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.

Why Are Interest Rates So Low? (II)

Six years ago, I opined that

borrowers have become less keen about borrowing; that is, they lack confidence about future prospects for income (in the case of households) and returns on investment (in the case of businesses). Why should that be?

If the post-World War II trend is any indication — and I believe that it is — the American economy is sinking into stagnation. Here is the long view [growth rates are inflation-adjusted, final entry updated]:

  • 1790-1861 — annual growth of 4.1 percent — a booming young economy, probably at its freest
  • 1866-1907 — annual growth of 4.3 percent — a robust economy, fueled by (mostly) laissez-faire policies and the concomitant rise of technological innovation and entrepreneurship
  • 1970-2010 2018 — annual growth of 2.8 2.7 percent – sagging under the cumulative weight of “progressivism,” New Deal legislation, LBJ’s “Great Society” (with its legacy of the ever-expanding and oppressive welfare/transfer-payment schemes: Medicare, Medicaid, a more generous package of Social Security benefits), and an ever-growing mountain of regulatory restrictions. [All further compounded by Obama’s expansion of Medicare and Medicaid and acceleration of regulatory activity, some of which Trump has reversed, but most of which still throttles the economy.]

Arnold Kling, citing a piece by Andrew McAfee, suggests another reason:

[C]ould this decoupling [economic growth with less resource use] be responsible for low interest rates?… As long as economic growth required more use of resources, you expect a positive return from storing resources. You get a positive interest rate out of that. But when growth is decoupled, you do not expect a positive return from storing resources. If you want to create a store of value with a positive rate of return, you need to find some productive investment.

But storing resources is only part of the picture. The interest rates that producers pay depend on (a) what they expect in the way of future profits and (b) the availability of funds. Even if profitability is rising because of more efficient resource use, rates could be falling because — as a commenter on Kling’s post notes — there is a steady increase in global savings.

Why would that be? Because households (and businesses with large cash balances) have more disposable income as real incomes rise (and profit margins grow). Some of that increment is made available to corporate borrowers through direct purchases of corporate debt and purchases of mutual funds and ETF shares. Even historically low interest rates on corporate debt will attract buyers because the alternatives (low rates on bank deposits and money-market certificates) are worse.

So it would seem that the long-standing slowdown in the U.S. economy isn’t the whole answer to the question. But it remains part of the answer. Interest rates would be higher if the dead hand of government were lifted from the economy’s carcass.

Not-So-Random Thoughts (XXIV)

“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, and XXIII. For more in the same style, see “The Tenor of the Times” and “Roundup: Civil War, Solitude, Transgenderism, Academic Enemies, and Immigration“.

CONTENTS

The Transgender Trap: A Political Nightmare Becomes Reality

Spygate (a.k.a. Russiagate) Revisited

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

Thoughts on Mortality

Assortative Mating, Income Inequality, and the Crocodile Tears of “Progressives”


The Transgender Trap: A Political Nightmare Becomes Reality

Begin here and here, then consider the latest outrage.

First, from Katy Faust (“Why It’s Probably Not A Coincidence That The Mother Transing Her 7-Year-Old Isn’t Biologically Related“, The Federalist, October 24, 2019):

The story of seven-year-old James, whom his mother has pressured to become “Luna,” has been all over my newsfeed. The messy custody battle deserves every second of our click-bait-prone attention: Jeffrey Younger, James’s father, wants to keep his son’s body intact, while Anne Georgulas, James’s mother, wants to allow for “treatment” that would physically and chemically castrate him.

The havoc that divorce wreaks in a child’s life is mainstage in this tragic case. Most of us children of divorce quickly learn to act one way with mom and another way with dad. We can switch to a different set of rules, diet, family members, bedtime, screen time limits, and political convictions in that 20-minute ride from mom’s house to dad’s.

Unfortunately for little James, the adaptation he had to make went far beyond meat-lover’s pizza at dad’s house and cauliflower crusts at mom’s: it meant losing one of the most sacred aspects of his identity—his maleness. His dad loved him as a boy, so he got to be himself when he was at dad’s house. But mom showered love on the version of James she preferred, the one with the imaginary vagina.

So, as kids are so apt to do, when James was at her house, he conformed to the person his mother loved. This week a jury ruled that James must live like he’s at mom’s permanently, where he can “transition” fully, regardless of the cost to his mental and physical health….

Beyond the “tale of two households” that set up this court battle, and the ideological madness on display in the proceedings, something else about this case deserves our attention: one of the two parents engaged in this custodial tug-of-war isn’t biologically related to little James. Care to guess which one? Do you think it’s the parent who wants to keep him physically whole? It’s not.

During her testimony Georgulas stated she is not the biological mother of James or his twin brother Jude. She purchased eggs from a biological stranger. This illuminates a well-known truth in the world of family and parenthood: biological parents are the most connected to, invested in, and protective of their children.

Despite the jury’s unfathomable decision to award custody of James to his demented mother, there is hope for James. Walt Hyer picks up the story (“Texas Court Gives 7-Year-Old Boy A Reprieve From Transgender Treatments“, The Federalist, October 25, 2019):

Judge Kim Cooks put aside the disappointing jury’s verdict of Monday against the father and ruled Thursday that Jeffrey Younger now has equal joint conservatorship with the mother, Dr. Anne Georgulas, of their twin boys.

The mother no longer has unfettered authority to manipulate her 7-year old boy into gender transition. Instead both mother and father will share equally in medical, psychological, and other decision-making for the boys. Additionally, the judge changed the custody terms to give Younger an equal amount of visitation time with his sons, something that had been severely limited….

For those who need a little background, here’s a recap. “Six-year-old James is caught in a gender identity nightmare. Under his mom’s care in Dallas, Texas, James obediently lives as a trans girl named ‘Luna.’ But given the choice when he’s with dad, he’s all boy—his sex from conception.

“In their divorce proceedings, the mother has charged the father with child abuse for not affirming James as transgender, has sought restraining orders against him, and is seeking to terminate his parental rights. She is also seeking to require him to pay for the child’s visits to a transgender-affirming therapist and transgender medical alterations, which may include hormonal sterilization starting at age eight.”

All the evidence points to a boy torn between pleasing two parents, not an overwhelming preference to be a girl….

Younger said at the trial he was painted as paranoid and in need of several years of psychotherapy because he doesn’t believe his young son wants to be a girl. But many experts agree that transgendering young children is hazardous.

At the trial, Younger’s expert witnesses testified about these dangers and provided supporting evidence. Dr. Stephen Levine, a psychiatrist renowned for his work on human sexuality, testified that social transition—treating them as the opposite sex—increases the chance that a child will remain gender dysphoric. Dr. Paul W. Hruz, a pediatric endocrinologist and professor of pediatrics and cellular biology at Washington University School of Medicine in Saint Louis, testified that the risks of social transition are so great that the “treatment” cannot be recommended at all.

Are these doctors paranoid, too? Disagreement based on scientific evidence is now considered paranoia requiring “thought reprogramming.” That’s scary stuff when enforced by the courts….

The jury’s 11-1 vote to keep sole managing conservatorship from the father shows how invasive and acceptable this idea of confusing children and transitioning them has become. It’s like we are watching a bad movie where scientific evidence is ignored and believing the natural truth of male and female biology is considered paranoia. I can testify from my life experience the trans-life movie ends in unhappiness, regret, detransitions, or sadly, suicide.

The moral of the story is that the brainwashing of the American public by the media may have advanced to the tipping point. The glory that was America may soon vanish with a whimper.


Spygate (a.k.a. Russiagate) Revisited

I posted my analysis of “Spygate” well over a year ago, and have continually updated the appended list of supporting reference. The list continues to grow as evidence mounts to support the thesis that the Trump-Russia collusion story was part of a plot hatched at the highest levels of the Obama administration and executed within the White House, the CIA, and the Department of Justice (including especially the FBI).

Margot Cleveland addresses the case of Michael Flynn (“Sidney Powell Drops Bombshell Showing How The FBI Trapped Michael Flynn“, The Federalist, October 25, 2019):

Earlier this week, Michael Flynn’s star attorney, Sidney Powell, filed under seal a brief in reply to federal prosecutors’ claims that they have already given Flynn’s defense team all the evidence they are required by law to provide. A minimally redacted copy of the reply brief has just been made public, and with it shocking details of the deep state’s plot to destroy Flynn….

What is most striking, though, is the timeline Powell pieced together from publicly reported text messages withheld from the defense team and excerpts from documents still sealed from public view. The sequence Powell lays out shows that a team of “high-ranking FBI officials orchestrated an ambush-interview of the new president’s National Security Advisor, not for the purpose of discovering any evidence of criminal activity—they already had tapes of all the relevant conversations about which they questioned Mr. Flynn—but for the purpose of trapping him into making statements they could allege as false” [in an attempt to “flip” Flynn in the Spygate affair]….

The timeline continued to May 10 when McCabe opened an “obstruction” investigation into President Trump. That same day, Powell writes, “in an important but still wrongly redacted text, Strzok says: ‘We need to lock in [redacted]. In a formal chargeable way. Soon.’” Page replies: “I agree. I’ve been pushing and I’ll reemphasize with Bill [Priestap].”

Powell argues that “both from the space of the redaction, its timing, and other events, the defense strongly suspects the redacted name is Flynn.” That timing includes Robert Mueller’s appointment as special counsel on May 17, and then the reentering of Flynn’s 302 on May 31, 2017, “for Special Counsel Mueller to use.”

The only surprise (to me) is evidence cited by Cleveland that Comey was deeply embroiled in the plot. I have heretofore written off Comey as an opportunist who was out to get Trump for his own reasons.

In any event, Cleveland reinforces my expressed view of former CIA director John Brennan’s central role in the plot (“All The Russia Collusion Clues Are Beginning To Point Back To John Brennan“, The Federalist, October 25, 2019):

[I]f the media reports are true, and [Attorney General William] Barr and [U.S. attorney John] Durham have turned their focus to Brennan and the intelligence community, it is not a matter of vengeance; it is a matter of connecting the dots in congressional testimony and reports, leaks, and media spin, and facts exposed during the three years of panting about supposed Russia collusion. And it all started with Brennan.

That’s not how the story went, of course. The company story ran that the FBI launched its Crossfire Hurricane surveillance of the Trump campaign on July 31, 2016, after learning that a young Trump advisor, George Papadopoulos, had bragged to an Australian diplomat, Alexander Downer, that the Russians had dirt on Hillary Clinton….

But as the Special Counsel Robert Mueller report made clear, it wasn’t merely Papadopoulos’ bar-room boast at issue: It was “a series of contacts between Trump Campaign officials and individuals with ties to the Russian government,” that the DOJ and FBI, and later the Special Counsel’s office investigated.

And who put the FBI on to those supposedly suspicious contacts? Former CIA Director John Brennan….

The evidence suggests … that Brennan’s CIA and the intelligence community did much more than merely pass on details about “contacts and interactions between Russian officials and U.S. persons involved in the Trump campaign” to the FBI. The evidence suggests that the CIA and intelligence community—including potentially the intelligence communities of the UK, Italy, and Australia—created the contacts and interactions that they then reported to the FBI as suspicious.

The Deep State in action.


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

I’ve already adduced a lot of evidence in “Why I Don’t Believe in Climate Change” and “Climate Change“. One of the scientists to whom I give credence is Dr. Roy Spencer of the Climate Research Center at the University of Alabama-Huntsville. Spencer agrees that CO2 emissions must have an effect on atmospheric temperatures, but is doubtful about the magnitude of the effect.

He revisits a point that he has made before, namely, that the there is no “preferred” state of the climate (“Does the Climate System Have a Preferred Average State? Chaos and the Forcing-Feedback Paradigm“, Roy Spencer, Ph.D., October 25, 2019):

If there is … a preferred average state, then the forcing-feedback paradigm of climate change is valid. In that system of thought, any departure of the global average temperature from the Nature-preferred state is resisted by radiative “feedback”, that is, changes in the radiative energy balance of the Earth in response to the too-warm or too-cool conditions. Those radiative changes would constantly be pushing the system back to its preferred temperature state…

[W]hat if the climate system undergoes its own, substantial chaotic changes on long time scales, say 100 to 1,000 years? The IPCC assumes this does not happen. But the ocean has inherently long time scales — decades to millennia. An unusually large amount of cold bottom water formed at the surface in the Arctic in one century might take hundreds or even thousands of years before it re-emerges at the surface, say in the tropics. This time lag can introduce a wide range of complex behaviors in the climate system, and is capable of producing climate change all by itself.

Even the sun, which we view as a constantly burning ball of gas, produces an 11-year cycle in sunspot activity, and even that cycle changes in strength over hundreds of years. It would seem that every process in nature organizes itself on preferred time scales, with some amount of cyclic behavior.

This chaotic climate change behavior would impact the validity of the forcing-feedback paradigm as well as our ability to determine future climate states and the sensitivity of the climate system to increasing CO2. If the climate system has different, but stable and energy-balanced, states, it could mean that climate change is too complex to predict with any useful level of accuracy [emphasis added].

Which is exactly what I say in “Modeling and Science“.


Thoughts on Mortality

I ruminated about it in “The Unique ‘Me’“:

Children, at some age, will begin to understand that there is death, the end of a human life (in material form, at least). At about the same time, in my experience, they will begin to speculate about the possibility that they might have been someone else: a child born in China, for instance.

Death eventually loses its fascination, though it may come to mind from time to time as one grows old. (Will I wake up in the morning? Is this the day that my heart stops beating? Will I be able to break my fall when the heart attack happens, or will I just go down hard and die of a fractured skull?)

Bill Vallicella (Maverick Philosopher) has been ruminating about it in recent posts. This is from his “Six Types of Death Fear” (October 24, 2019):

1. There is the fear of nonbeing, of annihilation….

2. There is the fear of surviving one’s bodily death as a ghost, unable to cut earthly attachments and enter nonbeing and oblivion….

3. There is the fear of post-mortem horrors….

4. There is the fear of the unknown….

5. There is the fear of the Lord and his judgment….

6. Fear of one’s own judgment or the judgment of posterity.

There is also — if one is in good health and enjoying life — the fear of losing what seems to be a good thing, namely, the enjoyment of life itself.


Assortative Mating, Income Inequality, and the Crocodile Tears of “Progressives”

Mating among human beings has long been assortative in various ways, in that the selection of a mate has been circumscribed or determined by geographic proximity, religious affiliation, clan rivalries or alliances, social relationships or enmities, etc. The results have sometimes been propitious, as Gregory Cochran points out in “An American Dilemma” (West Hunter, October 24, 2019):

Today we’re seeing clear evidence of genetic differences between classes: causal differences.  People with higher socioeconomic status have ( on average) higher EA polygenic scores. Higher scores for cognitive ability, as well. This is of course what every IQ test has shown for many decades….

Let’s look at Ashkenazi Jews in the United States. They’re very successful, averaging upper-middle-class.   So you’d think that they must have high polygenic scores for EA  (and they do).

Were they a highly selected group?  No: most were from Eastern Europe. “Immigration of Eastern Yiddish-speaking Ashkenazi Jews, in 1880–1914, brought a large, poor, traditional element to New York City. They were Orthodox or Conservative in religion. They founded the Zionist movement in the United States, and were active supporters of the Socialist party and labor unions. Economically, they concentrated in the garment industry.”

And there were a lot of them: it’s harder for a sample to be very unrepresentative when it makes up a big fraction of the entire population.

But that can’t be: that would mean that Europeans Jews were just smarter than average.  And that would be racist.

Could it be result of some kind of favoritism?  Obviously not, because that would be anti-Semitic.

Cochran obviously intends sarcasm in the final two paragraphs. The evidence for the heritability of intelligence is, as he says, quite strong. (See, for example, my “Race and Reason: The Achievement Gap — Causes and Implications” and “Intelligence“.) Were it not for assortative mating among Ashkenazi Jews, they wouldn’t be the most intelligent ethnic-racial group.

Branko Milanovic specifically addresses the “hot” issue in “Rich Like Me: How Assortative Mating Is Driving Income Inequality“, Quillette, October 18, 2019):

Recent research has documented a clear increase in the prevalence of homogamy, or assortative mating (people of the same or similar education status and income level marrying each other). A study based on a literature review combined with decennial data from the American Community Survey showed that the association between partners’ level of education was close to zero in 1970; in every other decade through 2010, the coefficient was positive, and it kept on rising….

At the same time, the top decile of young male earners have been much less likely to marry young women who are in the bottom decile of female earners. The rate has declined steadily from 13.4 percent to under 11 percent. In other words, high-earning young American men who in the 1970s were just as likely to marry high-earning as low-earning young women now display an almost three-to- one preference in favor of high-earning women. An even more dramatic change happened for women: the percentage of young high-earning women marrying young high-earning men increased from just under 13 percent to 26.4 percent, while the percentage of rich young women marrying poor young men halved. From having no preference between rich and poor men in the 1970s, women currently prefer rich men by a ratio of almost five to one….

High income and wealth inequality in the United States used to be justified by the claim that everyone had the opportunity to climb up the ladder of success, regardless of family background. This idea became known as the American Dream. The emphasis was on equality of opportunity rather than equality of outcome….

The American Dream has remained powerful both in the popular imagination and among economists. But it has begun to be seriously questioned during the past ten years or so, when relevant data have become available for the first time. Looking at twenty-two countries around the world, Miles Corak showed in 2013 that there was a positive correlation between high inequality in any one year and a strong correlation between parents’ and children’s incomes (i.e., low income mobility). This result makes sense, because high inequality today implies that the children of the rich will have, compared to the children of the poor, much greater opportunities. Not only can they count on greater inheritance, but they will also benefit from better education, better social capital obtained through their parents, and many other intangible advantages of wealth. None of those things are available to the children of the poor. But while the American Dream thus was somewhat deflated by the realization that income mobility is greater in more egalitarian countries than in the United States, these results did not imply that intergenerational mobility had actually gotten any worse over time.

Yet recent research shows that intergenerational mobility has in fact been declining. Using a sample of parent-son and parent-daughter pairs, and comparing a cohort born between 1949 and 1953 to one born between 1961 and 1964, Jonathan Davis and Bhashkar Mazumder found significantly lower intergenerational mobility for the latter cohort.

Milanovic doesn’t mention the heritabiliity of intelligence, which is bound to be generally higher among children of high-IQ parents (like Ashkenzi Jews and East Asians), and the strong correlation between intelligence and income. Does this mean that assortative mating should be banned and “excess” wealth should be confiscated and redistributed? Elizabeth Warren and Bernie Sanders certainly favor the second prescription, which would have a disastrous effect on the incentive to become rich and therefore on economic growth.

I addressed these matters in “Intelligence, Assortative Mating, and Social Engineering“:

So intelligence is real; it’s not confined to “book learning”; it has a strong influence on one’s education, work, and income (i.e., class); and because of those things it leads to assortative mating, which (on balance) reinforces class differences. Or so the story goes.

But assortative mating is nothing new. What might be new, or more prevalent than in the past, is a greater tendency for intermarriage within the smart-educated-professional class instead of across class lines, and for the smart-educated-professional class to live in “enclaves” with their like, and to produce (generally) bright children who’ll (mostly) follow the lead of their parents.

How great are those tendencies? And in any event, so what? Is there a potential social problem that will  have to be dealt with by government because it poses a severe threat to the nation’s political stability or economic well-being? Or is it just a step in the voluntary social evolution of the United States — perhaps even a beneficial one?…

[Lengthy quotations from statistical evidence and expert commentary.]

What does it all mean? For one thing, it means that the children of top-quintile parents reach the top quintile about 30 percent of the time. For another thing, it means that, unsurprisingly, the children of top-quintile parents reach the top quintile more often than children of second-quintile parents, who reach the top quintile more often than children of third-quintile parents, and so on.

There is nevertheless a growing, quasi-hereditary, smart-educated-professional-affluent class. It’s almost a sure thing, given the rise of the two-professional marriage, and given the correlation between the intelligence of parents and that of their children, which may be as high as 0.8. However, as a fraction of the total population, membership in the new class won’t grow as fast as membership in the “lower” classes because birth rates are inversely related to income.

And the new class probably will be isolated from the “lower” classes. Most members of the new class work and live where their interactions with persons of “lower” classes are restricted to boss-subordinate and employer-employee relationships. Professionals, for the most part, work in office buildings, isolated from the machinery and practitioners of “blue collar” trades.

But the segregation of housing on class lines is nothing new. People earn more, in part, so that they can live in nicer houses in nicer neighborhoods. And the general rise in the real incomes of Americans has made it possible for persons in the higher income brackets to afford more luxurious homes in more luxurious neighborhoods than were available to their parents and grandparents. (The mansions of yore, situated on “Mansion Row,” were occupied by the relatively small number of families whose income and wealth set them widely apart from the professional class of the day.) So economic segregation is, and should be, as unsurprising as a sunrise in the east.

None of this will assuage progressives, who like to claim that intelligence (like race) is a social construct (while also claiming that Republicans are stupid); who believe that incomes should be more equal (theirs excepted); who believe in “diversity,” except when it comes to where most of them choose to live and school their children; and who also believe that economic mobility should be greater than it is — just because. In their superior minds, there’s an optimum income distribution and an optimum degree of economic mobility — just as there is an optimum global temperature, which must be less than the ersatz one that’s estimated by combining temperatures measured under various conditions and with various degrees of error.

The irony of it is that the self-segregated, smart-educated-professional-affluent class is increasingly progressive….

So I ask progressives, given that you have met the new class and it is you, what do you want to do about it? Is there a social problem that might arise from greater segregation of socio-economic classes, and is it severe enough to warrant government action. Or is the real “problem” the possibility that some people — and their children and children’s children, etc. — might get ahead faster than other people — and their children and children’s children, etc.?

Do you want to apply the usual progressive remedies? Penalize success through progressive (pun intended) personal income-tax rates and the taxation of corporate income; force employers and universities to accept low-income candidates (whites included) ahead of better-qualified ones (e.g., your children) from higher-income brackets; push “diversity” in your neighborhood by expanding the kinds of low-income housing programs that helped to bring about the Great Recession; boost your local property and sales taxes by subsidizing “affordable housing,” mandating the payment of a “living wage” by the local government, and applying that mandate to contractors seeking to do business with the local government; and on and on down the list of progressive policies?

Of course you do, because you’re progressive. And you’ll support such things in the vain hope that they’ll make a difference. But not everyone shares your naive beliefs in blank slates, equal ability, and social homogenization (which you don’t believe either, but are too wedded to your progressive faith to admit). What will actually be accomplished — aside from tokenism — is social distrust and acrimony, which had a lot to do with the electoral victory of Donald J. Trump, and economic stagnation, which hurts the “little people” a lot more than it hurts the smart-educated-professional-affluent class….

The solution to the pseudo-problem of economic inequality is benign neglect, which isn’t a phrase that falls lightly from the lips of progressives. For more than 80 years, a lot of Americans — and too many pundits, professors, and politicians — have been led astray by that one-off phenomenon: the Great Depression. FDR and his sycophants and their successors created and perpetuated the myth that an activist government saved America from ruin and totalitarianism. The truth of the matter is that FDR’s policies prolonged the Great Depression by several years, and ushered in soft despotism, which is just “friendly” fascism. And all of that happened at the behest of people of above-average intelligence and above-average incomes.

Progressivism is the seed-bed of eugenics, and still promotes eugenics through abortion on demand (mainly to rid the world of black babies). My beneficial version of eugenics would be the sterilization of everyone with an IQ above 125 or top-40-percent income who claims to be progressive [emphasis added].

Enough said.

Homelessness

It has long been my contention that homelessness is encouraged by programs to aid the homeless. It’s a fact of life: If you offer people a chance to get something for doing nothing, some of them will take your offer. (The subsidization of unemployment with welfare payments, food stamps, etc., is among the reasons that the real unemployment rate is markedly higher than the official rate.)

Recently, after I had mentioned my hypothesis to a correspondent, Francis Menton posted “The More Public Money Spent to Solve ‘Homelessness,’ the More Homelessness There Is“, at his blog, Manhattan Contrarian. Menton observes that the budget for homeless services in San Francisco

has gone from about $155 million annually in the 2011-12 fiscal year, to $271 million annually in San Francisco’s most recent 2018-19 spending plan.

[T]he $271 million per year would place San Francisco right near the top of the heap in per capita spending by a municipality to solve the homelessness problem. With a population of about 900,000, $271 million would come to about $300 per capita per year. By comparison, champion spender New York City, with a population close to ten times that of San Francisco, is up to spending some $3.2 billion annually on the homeless, which would be about $375 per capita….

So surely, with all this spending, homelessness in San Francisco must have at least begun its inevitable rapid decline? No, I’m sorry. Once again, it is the opposite. According to a piece in the City Journal by Erica Sandberg on October 10, the official count of homeless in San Francisco is now 9,780. That represents an increase of at least 30% just since 2017.

There’s more. It comes from The Economist, a magazine that was founded in the era of classical liberalism but which has gone over to the dark side: modern “liberlism”. In case you don’t know the difference, see “Political Ideologies“.

In “Homelessness Is Declining in America” (available with a limited-use free subscription), the real story is buried. The fake story is the nationwide decline of homelessness since 2009, which is unsurprising given that 2009 marked the nadir of the Great Recession.

The real story is that despite the nationwide decline of homelessness, its incidence has risen in major cities, where reigning Democrats are bent on solving the problem by throwing money at it; thus this graph, which is well down the page:

Further, The Economist acknowledges the phenomenon discussed by Menton:

Despite significant public efforts—such as a surcharge on sales tax directed entirely towards homeless services and a $1.2bn bond issue to pay for affordable housing—the problem of homelessness is worsening in Los Angeles. It has emerged as the greatest liability for Eric Garcetti, the mayor, and may have hindered his ambitions to run for president. After spending hundreds of millions, the city was surprised to learn in July that the number of homeless people had increased by 12% from the previous year (city officials point out that this was less than in many other parts of California). Though it can be found everywhere, homelessness, unlike other social pathologies, is not a growing national problem. Rather it is an acute and worsening condition in America’s biggest, most successful cities.

Every year in January, America’s Department of Housing and Urban Development mobilises thousands of volunteers to walk the streets and count the unsheltered homeless. Along with data provided by homeless shelters, these create an annual census of types of homeless residents. Advocates think that the methodology produces a significant undercount, but they are the best statistics available (and much higher quality than those of other developed countries). Since 2009 they show a 12% decline nationally, but increases of 18% in San Francisco, 35% in Seattle, 50% in Los Angeles and 59% in New York. [These figures seem to be drawn from HUD reports that can be found here and here.]

The Economist tries to minimize the scope of the problem by addressing “myths”:

The first is that the typical homeless person has lived on the street for years, while dealing with addiction, mental illness, or both. In fact, only 35% of the homeless have no shelter, and only one-third of those are classified as chronically homeless. The overwhelming majority of America’s homeless are in some sort of temporary shelter paid for by charities or government. This skews public perceptions of the problem. Most imagine the epicentre of the American homeless epidemic to be San Francisco—where there are 6,900 homeless people, of whom 4,400 live outdoors—instead of New York, where there are 79,000 homeless, of whom just 3,700 are unsheltered.

The “mythical” perception about the “typical homeless person” is a straw man, which seems designed to distract attention from the fact that homelessness is on the rise in big cities. Further, there is the attempt to distinguish between sheltered and unsheltered homeless persons. But sheltering is part of the problem, in that the availability of shelters makes it easier to be homeless. (More about that, below.)

The second myth is that rising homelessness in cities is the result of migration, either in search of better weather or benefits. Homelessness is a home-grown problem. About 70% of the homeless in San Francisco previously lived in the city; 75% of those living on the streets of Los Angeles, in places like Skid Row, come from the surrounding area. Though comparable data do not exist for Hawaii—which has one of the highest homelessness rates in the country—a majority of the homeless are ethnic Hawaiians and Pacific Islanders, suggesting that the problem is largely local.

The fact that homelessness is mainly a home-grown problem is consistent with the hypothesis that spending by big-city governments helps to promote it. The Economist doesn’t try to rebut that idea, but mentions in a sneering way a report by the Council of Economic Advisers “suggesting that spending on shelters would incentivise homelessness.” Well, I found the report (“The State of Homelessness in America“), and it cites evidence from actual research (as opposed to The Economist‘s hand-waving) to support what should be obvious to anyone who thinks about it: Sheltering incentivizes homelessness.

The Economist isn’t through, however:

All this obscures the chief culprit, however, which is the cost of housing. Even among the poor—of which there are officially 38m in America—homelessness is relatively rare, affecting roughly one in 70 people. What pushes some poor people into homelessness, and not others, remains obscure. So too are the reasons for the sharp racial disparities in homelessness; roughly 40% of the homeless are black, compared with 13% of the population. But remarkably tight correlations exist with rent increases.

An analysis by Chris Glynn and Emily Fox, two statisticians, predicts that a 10% increase in rents in a high-cost city like New York would result in an 8% increase in the number of homeless residents. Wherever homelessness appears out of control in America—whether in Honolulu, Seattle or Washington, DC—high housing costs almost surely lurk. Fixing this means dealing with a lack of supply, created by over-burdensome zoning regulations and an unwillingness among Democratic leaders to overcome entrenched local interests.

Ah, yes, “affordable housing” is always the answer if you’re a leftist. But it isn’t. Housing costs are high and bound to get higher because population continues to grow and businesses continue to grow and hire. Most of the population and business growth occurs in big cities. And if not in city cores, then in the satellite cities and developed areas that revolve around the cores. What this means is that there is a limited amount of land on which housing, offices, and factories can be built, so that the value of the land rises as the demand for it rises. Even if the supply of construction materials and labor were to rise with demand, the price of housing would continue to rise.

The only real “solution” is for governments to dictate across-the-board restrictions on lot size, building-unit size, and the elaborateness of materials used. That isn’t an issue for “entrenched local interests”, it’s an issue for anyone who believes that government shouldn’t tell him that he must live in a middle-income home when he can afford (and enjoy) something more luxurious, or that he must squeeze his highly paid employees into barren lofts.

Thus “affordable housing” in practice means subsidization. If opposition to subsidization is an “entrenched local interest”, it’s of a piece with opposition to across-the-board restrictions. It requires people who earn money to give it to people who don’t earn money (or very much money), thus blunting everyone’s incentive to earn more. Nobody promised anybody a rose garden — at least not until the welfare state came along in the 1930s. And, despite that, my father and grandfathers held menial jobs during the Great Depression and paid for their own housing, such as it was. If people are different now, it’s because of the welfare state.

Finally, homelessness is also encouraged by “enlightened” policies that allow (or don’t discourage) loitering, camping, and panhandling. I happen to live in Austin, where the homeless have been encouraged to do all of those things, to the detriment of public health and safety. I hope that Governor Abbott follows through on his commitment to rid public spaces of homeless encampments.

Socialism, Communism, and Three Paradoxes

According to Wikipedia, socialism

is a range of economic and social systems characterised by social ownership of the means of production and workers’ self-management, as well as the political theories and movements associated with them. Social ownership can be public, collective[,] or cooperative ownership, or citizen ownership of equity.

Communism

is the philosophical, social, political, and economic ideology and movement whose ultimate goal is the establishment of the communist society, which is a socioeconomic order structured upon the common ownership of the means of production and the absence of social classes, money, and the state.

The only substantive difference between socialism and communism, in theory, is that communism somehow manages to do away with the state. This, of course, never happens, except in real communes, most of which were and are tiny, short-lived arrangements. (In what follows, I therefore put communism in “sneer quotes”.)

The common thread of socialism and “communism” is collective ownership of “equity”, that is, the means of production. But that kind of ownership eliminates an important incentive to invest in the development and acquisition of capital improvements that yield more and better output and therefore raise the general standard of living. The incentive, of course, is the opportunity to reap a substantial reward for taking a substantial risk. Absent that incentive, as has been amply demonstrated by the tragic history of socialist and “communist” regimes, the general standard of living is low and economic growth is practically (if not actually) stagnant.*

So here’s the first paradox: Systems that, by magical thinking, are supposed to make people better off do just the opposite: They make people worse off than they would otherwise be.

All of this because of class envy. Misplaced class envy, at that. “Capitalism” (a smear word) is really the voluntary and relatively unfettered exchange of products and services, including labor. Its ascendancy in the West is just a happy accident of the movement toward the kind of liberalism exemplified in the Declaration of Independence and Constitution. People were from traditional economic roles and allowed to put their talents to more productive uses, which included investing their time and money in capital that yielded more and better products and services.

Most “capitalists” in America were and still are workers who made risky investments to start and build businesses. Businesses that employs other workers and which offer things of value that consumers can take or leave, as they wish (unlike the typical socialist or “communist” system).

So here’s the second paradox: Socialism and “communism” actually suppress the very workers whom they are meant to benefit, in theory and rhetoric.

The third paradox is that socialist and “communist” regimes like to portray themselves as “democratic”, even though they are quite the opposite: ruled by party bosses who bestow favors on their protegees. Free markets are in fact truly democratic, in that their outcomes are determined directly by the participants in those markets.
__________
* If you believe that socialist and “communist” regimes can efficiently direct capital formation and make an economy more productive, see “Socialist Calculation and the Turing Test“, “Monopoly: Private Is Better Than Public“, and “The Rahn Curve in Action“, which quantifies the stultifying effects of government spending and regulation.

As for China, imagine what an economic powerhouse it would be if, long ago, its emperors (including its “communist” ones, like Mao) had allowed its intelligent populace to become capitalists. China’s recent emergence as an economic dynamo is built on the sand of state ownership and direction. China, in fact, ranks low in per-capita GDP among industrialized nations. Its progress is a testament to forced industrialization, and was bound to better than what had come before. But it is worse than what could have been had China not suffered under autocratic rule for millennia.

Putting in Some Good Words for Monopoly

Long ago and far away, when I studied economics, one of the first things that was drummed into my head was the badness of monopoly, oligopoly, and other forms of imperfect competition. The ideal, of course, is perfect competition because it

provides both allocative efficiency and productive efficiency:

  • Such markets are allocatively efficient, as output will always occur where marginal cost is equal to average revenue i.e. price (MC = AR). In perfect competition, any profit-maximizing producer faces a market price equal to its marginal cost (P = MC). This implies that a factor’s price equals the factor’s marginal revenue product. It allows for derivation of the supply curve on which the neoclassical approach is based. This is also the reason why “a monopoly does not have a supply curve”. The abandonment of price taking creates considerable difficulties for the demonstration of a general equilibrium except under other, very specific conditions such as that of monopolistic competition.
  • In the short-run, perfectly competitive markets are not necessarily productively efficient as output will not always occur where marginal cost is equal to average cost (MC = AC). However, in long-run, productive efficiency occurs as new firms enter the industry. Competition reduces price and cost to the minimum of the long run average costs. At this point, price equals both the marginal cost and the average total cost for each good (P = MC = AC).

All of this assumes that a market for a particular product or service is amenable to perfect competition. Economists recognize that such isn’t always the case (e.g., natural monopoly), but most of them nevertheless preach about the evils of market concentration (i.e., monopoly and other forms of less-than-perfect competition).

Contrarian economist Robin Hanson attacks the general view about the badness of market concentration in a pair of recent posts at his blog Overcoming Bias (here and here):

Many have recently said 1) US industries have become more concentrated lately, 2) this is a bad thing, and 3) inadequate antitrust enforcement is in part to blame….

I’m teaching grad Industrial Organization again this fall, and in that class I go through many standard simple (game-theoretic) math models about firms competing within industries. And occurs to me to mention that when these models allow “free entry”, i.e., when the number of firms is set by the constraint that they must all expect to make non-negative profits, then such models consistently predict that too many firms enter, not too few. These models suggest that we should worry more about insufficient, not excess, concentration.

*    *    *

My last post talked about how our standard economic models of firms competing in industries typically show industries having too many, not too few, firms. It is a suspicious and damning fact that economists and policy makers have allowed themselves and the public to gain the opposite impression, that our best theories support interventions to cut industry concentration.

My last post didn’t mention the most extreme example of this, the case where we have the strongest theory reason to expect insufficient concentration: [multi-monopoly]….

The coordination failure among these firms is severe. It produces a much lower quantity and welfare than would result if all these firms were merged into a single monopolist who sold a single merged product. So in this case the equilibrium industry concentration is far too low.

Hanson’s posts caught my eye because I am pleased that at least one practicing academic economist agrees with me. Somewhat long ago, I put it this way (with light editing and block-quotation format omitted for ease of reading):

Regulators live in a dream world. They believe that they can emulate — and even improve on — the outcomes that would be produced by competitive markets. And that’s precisely where regulation fails: Bureaucratic rules cannot be devised to respond to consumers’ preferences and technological opportunities in the same ways that markets respond to those things. The main purpose of regulation (as even most regulators would admit) is to impose preferred outcomes, regardless of the immense (but mostly hidden) cost of regulation.

There should be a place of honor in regulatory hell for those who pursue “monopolists”, even though the only true monopolies are run by governments or exist with the connivance of governments (think of courts and cable franchises, for example). The opponents of “monopoly” really believe that success is bad. Those who agitate for antitrust actions against successful companies — branding them “monopolistic” — are stuck in a zero-sum view of the economic universe, in which “winners” must be balanced by “losers”. Antitrusters forget (if they ever knew) that (1) successful companies become successful by satisfying consumers; (2) consumers wouldn’t buy the damned stuff if they didn’t think it was worth the price; (3) “immense” profits invite competition (direct and indirect), which benefits consumers; and (4) the kind of innovation and risk-taking that (sometimes) leads to wealth for a few also benefits the many by fueling economic growth.

What about those “immense” profits? They don’t just disappear into thin air. Monopoly profits (“rent” in economists’ jargon) have to go somewhere, and so they do: into consumption, investment (which fuels economic growth), and taxes (which should make liberals happy). It’s just a question of who gets the money.

But isn’t output restricted, thus making people generally worse off? That may be what you learned in Econ 101, but that’s based on a static model which assumes that there’s a choice between monopoly and competition. In fact:

  • Monopoly (except when it’s gained by force, fraud, or government license) usually is a transitory state of affairs resulting from invention, innovation, and/or entrepreneurial skill.
  • Transitory? Why? Because monopoly profits invite competition — if not directly, then from substitutes.
  • Transitory monopolies arise as part of economic growth. Therefore, such monopolies exist as a “bonus” alongside competitive markets, not as alternatives to them.
  • The prospect of monopoly profits entices more invention, innovation, and entrepreneurship, which fuels more economic growth.

(See also “Socialist Calculation and the Turing Test“, “Monopoly: Private Is Better Than Public“, and “The Rahn Curve in Action“, which quantifies the stultifying effects of government spending and regulation.)

Tragic Capitalism

Capitalism, when it isn’t being used as a “dirty word” by “socialist democrats” (the correct rendering, and an oxymoron at that), simply entails three connected things:

  • There is private ownership of the means of production — capital — which consists of the hardware, software, and processes used to produce goods and services.
  • There are private markets in which capital, goods, and services are bought by users, which are (a) firms engaged in the production and sale of capital, goods, and services and (b) consumers of the finished products.
  • The owners of capital, like the owners of labor that is applied to capital (i.e., “workers” ranging from CEOs and high-powered scientists to store clerks and ditch-diggers), are compensated according to the market valuation of the worth of their contributions to the production of goods and services. The market valuation depends ultimately on the valuation of the finished products by the final consumers of those products.

For simplicity, I omitted the messy details of the so-called mixed economy — like that of the U.S. — in which governments are involved in producing some goods and services that could be produced privately, regulating what may be offered in private markets, regulating the specifications of the goods and services that are offered in private markets, regulating the compensation of market participants, and otherwise distorting private markets through myriad taxes and social-welfare schemes — including many that don’t directly involve government spending, except to enforce them (e.g., anti-discrimination laws and environmental regulations).

None of what I have just said is the tragic aspect of capitalism to which the title of this post refers. Yes, government interventions in market are extremely costly, and some of them have tragic consequences (e.g., the mismatch effect of affirmative action, which causes many blacks to fail in college and in the workplace; the withholding of beneficial drugs by the FDA; and the vast waste of resources in the name of environmentalism and climate change). But all of that belongs under the heading of tragic government.

One tragedy of capitalism, which I have touched on before, is that it leads to alienation:

This much of Marx’s theory of alienation bears a resemblance to the truth:

The design of the product and how it is produced are determined, not by the producers who make it (the workers)….

[T]he generation of products (goods and services) is accomplished with an endless sequence of discrete, repetitive, motions that offer the worker little psychological satisfaction for “a job well done.”

These statements are true not only of assembly-line manufacturing. They’re also true of much “white collar” work — certainly routine office work and even a lot of research work that requires advanced degrees in scientific and semi-scientific disciplines (e.g., economics). They are certainly true of “blue collar” work that is rote, and in which the worker has no ownership stake….

The life of the hunter-gatherer, however fraught, is less rationalized than the kind of life that’s represented by intensive agriculture, let alone modern manufacturing, transportation, wholesaling, retailing, and office work.

The hunter-gatherer isn’t a cog in a machine, he is the machine: the shareholder, the co-manager, the co-worker, and the consumer, all in one. His work with others is truly cooperative. It is like the execution of a game-winning touchdown by a football team, and unlike the passing of a product from stage to stage in an assembly line, or the passing of a virtual piece of paper from computer to computer.

The hunter-gatherer’s social milieu was truly societal [and hunter-gatherer bands had an upper limit of 150 persons]….

Nor is the limit of 150 unique to hunter-gatherer bands. [It is also found in communal societies like Hutterite colonies, which spin off new colonies when the limit of 150 is reached.]

What all of this means, of course, is that for the vast majority of people there’s no going back. How many among us are willing — really willing — to trade our creature comforts for the “simple life”? Few would be willing when faced with the reality of what the “simple life” means; for example, catching or growing your own food, dawn-to-post-dusk drudgery, nothing resembling culture as we know it (high or low), and lives that are far closer to nasty, brutish, and short than today’s norms.

There is also an innate tension between capitalism and morality, as I say here:

Conservatives rightly defend free markets because they exemplify the learning from trial and error that underlies the wisdom of voluntarily evolved social norms — norms that bind a people in mutual trust, respect, and forbearance.

Conservatives also rightly condemn free markets — or some of the produce of free markets — because that produce is often destructive of social norms.

Thanks to a pointer from my son, I have since read Edward Feser’s “Hayek’s Tragic Capitalism” (Claremont Review of Books, April 30, 2019), which takes up the tension between capitalism and conservatism:

Precisely because they arise out of an impersonal process, market outcomes are amoral. Hayek thought it unwise to defend capitalism by emphasizing the just rewards of hard work, because there simply is no necessary connection between virtue of any kind, on the one hand, and market success on the other. Moreover, the functioning of the market economy depends on adherence to rules of behavior that abstract from the personal qualities of individuals. In particular, it depends on treating most of one’s fellow citizens not as members of the same tribe, religion, or the like, but as abstract economic actors—property owners, potential customers or clients, employers or employees, etc. It requires allowing these actors to pursue whatever ends they happen to have, rather than imposing some one overarching collective end, after the fashion of the central planner.

Hayek did not deny that all of this entailed an alienating individualism. On the contrary, he emphasized it, and warned that it was the deepest challenge to the stability of capitalism, against which defenders of the market must always be on guard. This brings us to his account of the moral defects inherent in human nature. To take seriously the thesis that human beings are the product of biological evolution is, for Hayek, to recognize that our natural state is to live in small tribal bands of the sort in which our ancestors were shaped by natural selection. Human psychology still reflects this primitive environment. We long for solidarity with a group that shares a common purpose and provides for its members based on their personal needs and merits. The impersonal, amoral, and self-interested nature of capitalist society repels us. We are, according to Hayek, naturally socialist.

The trouble is that socialism is, again, simply impossible in modern societies, with their vast populations and unimaginably complex economic circumstances. Socialism is practical only at the level of the small tribal bands in which our psychology was molded. Moreover, whereas in that primitive sort of context, everyone shares the same tribal identity and moral and religious outlook, in modern society there is no one tribe, religion, or moral code to which all of its members adhere. Socialism in the context of a modern society would therefore also be tyrannical as well as unworkable, since it would require imposing an overall social vision with which at most only some of its members agree. A socialist society cannot be a diverse society, and a diverse society cannot be socialist.

Socialism in large societies requires direction from on high, direction that cannot fail to be inefficient and oppressive.

Returning to Feser:

… Hayek—who had, decades before, penned a famous essay titled “Why I Am Not a Conservative”—went in a strongly Burkean conservative direction [in his last books]. Just as market prices encapsulate economic information that is not available to any single mind, so too, the later Hayek argued, do traditional moral rules that have survived the winnowing process of cultural evolution encapsulate more information about human well-being than the individual can fathom. Those who would overthrow traditional morality wholesale and replace it with some purportedly more rational alternative exhibit the same hubris as the socialist planner who foolishly thinks he can do better than the market.

Unsurprisingly, he took the institution of private property to be a chief example of the benefits of traditional morality. But he also came to emphasize the importance of the family as a stabilizing institution in otherwise coldly individualist market societies, and—despite his personal agnosticism—of religion as a bulwark of the morality of property and the family. He lamented the trend toward “permissive education” and “freeing ourselves from repressions and conventional morals,” condemned the ’60s counter-culture as “non-domesticated savages,” and placed Sigmund Freud alongside Karl Marx as one of the great destroyers of modern civilization.

Hayek was committed, then, to a kind of fusionism—the project of marrying free market economics to social conservatism. Unlike the fusionism associated with modern American conservatism, though, Hayek’s brand had a skeptical and tragic cast to it. He thought religion merely useful rather than true, and defended bourgeois morality as a painful but necessary corrective to human nature rather than an expression of it. In his view, human psychology has been cobbled together by a contingent combination of biological and cultural evolutionary processes. The resulting aggregate of cognitive and affective tendencies does not entirely cohere, and never will.

Feser than summarizes three critiques of Hayek’s fusionism, one by Irving Kristol, one by Roger Scruton, and one by Andrew Gamble, in Hayek: The Iron Cage of Liberty (1996). Gamble’s critique, according to Feser, is that Hayek

never adequately faced up to the dangers posed by corporate power. Most people cannot be entrepreneurs, and even those who can cannot match the tremendous advantages afforded by the deep pockets, legal resources, and other assets of a corporation. Vast numbers of citizens in actually existing capitalist societies simply must work for a corporation if they are going to work at all. But that entails an economic dependency of individuals on centralized authority, of a kind that is in some ways analogous to what Hayek warned of in his critique of central planning. As with socialism, conformity to the values of centralized authority becomes, in effect, a precondition of the very possibility of feeding oneself. By way of example, we may note that the political correctness Hayek would have despised is today more effectively and directly imposed on society by corporate Human Resources departments than by government.

Feser concludes with this:

None of this implies a condemnation of capitalism per se. The problem is one of fetishizing capitalism, of making market imperatives the governing principles to which all other aspects of social order are subordinate. The irony is that this is a variation on the same basic error of which socialism is guilty—what Pope John Paul II called “economism,” the reduction of human life to its economic aspect. Even F.A. Hayek, a far more subtle thinker than other defenders of the free economy, ultimately succumbed to this tendency. Too many modern conservatives have followed his lead. They have been so fixated on socialism and its economic irrationality that they have lost sight of other, ultimately more insidious, threats to Western civilization—including economism itself. To paraphrase G.K. Chesterton, a madman is not someone who has lost his economic reason, but someone who has lost everything but his economic reason.

Alan Jacobs offers an orthogonal view in his essay, “After Technopoly” (The New Atlantis, Spring 2019):

The apparent captain of technopoly [the universal and virtually inescapable rule of our everyday lives by those who make and deploy technology] is what [Michael] Oakeshott calls a “rationalist”…. [T]hat captain can achieve his political ends most readily by creating people who are not rationalists. The rationalists of Silicon Valley don’t care whom you’re calling out or why, as long as you’re calling out someone and doing it on Twitter….

Oakeshott wrote “The Tower of Babel” at roughly the same time as his most famous essay, “Rationalism in Politics” (1947), with which it shares certain themes. At that moment rationalism seemed, and indeed was, ascendant. Rejecting the value of habit and tradition — and of all authority except “reason” — the rationalist is concerned solely with the present as a problem to be solved by technique; politics simply is social engineering….

Oakeshott foresaw the coming of a world — to him a sadly depleted world — in which everyone, or almost everyone, would be a rationalist.

But that isn’t what happened. What happened was the elevation of a technocratic elite into a genuine technopoly, in which transnational powers in command of digital technologies sustain their nearly complete control by using the instruments of rationalism to ensure that the great majority of people acquire their moral life by habituation. This habituation, of course, is not the kind Oakeshott hoped for but a grossly impoverished version of it, one in which we do not adopt our affections and conduct from families, friends, and neighbors, but rather from the celebrity strangers who populate our digital devices.

In sum, 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.

I therefore repeat this counsel:

It is important (nay, crucial) to cultivate an inner life of intellectual or spiritual satisfaction. Only that inner life — and the love and friendship of a small circle of fellows — can hold alienation at bay. Only that inner life — and love and close friendships — can give us serenity as civilization crumbles around us.

Free Markets and Democracy

I am not slavishly devoted to free markets.

And I am deeply cynical about democracy as it is effected through electoral politics. But to almost everyone “democracy” is electoral democracy — and a “good thing”.

Of course, a goodly fraction of the people who think of “democracy” as a good thing have a particular formulation in mind: The “people” ought to decide how resources are allocated, businesses are run, profits are distributed, etc., etc., etc. The only practical way for such things to be done is for the “people” to elect office-holders who will use the power of government to make such things happen, as they (the office-holders and their unelected bureaucratic minions) prefer them to be done.

So the end result of electoral democracy isn’t democratic at all. The masses of people who are affected by government decisions about their social and economic affairs don’t really have a say in the making of those decisions. They only have a say in the election of office-holders who offer vague and nice-sounding promises about the things that they will accomplish. Those office-holders then turn things over to bureaucrats who have their own, very specific, undemocratic views about what should be accomplished, and how.

Which brings me back to free markets. Free markets are those in which buyers and sellers, through the price mechanism, determine what products and services should be produced, at what prices, and for whom. Every market participant acts voluntarily, and no one is coerced into selling something that he doesn’t want to produce or buying something that he doesn’t want to have. (Government intervention in markets yields exactly that kind of coercion by dictating, in effect, what can and cannot be produced, under what conditions, and by whom. The consumer is therefore coerced into a range of choices, or non-choices, that aren’t the ones he would prefer.)

Free markets, in sum, are democratic, in that their outcomes are determined directly by the participants in those markets.

And so we are left with the paradox that the loudest proponents of “democracy” are responsible for subverting it by their adamant opposition to free markets.

“Economic Growth Since World War II” Updated

I have updated key portions of “Economic Growth Since World War II“; specifically, these sections:

II. The Record Since World War II

VI. Employment vs. Big Government and Disincentives to Work

There’s a long way to go before the dead hand of big government has been lifted enough to allow the restoration of robust growth — last enjoyed in the 1980s (see the table following figure 3). If a Democrat is elected president in 2020, the dead hand will, instead, lie more heavily on the economy.

Conservatism’s Fundamental Dilemma: Markets vs. Morality

Conservatives rightly defend free markets because they exemplify the learning from trial and error that underlies the wisdom of voluntarily evolved social norms — norms that bind a people in mutual trust, respect, and forbearance.

Conservatives also rightly condemn free markets — or some of the produce of free markets — because that produce is often destructive of social norms.

Simple Economic Truths Worth Repeating

From “Keynesian Multiplier: Fiction vs. Fact“:

There are a few economic concepts that are widely cited (if not understood) by non-economists. Certainly, the “law” of supply and demand is one of them. The Keynesian (fiscal) multiplier is another; it is

the ratio of a change in national income to the change in government spending that causes it. More generally, the exogenous spending multiplier is the ratio of a change in national income to any autonomous change in spending (private investment spending, consumer spending, government spending, or spending by foreigners on the country’s exports) that causes it.

The multiplier is usually invoked by pundits and politicians who are anxious to boost government spending as a “cure” for economic downturns. What’s wrong with that? If government spends an extra $1 to employ previously unemployed resources, why won’t that $1 multiply and become $1.50, $1.60, or even $5 worth of additional output?

What’s wrong is the phony math by which the multiplier is derived, and the phony story that was long ago concocted to explain the operation of the multiplier….

To show why the math is phony, I’ll start with a derivation of the multiplier. The derivation begins with the accounting identity Y = C + I + G, which means that total output (Y) = consumption (C) + investment (I) + government spending (G)….

Now, let’s say that b = 0.8. This means that income-earners, on average, will spend 80 percent of their additional income on consumption goods (C), while holding back (saving, S) 20 percent of their additional income. With b = 0.8, k = 1/(1 – 0.8) = 1/0.2 = 5. That is, every $1 of additional spending — let us say additional government spending (∆G) rather than investment spending (∆I) — will yield ∆Y = $5. In short, ∆Y = k(∆G), as a theoretical maximum.

But:

[The multiplier] it isn’t a functional representation — a model — of the dynamics of the economy. Assigning a value to b (the marginal propensity to consume) — even if it’s an empirical value — doesn’t alter that fact that the derivation is nothing more than the manipulation of a non-functional relationship, that is, an accounting identity.

Consider, for example, the equation for converting temperature Celsius (C) to temperature Fahrenheit (F): F = 32 + 1.8C. It follows that an increase of 10 degrees C implies an increase of 18 degrees F. This could be expressed as ∆F/∆C = k* , where k* represents the “Celsius multiplier”. There is no mathematical difference between the derivation of the investment/government-spending multiplier (k) and the derivation of the Celsius multiplier (k*). And yet we know that the Celsius multiplier is nothing more than a tautology; it tells us nothing about how the temperature rises by 10 degrees C or 18 degrees F. It simply tells us that when the temperature rises by 10 degrees C, the equivalent rise in temperature F is 18 degrees. The rise of 10 degrees C doesn’t cause the rise of 18 degrees F.

Therefore:

[T]he 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.

In sum, the fiscal multiplier puts the cart before the horse. It begins with a non-functional, mathematical relationship, stipulates a hypothetical increase in GDP, and computes that increase in consumption (and other things) that would occur if that increase were to be realized.

As economist Steve Landsburg explains in “The Landsburg Multiplier: How to Make Everyone Rich”,

Murray Rothbard … observed that the really neat thing about this [fiscal stimulus] argument is that you can do exactly the same thing with any accounting identity. Let’s start with this one:

Y = L + E

Here Y is economy-wide income, L is Landsburg’s income, and E is everyone else’s income. No disputing that one.

Next we observe that everyone else’s share of the income tends to be about 99.999999% of the total. In symbols, we have:

E = .99999999 Y

Combine these two equations, do your algebra, and voila:

Y = 100,000,000

That 100,000,000 there is the soon-to-be-famous “Landsburg multiplier”. Our equation proves that if you send Landsburg a dollar, you’ll generate $100,000,000 worth of income for everyone else.

Send me your dollars, yearning to be free.

Tax cuts may stimulate economic activity, but not nearly to the extent suggested by the multiplier. Moreover, if government spending isn’t reduced at the same time that taxes are cut, and if there is something close to full employment of labor and capital, the main result of a tax cut will be inflation.

Government spending (as shown in “Keynsian Multiplier: Fact vs. Fiction” and “Economic Growth Since World War II“) doesn’t stimulate the economy, and usually has the effect of reducing private consumption and investment. That may be to the liking of big-government worshipers, but it’s bad for most of us.

Megaprojects, Cost-Benefit Analysis, and “Social Welfare”

Timothy Taylor writes about “The Iron Law of Megaprojects vs. the Hiding Hand Principle“. He begins by quoting a piece by Bent Flyvbjerg in Cato Policy Report (January 2017):

Megaprojects are large-scale, complex ventures that typically cost a billion dollars or more, take many years to develop and build, involve multiple public and private stakeholders, are transformational, and impact millions of people. Examples of megaprojects are high-speed rail lines, airports, seaports, motorways, hospitals, national health or pension information and communications technology (ICT) systems, national broadband, the Olympics, largescale signature architecture, dams, wind farms, offshore oil and gas extraction, aluminum smelters, the development of new aircrafts, the largest container and cruise ships, high-energy particle accelerators, and the logistics systems used to run large supply-chain-based companies like Amazon and Maersk.

For the largest of this type of project, costs of $50-100 billion are now common, as for the California and UK high-speed rail projects, and costs above $100 billion are not uncommon, as for the International Space Station and the Joint Strike Fighter. If they were nations, projects of this size would rank among the world’s top 100 countries measured by gross domestic product. When projects of this size go wrong, whole companies and national economies suffer. …

If, as the evidence indicates, approximately one out of ten megaprojects is on budget, one out of ten is on schedule, and one out of ten delivers the promised benefits, then approximately one in a thousand projects is a success, defined as on target for all three. Even if the numbers were wrong by a factor of two, the success rate would still be dismal.

So far, so good. But then Taylor says this:

A common comeback to the Iron Law of Megaprojects is that if we pay attention to it, we will be so dissuaded by costs and risks of megaprojects that nothing will ever get done. Alfred O. Hirschman offered a sophisticated expression of this concern in his 1967 essay, “The Hiding Hand.” Hirschman argued there there is rough balance in megaprojects: we tend underestimate the costs and problems of megaprojects, but we also tend to underestimate the creative with which people address the costs and and problems that arise.

I will come to the irrelevance of Hirschman’s argument, but first a few more tidbits from Taylor:

[Flyvbjerg] argues that a number of prominent megaprojects have been completed on time and on budget. When choosing which megaprojects to pursue, it is useful to avoid underestimating costs and overestimating benefits. [Wow, what an astute observation.] …

Further, Flyvbjerg offers a reminder that even when a megaproject is eventually completed, and seems to be working well, project may still have been uneconomic–and society may have been better off without it.

The second comment brings Taylor close to the heart of the matter. But he never gets there. Like most economists, he overlooks the major flaw in the application of cost-benefit analysis to government projects: Costs and benefits usually have different distributions across the population. At the extreme, benefits that accrue only to the indigent are borne almost entirely by the non-indigent. (The indigent may pay some sales taxes.)

Cost-benefit analysis (applied to government projects) effectively rests on the assumption of a social welfare function. If there were such a thing, then it would be all right for people to go around punching each other (and worse), as long as the aggressors derived more gains in “utility” than the losses suffered by the victims.

Social Security Is an Entitlement

Entitlement has come to mean the right to guaranteed benefits under a government program. In the nature of government programs, those who receive the benefits usually don’t pay the taxes required to fund those benefits.

I recently saw on Facebook (which I look at occasionally) a discussion to the effect that Social Security isn’t an entitlement program because “we (the discussants) paid into it”.

Well, paying into Social Security doesn’t mean that you paid your own way. First, the system is rigged so the persons in lower income brackets receive benefits that are disproportionately high relative to the payments that they (and their employers) made during their working years.

Second, the money that a person pays into Social Security doesn’t earn anything. You are not buying a financial instrument that funds productive investments, which in turn reward you with a future stream of income.

True, there’s the mythical Social Security Trust Fund, which has been paying out benefits that have been defrayed in part by interest earned on “investments” in U.S. Treasury securities. Where does that interest come from? Not from the beneficiaries of Social Security. It comes from taxpayers who are, at the same time, also making payments into Social Security in exchange for the “promise” of future Social Security benefits. (I say “promise” because there is no binding contract for Social Security benefits; you get what Congress provides by law.)

So, yes, Social Security is an entitlement program. Paying into it doesn’t mean that the payer earns what he eventually receives from it. Quite the contrary. Most participants are feeding from the public trough.

Thaler’s Fatuousness

Richard  Thaler, with whom I had a nodding acquaintance many years ago, is one of my least favorite economists — and a jerk, to boot. (See, for example, “The Perpetual Nudger“, “Richard Thaler, Nobel Laureate“, “Thaler’s Non-Revolution in Economics“, “Another (Big) Problem with ‘Nudging’“, and ” Thaler on Discounting“.) What the world needs isn’t a biography of the nudger-in-chief, but that’s what the world now has, no thanks to The Library of Economics and Liberty, where the mercifully brief bio is posted.

In it, the reader is treated to such “wisdom” as this:

Economists generally assume that more choices are better than fewer choices. But if that were so, argues Thaler, people would be upset, not happy, when the host at a dinner party removes the pre-dinner bowl of cashews. Yet many of us are happy that it’s gone. Purposely taking away our choice to eat more cashews, he argues, makes up for our lack of self-control.

Notice the sleight of hand by which the preferences of a few (including Thaler, presumably) are pushed front and center: “many of us are happy”. Who is “us”? And what about the preferences of everyone else, who may well comprise a majority? Thaler is happy because the the host has taken an action of which he (Thaler) approves, because he (Thaler) wants to tell the rest of us what makes us happy.

There’s more:

Thaler … noticed another anomaly in people’s thinking that is inconsistent with the idea that people are rational. He called it the “endowment effect.” People must be paid much more to give something up (their “endowment”) than they are willing to pay to acquire it. So, to take one of his examples from a survey, people, when asked how much they are willing to accept to take on an added mortality risk of one in one thousand, would give, as a typical response, the number $10,000. But a typical response by people, when asked how much they would pay to reduce an existing risk of death by one in one thousand, was $200.

Surveys are meaningless. Talk is cheap (see #5 here).

Even if the survey results are somewhat accurate, in that there is a significant gap between the two values, there is a rational explanation for such a gap. In the first instance, a person is (in theory) accepting an added risk, one that he isn’t already facing. In the second instance, the existing risk may be one that the person being asked considers to be very low, as applied to himself. The situations clearly aren’t symmetrical, so it’s unsurprising that the price of accepting a new risk is higher than the payment for reducing a possible risk.

That’s enough of Thaler. More than enough.

That “Hurtful” Betsy Ross Flag

Fox News has the latest:

Two Democratic hopefuls have expressed their support for Nike after the sportswear company pulled sneakers featuring the Betsy Ross-designed American flag ahead of the Fourth of July holiday. The company did so after former NFL quarterback and Nike endorser Colin Kaepernick raised concerns about the shoes.

Former HUD Secretary Julián Castro told CBS News on Wednesday that he was “glad to see” Nike remove the shoes from the shelves, comparing the “painful” symbol to the Confederate flag.

“There are a lot of things in our history that are still very painful,” Castro explained. As an example, he cited “the Confederate flag that still flies in some places and is used as a symbol.”\

Former Texas congressman Beto O’Rourke also approved of Nike’s decision, noting that “white nationalist groups” have “appropriated” the Betsy Ross flag.

“I think its really important to take into account the impression that kind of symbol would have for many of our fellow Americans,” he said,  according to Jewish Insider senior political reporter Ben Jacobs.

As I understand it, the Betsy Ross flag, which became the symbol of the rebellious, united States (i.e., Colonies) in 1777, is “hurtful” because it dates from an era when slavery was legal in what became the United States. How that historical fact is “hurtful” to anyone is beyond me. The fact of slavery is reprehensible, but a flag that merely denotes America’s struggle for independence from Britain really has nothing to do with slavery, except in the slippery way that “social justice” warriors have just invented. (Clearly, they are running low on ideas.)

Well, if the Betsy Ross flag is “hurtful” to professional virtue-signalers and malcontents, it is certainly — and more legitimately — hurtful to me. I am a direct descendant of a man who, with three of his sons (one of whom I am also directly descended from), fought on the British side in the Revolutionary War. They had settled in the Colony of Pennsylvania in the 1750s and, perhaps not unwisely, chose to defend the Crown against presumptuous rebels like George Washington, Samuel Adams, Thomas Jefferson, and 53 other signatories of the Declaration of Independence — all of whom used to be called patriots. (Washington, Jefferson, and many other signatories owned slaves, but that wasn’t why they rebelled; slavery was then still legal throughout the British Empire.)

In any event, because my ancestors were Loyalists, they fled to Canada at the end of the war. And from then until the birth of my father in the United States more than 130 years later, the ancestors in my paternal line of descent were Canadian and therefore (nominally, at least) subjects of the British monarch.

So if anyone has a right to be offended by the Betsy Ross flag, it is I. But I am not offended by the flag, though I am deeply offended by the useless twits who profess to be offended by it.

“Free Stuff”

Here’s an explainer, which will go over the heads of Democrat presidential hopefuls and most Democrats:

Getting “free” stuff reduces the recipient’s need to work.

Therefore, giving out “free” stuff means that recipients work less than they would otherwise work, where “less” often means “not at all”.

But “free” stuff isn’t really free; someone has to produce it (i.e., work). (The work may be done by machines and computerized systems, but someone has to invent, build, operate, monitor, etc., those machines and computerized systems; and someone has to do some kind of work in order to generate the wherewithal for the invention, construction, and purchase of machines and computerized systems.)

As long as productivity rises fast enough, workers can continue to produce “free” stuff while maintaining or improving their own standard of living.

But if the value of “free” stuff rises faster than the value of the extra output afforded by productivity increases, something has to give. If the something is the real income of workers — what they get after providing “free” stuff for others — they will work less (though they may do so in ways that disguise the slowdown).

Some will argue that workers will just work more in order to maintain their standard of living. But just as companies will offer fewer goods and services as prices decline, so will workers work less as their real wages decline. The ability to buy stuff is an incentive to work, but there are other things to do with one’s time, so if a given amount of work buys less stuff, those other things look more attractive. (Greg Mankiw gives an economist’s explanation here.)

At some point, if productivity doesn’t rise enough (and it has been declining for a long time), while government continues to hand out more “free” stuff, enough workers will have reduced their output (in response to decreases in real wages) that the real (inflation-adjusted) value of total output will decline.

A kind of death-spiral will ensue: lower real wages leads to lower total output which leads to lower real wages (unless the “free” stuff is reduced drastically), etc., etc., etc. In the end, workers will do just enough work to afford a subsistence standard of living, and the actual value of the “free” stuff given to non-workers will be about the same as it is for workers. (In the USSR, most people were nominally employed (though not very productively), but there was so much “free” stuff being handed out — especially to the commissars and their favorites — that the result was the same: low real output and a low standard of living — by Western standards — even for the commissars and their favorites.)

Equality, ain’t it wonderful?

The Price of a Low Unemployment Rate …

… is worse service. It figures, doesn’t it? One of the things that firms must do to boost output is to hire people with lower qualifications than previous hires. That’s good for dumber and less-educated workers. But it’s frustrating for consumers who encounter them in stores and over the phone. The solution, from my perspective as a consumer, is to shop where automation reigns. My Amazon membership of 21 years becomes daily more valuable to me.