The Great Leveler?

A correspondent recently brought Walter Scheidel’s book, The Great Leveler, into a discussion of COVID-19:

[Scheidel] argues persuasively that throughout human history plague has been one of the only four causes of significant reduction in income inequality (along with war, revolution, and state collapse). If the most dire of projections comes to pass (2.2 million deaths in the US), might that radically change our demography? People like the three of us are most likely to be among the departed. Some zip codes in Florida and Arizona would need a lot fewer mailmen. So, might Corona move the national political needle to the left? And even if demography doesn’t change things at the ballot box that much, won’t all this unavoidable reliance on government give the case for more government a boost? Might the possible persistence of Corona or a successor, make that boost even stronger?

My response:

My first reaction to your account of Scheidel’s book is that Scheidel must be some kind of ghoul. Plague, war, revolution, and state collapse (like their biblical counterparts) cause great misery (temporarily, at least) among all economic and social classes. The fact that the upper classes suffer more than the lower classes would be a consolation only to the pathologically envious among the lower classes or the economically ignorant (and self-flagellating) among the upper classes, who seem to believe that inequality arises from greed and not (in the main) differences in talents and accomplishments.

My second reaction is that Scheidel is underscoring the lesson that inequality is a natural phenomenon, whereas equality — the fool’s gold of the envious and the ignorant — can be had only at a price that no one should be willing to pay.

You’ve had the great advantage of reading the book. What say you?

The correspondent hasn’t replied to my question. Perhaps I touched a nerve; he is an affluent San Franciscan.

Preparedness

There’s a five-year-old video making the rounds in which Bill Gates warns about the next big catastrophe. Of course, the next big catastrophe looks like the coronavirus. But what did Bill Gates and various other doom-sayers warn about that hasn’t happened (and probably won’t happen)? Make enough predictions and some of them will come true.

In any event, how prepared was the U.S. for the current crisis? A team assembled under the aegis of Johns Hopkins University studied the problem last year. The report is here.

Scroll down to the ranking of countries by estimated level of preparedness. The U.S. is at the top of the list. Nevertheless, the authors of the study concluded that overall preparedness was weak; the U.S. simply looked like the best prepared among generally ill-prepared countries.

A big gap in such assessments, and in thinking generally about preparedness, is the ability of a country’s private sector (the actual producers of products and services) to respond to and rebound from major shocks. The U.S. certainly ranks high (if not highest) on that score.

Recession, Depression, or Service Interruption?

A few weeks ago, when COVID-19 was just beginning to look like a serious problem in the U.S., I saw a gloating op-ed by a left-winger on the Sunday “left vs. right” op-ed page of my local paper. The thrust of the lefty’s op-ed was that COVID-19 would push the U.S. into recession or depression, and that Trump wouldn’t be able to brag about the strength of the economy during his presidency.

Sick, sick, sick. But there’s a lot of that kind of sickness going around on the left. In yesterday’s NYT, for example, there was a piece by Robert Sharma under the headline “This Is How the Coronavirus Will Destroy the Economy“. Sharma’s piece makes some sense (as I will come to), but it is telling that the leftists at the Times chose to showcase it.

What is it with leftists and doom-saying? Well, doom-saying serves the purpose of justifying more and bigger government. And doom saying comes naturally to leftists, because they are neurotics. (See the section on Psychology at my “Leftism” page.)

In any event, are Sharma and his ilk right, or even close to right, about the economic effects of COVID-19? Sharma hangs his hat on the burden of debt, which will push many businesses and persons into bankruptcy if economic activity is depressed for very much longer. But in this era of government-backed student loans, relaxed standards for low-income and minority mortgagors, and bailouts in general it seems likely that the U.S. government will intervene to prevent defaults by businesses and persons meeting certain criteria for pre-coronavirus solvency. (Bailing out an already-bankrupt business or person would be out-of-bounds but not unthinkable for the political class.)

I therefore assume that the problem of indebtedness will handled in a way that prevents a “black hole” of insolvency from swallowing a large share of the economy. Similarly, “relief checks” will help to replenish the ready cash of persons whose paychecks are reduced or eliminated during the national lock-down.

That leaves the question of what happens when (not if) the coronavirus threat is tamed and Americans return to somewhat normal living and working habits.

The answer to the question lies, I believe, in the resemblance of the national lock-down to a long vacation taken simultaneously by a large fraction of Americans. But in this case almost everyone who was “on vacation” — either as a producer or consumer — will be eager to go back to work and eager to resume mundane activities. The situation will be more like the game of statues and less like the kind of dislocation that occurs when there is a financial panic (e.g., 1929, 2008) or a major industry (e.g., housing) craters because of over-investment (triggered by bad government policies).

This isn’t to say that there won’t be some dislocations and resulting unemployment. Even if every American  comes out of the crisis as solvent as he went into it, there will be some shifts in consumption patterns that require shifts in production patterns. And some productive capacity will be lost (e.g., small businesses — especially non-chain restaurants) and won’t be restored quickly.

The extent of dislocations and unemployment will depend partly on the length of the crisis and the effect that it has on producers. There will also be an effect on the demand side, as consumers shift their spending habits in response to the crisis. The new habits will include, for example, less travel (especially ocean cruises), less time spent in crowded venues (from stadiums and arenas to concert halls to restaurants), even more online shopping, and a shift of purchases (in the next months and years, at least) toward the accumulation and maintenance of stocks of non-perishable and frozen foods, cleaning products, and personal-hygiene products.

But, on the whole, I expect nothing like the Great Recession (unless the crisis drags on for more than another few months) and something on the order of the mild recession of 1990-91. It spanned only 4 quarters and saw real GDP dip by less than 2 percentage points.

What’s amazing to me is the overreaction to the COVID-19 pandemic, which (as yet) isn’t nearly as devastating in the U.S. as the swine-flu pandemic of 2009-10. There were 59,000,000 (that’s 59 million) cases of swine flu in the U.S., as against the current tally of 6,400 cases of coronavirus, and there were 12,000 swine-flu deaths as against the current tally of 108 coronavirus deaths. Yet, despite the disparity, there was nothing like the kind of panic that is now evident. In fact, I didn’t remember the swine-flu pandemic until it was mentioned recently, in the same context — panicky over-reaction to COVID-19.

The U.S. has changed a lot in the last 10 years, not least in the determination of the media to push “social democracy” and “wokeness”. The U.S. probably will survive COVID-19 with little economic damage — though the media will do its best to maximize that damage. But the U.S. will not long survive the media, that is, not as a relatively free and prosperous nation.

Control vs. Competition: Striking the Balance

Rare is the person who doesn’t have a definite view of how the world should be — at least those aspects of it that are important to the person. Even “libertarians” have proven themselves of dictatorial bent in such matters as the state-enforced redefinition of marriage as between anyone and anyone.

Having held a senior management position that made me responsible for the business side of a think-tank full of prime donne analysts (my customers), I know that control is necessary in any organization which strives to survive and thrive. Control is always there, if not in minute-to-minute micromanagement then in the design of processes and performance standards. The more indirect the ways and means of control the happier (generally) will workers be. (There are, of course, some workers who need and seek close direction, and some who need but reject it. Neither type fared well in my regime.)

If you are intelligent and competent, the urge to control can be very strong in you, especially if you are highly conscientious. You want to get things done, and done right. And you aren’t often sure that the people who work for you are capable of doing things right unless you (a) give them a lot of direction and (b) establish processes that help to ensure that their jobs are performed well.

The urge to control — in the manner I just outlined — may seem to conflict with “libertarian” and free-market principles. The reduction or absence of control is touted as the way to ensure that good ideas, systems, and processes are offered up and adopted through demonstrations of their superiority, which leads to and emulation and further innovation. By the same token, the controllers and their systems are forced to prove their worth, rather than appeal to authority (“Because I say so.”) or use authority (regulation) to maintain control.

There is something to be said for both ways of ordering the world. Chaos and inefficiency would reign if organizations (from families to huge corporations) were anarchic. Order and efficiency might emerge here and there because of the instinct to survive and the pressure of competition, but turmoil and waste would abound.

The spontaneous order of “libertarians” and free markets isn’t necessarily instantaneous order. It may take some disastrous wrecks at busy intersections before drivers generally adopt a stop-and-look-and-yield-to-the-car-on-the-right rule. Government institutionalizes the rule by installing stop signs or traffic lights. Government, on the other hand, doesn’t do much between the stop signs and traffic lights, except to arrest and fine violators of speed limits and reckless drivers often enough (in theory) to procure a relatively safe and steady flow of traffic.

Similarly, individual firms may be tightly controlled — whether overtly through micro-management or covertly through processes that have the same effect. But free markets give those firms room in which to innovate, market, and price their products so that consumers get good value for their money, while badly run firms fall by the wayside. In this instance, government (ideally) polices firms only to ensure that they don’t sell dangerous products and services, don’t despoil the environment, and don’t cheat their customers. Government, of course, doesn’t limit itself to minimal interventions because the urge to dictate is made real, all too often, by the power of government to shape commerce to its liking rather than to the tastes and preferences of consumers.

Putting government aside (and how I wish we could, for the most part), there is a flaw in the picture of controlled firms competing freely for consumers’ favor. The flaw is obvious in this reductio ad absurdum: There is one firm in the United States that produces all products and services. The firm has many subdivisions, each of which operates according to protocols that range from minute micro-management to loose-seeming processes that guide workers in the “right” direction. But the giant firm has no competitors and so its output accords with the wishes of its managers, which mesh with consumers’ wishes only by sheer luck.

The easily recognizable result is equivalent to state socialism. The are two reasons that a self-proclaimed socialist won’t embrace mega-corporatism. The first is that he might not (and probably wouldn’t be) in charge of it. The second is that he believes, beyond reason, that transforming a private person into a government bureaucrat magically transforms him into all-wise, all-knowing, beneficent servants of the people with not wish whatsoever to impose his personal worldview on others.

What about something closer to the current situation, in which important industries are dominated by one firm or a few firms, but those industries compete furiously with each other for consumers’ patronage? That’s a far better situation than the corporate equivalent of state socialism, but it still means that a lot of what becomes available to consumers depends on the whims of corporate bureaucrats and is, at best, sluggishly responsive to consumers’ wants. Overlay it with the heavy hand of government regulation and you get something much closer to state socialism.

The irony of the anti-trust movement of the late 1800s and early 1900s was that it (temporarily) broke up the monopolies of the day, but instituted regulatory agencies that simply (and with greater force) replicated the inefficiencies and unresponsiveness of the monopolies. That is to say, the anti-trust movement (which still has a lot of life in it) brought the U.S. closer to state socialism and the resulting evils of non-competitiveness.

Is there a golden mean of sorts, a combination of orderliness in the small that yields order and efficiency in the large? Classical microeconomic theory posits the perfectly competitive market as the golden mean. The theoretical result of perfect competition is more of everything, which is another way of saying that competition pushes costs down because it squeezes out inefficiency and “excess” profits. But economists recognize that perfect competition is a theoretical ideal that is seldom if ever attainable in the real world, and then only in isolated cases.

Various kinds of less-than-perfect competition — and even monopolies in some industries — are therefore not only inevitable but also desirable from the consumer’s point of view. The massive deadweight losses inflicted by regulation cannot conceivably be worth the theoretical losses resulting from less-than-perfect competition. And regulation is just one aspect of a burdensome control apparatus — government — that has robbed Americans of trillions of dollars over the decades.

The moral of the story: Control what you can if it makes you feel better. Control what you can if it makes your business more profitable. But aside from the obvious things, like controlling crime and foreign enemies, don’t use government to make the world conform to your idea of what it should be like. You’ll only make yourself poorer — and less free.

(See also “Economics: A Survey” and “Putting in Some Good Words for Monopoly“.)

The Fed Spreads Panic

Broad stock-market indices began on Friday to rebound from coronavirus panic. The rebound continued yesterday with huge gains. And it was continuing nicely this morning — until the Fed announced a rate cut. Bang! The bottom fell out of the market, for no good reason.

It’s not unusual for a rate cut to send stocks down because a cut implies that the Fed “knows” that the economy needs a boost. In this case the boost was “needed” because of the economic effects of coronavirus. The Fed, of course, knows next to nothing about “managing” the economy, as has been shown time and time again. Chalk up another bonehead play for the Fed.

See “Mr. Greenspan Doth Protest Too Much“, “The Fed and Business Cycles“, and “Money, Credit, and Economic Fluctuations“.

All-Volunteer Rhetoric

David Henderson of EconLog recounts a recent lecture about the demise of military conscription in the United States:

On Thursday, February 20, I gave a guest lecture in the classroom of Ryan Sullivan at the Naval Postgraduate School. This is the third year in a row I’ve given this lecture. It’s titled “How Economists Helped End the Draft,” and the readings for it are David R. Henderson, “The Role of Economists in Ending the Draft,” Econ Journal Watch, August 2005, Christopher Jehn, “Conscription,” The Concise Encyclopedia of Economics, and David R. Henderson and Chad W. Seagren, “Time to End Draft Registration,” Defining Ideas, February 10, 2016. Almost all the students were U.S. military officers.

During the discussion, I highlighted the stormy, and illuminating, interaction between Milton Friedman, a prominent critic of the draft, and General William Westmoreland, a prominent proponent of the draft, at some hearings held by the Gates Commission on the All-Volunteer Force, appointed by President Richard Nixon.

I quoted Friedman’s telling of the story in his and Rose Friedman’s autobiography, Two Lucky People:

In the course of his testimony, he made the statement that he did not want to command an army of mercenaries. I stopped him and said, ‘General, would you rather command an army of slaves?’ He drew himself up and said, ‘I don’t like to hear our patriotic draftees referred to as slaves.’ I replied, ‘I don’t like to hear our patriotic volunteers referred to as mercenaries.’ But I went on to say, ‘If they are mercenaries, then I, sir, am a mercenary professor, and you, sir, are a mercenary general; we are served by mercenary physicians, we use a mercenary lawyer, and we get our meat from a mercenary butcher.’ That was the last that we heard from the general about mercenaries.

I drove the point home by saying, “Let me ask you, and I’m asking you to be honest here: Who, when you first thought of joining, looked at what the pay in the military was at the rank you would have?” Almost all of the students raised their hands. “You mercenaries, you,” I said, laughing. That got a few laughs and smiles.

I have long been a lukewarm supporter of the anti-conscription movement.

I am unpersuaded by the libertarian aspects of the movement. As a typical economist will tell you, conscription is a form of taxation, in that the conscriptee is forced to provide labor to the U.S. government at a wage rate that is (presumably) less than the wage rate he could earn through civilian employment. Thus conscription is (presumably) unfair to conscriptees.

But defense, itself, must be subsidized through taxation, which effectively makes conscriptees of all Americans who pay federal income taxes. I am unaware, however, of a suggestion by any serious economist (which excludes Paul Krugman) that Americans shouldn’t be taxed to defray the cost of defending the nation. So the anti-conscription movement among economists must be viewed with suspicion. Specifically, academic economists — being highly educated and therefore (relatively) highly paid — cringe at the though of being lowly-paid, bossed-around draftees, so they assume that other Americans share their distaste for servitude in the service of America.

The effort to end the draft became serious during the Vietnam War, when the anti-war movement was driven mainly by anti-draft sentiment. Fighting a distant enemy who seemed to pose no direct threat to America didn’t stir patriotic fervor in the way that the sinking of American merchant ships and the bombing of Pearl Harbor had in 1917 and 1941.

Will the draft ever be revived? Possibly, in the event of a major land war to protect vital American interests. But such things are unpredictable, so I won’t venture a prediction about the possibility of such a war. I will only predict (quite safely) that the general response of young American men to a draft will depend on two things:

  • whether the enemy of the time seems capable of mounting a direct threat on the liberty and well-being of Americans, and
  • whether the young people of that time still think of themselves as Americans.

(See also “Whither (Wither) Classical Liberalism — and America?” and the comments on that post.)

Economics Explained — Part IV: Loose Ends and Finishing Touches

This is the fourth installment of a long post. I may revise it as I post later parts. The whole will be published as a page, for ease of reference. In Parts I, II, and III I necessarily omitted many topics that might seem relevant to the principles of economics and their application in the real world. I address a few of those topics in this coda.

Macroeconomics

Macroeconomic aggregates (e.g., aggregate demandaggregate supply) are essentially meaningless because they represent disparate phenomena.

Consider Chuck and Debbie, who discover that, together, they can have more clothing and more food if each specializes: Chuck in the manufacture of clothing, Debbie in the farming and cultivation of foodstuffs. Through voluntary exchange and bargaining, they find a jointly satisfactory balance of production and consumption. Chuck makes enough clothing to cover himself adequately, to keep some clothing on hand for emergencies, and to trade the balance to Debbie for food. Debbie does likewise with food. Both balance their production and consumption decisions against other considerations (e.g., the desire for leisure).

Chuck and Debbie’s respective decisions and actions are microeconomic; the sum of their decisions, macroeconomic. The microeconomic picture might look like this:

  • Chuck produces 10 units of clothing a week, 5 of which he trades to Debbie for 5 units of food a week, 4 of which he uses each week, and 1 of which he saves for an emergency.
  • Debbie, like Chuck, uses 4 units of clothing each week and saves 1 for an emergency.
  • Debbie produces 10 units of food a week, 5 of which she trades to Chuck for 5 units of clothing a week, 4 of which she consumes each week, and 1 of which she saves for an emergency.
  • Chuck, like Debbie, consumes 4 units of food each week and saves 1 for an emergency.

Given the microeconomic picture, it is trivial to depict the macroeconomic situation:

  • Gross weekly output = 10 units of clothing and 10 units of food
  • Weekly consumption = 8 units of clothing and 8 units of food
  • Weekly saving = 2 units of clothing and 2 units of food

You will note that the macroeconomic metrics add no useful information; they merely summarize the salient facts of Chuck and Debbie’s economic lives — though not the essential facts of their lives, which include (but are far from limited to) the degree of satisfaction that Chuck and Debbie derive from their consumption of food and clothing.

The customary way of getting around the aggregation problem is to sum the dollar values of microeconomic activity. But this simply masks the aggregation problem by assuming that it’s possible to add the marginal valuations (i.e., prices) of disparate products and services being bought and sold at disparate moments in time by disparate individuals and firms for disparate purposes. One might as well add two bananas to two apples and call the result four bapples.

The essential problem, as discussed in the next section, is that Chuck and Debbie derive different kinds and amounts of enjoyment from clothing and food, and that those different kinds and amounts of enjoyment cannot be summed in any meaningful way. If meaningful aggregation is impossible for Chuck and Debbie, how can it be possible for an economy that consists of millions of economic actors and an untold variety of goods and services? And how is it possible when technological change yields results like this?

Buffalo (NY) journalist and historian Steve Cichon has an article on the Trending Buffalo website (“Everything from 1991 Radio Shack ad I now do with my phone“) featuring a full-page Radio Shack ad from the Buffalo News on February 16, 1991 (see graphic above). Of the 15 electronics products featured in the Radio Shack ad, 13 of them can now be replaced with a $200 iPhone according to Steve’s analysis. The 13 Radio Shack items in the ad (all-weather personal stereo, AM/FM clock radio, headphones, calculator, computer, camcorder, cell phone, regular phone, CD player, CB radio, scanner, phone answering machine, and cassette recorder) would have cost a total of $3,055 in 1991, which is equivalent in today’s dollars to $5,225. Versus only $200 for an iPhone 5S.

In hours worked at the average wage, the 13 electronics items in 1991 would have had a “time cost” of 290.4 hours of work at the average hourly wage then of $10.52 (or 7.25 weeks or 36.3 days). Today, the $200 iPhone would have a “time cost” of fewer than 10 hours (9.82) of work at the average hourly wage today of $20.35, and just one day of work, plus a few extra hours.

The piece is six years old and out of date in its details. But it’s nevertheless representative of almost all goods that have been produced since the founding of the United States, and almost all means of production.

GDP, in other words, is nothing more than what it seems to be on the surface: an estimate of the dollar value of economic output. Even at that, it’s not susceptible of quantitative modeling. (See “Macroeconomic Modeling: A Case Study” at this post.) Nor can real economic output — as opposed to government spending — be pushed upward by government spending, as I explain at length here.

GDP is certainly not a measure of “social welfare”, as most economists will admit — but for the wrong reason. They point to the “intangibles” that aren’t counted in GDP, one of which is the actual amount of happiness that each person derives not only from things counted in GDP but from the many things that aren’t counted in it (e.g., marital happiness, the love of children for parents, the malaise that prevails in times of prolonged international strife). In admitting that much, economists hint at — but fail to mention — the deeper reason that GDP doesn’t measure social welfare is that there is no such thing.

I will explain the non-existence of social welfare after tackling its running-mate: social justice.

Social Justice

This discussion covers a lot of ground. Little of it fits within my strict definition of economics — the voluntary production and exchange of goods — but it bears directly on two important byproducts of economic activity: income and wealth.

Social welfare (discussed below) is the implicit desideratum of seekers of “social justice”. Thomas Sowell has a better term for it: cosmic justice.

The seekers of cosmic justice are not content to allow individuals to accomplish what they can, given their genes, their acquired traits, their parents’ wealth (or lack of it), where they were born, when they live, and so on. Rather, those who seek cosmic justice cling to the Rawlsian notion that no one “deserves” better “luck” than anyone else. (For a critique of John Rawls’s theory of economic and social justice, see this.)

But “deserves” and “luck” (like “greed”) are emotive, value-laden terms. Those terms suggest (as they are meant to) that there is some kind of great lottery in the sky, in which each of us participates, and that some of us hold winning tickets — which equally “deserving” others might just have well held, were it not for “luck.”

This is not what happens, of course. Humankind simply is varied in its genetic composition, personality traits, accumulated wealth, geographic distribution, etc. Consider a person who is born in the United States of brilliant, wealthy parents — and who inherits their brilliance, cultivates his inheritance (genetic and financial), and goes on to live a life of accomplishment and wealth, while doing no harm and great good to others. Such a person is neither more “lucky” nor less “deserving” than anyone else. He merely is who he is, and he does what he does. There is no question of desert or luck. (I address luck in this post and those linked to therein.)

Such reasoning does not dissuade those who seek cosmic justice. Many of the seekers are found among the “80 percent”, and it is their chosen lot to envy the other “20 percent”, that is, those persons whose brains, talent, money, and/or drive yield them a disproportionate — but not undeserved — degree of fortune, fame, and power. The influential seekers of cosmic justice are to be found among the  “20 percent”. It is they who use their wealth, fame, and position to enforce cosmic justice in the service (variously) of misplaced guilt, economic ignorance, and power-lust. (Altruism — another emotive, value-laden term — does not come into play, for reasons discussed here and here.)

Some combination of misplaced guilt, economic ignorance, and power-lust motivates our law-makers. (Their self-proclaimed “compassion” is bought on the cheap, with taxpayers’ money.) They accrue power by pandering to seekers of cosmic justice and parasites who seek to gain from efforts to attain it. Thus politicians have saddled us with progressive taxation, affirmative action, and a plethora of other disincentivizing, relationship-shattering, market-distorting policies. It is supremely ironic that those policies have made most of persons (including many parasites) far worse off than they would be if government were to get out of the cosmic-justice business.

As Anthony de Jasay writes in “Risk, Value, and Externality”,

Stripped of rhetoric, an act of social justice (a) deliberately increases the relative share … of the worse-off in total income, and (b) in achieving (a) it redresses part or all of an injustice…. This implies that some people being worse off than others is an injustice and that it must be redressed. However, redress can only be effected at the expense of the better-off; but it is not evident that they have committed the injustice in the first place. Consequently, nor is it clear why the better-off should be under an obligation to redress it….

There is the view, acknowledged by de Jasay, that the better-off are better off merely because of luck. But, as he points out,

Nature never stops throwing good luck at some and bad luck at others, no sooner are [social] injustices redressed than some people are again better off than others. An economy of voluntary exchanges is inherently inegalitarian…. Striving for social justice, then, turns out to be a ceaseless combat against luck, a striving for the unattainable, sterilized economy that has built-in mechanisms … for offsetting the misdeeds of Nature.

In fact, “social justice” not only penalizes but also minimizes and ostracizes the kinds of persons who have been mainly responsible for economic (and artistic and social) progress in the Western world, namely, straight, white, heterosexual males of European origin and descent — including, notably, Ashkenzi Jews. Many members of the aforementioned group are themselves advocates of “social justice”, which is just another indication that they are among the spoiled children of capitalism who have lost sight of what got them to where they are — and it wasn’t kow-towing to lunacies like “social justice”.

SOCIAL WELFARE

Some proponents of cosmic justice appeal to the notion of social welfare (even some economists, who should know better) . Their appeal rests on two mistaken beliefs:

  • There is such a thing as social welfare.
  • Transferring income and wealth from the richer to the poorer enhances social welfare because redistribution helps the poorer more than it hurts the richer.

Having disposed elsewhere of the second belief, I now address the first one. I begin with a question posed by Arnold Kling:

Does the usefulness of the concept of a social welfare function stand or fall on its mathematical properties?

My answer: One can write equations until kingdom come, but no equation can make one person’s happiness cancel another person’s unhappiness.

The notion of a social welfare function arises from John Stuart Mill’s utilitarianism, which is best captured in the phrase “the greatest good for the greatest number” or, more precisely “the greatest amount of happiness altogether.”

From this facile philosophy (not Mill’s only one) grew the ludicrous idea that it might be possible to quantify each person’s happiness and, then, to arrive at an aggregate measure of total happiness for everyone (or at least everyone in England). Utilitarianism, as a philosophy, has gone the way of Communism: It is discredited but many people still cling to it, under other names.

Today’s usual name for utilitarianism is cost-benefit analysis. Governments often subject proposed projects and regulations (e.g., new highway construction, automobile safety requirements) to cost-benefit analysis. The theory of cost-benefit analysis is simple: If the expected benefits from a government project or regulation are greater than its expected costs, the project or regulation is economically justified.

Here is the problem with cost-benefit analysis — which is the problem with utilitarianism: One person’s benefit cannot be compared with another person’s cost. Suppose, for example, the City of Los Angeles were to conduct a cost-benefit analysis that “proved” the wisdom of constructing yet another freeway through the city in order to reduce the commuting time of workers who drive into the city from the suburbs. In order to construct the freeway, the city must exercise its power of eminent domain and take residential and commercial property, paying “just compensation”, of course. But “just compensation” for a forced taking cannot be “just” — not when property is being wrenched from often-unwilling “sellers” at prices they would not accept voluntarily. Not when those “sellers” (or their lessees) must face the additional financial and psychic costs of relocating their homes and businesses, of losing (in some cases) decades-old connections with friends, neighbors, customers, and suppliers.

How can a supposedly rational economist, politician, pundit, or “liberal” imagine that the benefits accruing to some persons (commuters, welfare recipients, etc.) somehow cancel the losses of other persons (taxpayers, property owners, etc.)? To take a homely example, consider A who derives pleasure from causing great pain to B (a non-masochist) by punching him in the nose. A’s pleasure cannot cancel B’s pain.

Yet, that is how cost-benefit analysis (utilitarianism) works, if not explcitly then implicitly. It is the spirit of utilitarianism (not to mention power-lust, arrogance, and ignorance) which enables politicians and bureaucrats throughout the land to impose their will upon us — to our lasting detriment.

Conclusion: Politics Trumps Economics

In sum, and despite all of the feel-good rhetoric to the contrary, the United States differs only in degree (but not in kind) from modern communism and socialism. It’s a “social democracy”, in which the demos (mob) dictates the economic (and social) order through its various political patrons. But the political patrons (including the affluent elites who play footsie with them) are in charge, make no mistake about it, and they freely demonize those segments of the demos which turn against them. They are able to do so because the franchise has been so extended (and will continue to be extended by untrammeled immigration) that they won’t run out of votes to advance their essential agenda, which is control of the social and economic affairs of all Americans.

Despite the advent of Donald Trump, and the lesson that it should have taught high-ranking politicos, most of them (regardless of party affiliation) remain wedded to the patronage system because it’s their path to power and riches.

What this all means, as I once explained to a very smart economist, is that politics trumps economics. Ignoring politics (and being ignorant of it) while trying to understand and explain economics is like ignoring the heart while trying to explain the circulatory system without which there is no life.

Further Reflections on the Keynesian Multiplier

In “Keynesian Multiplier: Fiction vs. Fact“, I piggyback on the insights of Murray Rothbard and Steven Landsburg to show that the fiscal multiplier is fool’s gold. In addition to showing this mathematically and empirically, I address the mechanics of the multiplier:

How is it supposed to work? The initial stimulus (∆G) [an exogenous — unfunded — increase in government spending] creates income (don’t ask how), a fraction of which (b) [the marginal propensity to consume] goes to C [consumption spending]. That spending creates new income, a fraction of which goes to C. And so on. Thus the first round = ∆G, the second round = b(∆G), the third round = b(b)(∆G) , and so on. The sum of the “rounds” asymptotically approaches k(∆G) [where k is the multiplier]….

Note well, however, that the resulting ∆Y [change in real, inflation-adjusted GDP] isn’t properly an increase in Y, which is an annual rate of output; rather, it’s the cumulative increase in total output over an indefinite number and duration of ever-smaller “rounds” of consumption spending.

The cumulative effect of a sustained increase in government spending might, after several years, yield a new Y — call it Y’ = Y + ∆Y. But it would do so only if ∆G persisted for several years. To put it another way, ∆Y persists only for as long as the effects of ∆G persist. The multiplier effect disappears after the “rounds” of spending that follow ∆G have played out.

The multiplier effect is therefore (at most) temporary; it vanishes after the withdrawal of the “stimulus” (∆G). The idea is that ∆Y should be temporary because a downturn will be followed by a recovery — weak or strong, later or sooner.

Further,

the Keynesian investment/government-spending multiplier simply tells us that if ∆Y = $5 trillion, and if b = 0.8, then it is a matter of mathematical necessity that ∆C = $4 trillion and ∆I + ∆G = $1 trillion. In other words, a rise in I + G of $1 trillion doesn’t cause a rise in Y of $5 trillion; rather, Y must rise by $5 trillion for C to rise by $4 trillion and I + G to rise by $1 trillion. If there’s a causal relationship between ∆G and ∆Y, the multiplier doesn’t portray it.

And the clincher:

Taking b = 0.8, as before, the resulting value of kc is 1.25. Suppose the initial round of spending is generated by C instead of G. (I won’t bother with a story to explain it; you can easily imagine one involving underemployed factories and unemployed persons.) If ∆C = $1 trillion, shouldn’t cumulative ∆Y = $5 trillion? After all, there’s no essential difference between spending $1 trillion on a government project and $1 trillion on factory output, as long as both bursts of spending result in the employment of underemployed and unemployed resources (among other things).

But with kc = 1.25, the initial $1 trillion burst of spending (in theory) results in additional output of only $1.25 trillion. Where’s the other $3.75 trillion? Nowhere. The $5 trillion is phony. What about the $1.25 trillion? It’s phony, too. The “consumption multiplier” of 1.25 is simply the inverse of b, where b = 0.8. In other words, Y must rise by $1.25 trillion if C is to rise by $1 trillion. More phony math.

The essential falsity of the multiplier can be found by consulting the equation of exchange:

In monetary economics, the equation of exchange is the relation:

MV = PQ

where, for a given period,

M is the total nominal amount of money supply in circulation on average in an economy.

V is the velocity of money, that is the average frequency with which a unit of money is spent.

P is the price level.

Q is an index of real expenditures (on newly produced goods and services).

Thus PQ is the level of nominal expenditures. This equation is a rearrangement of the definition of velocity: V = PQ/M. As such, without the introduction of any assumptions, it is a tautology. The quantity theory of money adds assumptions about the money supply, the price level, and the effect of interest rates on velocity to create a theory about the causes of inflation and the effects of monetary policy.

In earlier analysis before the wide availability of the national income and product accounts, the equation of exchange was more frequently expressed in transactions form:

MVT = PT

where,

VT is the transactions velocity of money, that is the average frequency across all transactions with which a unit of money is spent (including not just expenditures on newly produced goods and services, but also purchases of used goods, financial transactions involving money, etc.).

T is an index of the real value of aggregate transactions.

(Note the careful — but easily overlooked — qualification that quantities are for “a given period”, as I point out in the first block-quoted passage. One cannot simply add imaginary increases in real output over an unspecified span of time to an annual rate of output and obtain a new, annual rate of output.)

If the values for M, V, P, and Q are annual rates or averages, then MV = PQ = Y, the last of which I am using here to represent real GDP.

If the central government “prints” money and spends it on things (i.e., engages in deficit spending financed by the Federal Reserve’s open-market operations), then ∆G (the addition to the rate of G) = ∆M (the average annual increase in the money supply). What happens as a result of ∆M depends on the actual relationships between M and V, P, and Q. They are complex relationships, and they vary constantly with the state of economic activity and consumers’ and producers’ expectations. Even a die-hard Keynesian would admit as much.

If new economic activity (Y) is relatively insensitive to  ∆G, as it is for the many reasons detailed here, it is equally insensitive to ∆M. For one thing — one very important thing — ∆M may be absorbed almost entirely by an increase in VT without a concomitant increase in Q. That is to say, ∆G necessarily implies (in the short run) an increase in transactions velocity (VT) and it is most likely to be spent on resources that are already employed (i.e, either on things that were already being produced or by displacing private purchases of things that were already being produced).

The equality MV = PQ long predates Keynes’s General Theory, in which he introduces the multiplier, and so it was well known to Keynes. As it happens, the equality is at the heart of his multiplier:

The state of the economy, according to Keynes, is determined by four parameters: the money supply, the demand functions for consumption (or equivalently for saving) and for liquidity, and the schedule of the marginal efficiency of capital determined by ‘the existing quantity of equipment’ and ‘the state of long-term expectation’ (p 246).

Adjusting the money supply is the domain of monetary policy. The effect of a change in the quantity of money is considered at p. 298. The change is effected in the first place in money units. According to Keynes’s account on p. 295, wages will not change if there is any unemployment, with the result that the money supply will change to the same extent in wage units.

We can then analyse its effect from the diagram [reproduced below], in which we see that an increase in M̂ shifts r̂ to the left, pushing Î upwards and leading to an increase in total income (and employment) whose size depends on the gradients of all 3 demand functions. If we look at the change in income as a function of the upwards shift of the schedule of the marginal efficiency of capital (blue curve), we see that as the level of investment is increased by one unit, the income must adjust so that the level of saving (red curve) is one unit greater, and hence the increase in income must be 1/S'(Y) units, i.e. k units. This is the explanation of Keynes’s multiplier.

Here’s the diagram:

If that is the explanation of Keynes’s multiplier, it is even more backward than the usual explanation that I shredded earlier. All it says is that if the real money supply (M̂) is increased (i.e., not translated into higher prices) due to an exogenous increase in government spending, the real interest rate (r̂) decreases. And if the decrease in the real interest rate leads to an increase in investment, Y must rise by enough to preserve the theoretical relationship between Y and saving (S) and investment (I).

In this case, Keynes depicts the multiplier as the effect of an increase in I resulting from an increase in M, which is really an increase in G (∆G) under the condition of less than full employment (whatever that is). The increase in I is made possible by the decrease in the real rate of interest. That’s odd, because the popular view of the multiplier is that it is the rise in real GDP that is directly attributable to a rise in government spending. Will the real multiplier please stand up?

Regardless, the relationship between the increase in I and the increase in Y is no less tautologous than it is in the usual explanation of the multiplier.Simply put, the increase in I is the increase that must result if Y increases, given an ex-post relationship between I and Y. There is no causality, except in the imagination of the proponent of increased government spending.

We are back where we started, with a mythical multiplier that explains nothing.

Economics Explained — Part III: The Principles Illustrated

This is the third installment of a long post. I may revise it as I post later parts. The whole will be published as a page, for ease of reference. If you haven’t read “Part I: What Is Economics About?“ or “Part II: Economic Principles in Perspective“, you may benefit from doing so before you embark on this part.

What follows isn’t meant to depict the historical evolution of economies and the role of governments in them. The idea, rather, is to contrast various degrees of complexity in economic activity, and the effect of government on that activity — for good and ill.

Communism: The Real Kind

Bands of hunter-gatherers roam widely, or as widely as they can on foot, with young children and old adults (perhaps in their 30s and 40s) in tow. The hunters and gatherers share with other members of the band what they catch, kill, and collect. The stronger members of the band presumably catch, kill, and collect more than their dependents do, and so they probably take more than their “share” because doing so gives them the strength to do what they do for everyone else.

This primitive arrangement — in which producers are necessarily consumer more than non-producers so that non-producers are able to survive — operates exactly in accordance with the maxim “from each according to his ability; to each according to his needs”. But that is not the system envisaged by Marxists and Millennials, in which the state takes from producers and given to non-producers because it’s “only fair” and in the spirit of “social justice”. Primitive peoples know on which side their bread is buttered, which is a lot more than can be said for modern “communists”, state socialists, and the parasites who believe that the goose will continue to lay golden eggs after it has been put down.

That’s what happens when people without “skin in the game” (i.e., political theorists, pundits, politicians, bureaucrats, naive students, and layabouts) get their hands on the levers of government power. But I am getting ahead of myself and will have much more to say about it later in this post.

Barter: An Economy of Relatives, Friends, and Acquaintances

Imagine a simple economy in which goods are exchanged through barter. Implicit in the transaction are the existence of property rights and gains from trade: The producers of the goods own them and can trade them to their mutual benefit.

There is, at this point, no money to clutter our understanding of the economy’s workings, though there could be credit. One producer, Arlo, could give some of his goods to another producer, Brenda, with the understanding that Brenda will repay the loan with a specified quantity of goods by a specified time.

Credit can exist in this barter economy because its participants know each other well, either personally or by reputation. Credit is therefore more firmly based on trust and knowledge than it is in economies that are more widely dispersed and involve total strangers, if not enemies. But credit always carries a cost because the creditor (a) usually has other uses for the goods (or money) that he lends, and must forgo those uses by lending, and (b) takes a risk that the borrower won’t repay the loan. The risk may be lower in a barter economy of friends, relatives, and acquaintances than in a dispersed, money-based economy, but it is nevertheless there.

Credit in a barter economy can finance investment. If Arlo is a baker and Brenda is a butter-maker, Arlo could offer to give Brenda additional bread in the future (over and above the amount that she would normally receive for a certain amount of butter) while he rebuilds his oven so that he can produce bread at a faster rate. (Here, we must assume that the capacity of Arlo’s oven is a bottleneck, and that the availability other resources — flour, for example — is not a constraint.)

Barter, whatever its social advantages — which shouldn’t be overlooked — is cumbersome. Even with the use of central marketplaces, much time and effort is required to arrange, in a timely way, all of the trades necessary to satisfy even a fairly simple menu of wants: food (of various kinds), clothing (of various kinds), construction services (of various kinds), personal-care services (e.g., haircuts) and products (e.g., soap). It is time and effort that could be put to better use in the enjoyment of the fruits of one’s labor and in the production of more goods (in order to enjoy even more fruits).

Then, too, there is the difficulty of saving in a barter economy. Arlo might stockpile bread, for instance, but how much bread can he stockpile before it spoils or loses value because Brenda can’t use as much as Arlo has on hand? Producers of services face more serious problems. For example, how would a barber save haircuts for a rainy day?

A Closed, Money-Based Economy

We are still in a close-knit economy, that is, a closed one. But money now enters the picture. It eases the task of acquiring goods by allowing the purchaser to acquire them at his leisure (subject to the risk of non-delivery, of course). This is called saving, which is also a form of credit. The purchaser of goods (who is also a producer of goods) needn’t trade all of his output for the output of others. He can defer his purchases, thus effectively giving credit to those who buy his goods while he puts off buying theirs.

How does it work? If Arlo makes bread and Brenda makes butter, Arlo, with Brenda’s consent, can give her some bread in exchange for money instead of butter. (Maybe Arlo doesn’t need butter at the moment, and would rather buy it from Brenda at a later date.) Arlo, at one stroke, is accepting money (as a measure of the value of the goods he can purchase in the future) and extending credit to Brenda.

The value of the money, to Arlo, depends on his confidence that Brenda will deliver to him the quantity of butter that he would have received by trading his bread for her butter on the spot. If Arlo is unsure about Brenda’s ability to deliver the desired quantity of butter at a future date, he will ask for the monetary equivalent of additional butter. This is equivalent to the issuance of credit by Arlo to Brenda; that is, he is giving her time in which to produce more butter, and getting a share of the additional output in return.

A money-based economy is, perforce, a credit-based economy. And the value of money depends on the holder’s assessment of his ability to get his money’s worth, so to speak.

The existence of money enables producers to save a portion of their income in a non-perishable, fungible form. This facilitates investment by, for example, enabling the investing party to subsist on what he can purchase from the money he has saved while turning his time and effort toward improving the way in which he produces his goods, devising new goods that might yield him more income, or even wandering far and wide to seek new buyers for his goods.

Thus money is a beneficial economic instrument — as long as the terms of its use are established by those who actually produce and exchange goods. This included the “middlemen” (i.e., wholesalers, retailers, bankers, lenders) whose services are sought and valued by producers of other goods. As I will discuss later, outside interference in the creation and valuation money will distort the terms of trade between producers, causing them to make choices that are less beneficial to them than the choices they would make in the absence of such interference.

In an economy where there is no outside interference in the issuance and valuation of money (and credit), defaults aren’t distorting; that is, they don’t change the “normal” flow of economic activity. Those who give and accept credit do so willingly and after balancing the risks involved (including the possibility of unforeseen calamities) against the gains from trade. Moreover, other “middlemen” known as insurers come to the fore. For a fee, which is paid willingly by the participants in this economy, they absorb the costs of losses from unforeseen calamities (personal injury and illness, fire, flood, etc.).

An Open, Money-Based Economy

An open economy is simply one in which goods are exchanged across territorial boundaries. This kind of exchange is inherently beneficial because it enables all parties to improve their lot by giving them access to a wider range of goods. It also fosters specialization, so that a greater abundance of goods is produced, given available resources. Though inter-territorial trade can be conducted through barter, money obviously facilitates inter-territorial trade, inasmuch as it is (by definition) conducted over a wider area, making direct trades even more difficult than they are within smaller area.

Inasmuch as government isn’t yet in the picture, there is practically no downside to inter-territorial trade. It is simply an expansion of what has gone before — voluntary exchanges of goods (usually through the medium of money) for the mutual benefit of the parties to the transactions. With government out of the picture, there are less likely to be distortions of the kind that are caused by tariffs and subsidization, both of which are aimed at benefiting the citizens (or elites) of one territory at the expense of persons in other territories.

An Open, Money-Based Economy with Government

It is time to introduce government. I am not suggesting that government is a necessary or inevitable outgrowth of a money-based economy. Government probably came first, in the guise of a tribal leader to whom certain decisions were referred and who was responsible for settling disputes within the tribe and seeing to its defense from outside force.

The point of introducing government here is to highlight its potential economic value, and to draw attention to the ways in which it can destroy economic value — and liberty as well. I must say, at the outset, that government, when it comes to domestic affairs, can do no better than enforce prevailing social norms that not only bind a people but also protect them from each other. Such norms include the prohibition of — and social punishment of — acts that cause harm, including the disruption of economic activity. They may be summarized as acts of force (e.g., murder, battery, theft, and vandalism) and fraud (e.g., lying and deliberate deception). There is a related peace-keeping function that is best performed by a third party, and that is the settlement of civil disputes, which in some cases must be done by government, as a referee of last resort.

The point of government with respect to such acts is to ensure the enforcement and punishment of prohibitions in an even-handed way by a party that is presumed to be impartial. (I won’t get into the many historical deviations from this ideal, but will later address how those deviations might have been minimized.) With the assurance that government will enforce and punish harmful acts, the populace as a whole — including its economic units — can more freely go about the business of life (and business) and spend less time, effort, and money on self-defense. In this way, government can be a boon to an economy, especially one that spans a large and diverse populace of strangers.

Ensuring that the business of business can be conducted freely (within the constraint that otherwise illegal transactions are prohibited and punished), requires the national government to prevent subsidiary governments from erecting barriers to trade between the territories of the subsidiary governments. The national government may, on the other hand, restrict trade between entities inside the nation and entities outside of it, where such restrictions (a) keep dangerous materials and technologies out of the hands of actual or potential enemies or (b) prevent foreign regimes from undermining parts of the national economy by subsidizing foreign producers directly or through tariffs on imports to the foreign country.

Government can also protect the populace (and the business of business) from attacks by outsiders. The ideal way of doing this is to mount a defense that is robust enough to deter such attacks. Failing that, the defense must be robust enough to defeat attacking outsiders in a way the prevents much of the damage that they might otherwise do to the populace and its economic activities.

(The problematic side of peace-keeping, both domestically and against outsiders, is that its costs must be borne in some manner by the people and economic units it protects. Further, those costs must be borne, in many cases, by persons who have some objection to peace-keeping; for example: outright pacifists, bleeding-hearts who loath to believe that certain classes of human beings are more prone to criminality than others, and yet-to-be-mugged innocents who simply believe the best of everyone. That said, there is no “fair” way to apportion the costs of peace-keeping, but there is a fairer way than the is now the case: the imposition of a truly flat tax.)

A government that is limited as outlined above must be subject to several checks if it is to remain limited:

  • A written constitution that specifies the powers of the national government and subsidiary governments.
  • Onerous provisions for amending the written constitution.
  • A judiciary that is empowered to review all governmental actions to ensure their consistency with the written constitution.
  • A mechanism for rejecting judicial decisions that are inconsistent with the written constitution.
  • Regular elections through which qualified voters pass judgment on government officials.
  • The restriction of voting to persons of mature age who have “skin in the game”.

The failure to institute and maintain any of these checks will result, eventually, in a system of government that routinely does more than defend the populace and ensure that the business of business can be conducted freely. In the United States, the lack of oversight of the judiciary and the expansion of the franchise (rather than its restriction) have proved fatal to the otherwise clever design of the original Constitution.

The result is an badly distorted economy, which produces things (or fails to produce them) in accordance with the desires (mostly) of unelected bureaucrats, and redistributes income and wealth (and such antecedents as jobs and university admissions) in accordance with the desires of persons without “skin in the game” (i.e., political theorists, pundits, politicians, bureaucrats, naive students, and layabouts). The economy isn’t only badly distorted, but as a result of myriad government interventions, it produces far less than it would otherwise produce, to the detriment of almost everyone, including the supposed beneficiaries of government interventions.

Macroeconomics

What I have discussed thus far is microeconomic activity — the actions of individuals and firms that result in the exchange of economic goods, either directly or with the aid of money and credit. I have also addressed the effects of government interventions, but mainly in terms of the microeconomic effects of such interventions.

What I have avoided, except in passing, is the thing called macroeconomics, which is supposed to deal with aggregate economic activity and things that influence it, such as the monetary and fiscal tools wielded by government.

Economics Explained — Part II: Economic Principles in Perspective

This is the second installment of a long post. I may revise it as I post later parts. The whole will be published as a page, for ease of reference. If you haven’t read “Part I: What Is Economics About?“, you may benefit from doing so before you embark on this part.

What Drives Us

Humans are driven by the survival instinct and a host of psychological urges, which vary from person to person. Those urges include but are far from limited to the self-aggrandizement (ego), the need for love and friendship, and the need to be in control (which includes the needs to possess things and to control others, both in widely varying degrees). Economic activity, as I have said, excludes matters of love and friendship (though not calculated relationships that may seem like friendship), but aside from those things — which influence personal economic activity (e.g., the need to provide for loved ones) — there are more motivations for economic activity than can be dreamt of by economists. Those motivations are shaped genes and culture, which are so varied and malleable (in the case of culture) that specific knowledge about them is useful only to the purveyors of particular goods.

Therefore, economists long ago (and wisely) eschewed models of economic behavior that impute particular motivations to economic activity. Instead they said that individuals seek to maximize utility (something like happiness or satisfaction), whatever that might be for particular individuals. Similarly, they said that firms seek to maximize profits, which is easier to quantify because profit is measured in monetary units (dollars in America).

Irrational Rationality

Further, economists used to say that individuals act rationally when they strive to maximize utility. Behavioral economists (e.g., Richard Thaler) have challenged the rationality hypothesis by showing that personal choices are often irrational (in the judgment of the behavioral economist). The case of “saving too little” for retirement is often invoked in support of interventions (including interventions by the state) to “nudge” individuals toward making the “right” choices (in the judgment of the behavioral economist). The behavioral economist would thus impose his own definition of rational behavior (e.g., wealth-maximization) on individuals. This is arrogance in the extreme. All that the early economists meant by rationality was that individuals strive to make choices that advance their particular preferences.

Wealth-maximization is one such preference, but far from the only one. A young worker, for example, may prefer buying a car (that enables him to get to work faster than he could by riding a bus) to saving for his retirement. There are many other objections to the imposition of behavioral economists’ views. The links at the end of “No Tears for Cass Sunstein” (Thaler’s co-conspirator) will lead you to some of them. That post and the posts linked to at the end of it also provide insights into the authoritarian motivations of Thaler, Sunstein, and their ilk.

The Rise of Corporate Irresponsibility

Turning to firms — the providers of goods that satisfy wants — I have to say that the profit-maximization motive has been eroded by the rise of huge firms that are led and managed by bureaucrats rather than inventors, innovators, and entrepreneurs. The ownership of large firms is, in most cases, widely distributed and indirect (i.e., huge blocks of stock are held in diversified mutual-fund portfolios). This makes it possible for top managers (enabled by compliant boards of directors) to adopt policies that harm shareholders’ financial interests for the sake of presenting a “socially responsible” (“woke”) image of the firm to … whom?

The firm’s existing customers aren’t the general public, they are specific segments of the general public, and some of those segments don’t take kindly to public-relations ploys that flout the values that they (the specific segments) hold dearly. (Gillette and Dick’s Sporting Goods are recent cases in point.) The “whom” might therefore consist of segments of the public that the firms’ managers hope will buy the firm’s products because of the firm’s pandering. and — more likely — influential figures in business, politics, the arts, the media, etc., whom the managers are eager to impress.

“Social responsibility” fiascos are only part of the picture. Huge, bureaucratic firms are no more efficient in their use of resources to satisfy consumers’ wants than are huge, bureaucratic governments that (at best) provide essential services (defense and justice) but in fact provide services that politicians and bureaucrats are “needed” in order to buy votes and make work for themselves.

The bottom line here is that the satisfaction of consumers’ wants has been compromised badly. And the combination of government interventions and corporate misfeasance has made the economy far less productive than it could be.

The Flip Side of Economics: Failure to Produce

Economics, therefore, is about the satisfaction of human wants through the production and exchange of goods, given available resources. It is also about the failure to maximize the satisfaction of wants, given available resources, because of government interventions and corporate misfeasance.

The gross underperformance of America’s economy illustrates an important but usually neglected principle of economics: Every decision has an opportunity cost. When you choose to buy a car, for example, you forgo the opportunity to buy something else for the same amount of money. That something else, presumably, would afford you less satisfaction (utility) than the car. Or so the theory goes. But whether it would or wouldn’t isn’t for a behavioral economist to say.

Individuals (and firms) often make choices that they later regret. It’s called learning from experience. But “nudging”, government interventions, and corporate sluggishness reduce the opportunity to learn from experience. (Government interventions and corporate sluggishness also prevent, as I have said, behaviors that are essential to economic vitality: invention, innovation, and entrepreneurship.)

Government interventions also incentivize economically and personally destructive behavior. There are many estimates of the costs of government interventions (e.g., this one and those documented quarterly in Regulation magazine) and a multitude of examples of the personally destructive behavior engendered by government interventions. It is impossible to say which intervention has been the most harmful to the citizenry, but if pressed I would choose the thing broadly called “welfare”, which disincentivizes work and is an important cause of the dissolution of black (welfare-dependent) families, with attendant (and dire) results (educational, occupational, criminal) that bleeding hearts prefer to attribute to “racism”. If not in second place, but high up on my list, is the counterproductive response (by government at the prodding of bleeding hearts) to homelessness.

Thus we have yet another principle: the “law” of unintended consequences. Unintended consequences are the things that aren’t meant to happen — but which do happen — when an actor (be it governmental, corporate, or individual) doesn’t think about (or chooses to minimize or ignore) when it or he focuses on a particular problem or desire to the exclusion of other problems or desires. Individuals can learn from unintended consequences; governments and, increasingly, corporations are too rule-bound and infested by special interests to do so.

None of what I have said about corporations should be taken as an endorsement of governmental interventions to make them somehow more efficient and responsible. (The law of unintended consequences applies in spades when it comes to government.) The only justification for state action with respect to firms is to keep them from doing things that are inimical to liberty and can’t be rectified by private action. In an extreme case, a business that specializes in murder for hire is (or should be) a target for closure and prosecution. A business that sells a potentially harmful product (e.g., guns, cigarettes) isn’t a valid target of state action because the harmful use of the product is the responsibility of the buyer, product-liability law to the contrary notwithstanding.

What about a business that collaborates (perhaps tacitly) with other businesses or special interests to prevent the expression of views that are otherwise protected by the First Amendment but which are opposed by the managers of the business and their political allies? There are good arguments for a hand-off approach, in that markets — if they are allowed to operate freely — will provide alternatives that allow the expression (and wide circulation) of “objectionable” views. If anti-trust actions against purveyors of oil and steel (two take two examples from the past) are inadvisable (as I have argued), aren’t anti-trust actions against purveyors of information and ideas equally inadvisable? There is a qualitative difference between economic rapacity and what amounts to a war that is being waged by one segment of the nation against other segments of the nation. (See for example, “The Subtle Authoritarianism of the ‘Liberal Order’“.) Government action to defend the besieged segments is therefore fitting and proper. (See “Preemptive (Cold) Civil War“.)

Economics and Liberty

This brings me to the gravest economic threat to liberty, which is state socialism and its variants: communism, fascism, and social democracy. All of them vest control of the economy in the state, when not through outright state ownership of the means of production, then through laws and regulations that dictate allowable types of economic output, the means and methods of its production, and its beneficiaries. The United States has long been burdened with what has been called a “mixed” economic system, which is in fact a social democracy — an economy that has many of the trappings of free-market capitalism but is in fact heavily managed by governments (federal, State, and local) in the service of “social justice” and various trendy causes.

The most recent of these is the puritanical, often hypocritical, and anti-scientific effort to rescue the planet from “climate change”. The opportunity cost of this futile undertaking, were it conducted according to the dictates of its most strident supporters, would be a vast share of the economic output of the the Western world (inasmuch as Russia, China, India, and even Japan are disinclined to participate), thus demoting America and Western Europe to Third-World status and rendering them vulnerable to economic and military blackmail by Russia and China. (Old grudges die hard.) You can be sure, however, that even in their vastly diminished state, the Western “democracies” would find the resources with which to cosset the ruling class of politicians and their favorites.

Proponents of state action often defend it by adverting to the paradox of collective action, which is that individuals and firms, acting in what they perceive to be their own interests, can bring about a disaster that engulfs them. “Climate change” is the latest such so-called disaster. What the proponents of state action always omit to consider (or mention) is that state action itself can bring about a disaster that engulfs all of us. The attempt to control “climate change” is just such an action, and it is of the more dangerous kind because government programs, once started, are harder to turn around than the relatively modest and inexpensive projects of individuals and firms.

You may think that I have strayed a long way from the principles of economics. But I haven’t, if you’ve been following closely. What I have done — or tried to do — is put economic activity in perspective. Which is to say that I’ve tried to show that economic activity may be important and even crucial to our lives, but it is not the only important and crucial thing in our lives. Economic activity is shaped by government and culture. If the battle to contain government is successful, and if the battle to preserve a culture of personal responsibility and respect for traditional norms is successful, economic activity will thrive and be worth the striving.

Wicked Problems: The Pretense of Rationality

Arnold Kling points to a paper by Horst W. J. Rittel and Melvin M. Webber, “Dilemmas in a General Theory of Planning” (Policy Sciences, June 1973). As Kling says, the paper is “notable for the way in which it describes — in 1973 — the fallibility of experts relative to technocratic expectations”.

Among the authors’ many insights are these about government planning:

The kinds of problems that planners deal with-societal problems-are inherently different from the problems that scientists and perhaps some classes of engineers deal with. Planning problems are inherently wicked.

As distinguished from problems in the natural sciences, which are definable and separable and may have solutions that are findable, the problems of governmental planning-and especially those of social or policy planning-are ill-defined; and they rely upon elusive political judgment for resolution. (Not “solution.” Social problems are never solved. At best they are only re-solved-over and over again.) Permit us to draw a cartoon that will help clarify the distinction we intend.

The problems that scientists and engineers have usually focused upon are mostly “tame” or “benign” ones. As an example, consider a problem of mathematics, such as solving an equation; or the task of an organic chemist in analyzing the structure of some unknown compound; or that of the chessplayer attempting to accomplish checkmate in five moves. For each the mission is clear. It is clear, in turn, whether or not the problems have been solved.

Wicked problems, in contrast, have neither of these clarifying traits; and they include nearly all public policy issues-whether the question concerns the location of a freeway, the adjustment of a tax rate, the modification of school curricula, or the confrontation of crime….

In the sciences and in fields like mathematics, chess, puzzle-solving or mechanical engineering design, the problem-solver can try various runs without penalty. Whatever his outcome on these individual experimental runs, it doesn’t matter much to the subject-system or to the course of societal affairs. A lost chess game is seldom consequential for other chess games or for non-chess-players.

With wicked planning problems, however, every implemented solution is consequential. It leaves “traces” that cannot be undone. One cannot build a freeway to see how it works, and then easily correct it after unsatisfactory performance. Large public-works are effectively irreversible, and the consequences they generate have long half-lives. Many people’s lives will have been irreversibly influenced, and large amounts of money will have been spent-another irreversible act. The same happens with most other large-scale public works and with virtually all public-service programs. The effects of an experimental curriculum will follow the pupils into their adult lives.

Rittel and Webber address a subject about which I know a lot, from first-hand experience — systems analysis. This is a loose discipline in which mathematical tools are applied to broad and seemingly intractable problems in an effort to arrive at “optimal” solutions to those problems. In fact, as Rittel and Webber say:

With arrogant confidence, the early systems analysts pronounced themselves ready to take on anyone’s perceived problem, diagnostically to discover its hidden character, and then, having exposed its true nature, skillfully to excise its root causes. Two decades of experience have worn the self-assurances thin. These analysts are coming to realize how valid their model really is, for they themselves have been caught by the very same diagnostic difficulties that troubled their clients.

Remember, that was written in 1973, a scant five years after Robert Strange McNamara — that supreme rationalist — left the Pentagon, having discovered that the Vietnam War wasn’t amenable to systems analysis. McNamara’s demise as secretary of defense also marked the demise of the power that had been wielded by his Systems Analysis Office (though it lives on under a different name, having long since been pushed down the departmental hierarchy).

My own disillusionment with systems analysis came to a head at about the same time as Rittel and Webber published their paper. A paper that I wrote in 1981 (much to the consternation of my colleagues in the defense-analysis business) was an outgrowth of a memorandum that I had written in 1975 to the head of the defense think-tank where I worked. Here is the crux of the 1981 paper:

Aside from a natural urge for certainty, faith in quantitative models of warfare springs from the experience of World War II, when they seemed to lead to more effective tactics and equipment. But the foundation of this success was not the quantitative methods themselves. Rather, it was the fact that the methods were applied in wartime. Morse and Kimball put it well [in Methods of Operations Research (1946)]:

Operations research done separately from an administrator in charge of operations becomes an empty exercise. To be valuable it must be toughened by the repeated impact of hard operational facts and pressing day-by-day demands, and its scale of values must be repeatedly tested in the acid of use. Otherwise it may be philosophy, but it is hardly science. [p. 10]

Contrast this attitude with the attempts of analysts for the past twenty years to evaluate weapons, forces, and strategies with abstract models of combat. However elegant and internally consistent the models, they have remained as untested and untestable as the postulates of theology.

There is, of course, no valid test to apply to a warfare model. In peacetime, there is no enemy; in wartime, the enemy’s actions cannot be controlled….

Lacking pertinent data, an analyst is likely to resort to models of great complexity. Thus, if useful estimates of detection probabilities are unavailable, the detection process is modeled; if estimates of the outcomes of dogfights are unavailable, aerial combat is reduced to minutiae. Spurious accuracy replaces obvious inaccuracy; untestable hypotheses and unchecked calibrations multiply apace. Yet the analyst claims relative if not absolute accuracy, certifying that he has identified, measured, and properly linked, a priori, the parameters that differentiate weapons, forces, and strategies.

In the end, “reasonableness” is the only defense of warfare models of any stripe.

It is ironic that analysts must fall back upon the appeal to intuition that has been denied to military men — whose intuition at least flows from a life-or-death incentive to make good guesses when choosing weapons, forces, or strategies.

This generalizes to government planning of almost every kind, at every level, and certainly to the perpetually recurring — and badly mistaken — belief that an entire economy can be planned and its produce “equitably” distributed according to needs rather than abilities.

(For much more in this vein, see the posts listed at “Modeling, Science, and ‘Reason’“. See also “Why I Am Bunkered in My Half-Acre of Austin“.)

Another Look into the Vanished Past

In “Ghosts of Thanksgiving Past” I recall family gatherings of long ago. “The Passing of Red Brick Schoolhouses and a Way of Life” laments the passing of the schoolhouses of my childhood, along with the innocence that was once a hallmark of non-urban America. In “‘Tis the Season for Nostalgia” I recall Christmases past.

I was reminded of those trips into the past by a post at The Federalist by Nathaniel Blake, “What Good Is Cheaper Stuff If It Comes At The Expense Of Community?“. It prompted me to recall other things that meant much to me (in hindsight): the long-vanished locally-owned stores that provided groceries, meat, sundries, haircuts, baked goods, hobby supplies, and more. The owners worked in their stores. They knew you, and you knew them. Many of them were neighbors. Their livelihoods depended not only on providing products and services at reasonable prices — prices that saved you a trip to the big city — but on their friendliness and reputation for honesty.

Of the many stores of that ilk that I remember from early childhood until I went to college, 60 to 75 years ago, only one is still in business. It’s even at the same location, though in a new building, and it doesn’t carry the range of hobby supplies (e.g., model kits and collectible stamps) that it did when I shopped there eons ago.

Here are the sites as they look now (or looked recently), arrayed roughly in the order in which I first saw them (* indicates original building):

Grocery store and gas station*

Dairy store

Grocery store

Bakery

Grocery store and news stand

Grocery store with ice house in back

Meat market*

Meat market

Grocery store

Barber shop (left)* – Grocery store (right)*

Bakery (and owners’ residence)*

Grocery store (and owners’ residence)*

Grocery store

Hobby store*

Hobby store

Grocery store

Grocery store*

Barber shop – Drugstore (two separate buildings)

Grocery store

Economics Explained – Part I: What Is Economics About?

This is the first installment of a long entry. I may revise it as I post later entries. The whole will be published as a page, for ease of reference.

Economics, as a discipline, often seems counterintuitive, when it is not downright paradoxical. Perhaps the most counterintuitive principle of economics is that unregulated markets are the best mechanism for meeting human wants, given limited resources. Despite that principle, most economists emulate politicians and rabble-rousers in their penchant for second-guessing market outcomes and devising ways of manipulating those outcomes. This penchant does not negate the principle; it merely underscores the unwarranted vanity of the “intellectual” class.

Economics is mysterious to laymen because its practitioners have embellished it with unduly complex mathematical theorizing. In other words, when economics is not counterintuitive it is simply incomprehensible.

There is no need for economics to be counterintuitive or mysterious. Many writers have essayed simple — and correct — expositions of the principles of economics. The most notable effort, perhaps, is Henry Hazlitt’s Economics in One Lesson. Another good source is The Concise Encyclopedia of Economics at The Library of Economics and Liberty (a web site). (Good places to start there are “Basic Concepts” and “Ten Key Ideas“.)

Unfortunately, Hazlitt’s short book is more than 200 pages long. And the entries at The Library of Economics and Liberty are disjointed. What the world needs is a truly concise but coherent and comprehensive statement of the principles of economics. Thus this post, in which I use not a single equation or graph. Why? Because equations and graphs can be off-putting to readers who are not habituated to them. Moreover, equations and graphs imply a degree of precision that is not found in the real world; verbal explanations, hedged with qualifications, give a more accurate picture of reality (albeit one that necessarily remains incomplete).

I begin with the basic question: What is economics about? The answer to that question leads to observations about the principles of economics, which are shaped by politics and culture. From there, I illustrate the principles by working through an example that eventually takes them all into account.

What Is Economics About?

Economics is about the satisfaction of human wants through the production and exchange of goods (a term that encompasses information, services, and tangible products). That simple definition raises several issues, which are the fundamental subjects of economic inquiry:

  1. What are human wants, and how do they arise?
  2. Are all human wants (e.g., love) the proper domain of economics?
  3. By what mechanisms are resources transformed into goods and then matched (or not) to human wants?
  4. What determines the rate of output of all goods, that is, the aggregate degree of satisfaction of human wants?
  5. What is the proper role of government in the satisfaction of human wants?

The brief answers to these questions, upon which I elaborate below, are as follows:

1. Human wants arise from basic human requirements and impulses (e.g., the need for food, clothing, shelter, transportation, and status). Another way to say it is that human wants are both biological and emotional. Particular human wants, therefore, arise from a combination of biological impulses and cultural influences. Some wants clearly are essential to life (e.g., food); some wants clearly are nonessential but nevertheless fill emotional needs (e.g., yachts and mansions). But, like mountains and molehills, the extremes are distinguishable but they are connected by many indistinguishable intermediate stages; that is, there is no telling when wants transition from essential, to beneficial, to frivolous. Moreover — and this is an essential point to which I will return — the striving to fulfill what might seem to be frivolous wants can lead (by steps to be discussed later) to the creation of jobs that yield income from which the job-holders are able to fulfill essential wants (and others, as well).

2. Some human wants arise from impulses that economists should be wary of trying to analyze and measure. The most obvious of these is the kind of love that leads to marriage, sex, and children. Yes, there are sexual arrangements outside marriage that are purely economic transactions. But love of the kind that leads to marriage, sex, and children (and thence to love of parents for their children) is beyond the ken of economics. So, too, are other relationships that are non-transactional, such as friendship and membership in various voluntary organizations (churches, clubs, etc.).

3. Economics is therefore about arms-length transactions — transactions that aren’t bound up in non-contractual relationships like marriage, family, friendship, church, and club. Voluntary exchange and prices are the default mechanisms for matching goods with wants in arms-length transactions. The simplest example is barter: Andy makes bread and wants butter to put on it; Babette makes butter and wants bread for it: Andy and Babette strike a bargain that yields a rate of exchange between bread and butter (i.e., a price for bread in terms of butter and vice versa); the exchange makes both Andy and Babette better off (i.e., there are mutual gains from trade). The prices established by Andy and Babette also serve as signals (provide information) to others who seek to exchange bread and butter; for example, Chuck (a potential producer of butter) might be willing to make butter and trade with Andy on more favorable terms than those offered by Babette.

4. There is no such thing as an aggregate measure of the output of goods — though aggregation is implicit in macroeconomic constructs (e.g., gross domestic product). Thinking only of the United States, for example, how is it possible to aggregate the value of myriad goods that are produced and bought by dozens of millions of businesses and individuals? Hint: Because statistical sampling is arbitrary and uncertain, the answer cannot be found in the common denominator of money. It is nevertheless possible for an economy to move generally in the direction of growth or decline, with exceptions around the trend. It is obvious, for example, that most Americans use goods that are superior in number and quality to the goods that most Americans enjoyed 50 years ago. It is also obvious that during the episode known at the Great Depression, most Americans were materially worse off than they had been before the depression began, and that relatively few became better off. How such things happen, and how economic growth can be sustained and economic declines can be reversed, are valid subjects of economic analysis.

5. Voluntary exchange, unalloyed, can leave some persons “behind” (e.g., those who are incapable of producing bread in exchange for butter, those whose output is worth less to buyers than it used to be). But there is another human impulse (call it “altruism” for now) that leads to the voluntary redistribution of wealth and income, thus enabling the beneficiaries of the redistribution to buy more goods than they can afford on their own. Government action taken in the name of altruism displaces and discourages private altruistic action. More generally, government action throttles economic vitality, causes and exacerbates economic disruptions, and interferes with the constructive resolution of those disruptions. The proper role of government is to provide a framework of defense and justice within which economic actors can operate voluntarily and with little fear that their efforts to improve their lot (and the lot of others less fortunate) will be stymied by force or fraud. Government intervenes legitimately only when it prevents or discourages force and fraud (e.g., defending foreign sources of oil, detecting and preventing terrorism on U.S. soil, prosecuting thieves and murderers, prosecuting “boiler room” operators).

No Tears for Cass Sunstein

Cass Sunstein is, among many things, the co-author (with Richard Thaler). of Nudge: Improving Decisions about Health, Wealth, and Happiness. One reviewer says this about the book:

Cass Sunstein and Richard Thaler contend that the way public choices are framed and presented goes a long way toward determining the kinds of decisions people make. Summarizing some four decades of research in what they call “the emerging science of choice,” they show that people do not always act logically or in their own best interests….

We like to think of ourselves as rational creatures, they point out, but studies show that the choices we make tend to be unrealistically optimistic, biased toward the status quo, and undercut by a subtle and unthinking conformity.

What the research suggests, Sunstein and Thaler say, is that “choice architecture — like the architecture of a well-designed public space — can guide, or “nudge,” people toward making better choices. A nudge is a way of organizing and presenting choices “that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives,” according to Sunstein and Thaler….

By understanding the power of nudges, they argue, “choice architects” — those charged with the responsibility of organizing the context in which people make decisions — can help to coax people into making decisions that serve them better.

A key to nudging is an old technique known as framing: presenting options in a way that makes the presenter’s preferred option more attractive than the others. A clever used-car salesman, for example, will size up your preferences and pocketbook. He will then prepare you to make an offer on a car at the high end of your price range, or even above it, by showing you less-expensive cars that he believes you won’t like. When he takes you to the car that makes your eyes light up, you are so enchanted by it (because it’s so much better than the ones you’ve already seen) that you hardly blink at the sticker price. If you do make an offer that’s below the sticker price, the best you will do is arrive at the salesman’s reserve price — the lowest offer that he can accept. And you will probably end up paying a lot more than the reserve price. The mirror-image approach, which a salesman may use instead, is to start well above your price range, whet your appetite for something above your price range, and snag you with something that’s still above it but looks good to you because it’s cheaper than what you’ve already seen. The same techniques are employed by clever salesmen of all kinds, including — notably — real-estate salesmen.

I have addressed at length the political aspects of Sunstein and Thaler’s version of the framing technique (and other manipulative tricks), which they call “libertarian paternalism”. (See the list of related posts, below.) My bottom line: There is nothing “libertarian” about pushing people in the direction that you think is best for them. (Though it has become characteristically “libertarian” to urge the state to enact laws — same-sex marriage, for example — that trample on long-established, voluntary social norms and by their enactment to enable state persecution of persons whose beliefs are at odds with “libertarian” views.)

But I have digressed. A writer who seems bent on garnering sympathy for Sunstein uses framing as a way of trying to deflect much-deserved blame for Sunstein’s foray into authoritarianism. I am referring to Andrew Marantz, whose article “How a Liberal Scholar of Conspiracy Theories Became the Subject of a Right-Wing Conspiracy Theory” (New Yorker, December 27, 2017):

In 2010, Marc Estrin, a novelist and far-left activist from Vermont, found an online version of a paper by Cass Sunstein, a professor at Harvard Law School and the most frequently cited legal scholar in the world. The paper, called “Conspiracy Theories,” was first published in 2008, in a small academic journal called the Journal of Political Philosophy. In it, Sunstein and his Harvard colleague Adrian Vermeule attempted to explain how conspiracy theories spread, especially online. At one point, they made a radical proposal: “Our main policy claim here is that government should engage in cognitive infiltration of the groups that produce conspiracy theories.” The authors’ primary example of a conspiracy theory was the belief that 9/11 was an inside job; they defined “cognitive infiltration” as a program “whereby government agents or their allies (acting either virtually or in real space, and either openly or anonymously) will undermine the crippled epistemology of believers by planting doubts about the theories and stylized facts that circulate within such groups.”

Nowhere in the final version of the paper did Sunstein and Vermeule state the obvious fact that a government ban on conspiracy theories would be unconstitutional and possibly dangerous. (In a draft that was posted online, which remains more widely read, they emphasized that censorship is “inconsistent with principles of freedom of expression,” although they “could imagine circumstances in which a conspiracy theory became so pervasive, and so dangerous, that censorship would be thinkable.”)* “I was interested in the mechanisms by which information, whether true or false, gets passed along and amplified,” Sunstein told me recently. “I wanted to know how extremists come to believe the warped things they believe, and, to a lesser extent, what might be done to interrupt their radicalization. But I suppose my writing wasn’t very clear.”

On the contrary, Sunstein’s writing was quite clear. So clear that even leftists were alarmed by it. Returning to Marantz’s account:

When Barack Obama became President, in 2009, he appointed Sunstein, his friend and former colleague at the University of Chicago Law School, to be the administrator of the Office of Information and Regulatory Affairs. The O.I.R.A. reviews drafts of federal rules, and, using tools such as cost-benefit analysis, recommends ways to make them more efficient. O.I.R.A. administrator is the sort of in-the-weeds post that even lifelong technocrats might find unglamorous; Sunstein had often described it as his “dream job.” He took a break from academia and moved to Washington, D.C. It soon became clear that some of his published views, which he’d thought of as “maybe a bit mischievous, but basically fine, within the context of an academic journal,” could seem far more nefarious in the context of the open Internet.

Estrin, who seems to have been the first blogger to notice the “Conspiracy Theories” paper, published a post in January, 2010, under the headline “Got Fascism?” “Put into English, what Sunstein is proposing is government infiltration of groups opposing prevailing policy,” he wrote on the “alternative progressive” Web site the Rag Blog. Three days later, the journalist Daniel Tencer (Twitter bio: “Lover of great narratives in all their forms”) expanded on Estrin’s post, for Raw Story. Two days after that, the civil-libertarian journalist Glenn Greenwald wrote a piece for Salon headlined “Obama Confidant’s Spine-Chilling Proposal.” Greenwald called Sunstein’s paper “truly pernicious,” concluding, “The reason conspiracy theories resonate so much is precisely that people have learned—rationally—to distrust government actions and statements. Sunstein’s proposed covert propaganda scheme is a perfect illustration of why that is.” Sunstein’s “scheme,” as Greenwald put it, wasn’t exactly a government action or statement. Sunstein wasn’t in government when he wrote it, in 2008; he was in the academy, where his job was to invent thought experiments, including provocative ones. But Greenwald was right that not all skepticism is paranoia.

And then:

Three days after Estrin’s post was published on the Rag Blog, the fire jumped to the other side of the road. Paul Joseph Watson, writing for the libertarian conspiracist outfit InfoWars, linked to Estrin’s post and riffed on it, in a free-associative mode, for fifteen hundred words. “It is a firmly established fact that the military-industrial complex which also owns the corporate media networks in the United States has numerous programs aimed at infiltrating prominent Internet sites and spreading propaganda to counter the truth,” Watson wrote. His boss at InfoWars, Alex Jones, began expanding on this talking point on his daily radio show: “Cass Sunstein says ban conspiracy theories, and that’s whatever he says it is. That’s on record.”

At the time, Glenn Beck hosted both a daily TV show on Fox News and a syndicated radio show; according to a Harris poll, he was the country’s second-favorite TV personality, after Oprah Winfrey. Beck had been delivering impassioned rants against Sunstein for months, calling him “the most dangerous man in America.” Now he added the paper about conspiracy theories to his litany of complaints. In one typical TV segment, in April of 2010, he devoted several minutes to a close reading of the paper, which lists five possible ways that a government might respond to conspiracy theories, including banning them outright. “The government should ban them,” Beck said, over-enunciating to express his incredulity. “How a government with an amendment guaranteeing freedom of speech bans a conspiracy theory is absolutely beyond me, but it’s not beyond a great mind and a great thinker like Cass Sunstein.” In another show, Beck insinuated that Sunstein had been inspired by Edward Bernays, the author of a 1928 book called “Propaganda.” “I got a flood of messages that night, saying, ‘You should be ashamed of yourself, you’re a disciple of Bernays,’ ” Sunstein recalled. “The result was that I was led to look up this interesting guy Bernays, whom I might not have heard of otherwise.”

For much of 2010 and 2011, Sunstein was such a frequent target on right-wing talk shows that some Tea Party-affiliated members of Congress started to invoke his name as a symbol of government overreach. Earlier in the Obama Administration, Beck had targeted Van Jones, now of CNN, who was then a White House adviser on green jobs. After a few weeks of Beck’s attacks, Jones resigned. “Then Beck made it sort of clear that he wanted me to be next,” Sunstein said. “It wasn’t a pleasant fact, but I didn’t see what I could do about it. So I put it out of my mind.”

Sunstein was never asked to resign. He served as the head of O.I.R.A. for three years, then returned to Harvard, in 2012. Two years later, he published an essay collection called “Conspiracy Theories and Other Dangerous Ideas.” The first chapter was a revised version of the “Conspiracy Theories” paper, with several qualifications added and with Vermeule’s name removed. But the revisions did nothing to improve Sunstein’s standing on far-right talk shows, where he had already earned a place, along with Saul Alinsky and George Soros and Al Gore, in the pantheon of globalist bogeymen. Beck referred to Sunstein as recently as last year, on his radio show, while discussing the Obama Administration’s “propaganda” in favor of the Iran nuclear deal. “We no longer have Jefferson and Madison leading us,” Beck said. “We have Saul Alinsky and Cass Sunstein. Whatever it takes to win, you do.” Last December, Alex Jones—who is, improbably, now taken more seriously than Beck by many conservatives, including some in the White House—railed against a recent law, the Countering Foreign Propaganda and Disinformation Act, claiming, speciously, that it would “completely federalize all communications in the United States” and “put the C.I.A. in control of media.” According to Jones, blame for the law rested neither with the members of Congress who wrote it nor with President Obama, who signed it. “I was sitting here this morning . . . And I keep thinking, What are you looking at that’s triggered a memory here?” Jones said. “And then I remembered, Oh, my gosh! It’s Cass Sunstein.”

Cue the tears for Sunstein:

Recently, on the Upper East Side, Sunstein stood behind a Lucite lectern and gave a talk about “#Republic.” Attempting to end on a hopeful note, he quoted John Stuart Mill: “It is hardly possible to overrate the value . . . of placing human beings in contact with persons dissimilar to themselves.” He then admitted, with some resignation, that this describes the Internet we should want, not the Internet we have.

After the talk, we sat in a hotel restaurant and ordered coffee. Sunstein has a sense of humor about his time in the spotlight—what he calls not his fifteen minutes of fame but his Two Minutes Hate, an allusion to “1984”—and yet he wasn’t sure what lessons he had learned from the experience, if any. “I can’t say I spent much time thinking about it, then or now,” he said. “The rosy view would be that it says something hopeful about us—about Americans, that is. We’re highly distrustful of anything that looks like censorship, or spying, or restriction of freedom in any way. That’s probably a good impulse.” He folded his hands on the table, as if to signal that he had phrased his thoughts as diplomatically as possible.

I’m not buying it. Sunstein deserves every bit of blame that came his way, and I certainly wouldn’t buy a car or house from him. He was attacked from the left and right for good reason, and portraying his attackers as kooks and extremists doesn’t change the facts of the matter. Sunstein’s 2010 article wasn’t a one-off thing. Six years earlier he published “The Future of Free Speech” in the March-April 2004 issue of The Little Magazine, a South Asian journal (thus the British English spellings in the quotations below). Hold your nose and follow Sunstein’s argument in these quotations from “The Future of Free Speech”:

My purpose here is to cast some light on the relationship between democracy and new communications technologies. I do so by emphasising the most striking power provided by emerging technologies: the growing power of consumers to “filter” what it is that they see. In the extreme case, people will be fully able to design their own communications universe. They will find it easy to exclude, in advance, topics and points of view that they wish to avoid. I will also provide some notes on the constitutional guarantee of freedom of speech.

An understanding of the dangers of filtering permits us to obtain a better sense of what makes for a well-functioning system of free expression. Above all, I urge that in a heterogeneous society, such a system requires something other than free, or publicly unrestricted, individual choices. On the contrary, it imposes two distinctive requirements. First, people should be exposed to materials that they would not have chosen in advance…. Second, many or most citizens should have a range of common experiences. Without shared experiences, a heterogeneous society will have a much more difficult time addressing social problems; people may even find it hard to understand one another….

Imagine … a system of communications in which each person has unlimited power of individual design…. Our communications market is moving rapidly toward this apparently utopian picture…. [A]s of this writing, a number of newspapers allow readers to create filtered versions, containing exactly what they want, and excluding what they do not want….

I seek to defend a particular conception of democracy — a deliberative conception — and to evaluate, in its terms, the outcome of a system with perfect power of filtering. I also mean to defend a conception of freedom, associated with the deliberative conception of democracy, and oppose it to a conception that sees consumption choices by individuals as the very embodiment of freedom….

The US Supreme Court has … held that streets and parks must be kept open to the public for expressive activity. Hence governments are obliged to allow speech to occur freely on public streets and in public parks — even if many citizens would prefer to have peace and quiet, and even if it seems irritating to come across protesters and dissidents whom one would like to avoid….

A distinctive feature of this idea is that it creates a right of speakers’ access, both to places and to people. Another distinctive feature is that the public forum doctrine creates a right, not to avoid governmentally imposed penalties on speech, but to ensure government subsidies of speech…. Thus the public forum represents one place in which the right to free speech creates a right of speakers’ access to certain areas and also demands public subsidy of speakers….

[T]he public forum doctrine increases the likelihood that people generally will be exposed to a wide variety of people and views. When you go to work, or visit a park, it is possible that you will have a range of unexpected encounters, however fleeting or seemingly inconsequential. You cannot easily wall yourself off from contentions or conditions that you would not have sought out in advance, or that you would have chosen to avoid if you could. Here too the public forum doctrine tends to ensure a range of experiences that are widely shared — streets and parks are public property — and also a set of exposures to diverse circumstances. A central idea here must be that these exposures help promote understanding and perhaps in that sense freedom. And all of these points can be closely connected to democratic ideals, as we soon see….

The public forum doctrine is an odd and unusual one, especially insofar as to create a kind of speakers’ access right to people and places, subsidised by taxpayers. But the doctrine is closely associated with a longstanding constitutional ideal, one that is far from odd: that of republican self-government. From the beginning, the American constitutional order was designed to be a republic, as distinguished from a monarchy or a direct democracy. We cannot understand the system of freedom of expression, and the effects of new communications technologies and filtering, without reference to this ideal….

The specifically American form of republicanism … involved an effort to create a “deliberative democracy.” In this system, representatives would be accountable to the public at large, but there was also supposed to be a large degree of reflection and debate, both within the citizenry and within government itself. The system of checks and balances — evident in the bicameral system, the Senate, the Electoral College and so forth — had, as its central purpose, a mechanism for promoting deliberation within the government as a whole….

We are now in a position to distinguish between two conceptions of sovereignty. The first involves consumer sovereignty; the second involves political sovereignty. The first ideal underlies enthusiasm for “the Daily Me.” The second ideal underlies the democratic challenge to this vision, on the ground that it is likely to undermine both self-government and freedom, properly conceived.

Of course, the two conceptions of sovereignty are in potential tension. A commitment to consumer sovereignty may well compromise political sovereignty — if, for example, free consumer choices result in insufficient understanding of public problems, or if they make it difficult to have anything like a shared culture….

Group polarisation is highly likely to occur on the Internet. Indeed, it is clear that the Internet is serving, for many, as a breeding ground for extremism, precisely because like-minded people are deliberating with one another, without hearing contrary views….

The most reasonable conclusion is that it is extremely important to ensure that people are exposed to views other than those with which they currently agree, in order to protect against the harmful effects of group polarisation on individual thinking and on social cohesion….

The adverse effects of group polarization…show that with respect to communications, consumer sovereignty is likely to produce serious problems for individuals and society at large — and these problems will occur by a kind of iron logic of social interactions….

The phenomenon of group polarisation is closely related to the widespread phenomenon of ‘social cascades’. No discussion of social fragmentation and emerging communications technologies would be complete without a discussion of that phenomenon….

[O]ne group may end up believing something and another the exact opposite, because of rapid transmission of information within one group but not the other. In a balkanised speech market, this danger takes on a particular form: different groups may be led to dramatically different perspectives, depending on varying local cascades.

I hope this is enough to demonstrate that for citizens of a heterogeneous democracy, a fragmented communications market creates considerable dangers. There are dangers for each of us as individuals; constant exposure to one set of views is likely to lead to errors and confusions. And to the extent that the process makes people less able to work cooperatively on shared problems, there are dangers for society as a whole.

In a heterogeneous society, it is extremely important for diverse people to have a set of common experiences….

This is hardly a suggestion that everyone should be required to participate in the same thing. We are not speaking of requirements at all. In any case a degree of plurality, with respect to both topics and points of view, is also highly desirable. My only claim is that a common set of frameworks and experiences is valuable for a heterogeneous society, and that a system with limitless options, making for diverse choices, will compromise the underlying values.

The points thus far raise questions about whether a democratic order is helped or hurt by a system of unlimited individual choice with respect to communications. It is possible to fear that such a system will produce excessive fragmentation, with group polarisation as a frequent consequence. It is also possible to fear that such a system will produce too little by way of solidarity goods, or shared experiences. But does the free speech principle bar government from responding to the situation? If that principle is taken to forbid government from doing anything to improve the operation of the speech market, the answer must be a simple Yes.

I believe, however, that this is a crude and unhelpful understanding of the free speech principle, one that is especially ill-suited to the theoretical and practical challenges of the next decades and beyond. If we see the Free Speech Principle through a democratic lens, we will be able to make a great deal more progress.

There should be no ambiguity on the point: free speech is not an absolute. The government is allowed to regulate speech by imposing neutral rules of property law, telling would-be speakers that they may not have access to certain speech outlets…. Government is permitted to regulate unlicensed medical advice, attempted bribery, perjury, criminal conspiracies (“Let’s fix prices!”), threats to assassinate the President, criminal solicitation (“Might you help me rob this bank?”), child pornography, false advertising, purely verbal fraud (“This stock is worth $100,000”), and much more…. And if one or more of these forms of speech can be regulated, free speech absolutism is a kind of fraud, masking the real issues that must be confronted in separating protected speech from unprotected speech….

If the discussion thus far is correct, there are three fundamental concerns from the democratic point of view. These include:
• the need to promote exposure to materials, topics, and positions that people would not have chosen in advance, or at least enough exposure to produce a degree of understanding and curiosity;
• the value of a range of common experiences;
• the need for exposure to substantive questions of policy and principle, combined with a range of positions on such questions.

Of course, it would be ideal if citizens were demanding, and private information providers were creating, a range of initiatives designed to alleviate the underlying concerns…. But to the extent that they fail to do so, it is worthwhile to consider government initiatives designed to pick up the slack….

1. Producers of communications might be subject … to disclosure requirements…. On a quarterly basis, they might be asked to say whether and to what extent they have provided educational programming for children, free airtime for candidates, and closed captioning for the hearing impaired. They might also be asked whether they have covered issues of concern to the local community and allowed opposing views a chance to be heard…. Websites might be asked to say if they have allowed competing views a chance to be heard….

2. Producers of communications might be asked to engage in voluntary self-regulation…. [T]here is growing interest in voluntary self-regulation for both television and the Internet…. Any such code could, for example, call for an opportunity for opposing views to speak, or for avoiding unnecessary sensationalism, or for offering arguments rather than quick ‘sound-bytes’ whenever feasible.

3. The government might subsidise speech, as, for example, through publicly subsidised programming or Websites…. Perhaps government could subsidise a ‘public.net’ designed to promote debate on public issues among diverse citizens — and to create a right of access to speakers of various sorts.

4. If the problem consists in the failure to attend to public issues, the government might impose “must carry” rules on the most popular Websites, designed to ensure more exposure to substantive questions. Under such a program, viewers of especially popular sites would see an icon for sites that deal with substantive issues in a serious way…. Ideally, those who create Websites might move in this direction on their own. If they do not, government should explore possibilities of imposing requirements of this kind, making sure that no program draws invidious lines in selecting the sites whose icons will be favoured….

5. The government might impose “must carry” rules on highly partisan Websites, designed to ensure that viewers learn about sites containing opposing views…. Here too the ideal situation would be voluntary action. But if this proves impossible, it is worth considering regulatory alternatives….

Emerging technologies are hardly an enemy here…. But to the extent that they weaken the power of general interest intermediaries, and increase people’s ability to wall themselves off from topics and opinions that they would prefer to avoid, they create serious dangers….

So let’s all put on our brown shirts and march to a public rally at which we will be “allowed” to shout: “Dark is light; black is white; Sunstein is right.”

I once said that Cass Sunstein is to the integrity of constitutional law as Pete Rose is to the integrity of baseball. It’s worse than that: Sunstein’s willingness to abuse constitutional law in the advancement of a statist agenda reminds me of Hitler’s abuse of German law to advance his repugnant agenda.

There is remorse for having done something wrong, and there is chagrin at having been caught doing something wrong. Sunstein’s conversation-over-coffee with Marantz reads very much like the latter.


Related posts:
Sunstein at the Volokh Conspiracy
More from Sunstein
Cass Sunstein’s Truly Dangerous Mind
An (Imaginary) Interview with Cass Sunstein
Libertarian Paternalism
A Libertarian Paternalist’s Dream World
Slippery Sunstein
The Short Answer to Libertarian Paternalism
Second-Guessing, Paternalism, Parentalism, and Choice
Another Thought about Libertarian Paternalism
Sunstein and Executive Power
The Feds and “Libertarian Paternalism”
Another Voice Against the New Paternalism
A Further Note about “Libertarian” Paternalism
Apropos Paternalism
Another Entry in the Sunstein Saga
The Sunstein Effect Is Alive and Well in the White House
Sunstein the Fatuous
Richard Thaler, Nobel Laureate
Thaler’s Non-Revolution in Economics
Another (Big) Problem with “Nudging”

Not-So-Random Thoughts (XXV)

“Not-So-Random Thoughts” is an occasional series in which I highlight writings by other commentators on varied subjects that I have addressed in the past. Other entries in the series can be found at these links: I, II, III, IV, V, VI, VII, VIII, IX, X, XI, XII, XIII, XIV, XV, XVI, XVII, XVIII, XIX, XX, XXI, XXII, XXIII, and XXIV. For more in the same style, see “The Tenor of the Times” and “Roundup: Civil War, Solitude, Transgenderism, Academic Enemies, and Immigration“.

CONTENTS

The Real Unemployment Rate and Labor-Force Participation

Is Partition Possible?

Still More Evidence for Why I Don’t Believe in “Climate Change”

Transgenderism, Once More

Big, Bad Oligopoly?

Why I Am Bunkered in My Half-Acre of Austin

“Government Worker” Is (Usually) an Oxymoron


The Real Unemployment Rate and Labor-Force Participation

There was much celebration (on the right, at least) when it was announced that the official unemployment rate, as of November, is only 3.5 percent, and that 266,000 jobs were added to the employment rolls (see here, for example). The exultation is somewhat overdone. Yes, things would be much worse if Obama’s anti-business rhetoric and policies still prevailed, but Trump is pushing a big boulder of deregulation uphill.

In fact, the real unemployment rate is a lot higher than official figure I refer you to “Employment vs. Big Government and Disincentives to Work“. It begins with this:

The real unemployment rate is several percentage points above the nominal rate. Officially, the unemployment rate stood at 3.5 percent as of November 2019. Unofficially — but in reality — the unemployment rate was 9.4 percent.

The explanation is that the labor-force participation rate has declined drastically since peaking in January 2000. When the official unemployment rate is adjusted to account for that decline (and for a shift toward part-time employment), the result is a considerably higher real unemployment rate.

Arnold Kling recently discussed the labor-force participation rate:

[The] decline in male labor force participation among those without a college degree is a significant issue. Note that even though the unemployment rate has come down for those workers, their rate of labor force participation is still way down.

Economists on the left tend to assume that this is due to a drop in demand for workers at the low end of the skill distribution. Binder’s claim is that instead one factor in declining participation is an increase in the ability of women to participate in the labor market, which in turn lowers the advantage of marrying a man. The reduced interest in marriage on the part of women attenuates the incentive for men to work.

Could be. I await further analysis.


Is Partition Possible?

Angelo Codevilla peers into his crystal ball:

Since 2016, the ruling class has left no doubt that it is not merely enacting chosen policies: It is expressing its identity, an identity that has grown and solidified over more than a half century, and that it is not capable of changing.

That really does mean that restoring anything like the Founders’ United States of America is out of the question. Constitutional conservatism on behalf of a country a large part of which is absorbed in revolutionary identity; that rejects the dictionary definition of words; that rejects common citizenship, is impossible. Not even winning a bloody civil war against the ruling class could accomplish such a thing.

The logical recourse is to conserve what can be conserved, and for it to be done by, of, and for those who wish to conserve it. However much force of what kind may be required to accomplish that, the objective has to be conservation of the people and ways that wish to be conserved.

That means some kind of separation.

As I argued in “The Cold Civil War,” the natural, least stressful course of events is for all sides to tolerate the others going their own ways. The ruling class has not been shy about using the powers of the state and local governments it controls to do things at variance with national policy, effectively nullifying national laws. And they get away with it.

For example, the Trump Administration has not sent federal troops to enforce national marijuana laws in Colorado and California, nor has it punished persons and governments who have defied national laws on immigration. There is no reason why the conservative states, counties, and localities should not enforce their own view of the good.

Not even President Alexandria Ocasio-Cortez would order troops to shoot to re-open abortion clinics were Missouri or North Dakota, or any city, to shut them down. As Francis Buckley argues in American Secession: The Looming Breakup of the United States, some kind of separation is inevitable, and the options regarding it are many.

I would like to believe Mr. Codevilla, but I cannot. My money is on a national campaign of suppression, which will begin the instant that the left controls the White House and Congress. Shooting won’t be necessary, given the massive displays of force that will be ordered from the White House, ostensibly to enforce various laws, including but far from limited to “a woman’s right to an abortion”. Leftists must control everything because they cannot tolerate dissent.

As I say in “Leftism“,

Violence is a good thing if your heart is in the “left” place. And violence is in the hearts of leftists, along with hatred and the irresistible urge to suppress that which is hated because it challenges leftist orthodoxy — from climate skepticism and the negative effect of gun ownership on crime to the negative effect of the minimum wage and the causal relationship between Islam and terrorism.

There’s more in “The Subtle Authoritarianism of the ‘Liberal Order’“; for example:

[Quoting Sumantra Maitra] Domestically, liberalism divides a nation into good and bad people, and leads to a clash of cultures.

The clash of cultures was started and sustained by so-called liberals, the smug people described above. It is they who — firmly believing themselves to be smarter, on the the side of science, and on the side of history — have chosen to be the aggressors in the culture war.

Hillary Clinton’s remark about Trump’s “deplorables” ripped the mask from the “liberal” pretension to tolerance and reason. Clinton’s remark was tantamount to a declaration of war against the self-appointed champion of the “deplorables”: Donald Trump. And war it has been. much of it waged by deep-state “liberals” who cannot entertain the possibility that they are on the wrong side of history, and who will do anything — anything — to make history conform to their smug expectations of it.


Still More Evidence for Why I Don’t Believe in “Climate Change”

This is a sequel to an item in the previous edition of this series: “More Evidence for Why I Don’t Believe in Climate Change“.

Dave Middleton debunks the claim that 50-year-old climate models correctly predicted the susequent (but not steady) rise in the globe’s temperature (whatever that is). He then quotes a talk by Dr. John Christy of the University of Alabama-Huntsville Climate Research Center:

We have a change in temperature from the deep atmosphere over 37.5 years, we know how much forcing there was upon the atmosphere, so we can relate these two with this little ratio, and multiply it by the ratio of the 2x CO2 forcing. So the transient climate response is to say, what will the temperature be like if you double CO2– if you increase at 1% per year, which is roughly what the whole greenhouse effect is, and which is achieved in about 70 years. Our result is that the transient climate response in the troposphere is 1.1 °C. Not a very alarming number at all for a doubling of CO2. When we performed the same calculation using the climate models, the number was 2.31°C. Clearly, and significantly different. The models’ response to the forcing – their ∆t here, was over 2 times greater than what has happened in the real world….

There is one model that’s not too bad, it’s the Russian model. You don’t go to the White House today and say, “the Russian model works best”. You don’t say that at all! But the fact is they have a very low sensitivity to their climate model. When you look at the Russian model integrated out to 2100, you don’t see anything to get worried about. When you look at 120 years out from 1980, we already have 1/3 of the period done – if you’re looking out to 2100. These models are already falsified [emphasis added], you can’t trust them out to 2100, no way in the world would a legitimate scientist do that. If an engineer built an aeroplane and said it could fly 600 miles and the thing ran out of fuel at 200 and crashed, he might say: “I was only off by a factor of three”. No, we don’t do that in engineering and real science! A factor of three is huge in the energy balance system. Yet that’s what we see in the climate models….

Theoretical climate modelling is deficient for describing past variations. Climate models fail for past variations, where we already know the answer. They’ve failed hypothesis tests and that means they’re highly questionable for giving us accurate information about how the relatively tiny forcing … will affect the climate of the future.

For a lot more in this vein, see my pages “Climate Change” and “Modeling and Science“.


Transgenderism, Once More

Theodore Dalrymple (Anthony Daniels, M.D.) is on the case:

The problem alluded to in [a paper in the Journal of Medical Ethics] is, of course, the consequence of a fiction, namely that a man who claims to have changed sex actually has changed sex, and is now what used to be called the opposite sex. But when a man who claims to have become a woman competes in women’s athletic competitions, he often retains an advantage derived from the sex of his birth. Women competitors complain that this is unfair, and it is difficult not to agree with them….

Man being both a problem-creating and solving creature, there is, of course, a very simple way to resolve this situation: namely that men who change to simulacra of women should compete, if they must, with others who have done the same. The demand that they should suffer no consequences that they neither like nor want from the choices they have made is an unreasonable one, as unreasonable as it would be for me to demand that people should listen to me playing the piano though I have no musical ability. Thomas Sowell has drawn attention to the intellectual absurdity and deleterious practical consequences of the modern search for what he calls “cosmic justice.”…

We increasingly think that we live in an existential supermarket in which we pick from the shelf of limitless possibilities whatever we want to be. We forget that limitation is not incompatible with infinity; for example, that our language has a grammar that excludes certain forms of words, without in any way limiting the infinite number of meanings that we can express. Indeed, such limitation is a precondition of our freedom, for otherwise nothing that we said would be comprehensible to anybody else.

That is a tour de force typical of the good doctor. In the span of three paragraphs, he addresses matters that I have treated at length in “The Transgender Fad and Its Consequences” (and later in the previous edition of this series), “Positive Rights and Cosmic Justice“, and “Writing: A Guide” (among other entries at this blog).


Big, Bad Oligopoly?

Big Tech is giving capitalism a bad name, as I discuss in “Why Is Capitalism Under Attack from the Right?“, but it’s still the best game in town. Even oligopoly and its big brother, monopoly, aren’t necessarily bad. See, for example, my posts, “Putting in Some Good Words for Monopoly” and “Monopoly: Private Is Better than Public“. Arnold Kling makes the essential point here:

Do indicators of consolidation show us that the economy is getting less competitive or more competitive? The answer depends on which explanation(s) you believe to be most important. For example, if network effects or weak resistance to mergers are the main factors, then the winners from consolidation are quasi-monopolists that may be overly insulated from competition. On the other hand, if the winners are firms that have figured out how to develop and deploy software more effectively than their rivals, then the growth of those firms at the expense of rivals just shows us that the force of competition is doing its work.


Why I Am Bunkered in My Half-Acre of Austin

Randal O’Toole takes aim at the planners of Austin, Texas, and hits the bullseye:

Austin is one of the fastest-growing cities in America, and the city of Austin and Austin’s transit agency, Capital Metro, have a plan for dealing with all of the traffic that will be generated by that growth: assume that a third of the people who now drive alone to work will switch to transit, bicycling, walking, or telecommuting by 2039. That’s right up there with planning for dinner by assuming that food will magically appear on the table the same way it does in Hogwarts….

[W]hile Austin planners are assuming they can reduce driving alone from 74 to 50 percent, it is actually moving in the other direction….

Planners also claim that 11 percent of Austin workers carpool to work, an amount they hope to maintain through 2039. They are going to have trouble doing that as carpooling, in fact, only accounted for 8.0 percent of Austin workers in 2018.

Planners hope to increase telecommuting from its current 8 percent (which is accurate) to 14 percent. That could be difficult as they have no policy tools that can influence telecommuting.

Planners also hope to increase walking and bicycling from their current 2 and 1 percent to 4 and 5 percent. Walking to work is almost always greater than cycling to work, so it’s difficult to see how they plan to magic cycling to be greater than walking. This is important because cycling trips are longer than walking trips and so have more of a potential impact on driving.

Finally, planners want to increase transit from 4 to 16 percent. In fact, transit carried just 3.24 percent of workers to their jobs in 2018, down from 3.62 percent in 2016. Changing from 4 to 16 percent is a an almost impossible 300 percent increase; changing from 3.24 to 16 is an even more formidable 394 percent increase. Again, reality is moving in the opposite direction from planners’ goals….

Planners have developed two main approaches to transportation. One is to estimate how people will travel and then provide and maintain the infrastructure to allow them to do so as efficiently and safely as possible. The other is to imagine how you wish people would travel and then provide the infrastructure assuming that to happen. The latter method is likely to lead to misallocation of capital resources, increased congestion, and increased costs to travelers.

Austin’s plan is firmly based on this second approach. The city’s targets of reducing driving alone by a third, maintaining carpooling at an already too-high number, and increasing transit by 394 percent are completely unrealistic. No American city has achieved similar results in the past two decades and none are likely to come close in the next two decades.

Well, that’s the prevailing mentality of Austin’s political leaders and various bureaucracies: magical thinking. Failure is piled upon failure (e.g., more bike lanes crowding out traffic lanes, a hugely wasteful curbside composting plan) because to admit failure would be to admit that the emperor has no clothes.

You want to learn more about Austin? You’ve got it:

Driving and Politics (1)
Life in Austin (1)
Life in Austin (2)
Life in Austin (3)
Driving and Politics (2)
AGW in Austin?
Democracy in Austin
AGW in Austin? (II)
The Hypocrisy of “Local Control”
Amazon and Austin


“Government Worker” Is (Usually) an Oxymoron

In “Good News from the Federal Government” I sarcastically endorse the move to grant all federal workers 12 weeks of paid parental leave:

The good news is that there will be a lot fewer civilian federal workers on the job, which means that the federal bureaucracy will grind a bit more slowly when it does the things that it does to screw up the economy.

The next day, Audacious Epigone put some rhetorical and statistical meat on the bones of my informed prejudice in “Join the Crooks and Liars: Get a Government Job!“:

That [the title of the post] used to be a frequent refrain on Radio Derb. Though the gag has been made emeritus, the advice is even better today than it was when the Derb introduced it. As he explains:

The percentage breakdown is private-sector 76 percent, government 16 percent, self-employed 8 percent.

So one in six of us works for a government, federal, state, or local.

Which group does best on salary? Go on: see if you can guess. It’s government workers, of course. Median earnings 52½ thousand. That’s six percent higher than the self-employed and fourteen percent higher than the poor shlubs toiling away in the private sector.

If you break down government workers into two further categories, state and local workers in category one, federal workers in category two, which does better?

Again, which did you think? Federal workers are way out ahead, median earnings 66 thousand. Even state and local government workers are ahead of us private-sector and self-employed losers, though.

Moral of the story: Get a government job! — federal for strong preference.

….

Though it is well known that a government gig is a gravy train, opinions of the people with said gigs is embarrassingly low as the results from several additional survey questions show.

First, how frequently the government can be trusted “to do what’s right”? [“Just about always” and “most of the time” badly trail “some of the time”.]

….

Why can’t the government be trusted to do what’s right? Because the people who populate it are crooks and liars. Asked whether “hardly any”, “not many” or “quite a few” people in the federal government are crooked, the following percentages answered with “quite a few” (“not sure” responses, constituting 12% of the total, are excluded). [Responses of “quite a few” range from 59 percent to 77 percent across an array of demographic categories.]

….

Accompanying a strong sense of corruption is the perception of widespread incompetence. Presented with a binary choice between “the people running the government are smart” and “quite a few of them don’t seem to know what they are doing”, a solid majority chose the latter (“not sure”, at 21% of all responses, is again excluded). [The “don’t know what they’re doing” responses ranged from 55 percent to 78 percent across the same demographic categories.]

Are the skeptics right? Well, most citizens have had dealings with government employees of one kind and another. The “wisdom of crowds” certainly applies in this case.

Why Is Capitalism Under Attack from the Right?

Many conservatives, this one included, have been or are becoming critical of capitalism. Near the end of a recent post, for example, I say that

capitalism is an amoral means to material ends. It is not the servant of society, properly understood. Nor is it the servant of conservative principles, which include (inter alia) the preservation of traditional morality, both as an end and as a binding and civilizing force.

One aspect of capitalism is that it enables the accumulation of great wealth and power. The “robber barons” of the late 19th century and early 20th century accumulated great wealth by making possible the production of things (e.g., oil and steel) that made life materially better for Americans rich and poor.

Though the “robber barons” undoubtedly wielded political power, they did so in an age when mass media consisted of printed periodicals (newspapers and magazines). But newspapers and magazines never dominated the attention of the public in the way that radio, movies, television, and electronically transmitted “social media” do today. Moreover, there were far more printed periodicals then than now, and they offered competing political views (unlike today’s periodicals, which are mainly left of center, when not merely frivolous.)

Which is to say that the “robber barons” may have “bought and sold” politicians, but they weren’t in the business of — or very effective at — shaping public opinion. (f they had been, they wouldn’t have been targets of incessant attacks by populist politicians, and anti-trust legislation wouldn’t have been enacted to great huzzahs from the public.

Today’s “robber barons”, by contrast, have accumulated their wealth by providing products and services that enable them to shape public opinion. Joel Kotkin puts it this way:

In the past, the oligarchy tended to be associated with either Wall Street or industrial corporate executives. But today the predominant and most influential group consists of those atop a handful of mega-technology firms. Six firms—Amazon, Apple, Facebook, Google, Microsoft, and Netflix—have achieved a combined net worth equal to one-quarter of the nasdaq, more than the next 282 firms combined and equal to the GDP of France. Seven of the world’s ten most valuable companies come from this sector. Tech giants have produced eight of the twenty wealthiest people on the planet. Among the na­tion’s billionaires, all those under forty live in the state of California, with twelve in San Francisco alone. In 2017, the tech industry pro­duced eleven new billionaires, mostly in California….

Initially many Americans, even on the left, saw the rise of the tech oligarchy as both transformative and positive. Observing the rise of the technology industry, the futurist Alvin Toffler prophesied “the dawn of a new civilization,”2 with vast opportunities for societal and human growth. But today we confront a reality more reminiscent of the feudal past—with ever greater concentrations of wealth, along with less social mobility and material progress.

Rather than Toffler’s tech paradise, we increasingly confront what the Japanese futurist Taichi Sakaiya, writing three decades ago, saw as the dawn of “a high-tech middle ages.”3 Rather than epitomizing American ingenuity and competition, the tech oligarchy increasingly resembles the feudal lords of the Middle Ages. With the alacrity of the barbarian warriors who took control of territory after the fall of the Roman Empire, they have seized the strategic digital territory, and they ruthlessly defend their stake.

Such concentrations of wealth naturally seek to concentrate power. In the Middle Ages, this involved the control of land and the instruments of violence. In our time, the ascendant tech oligarchy has exploited the “natural monopolies” of web-based business. Their “super-platforms” depress competition, squeeze suppliers, and reduce opportunities for potential rivals, much as the monopolists of the late nineteenth century did. Firms like Google, Facebook, and Microsoft control 80 to 90 percent of their key markets and have served to further widen class divides not only in the United States but around the world.

Once exemplars of entrepreneurial risk-taking, today’s tech elites are now entrenched monopolists. Increasingly, these firms reflect the worst of American capitalism—squashing competitors, using inden­tured servants from abroad for upwards of 40 percent of their Silicon Valley workforce, fixing wages, and avoiding taxes—while creating ever more social anomie and alienation.

The tech oligarchs are forging a post-democratic future, where opportunity is restricted only to themselves and their chosen few. As technology investor Peter Thiel has suggested, democracy—based on the fundamental principles of individual responsibility and agency—does not fit comfortably with a technocratic mindset that believes superior software can address and modulate every problem. [“America’s Drift Toward Feudalism“, American Affairs Journal, Winter 2019]

I can’t deny that rise of the tech oligarchs and their willingness and ability to move public opinion leftward probably influenced my view of capitalism. Not that there’s anything wrong with that. It is evidence that, contra Keynes, I am not the slave of some defunct economist.

Will public opinion shift enough to cause the containment of today’s “robber barons”? I doubt it. Most Republican politicians are trapped by their pro-capitalist rhetoric. Most Democrat politicians are trapped by their ideological alignment with the the “barons” and the affluent classes that are dependent on and allied with them.

Shaky Trade Talk

Political Calculations has posted “U.S.-China Trade Continues to Shrink in Tariff War“, which is an update of “Heavy Toll of US-China Tariff War Continues“.  Two graphs carry the burden of proof that the current tariff “war” is responsible for a “heavy toll” on U.S exports and the total value of trade between the U.S. (rather, entities therein) and China. My take is that the graphs don’t support the conclusions that the writer draws from them.

First:

Political calculations_export trend.jpg

 

The graph exemplifies the slippery practice of drawing trend lines and inferring the future from them. (See “What’s in a Trend?“.) The line labeled “pre-trade war linear trend” extrapolates from the 12-month moving average, but neglects the underlying cyclical pattern. Further, taking into account the cyclical pattern, one could make a case that the combined value of exports and imports began to level off in 2015 (during the Obama administration), and that there was a slight resurgence in 2018-2019, in spite of the “trade war”. A recent dip (to a higher level than preceding dips) was followed by a cyclical upturn that is firmly in the midpoint of a the range for 2015-2019.

Second:

Political calculations_trade trend

 

The writer says this about the second graph:

The carnage from the U.S-China tariff war continued through September 2019, where trade data for the month just released by the U.S. Census Bureau indicates year-over-year declines from September 2018’s tariff war-reduced figures.

The … chart captures that observation as measured by the year-over-year growth rate of the exchange-rate adjusted value of trade between the U.S. and China, where both China and the U.S. fall well within negative growth territory.

What I see is a long-term decline in the year-over-year growth rate, a decline that goes back at least 30 years. The only significant (and more negative) departure from the trend occurred during the Great Recession.

(See “Rethinking Free Trade III“, which repeats the main points of the first two installments.)

Rawls vs. Reality

I have never understood the high esteem in which John Rawls‘s “original position” is held by many who profess political philosophy. Well, I understand that the original position supports redistribution of income and wealth — a concept beloved of the overpaid faux-socialist professoriate — but it is a logical and empirical absurdity that shouldn’t be esteemed by anyone who thinks about it rigorously. (Which tells me a lot about the intelligence, rigor, and honesty of those who pay homage to it.)

What is the original position? According to Wikipedia it is

a hypothetical situation developed by … Rawls as a thought experiment to replace the imagery of a savage state of nature of prior political philosophers like Thomas Hobbes.

In the original position, the parties select principles that will determine the basic structure of the society they will live in. This choice is made from behind a veil of ignorance, which would deprive participants of information about their particular characteristics: their ethnicity, social status, gender and, crucially, Conception of the Good (an individual’s idea of how to lead a good life). This forces participants to select principles impartially and rationally.

As a thought experiment, the original position is a hypothetical position designed to accurately reflect what principles of justice would be manifest in a society premised on free and fair cooperation between citizens, including respect for liberty, and an interest in reciprocity.

In the state of nature, it might be argued that certain persons (the strong and talented) would be able to coerce others (the weak and disabled) by virtue of the fact that the stronger and more talented would fare better in the state of nature. This coercion is sometimes thought to invalidate any contractual arrangement occurring in the state of nature. In the original position, however, representatives of citizens are placed behind a “veil of ignorance”, depriving the representatives of information about the individuating characteristics of the citizens they represent. Thus, the representative parties would be unaware of the talents and abilities, ethnicity and gender, religion or belief system of the citizens they represent. As a result, they lack the information with which to threaten their fellows and thus invalidate the social contract they are attempting to agree to….

Rawls specifies that the parties in the original position are concerned only with citizens’ share of what he calls primary social goods, which include basic rights as well as economic and social advantages. Rawls also argues that the representatives in the original position would adopt the maximin rule as their principle for evaluating the choices before them. Borrowed from game theory, maximin stands for maximizing the minimum, i.e., making the choice that produces the highest payoff for the least advantaged position. Thus, maximin in the original position represents a formulation of social equality.

The social contract, citizens in a state of nature contract with each other to establish a state of civil society. For example, in the Lockean state of nature, the parties agree to establish a civil society in which the government has limited powers and the duty to protect the persons and property of citizens. In the original position, the representative parties select principles of justice that are to govern the basic structure of society. Rawls argues that the representative parties in the original position would select two principles of justice:

  1. Each citizen is guaranteed a fully adequate scheme of basic liberties, which is compatible with the same scheme of liberties for all others;
  2. Social and economic inequalities must satisfy two conditions:
    • to the greatest benefit of the least advantaged (the difference principle);
    • attached to positions and offices open to all.

The reason that the least well off member gets benefited is that it is assumed that under the veil of ignorance, under original position, people will be risk-averse. This implies that everyone is afraid of being part of the poor members of society, so the social contract is constructed to help the least well off members.

There are objections aplenty to Rawls’s creaky construction, some of which are cited in the Wikipedia piece:

In Anarchy, State, and Utopia, Robert Nozick argues that, while the original position may be the just starting point, any inequalities derived from that distribution by means of free exchange are equally just, and that any re-distributive tax is an infringement on people’s liberty. He also argues that Rawls’s application of the maximin rule to the original position is risk aversion taken to its extreme, and is therefore unsuitable even to those behind the veil of ignorance.

In Solving the Riddle of Right and Wrong, Iain King argues that people in the original position should not be risk-averse, leading them to adopt the Help Principle (Help someone if your help is worth more to them than it is to you) rather than maximin.

In Liberalism and the Limits of Justice, Michael Sandel has criticized Rawls’s notion of veil of ignorance, pointing out that it is impossible, for an individual, to completely prescind from [his] beliefs and convictions … as … required by Rawls’s thought experiment.

There is some merit in those objections, but they they don’t get to the root error of Rawls’s concoction. For that’s what it is, a concoction that has nothing to do with real people in the real world. The original position is an exercise in moral masturbation.

To begin at the beginning, the ostensible aim of Rawls’s formulation is to outline the “rules” by which a society can attain social justice — or, more accurately, social justice as Rawls defines it. (In what follows, when I refer to social justice in the context of Rawls’s formulation, the reader should mentally add the qualifier “as Rawls defines it”.)

Rawls presumably didn’t believe that there could be an original position, let alone a veil of ignorance. So his real aim must have been to construct a template for the attainment of social justice. The actual position of a society could then (somehow) be compared with the template to determine what government policies would move society toward the Rawlsian ideal.

Clearly, Rawls believed that his template could be justified only if he arrived at it through what he thought would be a set of unexceptionable assumptions. Otherwise, he could simply have promulgated the template (the maximin distribution of primary social goods), and left it at that. But to have done so would have been to take a merely political position, not one that pretends to rest on deep principles and solid logic.

What are those principles, and what is the logic that leads to Rawls’s template for a just society? Because there is no such thing as an original position or veil of ignorance, Rawls assumes (implicitly) that the members of a society should want social justice to prevail, and should behave accordingly, or authorize government to behave accordingly on their behalf. The idea is to make it all happen without coercion, as if the maximin rule were obviously the correct route to social justice.

To make it happen without coercion, Rawls must adopt unrealistic assumptions about the citizens of his imaginary society: pervasive ignorance of one’s own situation and extreme risk-aversion. Absent those constraints, some kind of coercion would be required for the members of the society to agree on the maximin rule. Effectively, then, Rawls assumes the conclusion toward which he was aiming all along, namely, that the maximin rule should govern society’s treatment of what he calls primary social goods — or, rather, government’s treatment of those goods, as it enforces the consensus of a society of identical members.

What is that treatment? This, as I understand it:

  • Guarantee each citizen a fully adequate scheme of basic liberties, which is compatible with the same scheme of liberties for all others.
  • Tolerate only those inequalities with respect to social and economic outcomes that yield the greatest benefit to the least-advantaged.
  • Tolerate only those inequalities that derive from positions and offices that are open to all citizens.

Rawls’s scheme is superficially attractive to anyone who understands that forced equality is inimical to economic progress (not to mention social comity and liberty), and that it harms the least-advantaged (because they “share” in a smaller “pie”) as well as those who would otherwise be among the more-advantaged. Similarly, the idea that all citizens have the same basic rights and social advantages seems unexceptionable.

But many hard questions lurk beneath the surface of Rawls’s plausible concoction.

What is an adequate scheme of basic liberties? The two weasel-words — “adequate” and “basic” — mean that the scheme can be whatever government officials would prefer it to be, unless the clone-like populace defines the scheme in advance. But the populace can’t be clone-like, except in Rawls’s imagination, so government can’t be constrained by a definition of basic liberties that is conceived in the original position. Thus government must (and certainly will) adopt a scheme that reflects the outcome of intra-governmental bargaining (satisficing various popular and bureaucratic interests) — not a scheme that is the consensus of a clone-like citizenry lusting after social justice.

Do basic liberties entail equal rights under law? Yes, and they have been enshrined in American law for a century-and-a-half. Or have they? It seems that rights are a constantly evolving and malleable body of entitlements, which presently (in the view of many) include (inter alia) the right to defecate on public property, the right to be given addictive drugs, the right not to be offended or “triggered” emotionally, and the right not to be shunned by persons whose preferences don’t run to sodomy and “gender fluidity”.

The failure to provide equal rights– whatever they may be at the moment — isn’t a failure that can be remedied by magically reverting to the original position, where actual human beings aren’t to be found. The rights of the moment must be enforced by government. But government enforcement necessarily involves coercion, and certainly involves arbitrariness of a kind that might even offend Rawls. For government, in the real world, is a blunt instrument wielded by politicians and bureaucrats who strike crude bargains on behalf of the sundry interest groups to which they are beholden.

Turning to economic inequality, how does one define the least-advantaged? Are the least-advantaged those whose incomes fall below a certain level? For how long? Who defines the level? If raising incomes to that level reduces the rewards of economically productive work (e.g., invention, innovation, investment, entrepreneurship) through taxation, and thereby reduces the opportunities available to the least-advantaged, by what complex computation will the “right” level of taxation by determined? Surely not by citizens in the original position, operating behind the veil of ignorance, nor — it must be admitted — by government, the true nature of which is summarized in the final sentence of the preceding paragraph.

And what about wealth? How much wealth? Wealth at what stage of one’s life? When a person is still new to the work force but, like most workers, will earn more and accrue wealth? What about wealth that may be passed from generation to generation? Or is such wealth something that isn’t open to all and therefore forbidden? And if it is forbidden, what does that do to the incentives of wealth-builders to do things that advance economic growth, which benefits all citizens including the least-advantaged?

In both cases — income and wealth — we are dealing in arbitrary distinctions that must fall to government to decide, and to enforce by coercion. There is no question of deciding such things in the original position, even behind a veil of ignorance, unless the citizenry consists entirely of Rawls’s omniscient clones.

I must ask, further, why the least-advantaged — if they could be defined objectively and consistently — should be denied incentives to earn more income and build wealth? (Redistribution schemes do just that.) Is that social justice? No, it’s a particular kind of social justice that sees only the present and condescends toward the least-advantaged (whoever they might be).

What about the least-advantaged socially? If social status is directly correlated with income or wealth, there is no need to delve deeper. But if it is something else, the question arises: What is it, how can it be measured, and how can it be adjusted so that the least-advantaged are raised to some minimal level of social standing? How is that level defined and who defines it? Surely not Rawls’s clones operating in complete ignorance of such things. The task therefore, and again, must fall to government, the failings and coerciveness of which I have already addressed adequately.

Why should the least-advantaged on any dimension, if they can be defined, have privileges (i.e., government interventions in their favor) that are denied and harmful to the rest of the citizenry? Favoring the least-advantaged is, of course, “the right thing to do”. So all that Rawls accomplished by his convoluted, pristine “reasoning” was to make a plausible (but deeply flawed) case for something like the welfare state that already exists in the United States and most of the world. As for his conception of liberty and equal rights, Rawls cleverly justifies trampling on the liberty and equal rights of the more-advantaged by inventing like-minded clones who “authorize” the state to trample away.

Rawls put a lot of hard labor into his justification for welfare-statism in the service of “social justice”. The real thing, which was staring him in the face, amounts to this: Government intervenes in voluntarily cooperative social and economic arrangements only to protect citizens from force and fraud, where those terms are defined by long-standing social norms and applied by (not reworked or negated by) legislative, executive, and judicial acts. Which norms? The ones that prevailed in America before the 1960s would do just fine, as long as laws forbidding intimidation and violence were uniformly enforced across the land.

Perfection? Of course not, but attainable. The Framers of the original Constitution did a remarkable job of creating a template by which real human beings (not Rawls’s clones) could live in harmony and prosperity. Real human beings have a penchant for disharmony, waste, fraud, and abuse — but they’re all we have to work with.

GDP Trivia

Bearing in mind Arnold Kling’s reservations (and my own) about aggregate economic data, I will nevertheless entertain you with some trivial factoids on the occasion of the release of the 3rd quarter 2019 GDP estimate (advance estimate).

First, the post-World War II business-cycle record:

Graphically (with short cycles omitted):

The current cycle is the second-longest since the end of World War II, but also the least robust.

Note the large gap between the (low) peak growth rates experienced in recent cycles (purple, pale green, and red lines) and the (higher ones) experienced in earlier cycles. The peak for the current cycle (if you can call it a peak) occurred early (in the 5th quarter after the bottom of the Great Recession). Such a low peak so early in the cycle broke a pattern that had held since the end of World War II:

The red diamond represents the current cycle. Earlier cycles are represented by black dots, and the robust regression equation applies to those cycles.

I won’t be surprised if economists discover that the weakness of the current business cycle is due to Obama’s economic policies (and rhetoric), just as economists (unsurprisingly) discovered that FDR’s policies deepened and prolonged the Great Depression.