sector — a self-inflicted sacrifice that can be measured in the trillions of dollars, and which encompasses not only the debt but most of what government has spent on activities other than defense and justice. Why should we now worry about paying off the shadowy residue of the debt, which is nothing more than an approximate measure of the wasteful ways of the U.S. government? Who’s going to make us fork over, the shade of John Gotti?

P.S. A reader says:

You leave out one small detail from your post – interest on the debt. That is not an accounting entry and is most definitely not “in the past.” It’s the present and the future and it’s very real. $135.46 billion in FY2005.

And of course, fluctuating interest rates notwithstanding, the debt is very good proxy of the national interest burden, which must be paid in cash today by taxpayers today.

My reply:

Interest on the debt is real — but it’s essentially a transfer payment from one set of persons (taxpayers) to another set of persons (those who hold the debt). Because the two groups overlap, it’s sort of like robbing Peter to pay Peter and Paul. (Where’s Mary when you need her?)

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* The usual meaning of “debt service,” in my experience, is “interest payment plus repayments of principal to creditors, that is, retirement of debt,” which is the definition given in The New York Times Financial Glossary.

** Recommended articles and posts by Steve Conover:

Deficits, the National Debt, and Economic Growth: Summary

Deficits, the National Debt, and Economic Growth: Who Owes Whom? Think.

How to Neutralize the National Debt’s Interest Burden

Deficits, the National Debt, and Economic Growth: We’ll Never Have to Pay It Back

Oh, That Mythical Trust Fund!

Many of those who wish to preserve Social Security as we know and love it will insist that the Social Security trust fund is real. The usual argument goes like this: Yes, the trust fund holds government bonds. But if government bonds are a real asset to private investors, they must be a real asset to the trust fund. Wrong.

If the Social Security Administration (SSA) had invested net Social Security receipts in stocks, corporate bonds, and private mortgages — or had stashed the receipts in many, many passbook savings accounts, à la W.C. Fields — the trust fund could be a real asset. Why? Because SSA would have simply done for individuals what they could have done for themselves, namely, held their savings in the form of claims on real assets (business equipment, homes, and automobiles, for instance) and/or the future income produced by those assets.

But the problem is bigger than SSA’s failure to invest forced savings in claims on real assets. SSA is just a branch of the U.S. government. Even if SSA had wanted to take its net receipts to the bank, it couldn’t have. A robber would have intercepted SSA on the way to the bank, taken the money, and blown it on booze. Actually, what happened was that the rest of the U.S. government grabbed SSA’s net receipts and blew them on this welfare program, that regulatory effort, and other “public services.” Unlike the typical thief, the U.S. government then handed SSA a bunch of IOUs.

Now, tell me where the real asset is. It’s not to be found in the creation of government programs or even in the physical assets employed by government in those programs. For, the economic benefits that sometimes flow from government activities are far more than offset by the economic disbenefits of government activities (a). A real asset must — on balance — add to wealth or income, not subtract from it.

But what about all those private investors who hold government bonds? Aren’t they holding real assets? Well, they’re holding financial assets, which give them a claim on real assets. Let’s take Citizen Kane as an example. Suppose he has scrimped and saved $1 million. He could place that amount in some combination of stocks, corporate bonds, mortgages, and savings accounts, but he chooses to buy government bonds, instead. Now, Citizen Kane has already done his bit for the creation of real assets merely by saving $1 million in the first place. That is, through the magic of macroeconomics, the $1 million that he forbore to spend on this bauble, that bangle, and another bead enabled the creation of $1 million in real capital (plant, equipment, business software, etc.), which fosters economic growth.

Thus, in the first approximation, where Citizen Kane actually puts his $1 million is less important than the fact the he has saved (not consumed) $1 million, so that others (businesses, to be precise) can direct $1 million worth of resources into the creation of capital. If he chooses to put the $1 million in government bonds, that’s his lookout. Those bonds have a market value, which will fluctuate just like the market value of all financial assets. But the marketability of the bonds simply means that he can claim his share of the wealth that was created when he saved $1 million in the first place.

Government bonds held by government entities, on the other hand, don’t even pretend to be claims on real assets. They’re nothing but pieces of paper whose value can be realized only through taxation. Well, government can tax us without going through the charade of creating government bonds. Thus the bonds held by the SSA amount to nothing more than a superfluous excuse to raise our taxes. The power to tax is a real asset only to those who are net recipients of the taxes that are collected. By the same token, the power to tax is a real liability to those who are net payers of the taxes that are collected. Asset = liability = zero.

So much for those “real assets” in the Social Security trust fund.

But I’m not through discussing the shell game that goes by the exalted name of “public finance.” There’s a lot more to it than the mythical Social Security trust fund.

Government spending, however it is financed, is a way of commandeering resources that otherwise would flow to private consumption and investment (i.e., capital formation). To the extent that government activities fail to pay their own way by yielding goods and services of equivalent value — and they don’t (a) — the resources used by government are simply wasted — thrown down a rat hole (b).

Government nevertheless goes through the charade of taxing and borrowing to finance its activities, instead of simply sending goon squads to impress those resources into government service. Thus the total amount of money in circulation remains more or less unaffected by government spending, while the total output of real goods and services (including capital assets) is reduced as government commandeers resources. The result, of course, is inflationary (c).

In particular, the injection of government bonds into financial markets, with the help of the Federal Reserve’s authority to create money, means that the total nominal value of financial assets is at least the same as it would have been in the absence of government borrowing, and probably higher (d). At the same time, government spending reduces the output of real assets, thus diluting the value of financial assets. Financial assets are fungible, so the holder of a government bond has the same claim on real assets as the holder of, say, a share of Berkshire Hathaway stock.

Think of it this way: Every time the government issues a new bond because it’s spending more money, your real share of stock in America’s economy becomes worth less, even if the nominal price of the stock rises. Depressing, isn’t it?
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a. An official estimate of the annual benefits flowing from federal regulations places the value of those benefits at less than $200 billion. But the annual cost of those regulations — including the hidden costs not included in the government estimate — is approaching or has exceeded $1 trillion, as discussed here, here, here, and here. But that’s just the tip of the iceberg that rammed into the American economy about 100 years ago, as I will show in Part V of “Practical Libertarianism for Americans.”

b. I exclude most expenditures on defense and justice from that indictment.

c. That is, government spending causes prices to be higher than they otherwise would be because total spending remains about the same as it would have been, whereas real output is reduced. Whether or not those nominal prices rise (the usual meaning of inflation) depends on the rate at which government spending grows relative to the growth of output of real consumer goods, services, and assets.

d. The total nominal value of financial assets is approximately unaffected by government borrowing, if you accept the crowding-out theory. The total nominal value of financial assets rises with government borrowing if you don’t, if you don’t accept the crowding-out theory. I don’t.

Practical Libertarianism for Americans: Part IV

IV. LIBERTY AND ITS PREREQUISITES

This is an excerpt of Part IV of a nine-part work in progress. I welcome constructive criticisms and suggestions. Please send an e-mail to: libertycorner-at-sbcglobal-dot-net .

[A] people who band together in liberty — and who successfully defend their liberty against encroachments from within and without — not only will be able to pursue happiness, but also will reap greater happiness (call it personal satisfaction or well-being, if you will). For, the pursuit of happiness isn’t a zero-sum game; you can advance your happiness by helping me advance mine, and vice versa. But we can do so only if we are at liberty to do so — untrammeled by predators, parasites, and constraints — other than those constraints of law and custom that help to secure our liberty. A firm, communal commitment to liberty is therefore a matter of self-interest to all but predators and parasites….

Libertarianism, like physics, has evolved from rudimentary beginnings. Physics has evolved because physicists have expanded their store of facts about the physical world and found truer ways of describing the forces that make the universe what it is — in the large and in the small. Libertarianism has evolved beyond the assertion that humans have “certain unalienable rights” because such thinkers as Adam Smith (1723-90), John Stuart Mill (1806-73), and Friedrich A. Hayek (1899-1992) observed the workings of society — in all of its aspects — and told us how liberty serves self-interest….

mith observed that when we are at liberty to advance our own economic interests we must necessarily advance the economic interests of others.

Mill instructed us that personal freedoms should be preserved because through them we become more knowledgeable and more capable. Therefore, the state should intervene in our lives only to protect us from actual harm, as opposed to mere offense.

Hayek made the case that economic and personal liberty are inseparable: We engage in economic activity to serve our personal values, and our personal values are reflected in our economic activity. When the state restricts economic liberty, it necessarily restricts personal liberty, and vice versa. The state, simply cannot make personal and economic decisions more effectively than individuals operating freely within an ever-evolving socio-economic network….

Not only are economic and social liberty indivisible, but also is liberty itself indivisible. To reap the full benefit of liberty we must be willing to accept “bad” outcomes as well as “good” ones. That is, we must adhere to the principle of liberty and ignore the occasionally unhappy outcome that flows from it. For, as I will discuss further in Parts V and VI, liberty can improve the lot of all but predators and parasites.

By what criteria, then, should we decide where to draw the line between governmental action and private action? I propose these principles:

1. Government may not act or condone action (e.g., civil litigation) except when it seeks to deter, prevent, or remedy an actionable harm to liberty.

2. An actionable harm to liberty is one that arises or would arise directly from the commission of a specific act or acts by any person or entity, domestic or foreign. An expression of thought is not an act, for this purpose.

3. An expression of thought cannot be an actionable harm unless it

a. intentionally obstructs or would obstruct governmental efforts to deter, prevent, or remedy an actionable harm (e.g., divulging classified defense information, committing perjury),

b. intentionally causes or would cause an actionable harm (e.g., plotting to commit an act of terrorism, forming a lynch mob), or

c. purposely — through a lie or the withholding of pertinent facts — causes a person to act against self-interest in an economic transaction (e.g., misrepresenting a product, inflating a corporation’s statement of earnings).

4. An expression of thought cannot be an actionable harm until it has led or will lead directly to the commission of an act. A mere statement of fact, belief, opinion, or attitude cannot be an actionable harm, regardless of the subject of the statement, unless it amounts to slander or libel (both of which are offenses against liberty). Othewise, those persons who do not care for the facts, beliefs, opinions, or attitudes expressed by other persons would be able to stifle speech they find offensive merely by claiming to be harmed by it.

5. An act of omission (e.g., the refusal of social or economic relations because of some form of bias), other than a breach of contract or duty, cannot be an actionable harm. It is incompatible with liberty for government to judge voluntary actions that are not otherwise actionable harms.

In other words, to enjoy the benefits of liberty we must enjoy broad latitude of action (or inaction), speech, and thought….

Click here for the full text of Part IV.

The Problem with Voluntary Personal Accounts

A “senior administration official,” speaking on background before President Bush’s State of the Union speech on February 2, said this:

For individuals who were born in 1950 or later, they would have the opportunity — the voluntary opportunity — to participate in personal accounts. If they wished, they could not choose a personal account and they could stay entirely within the current system. The President has said we want to make sure that system is reformed to be fiscally sustainable. Certainly, though, individuals have the option of not taking a personal account and [receiving] the benefits that the traditional system would be able to pay.

What will happen, of course, is that those who choose to participate in personal accounts will draw larger benefits than those who choose to rely on solely on the traditional system. Why? The “return” on “contributions” to the traditional system will continue to shrink as the worker:retiree ratio shrinks. That “return” will be far less than the return earned on personal accounts, even those personal accounts that are invested solely in government bonds.

I predict that those who are foolish enough to remain in the traditional system will complain about the “unfairness” of it all when they reach retirement age and realize that they made a mistake. Congress, bowing inevitably to pressure from the powerful and ever-growing ranks of the elderly, will raise benefits payable on traditional accounts to a level consistent with the benefits payable on personal accounts invested in government bonds. That will necessitate higher payroll taxes, thus negating two important objectives of privatization: (1) to diminish, if not eliminate, the growing burden on workers, and (2) to stimulate economic growth by injecting more money into capital markets.

Privatization will fail to meet its objectives unless everyone who is eligible to open a personal account is required to do so, even if the account is invested only in government bonds.

I’d rather see Social Security abolished, of course, after paying off those who are collecting benefits or have “contributed” to the system. But abolition seems to be out of the question, so the next best thing is to convert Social Security from a transfer-payment Ponzi scheme to something resembling a real retirement plan.

Philosophical Obtuseness

Paul McLeary reviews Benjamin Barber’s Fear’s Empire: War, Terrorism, and Democracy for the San Francisco Chronicle. According to McLeary, Barber

is a political philosopher of the highest order, he is also an astute student of practical politics, having advised a host of governments and politicians over his career and acted as an unofficial adviser and part-time speech doctor to Bill Clinton.

Now that we know where Barber is coming from, let’s examine the quality of his philosophy:

One possibly unintended consequence of the “preventative war” doctrine advocated by the Bush administration, Barber points out, is the potential for the erosion of long-held international norms. If we claim the right to attack a nation that at some point may be a threat to us, what will stop India from invading Pakistan using the same logic, or any other nation using the same rationale to launch a strike against a rival state?

Barber must have flunked or forgotten elementary logic. The idea that one nation (India in Barber’s example) might preemptively invade another nation because the U.S. invaded Iraq is a glowing example of the post hoc ergo propter hoc fallacy, that is, “the logical fallacy of believing that temporal succession implies a causal relation.” Many nations have — and will yet — invade other nations preemptively. The example of the United States and Iraq is neither here nor there.

In fact, there is no other way for a war to begin than through preemption. One side starts the shooting either because it wants something the other side has (e.g., territory or valuable resources), because it fears that the other side will shoot first, because the other side has done something provocative or heinous, or because it wants to keep the other side from becoming a formidable foe. Barber is simply trying to draw a line where no line can be drawn.

The relevant criterion — which Barber and others on the left don’t want to acknowledge — is whether the invasion of Iraq serves the interests of U.S. citizens in the long run. Leftists just don’t seem to care about that. Instead, Barber emits the usual leftist drivel about the outmoded use of brute force, the roots of terrorism in economic and political alienation, and worse:

More often than not, Barber says, the United States is more interested in setting up free markets than it is in promoting democracy, worsening social inequality and disenfranchising the local population.

Right. We invaded Iraq so that Iraqis could have McJobs, not to free Iraq from the grip of Saddam’s notably anti-Shiite regime in which wealth and power flowed to a small fraction of the populace. Does Saddam’s demise make the Middle East and the world safer for Americans and American interests? You bet, but that’s a win-win situation. And there’s nothing wrong with that — unless you’re a hair-shirt leftist philosopher who doesn’t understand economics, much less logic.

Does the example of Saddam’s demise strike fear in the hearts of other despots, whose nuclear saber-rattling is on a par with whistling in a graveyard? You bet. Their only hope for survival is that leftist logic will somehow prevail. Not for four more years, fellows, if then.

Understanding Economic Growth

In “More about Social Security,” I wrote:

As we know well from long experience, the course of the economy isn’t expressed by a smooth, upward rising curve of progress. Aggregate economic output can be thought of as a quantum phenomenon, in that it has many potential values at each point in time. Shocks and stimuli determine which of those potential values becomes reality. Shocks (e.g., the collapse of the American stock market in 1929) can lead to sharp and prolonged downturns that can be reversed only by strong stimuli (e.g., the mobilization for World War II). Despair feeds on itself, as does hope. And hope fuels the kind of creativity that we saw, for example, in the aftermath of the Civil War, when the rapid invention and adoption of new technologies and production processes took us to new heights of prosperity in the 1920s.

The same kind of creativity resurfaced in the late 1900s — spurred by the stimulus of an inflation-busting recession and significant cuts in marginal tax rates. Will it last? Will it take us to ever-higher levels of economic output? It might, but not as a matter of historical inevitability, as some suggest. Historical inevitability is what we see in the rear-view mirror of experience. Something must happen to spur the creation and adoption of new technologies that will take us to new economic heights.

Arnold Kling points to and quotes from a relevant article by Meir Kohn:

Growth does not mean movement along an equilibrium path but rather the unfolding of a complex process. At any moment the potential of the economy is not completely realized: unexploited opportunities for mutually advantageous exchange abound. Indeed the “potential” of the economy is not defined; it depends on the initiative and ingenuity of individuals. Individuals engaging in trading, innovation, and institutional change generate the process of growth, not only discovering potential but also creating it.

The secret ingredient, of course, is purposeful human behavior. As I have shown shown elsewhere, deterministic models of aggregate behavior are woefully inadequate to the understanding of economic and social phenomena.

How’s Your Latin?

Or, do you know what you’re saying when you say such things as “in vino veritas”? Find out by taking a 10-question quiz at BBC news. I got nine out of 10, and I chalk up my wrong answer to a teacher who, long ago, implanted it in my mind.

(Thanks to my son for the tip.)

My Views on "Classical" Music, Vindicated

Last August I wrote this:

What happened around 1900 is that classical music became — and still is, for the most part — an “inside game” for composers and music critics. So-called serious composers (barring Gershwin and a few other holdouts) began treating music as a pure exercise in notational innovation, as a technical challenge to performers, and as a way of “daring” audiences to be “open minded” (i.e., to tolerate nonsense). But the result isn’t music, it’s self-indulgent crap (there’s no other word for it).

Then, this:

My litany of off-putting things about most “classical” music written after 1900 should have included dissonance, atonality, and downright dreariness. Music can be serious, but it needn’t be boring or depressing or just plain unlistenable. But a trip through the list of 20th century composers turns up relatively few who wrote much music that’s endurable. Among the many 20th century specialists in sheer boredom or cacophony are John Adams, Béla Bartók, Alban Berg, Pierre Boulez, John Cage, George Crumb, György Ligeti, Olivier Messiaen, Arnold Schoenberg, Igor Stravinsky, and Anton Webern.

Martin Kettle, writing in today’s Guardian, draws on Peter Van der Merwe’s Roots of the Classical: the Popular Origins of Western Music to make the following points:

[Van der Merwe] reckons that by 1939, the year of Rodrigo’s Concierto de Aranjuez, the flow of music that is both genuinely modern and popular had all but dried up. Van der Merwe nods towards Khachaturian, late Strauss and the Britten of Peter Grimes – and, er, that’s it. For the general public, he argues, classical music ceased to exist by 1950.

There will be an interesting argument about when and where the line can be drawn. That it can be drawn somewhere (1940, 1950 or 1960 hardly matters) is, however, beyond serious dispute. At some point in the past half-century, classical music lost touch with its public.

At the start of the 21st century, we can see what went wrong more clearly. What went wrong was western European modernism. Modernism is a huge, varied and complex phenomenon, and it took on different qualities in different national cultures. But an essential feature, especially as Van der Merwe argues it, was to turn music decisively towards theory – often political theory – and away from its popular roots.

The pioneer figure was Arnold Schoenberg, with his theory of the emancipation of dissonance (which, as Van der Merwe cleverly points out, also implied the suppression of consonance). But it was after Schoenberg’s death, in the period 1955-80, that his ideas achieved the status of holy writ.

The upshot was a deliberate renunciation of popularity. The audience that mattered to modernists (even the many who saw themselves as socialists) ceased to be the general public and increasingly became other composers and the intellectual, often university-based, establishment that claimed to validate the new music, not least through its influence over state patronage. Any failure of the music to become popular was ascribed not to the composer’s lack of communication but the public’s lack of understanding.

Not surprisingly, the public looked elsewhere, to what we are right to call, and right to admire for being, popular music. This embrace started in the early 20th century with ragtime and jazz and reached its apex with rock’n’roll, whose great years belong to that same period, 1955-80, when modernism ruled in the academy….

Classical music survived, after a fashion. But it has less to say about today. It endures overwhelmingly on the strength of its back catalogue and performance tradition, not of any new creativity. Having failed to persuade the public to embrace modern music, it has sustained itself only by rediscovering the music of earlier epochs and – though this is arguable – by learning the lessons of the modernist deviation.

I would draw the line much earlier than 1950, and I would certainly exclude the ponderous pair of Richard Strauss and Benjamin Britten from the list of “serious” composers who wrote in a popular style. Antonin Dvorák (1841-1904) was the last “serious” composer to do that consistently. After Dvorák, only George Gershwin succeeded very often in writing music that was both new and popular.

Can “classical” music make a popular comeback? Kettle has this to say:

[I]t is no longer anathema for composers to embrace popularity. The influence of American composers, for whom popularity is not a dirty word, and of composers from national traditions that survived the modernist onslaught (the Argentinian school, for instance) is perhaps a way forward. Van der Merwe, for one, believes that it is.

Classical music’s second coming, if it is to have one, could hardly be better timed. The popular music that once filled the place…vacated [by classical music] seems in turn to have largely burned itself out. Here, too, creativity is at its lowest ebb since the early 50s. The space awaiting good new music of any kind is immense.

But at least classical music has come up for air, and is asking the right questions. This is more than can be said of some of the visual arts, where the dislike of the public remains as striking and juvenile as ever. Even this, though, will not last. The need to create something beautiful that excites the public and goes beyond its experience is too strong to be frustrated indefinitely. It would just be nice to think it might resume in our lifetime.

It would be nice, but I’m not counting on it. “Serious” music and art are dominated by the academy. And the academy — for all its socialist cant — scorns “the masses.” Academicians (and their fellow travelers) would find it hard to maintain their air of mysterious superiority if they were to produce works that “the masses” could actually comprehend.

Getting It Almost Right about Iraq

Mark Brown, a Chicago Sun-Times columnist, asks “What if Bush has been right about Iraq all along?” Brown who “opposed the Iraq war since before the shooting started,” is now beginning to think the unthinkable: “What if it turns out Bush was right, and we [knee-jerk opponents of the war] were wrong?”

But he still has many qualms:

Going to war still sent so many terrible messages to the world. [Well, it certainly sent this message: Don’t mess with US.]

Most of the obstacles to success in Iraq are all still there, the ones that have always led me to believe that we would eventually be forced to leave the country with our tail tucked between our legs. (I’ve maintained from the start that if you were impressed by the demonstrations in the streets of Baghdad when we arrived, wait until you see how they celebrate our departure, no matter the circumstances.) [What are those obstacles to success, other than the defeatist rhetoric spewed by contemporary versions of Axis Sally and Tokyo Rose? We faced tougher odds in World War II, and its aftermath, and overcame them because we were determined to do so.]

In and of itself, the voting did nothing to end the violence. The forces trying to regain the power they have lost — and the outside elements supporting them — will be no less determined to disrupt our efforts and to drive us out. [So what? Does that mean we should let them drive us out? I guess it does if you’re one of the Mark Browns of this world whose mind cannot comprehend the strategic value of the Middle East. Perhaps his SUV runs on ethanol.]

Somebody still has to find a way to bring the Sunnis into the political process before the next round of elections at year’s end. The Iraqi government still must develop the capacity to protect its people. [The Sunnis can get on the train or get run over by it. I suspect they’ll get on board. With adequate help from the U.S., the Iraqi government will develop the capacity to protect its people. That’s another reason not to pull out just to satisfy the “peace at any price” crowd.]

And there seems every possibility that this could yet end in civil war the day we leave or with Iraq becoming an Islamic state every bit as hostile to our national interests as was Saddam. [The only way to ensure a civil war and the creation of an Islamic state is to pull out prematurely and allow civil war to happen.]

Brown — like his brethren on the left — simply can’t understand what the war in Iraq is all about because his mind is cluttered with Orwellian slogans: “America evil – war always bad.” Thus it has been since the U.S. broke with Stalin in the aftermath of World War II. But, unlike Stalin, “intellectual” lefties like Brown have no conception of the uses of power, for good as well as evil.

In the “intellectual” version of the world, things will happen simply because of inexorable historical forces, that is, because lefties wish they would happen. Marx (the intellectual) wished for “dictatorship of [by] the proletariat,” and Lenin (the man of action) gave Russia dictatorship — period.

Yes, ideas are important, but they’re nothing without action. And — thank God — we have a president who knows it. When you want good things to happen you have to be in command of events. That’s where we seem to be at the moment. And that’s where we’ll stay, as long as defeatists like Brown, Kennedy, and Kerry don’t have their way.

Social Security Privatization and the Stock Market

Paul Krugman’s latest wrong-headed argument against the privatization of Social Security appears in today’s New York Times. Krugman says:

Schemes for Social Security privatization, like the one described in the 2004 Economic Report of the President, invariably assume that investing in stocks will yield a high annual rate of return, 6.5 or 7 percent after inflation, for at least the next 75 years. Without that assumption, these schemes can’t deliver on their promises. Yet a rate of return that high is mathematically impossible unless the economy grows much faster than anyone is now expecting.

Krugman can make all the economic assumptions he wants. And you know that he’ll make assumptions which “prove” his case. But he can’t argue with history.

The S&P 500 — reconstructed back to 1870, with dividends reinvested — grew at an annualized rate of 6.8 percent, after inflation. To repeat, that’s a real rate of return of almost 7 percent. What about all those ups and downs between 1870 and 2004? Well, an exponential fit of the growth curve for 1870-2004 gives an annualized return of precisely 6.5 percent — just what the professor ordered. If 135 years is a too-long run, how about the 59 years since the end of World War II? The rate of return for 1946 through 2004 was 7.4 percent. An exponential fit of the growth curve for 1946-2004 gives an annualized return of 7.1 percent. *

Krugman wants so badly to denigrate the benefits of privatizing Social Security that he’ll stoop to any sort of slippery argument. In this case, he makes the following key assertions (my comments are bracketed in boldface):

In the long run, profits grow at the same rate as the economy. So to get that 6.5 percent rate of return, stock prices would have to keep rising faster than profits, decade after decade. [In fact, the total return on stocks — including reinvested dividends — has been rising faster than the economy for at least 13 decades. And it has been rising at an annualized rate of 6.5 percent.]

The price-earnings ratio – the value of a company’s stock, divided by its profits – is widely used to assess whether a stock is overvalued or undervalued. Historically, that ratio averaged about 14. Today it’s about 20. Where would it have to go to yield a 6.5 percent rate of return? I asked Dean Baker, of the Center for Economic and Policy Research, to help me out with that calculation (there are some technical details I won’t get into). Here’s what we found: by 2050, the price-earnings ratio would have to rise to about 70. By 2060, it would have to be more than 100. [The PE ratio on the S&P 500 (as reconstructed back to 1871) has been drifting generally upward. There have been sharp rises and dips in the PE ratio, because of market bubbles and crashes, but it is clear that the perception of risk has diminished with time and that stocks can command higher PE ratios than they did in the past. A statistical analysis of the relationship between PE and total stock-market returns (including dividends), based on 103 30-year periods ending in 1901 through 2004, produces absolutely no relationship between PE and future returns. In fact, for the 134 years (1870-2004) in which the total real return on the S&P 500 averaged 6.5 percent a year, the year-end PE ratio on the S&P 500 ranged from 5 to 33 — nowhere near the PE ratio of 70 or 100 demanded by Krugman.]

Krugman is simply determined to preserve a wasteful, socialistic relic of the Great Depression. He gives away his game in the first sentence of his article: “The fight over Social Security is, above all, about what kind of society we want to have.” The rest is a rather clumsy attempt at economic sleight-of-hand. Well, as usual, Krugman has fumbled his trick.

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* I’ll have more to say about the significance of stock-market returns, and their relation to GDP, in Part V of “Practical Libertarianism for Americans.” For now, I’ll just tantalize you with some of the numbers that I’ll document and discuss in that future post.