Economics: Principles and Issues

The “Public Goods” Myth

The argument for the provision of public goods by the state goes like this:

People will free ride on a public good like a clean atmosphere because they can benefit from it without contributing to it. Mimi will enjoy more breathable air when others switch to a Prius even if she doesn’t drive one herself. So the state is justified as a means of forcing people like Mimi to contribute: for instance, by creating laws that penalize pollution….

Standard models predict that public goods will be underprovided because of free riding. Public goods are non-excludable, meaning that you cannot be excluded from enjoying them even if you didn’t contribute to them. Public goods are also non-rivalrous, meaning that my enjoyment of the good doesn’t subtract from yours. Here’s an example. A storm threatens to flood the river, a flood that would destroy your town. If the townspeople join together to build a levee with sandbags, the town will be spared. However, your individual contribution won’t make or break the effort. The levee is a public good. If it prevents the flood, your house will be saved whether or not you helped stack the sandbags. And the levee will protect the entire town, so protecting your house doesn’t detract from the protection afforded to other houses.

It’s typically assumed that people won’t voluntarily contribute to public goods like the levee. Your individual contribution is inconsequential, and if the levee does somehow get provided, you enjoy its protection whether or not you helped. You get the benefit without paying the costs. So the self-interested choice is to watch Netflix on your couch while your neighbors hurt their backs lugging sandbags around. The problem is, your neighbors have the exact same incentive to stay home— if enough others contribute to the levee, they’ll enjoy the benefits whether or not they contributed themselves. Consequently, no one has an incentive to contribute to the levee. As a result of this free-rider problem, the town will flood even though the flood is bad for everyone. [Christopher Freiman, Unequivocal Justice, 2017]

The idea is that private entities won’t provide certain things because there will be too many free riders. And yet, people do buy Priuses and similar cars, and do volunteer in emergencies, and do commit myriad acts of kindness and generosity without compensation (other than psychic). These contrary and readily observable facts should be enough to discredit public-goods theory. But I shall continue with a critical look at key terms and assumptions.

What is a public good? It’s a good that’s “underprovided”. What does that mean? It means that someone who believes that a certain good should be provided in a certain quantity at a certain price is dissatisfied with the actual quantity and/or price at which the good is provided (or not provided).

Who is that someone? Whoever happens to believe that a certain good should be provided at a certain price. Or, more likely, that it should be provided “free” by government. There are many advocates of universal health care, for example, who are certain that health care is underprovided, and that it should be made available freely to anyone who “needs” it. They are either ignorant of the track record of socialized medicine in Canada and Britain, or are among the many (usually leftists) who prefer hope to experience.

What is a free rider, and why is it bad to be a free rider? A free rider is someone who benefits from the provision and use of goods for which he (the free rider) doesn’t pay. There are free riders all around us, all the time. Any product, service, or activity that yields positive externalities is a boon to many persons who don’t buy the product or service, or engage in the activity. (Follow the link in the preceding sentence for a discussion and examples of positive externalities.) But people do buy products and services that yield positive externalities, and companies do stay in business by provide such products and services.

In sum, “free rider” is a scare term invoked for the purpose of justifying government-provided public goods. Why government-provided? Because that way the goods will be “free” to many users of them, and “the rich” will be taxed to provide the goods, of course. (“Free” is an illusion. See this.)

Health care — which people long paid for out of their own pockets or which was supported by voluntary charity — is demonstrably not a public good. If anything, the more that government has come to dominate the provision of health care (including its provision through insurance), the more costly it has become. The rising cost has served to justify greater government involvement in health care, which has further driven up the cost, etc., etc., etc. That’s what happens when government provides a so-called public good.

What about defense? As I say here,

given the present arrangement of the tax burden, those who have the most to gain from defense and justice (classic examples of “public goods”) already support a lot of free riders and “cheap riders.” Given the value of defense and justice to the orderly operation of the economy, it is likely that affluent Americans and large corporations — if they weren’t already heavily taxed — would willingly form syndicates to provide defense and justice. Most of them, after all, are willing to buy private security services, despite the taxes they already pay….

… It may nevertheless be desirable to have a state monopoly on police and justice — but only on police and justice, and only because the alternatives are a private monopoly of force, on the one hand, or a clash of warlords, on the other hand.

The environment? See this and this. Global warming? See this, and follow the links therein.

All in all, the price of “free” government goods is extremely high; government taketh away far more than it giveth. With a minimal government restricted to the defense of citizens against force and fraud there would be far fewer people in need of “public goods” and far, far more private charity available to those few who need it.


Related posts:
A Short Course in Economics
Addendum to a Short Course in Economics
Monopoly: Private Is Better than Public
Voluntary Taxation
What Free-Rider Problem?
Regulation as Wishful Thinking
Merit Goods, Positive Rights, and Cosmic Justice
More about Merit Goods
Don’t Just Stand There, “Do Something”

The Social Security Mess Revisited

Laurence Kotlikoff draws attention to the Social Security mess in his recent column, “Will Social Security Be There for You?“. He states the problem and poses two stark options for solving it:

Social Security’s trustees just released their annual report. It’s a very long document, with the most important part buried deep in appendix table VIF1.

Table VIF1 shows the system is $34.2 trillion in the red. That’s its unfunded liability. Stated differently, the system’s trust fund needs to be $37 trillion, not its actual $2.8 trillion, to permit Social Security to pay all scheduled benefits into the future. How large is $34.2 trillion? Very large. It’s almost two years of GDP!

There is, of course, more than one way to make ends meet. If we can’t get the good lord to drop $34.2 trillion into Social Security’s coffers as manna from heaven, we can raise taxes. One option is to take 4.2 percent more out of everyone’s paycheck (up to the taxable earnings ceiling, now $127,500) on a permanent basis. Since Social Security’s FICA payroll tax rate is 12.4 percent, we’re talking a 33.9 (4.2/12.4) percent immediate and permanent Social Security tax hike!

Another option is to cut all Social Security benefits (retirement, spousal, divorcee, widow(er), young child, disabled child, child-in-care spousal, mother (father), disability and parent benefits) immediately and permanently by 25 percent!

There are, in fact, other options. One is to keep kicking the can down the road, as long as foreign investors are willing, in effect, to underwrite Social Security’s deficit. They do this by shipping the proceeds of their “trade surplus” (our “trade deficit”) back to the U.S. in exchange for stocks, bonds, and real estate. Some of their money goes directly into U.S. government bonds; the rest helps to relieve the crowding out that occurs when the U.S. government borrows to sustain its profligate spending, which includes Social Security.

Here’s another one. The unfunded liability isn’t a current liability; it’s the  present value of future Social Security deficits. Which means that another way of kicking the can down the road is to gradually increase Social Security taxes and/or reduce benefits to a sustainable level while foreigners to underwrite the transition.

I prefer a third option, which is usually considered politically unthinkable: eventual privatization of Social Security. How would that work? Here’s my plan:

1. Abolish Social Security payroll taxes as of a date certain (Abolition Day).

2. Pay normal benefits (those implicitly promised under the present system) to persons who are then collecting Social Security and to all other qualifying persons who have then reached the age of 62.

3. Persons who are 55 to 61 years old would receive normal benefits, pro-rated according to their contributions as of Abolition Day.

4. The retirement age for full benefits would be raised for all persons who are younger than 55 as of Abolition Day. The full retirement age is now scheduled to rise to 67 in 2027. It could rise to 70 by, say, 2025. Moreover, the minimum age for receiving partial benefits would rise from 62 to 65.

4. Persons who are 45 to 54 years old also would receive prorated benefits based on their contributions as of Abolition Day. But their initial benefits would be reduced on a sliding scale, so that the benefits of those persons who are 45 as of Abolition Day would be linked entirely to the CPI rather than the wage index.

5. Persons who are younger than 45 would receive a lump-sum repayment of their contributions (plus accrued interest) at full retirement age, in lieu of future benefits. That payment would automatically go to a surviving spouse or next-of-kin if the recipient dies intestate. Otherwise, the recipient could bequeath, transfer, or sell his interest in the payment at any time before it comes due.

The residual obligations outlined in steps 2-5 would be funded in part by a payroll tax, which would diminish as those obligations are paid off. The U.S. government would continue to borrow as necessary to fund the Social Security deficit, but — unlike the first two options — the borrowing would eventually come to an end. Social Security would be “saved”, there would be less crowding-out in financial markets, and — best of all — everyone’s retirement savings would be plowed into investment-inducing vehicles: stocks, bonds, CDs, savings accounts. This would push up the rate of economic growth and make privatization all the more affordable, and desirable.

The Danger of Marginal Thinking

The “marginal revolution” in economics, which occurred in the latter part of the 19th century, introduced marginalism,

a theory of economics that attempts to explain the discrepancy in the value of goods and services by reference to their secondary, or marginal, utility. The reason why the price of diamonds is higher than that of water, for example, owes to the greater additional satisfaction of the diamonds over the water. Thus, while the water has greater total utility, the diamond has greater marginal utility.

Although the central concept of marginalism is that of marginal utility, marginalists, following the lead of Alfred Marshall, drew upon the idea of marginal physical productivity in explanation of cost. The neoclassical tradition that emerged from British marginalism abandoned the concept of utility and gave marginal rates of substitution a more fundamental role in analysis. Marginalism is an integral part of mainstream economic theory.

But pure marginalism can be the road to ruin for a business if the average cost of a unit of output is greater than average revenue, that is, the price for which a unit is sold.

Marginalism is the road to ruin in law and politics. If a governmental act can be shown to have a positive effect “at the margin”, its broader consequences are usually ignored. This kind of marginalism is responsible for the slippery sloperatchet effect enactment and perpetuation of one economically and socially destructive government program after another. Obamacare, same-sex “marriage”, and rampant transgenderism are the most notorious examples of recent years. Among the many examples of earlier years are the Pure Food and Drug Act, the Supreme Court’s holding in Wickard v. Filburn, the Social Security Act and its judicial vindication, the Civil Rights Act of 1964, and the various enactments related to “equal employment opportunity”, including the Americans with Disabilities Act.

Frédéric Bastiat’s wrote about it more than 160 years ago, in “What Is Seen and What Is Not Seen“:

[A] law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

The unseen effects — the theft of Americans’ liberty and prosperity — had been foreseen by some (e.g., Tocqueville and Hayek). But their wise words have been overwhelmed by power-lust, ignorance, and greed. Greed manifests itself in the interest-group paradox:

The interest-group paradox is a paradox of mass action….

Pork-barrel legislation exemplifies the interest-group paradox in action, though the paradox encompasses much more than pork-barrel legislation. There are myriad government programs that — like pork-barrel projects — are intended to favor particular classes of individuals. Here is a minute sample:

  • Social Security, Medicare, and Medicaid, for the benefit of the elderly (including the indigent elderly)
  • Tax credits and deductions, for the benefit of low-income families, charitable and other non-profit institutions, and home buyers (with mortgages)
  • Progressive income-tax rates, for the benefit of persons in the mid-to-low income brackets
  • Subsidies for various kinds of “essential” or “distressed” industries, such as agriculture and automobile manufacturing
  • Import quotas, tariffs, and other restrictions on trade, for the benefit of particular industries and/or labor unions
  • Pro-union laws (in many States), for the benefit of unions and unionized workers
  • Non-smoking ordinances, for the benefit of bar and restaurant employees and non-smoking patrons.

What do each of these examples have in common? Answer: Each comes with costs. There are direct costs (e.g., higher taxes for some persons, higher prices for imported goods), which the intended beneficiaries and their proponents hope to impose on non-beneficiaries. Just as importantly, there are indirect costs of various kinds (e.g., disincentives to work and save, disincentives to make investments that spur economic growth)….

You may believe that a particular program is worth what it costs — given that you probably have little idea of its direct costs and no idea of its indirect costs. The problem is millions of your fellow Americans believe the same thing about each of their favorite programs. Because there are thousands of government programs (federal, State, and local), each intended to help a particular class of citizens at the expense of others, the net result is that almost no one in this fair land enjoys a “free lunch.” Even the relatively few persons who might seem to have obtained a “free lunch” — homeless persons taking advantage of a government-provided shelter — often are victims of the “free lunch” syndrome. Some homeless persons may be homeless because they have lost their jobs and can’t afford to own or rent housing. But they may have lost their jobs because of pro-union laws, minimum-wage laws, or progressive tax rates (which caused “the rich” to create fewer jobs through business start-ups and expansions).

The paradox that arises from the “free lunch” syndrome is…. like the paradox of panic, in that there is a  crowd of interest groups rushing toward a goal — a “pot of gold” — and (figuratively) crushing each other in the attempt to snatch the pot of gold before another group is able to grasp it. The gold that any group happens to snatch is a kind of fool’s gold: It passes from one fool to another in a game of beggar-thy-neighbor, and as it passes much of it falls into the maw of bureaucracy.

As far as I know, only one agency of the federal government has been abolished in my lifetime, while dozens have been created and expanded willy-nilly at the behest of politicians, bureaucrats, and cronies. The one that was abolished — the Interstate Commerce Commission — still had “residual functions” that were transferred elsewhere. That’s the way it works in Washington, and in State capitals.

So one obvious danger of marginal thinking is that the nose of the camel under the edge of the tent is invariably followed by its neck, its humps, its tail, another camel’s nose, etc., etc. etc.

There’s a less obvious danger, which is typified by the penchant of faux-libertarians for dismissing objections to this and that “harmless” act. Economist Mark Perry, for example, regurgitates Milton Friedman’s 30-year-old plea for the decriminalization of drugs. Just because some behavior is “private” doesn’t mean that it’s harmless to others. Murder behind a closed door is still murder.

In the case of drugs, I turn to Theodore Dalrymple:

[I]t is not true that problems with drugs arise only when or because they are prohibited.

The relationship between crime and drug prohibition is also much more complex than the legalizers would have us believe. It is certainly true that gangs quickly form that try to control drug distribution in certain areas, and that conflict between the aspirant gangs leads to violence…. But here I would point out two things: first that the violence of such criminal gangs was largely confined to the subculture from which they emerged, so that other people were not much endangered by it; and second that, in my dealings with such people, I did not form the impression that, were it not for the illegality of drugs, they would otherwise be pursuing perfectly respectable careers. If my impression is correct, then the illegality of drugs might protect the rest of society from their criminality: the illegal drug trade being the occasion, but not the cause, of their violence.

What about Prohibition, is the natural reply? It is true that the homicide rate in the United States fell dramatically in the wake of repeal. By the 1960s, however, when alcohol was not banned, it had climbed higher than during Prohibition…. Moreover, what is less often appreciated, the homicide rate in the United States rose faster in the thirteen years before than in the thirteen years during Prohibition. (In other respects, Prohibition was not as much of a failure as is often suggested: alcohol-related problems such as liver disease declined during it considerably. But no consequences by themselves can justify a policy, otherwise the amputation of thieves’ hands would be universal.) Al Capone was not a fine upstanding citizen before Prohibition turned him into a gangster. [“Ditching Drug Prohibition: A Dissent”, Library of Law and Liberty, July 23, 2015, and the second in a series; see also “The Simple Truth about J.S. Mill’s Simple Truth”, op. cit., July 20, 2015; “Myths and Realities of Drug Addiction, Consumption, and Crime”, op. cit., July 31, 2015; and “Closing Argument on the Drug Issue”, op. cit., August 4, 2015]

This reminds me of my post, “Prohibition, Abortion, and ‘Progressivism’”, in which I wrote about the Ken Burns series, Prohibition. Here’s some of it:

Although eugenics is not mentioned in Prohibition, it looms in the background. For eugenics — like prohibition of alcohol and, later, the near-prohibition of smoking — is symptomatic of the “progressive” mentality. That mentality is paternalistic, through and through. And “progressive” paternalism finds its way into the daily lives of Americans through the regulation of products and services — for our own good, of course. If you can think of a product or service that you use (or would like to use) that is not shaped by paternalistic regulation or taxes levied with regulatory intent, you must live in a cave.

However, the passing acknowledgement of “progressivism” as a force for the prohibition of alcohol is outweighed by the attention given to the role of “evangelicals” in the enactment of prohibition. I take this as a subtle swipe at anti-abortion stance of fundamentalist Protestants and adherents of the “traditional” strands of Catholicism and Judaism. Here is the “logic” of this implied attack on pro-lifers: Governmental interference in a personal choice is wrong with respect to the consumption of alcohol and similarly wrong with respect to abortion.

By that “logic,” it is wrong for government to interfere in or prosecute robbery, assault, rape, murder and other overtly harmful acts, which — after all — are merely the consequences of personal choices made by their perpetrators. Not even a “progressive” would claim that robbery, assault, etc., should go unpunished, though he would quail at effective punishment.

“Liberals” of both kinds (“progressive” fascists and faux-libertarian) just don’t know when to smack camels on the nose. Civilization depends on deep-seated and vigorously enforced social norms. They reflect eons of trial and error, and can’t be undone peremptorily without unraveling the social fabric — the observance of mores and morals that enable a people to coexist peacefully and beneficially because they are bound by mutual trust, mutual respect, and mutual forbearance.

A key function of those norms is to inculcate self-restraint. For it is the practice of self-restraint that underlies peaceful, beneficial coexistence: What goes around comes around.


Related pages and posts:
Leftism
Social Norms and Liberty
*****
On Liberty
In Defense of Marriage
Myopic Moaning about the War on Drugs
Facets of Liberty
Burkean Libertarianism
The Myth That Same-Sex “Marriage” Causes No Harm
Lock ‘Em Up
Liberty and Society
The Eclipse of “Old America”
Genetic Kinship and Society
The Fallacy of Human Progress
Defining Liberty
The Pseudo-Libertarian Temperament
Getting Liberty Wrong
“Liberalism” and Personal Responsibility
Crime Revisited
A Cop-Free World?
The Beginning of the End of Liberty in America
Marriage: Privatize It and Revitalize It
More About Social Norms and Liberty
Amen to That
The Opposition and Crime
“And the Truth Shall Set You Free”
Double Amen
Economically Liberal, Socially Conservative
The Transgender Fad and Its Consequences
The Harm Principle Revisited: Mill Conflates Society and State
Liberty and Social Norms Re-examined
Natural Law, Natural Rights, and the Real World
Natural Law and Natural Rights Revisited
If Men Were Angels
Death of a Nation
Self-Made Victims

Another Angle on Alienation

In an earlier post about alienation I said that

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 and office work.

The hunter-gatherer isn’t “a cog in a machine”, he is the machine. He is the shareholder, the manager, the 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.

What really matters in life — perhaps as much as love and friendship — is the sense of accomplishment that derives from producing something of value to others, something that they willingly pay for.

In decades of post-collegiate work, nothing gave me more satisfaction than the weekly publication of the Pennysaver that — in the late 1970s — I owned, operated, and poured my labor (and a large share of my savings) into for three years. “Publish or perish” was far truer of me than it is of the academics who exclaim it.

I bought the Pennysaver to escape the “rat race” of the D.C.-area government-contractor milieu: big-city anonymity, commuting, high taxes, and — most of all — disconnect between work and accomplishment. In fact, I doubted that the work that I and thousands of others like me accomplished anything but the appropriation of taxpayers’ money.

During the Pennysaver years I concentrated intensly on making a living. But more than that, I was producing something of real value — a publication supported by willing advertisers and eagerly awaited by local residents, who found it in their mailboxes every Wednesday.

I gave up the Pennysaver to return to the “rat race” of the D.C. area, so that I could earn enough to retire comfortably. (Life is full of choices; that was mine.) I often took pride in some of what I accomplished in the ensuing 18 years. But it wasn’t the same sense of accomplishment that I experienced as a business owner. It was just the satisfaction of doing a job well, even if the job wasn’t worth doing.

I worked hard in those final 18 years — from 60 to 70 hours a week until the end was nigh. But I was no longer the captain of my own ship, though I usually worked directly for the CEO. There were three of them in those years. The first one was deposed (deservedly) in a coup, brought about in part by internal opposition to his Queegish management. The second one was a careerist of high professional and ethical standards who steered the organization back to its roots as an empirical, objective, and apolitical operations research outfit.

Then along came the third one, and a new kind of alienation descended on me: I couldn’t even derive a sense of satisfaction from doing a useless job well because he corrupted the organization. Not in a criminal way, but — almost as bad — in a political way. He was prone to magical thinking (e.g., there should be a greater percentage of black Ph.D.s on the staff but standards shouldn’t be lowered), and he pushed the organization away from empirical research into “policy analysis” (a.k.a., advocacy bullshit) with a partisan edge. It was all in keeping with his proud self-identification as a “Carter Democrat”.

The stress of working for such a man became almost debilitating. So I arranged for early retirement on favorable terms before the stress became absolutely unbearable. My foreboding was borne out when, in the years after my retirement, the organization took an overtly political turn (e.g., backing for some of Obama’s domestic programs, “global warming” as a national-security issue).

Alienation comes in many forms. And it isn’t restricted to workers who are just “cogs in a machine”. Alienation is a sense of uselessness that can descend on anyone in any job at any income level.

Modeling Revisited

Arnold Kling comments on a post by John Taylor, who writes about the Macroeconomic Modelling and Model Comparison Network (MMCN), which

is one part of a larger project called the Macroeconomic Model Comparison Initiative (MMCI)…. That initiative includes the Macroeconomic Model Data Base, which already has 82 models that have been developed by researchers at central banks, international institutions, and universities. Key activities of the initiative are comparing solution methods for speed and accuracy, performing robustness studies of policy evaluations, and providing more powerful and user-friendly tools for modelers.

Kling says: “Why limit the comparison to models? Why not compare models with verbal reasoning?” I say: a pox on economic models, whether they are mathematical or verbal.

That said, I do harbor special disdain for mathematical models, including statistical estimates of such models. Reality is nuanced. Verbal descriptions of reality, being more nuanced than mathematics, can more closely represent reality than can be done with mathematics.

Mathematical modelers are quick to point out that a mathematical model can express complex relationships which are difficult to express in words. True, but the words must always precede the mathematics. Long usage may enable a person to grasp the meaning of 2 + 2 = 4 without consciously putting it into words, but only because he already done so and committed the formula to memory.

Do you remember word problems? As I remember them, the words came first:

John is twenty years younger than Amy, and in five years’ time he will be half her age. What is John’s age now?

Then came the math:

Solve for J [John’s age]:

J = A − 20
J + 5 = (A + 5) / 2

[where A = Amy’s age]

What would be the point of presenting the math, then asking for the words?

Mathematics is a man-made tool. It probably started with counting. Sheep? Goats? Bananas? It doesn’t matter what it was. What matters is that the actual thing, which had a spoken name, came before the numbering convention that enabled people to refer to three sheep without having to draw or produce three actual sheep.

But … when it came to bartering sheep for loaves of bread, or whatever, those wily ancestors of ours knew that sheep come in many sizes, ages, fecundity, and states of health, and in two sexes. (Though I suppose that the LGBTQ movement has by now “discovered” homosexual and transgender sheep, and transsexual sheep may be in the offing.) Anyway, there are so many possible combinations of sizes, ages, fecundity, and states of health that it was (and is) impractical to reduce them to numbers. A quick, verbal approximation would have to do in the absence of the real thing. And the real thing would have to be produced before Grog and Grok actually exchanged X sheep for Y loaves of bread, unless they absolutely trusted each other’s honesty and descriptive ability.

Things are somewhat different in this age of mass production and commodification. But even if it’s possible to add sheep that have been bred for near-uniformity or nearly identical loaves of bread or Paper Mate Mirado Woodcase Pencils, HB 2, Yellow Barrel, it’s not possible to add those pencils to the the sheep and the loaves of bread. The best that one could do is to list the components of such a conglomeration by name and number, with the caveat that there’s a lot of variability in the sheep, goats, banana, and bread.

An economist would say that it is possible to add a collection of disparate things: Just take the sales price of each one, multiply it by the quantity sold, and if you do that for every product and service produced in the U.S. during a year you have an estimate of GDP. (I’m being a bit loose with the definition of GDP, but it’s good enough for the point I wish to make.) Further, some economists will tout this or that model which estimates changes in the value of GDP as a function of such things as interest rates, the rate of government spending, and estimates of projected consumer spending.

I don’t disagree that GDP can be computed or that economic models can be concocted. But it is to say that such computations and models, aside from being notoriously inaccurate (even though they deal in dollars, not in quantities of various products and services), are essentially meaningless. Aside from the errors that are inevitable in the use of sampling to estimate the dollar value of billions of transactions, there is the essential meaninglessness of the dollar value. Every transaction represented in an estimate of GDP (or any lesser aggregation) has a different real value to each participant in the transaction. Further, those real values, even if they could be measured and expressed in “utils“, can’t be summed because “utils” are incommensurate — there is no such thing as a social-welfare function.

Quantitative aggregations are not only meaningless, but their existence simply encourages destructive government interference in economic affairs. Mathematical modeling of “aggregate economic activity” (there is no such thing) may serve as an amusing and even lucrative pastime, but it does nothing to advance the lives and fortunes of the vast majority of Americans. In fact, it serves to retard their lives and fortunes.

All of that because pointy-headed academics, power-lusting politicians, and bamboozled bureaucrats believe that economic aggregates and quantitative economic models are meaningful. If they spent more than a few minutes thinking about what those models are supposed to represent — and don’t and can’t represent — they would at least use them with a slight pang of conscience. (I hold little hope that they would abandon them. The allure of power and the urge to “do something” are just too strong.)

Economic aggregates and models gain meaning and precision only as their compass shrinks to discrete markets for closely similar products and services. But even in the quantification of such markets there will always be some kind of misrepresentation by aggregation, if only because tastes, preferences, materials, processes, and relative prices change constantly. Only a fool believes that a quantitative economic model (of any kind) is more than a rough approximation of past reality — an approximation that will fade quickly as time marches on.

Economist Tony Lawson puts it this way:

Given the modern emphasis on mathematical modelling it is important to determine the conditions in which such tools are appropriate or useful. In other words we need to uncover the ontological presuppositions involved in the insistence that mathematical methods of a certain sort be everywhere employed. The first thing to note is that all these mathematical methods that economists use presuppose event regularities or correlations. This makes modern economics a form of deductivism. A closed system in this context just means any situation in which an event regularity occurs. Deductivism is a form of explanation that requires event regularities. Now event regularities can just be assumed to hold, even if they cannot be theorised, and some econometricians do just that and dedicate their time to trying to uncover them. But most economists want to theorise in economic terms as well. But clearly they must do so in terms that guarantee event regularity results. The way to do this is to formulate theories in terms of isolated atoms. By an atom I just mean a factor that has the same independent effect whatever the context. Typically human individuals are portrayed as the atoms in question, though there is nothing essential about this. Notice too that most debates about the nature of rationality are beside the point. Mainstream modellers just need to fix the actions of the individual of their analyses to render them atomistic, i.e., to fix their responses to given conditions. It is this implausible fixing of actions that tends to be expressed though, or is the task of, any rationality axiom. But in truth any old specification will do, including fixed rule or algorithm following as in, say, agent based modelling; the precise assumption used to achieve this matters little. Once some such axiom or assumption-fixing behaviour is made economists can predict/deduce what the factor in question will do if stimulated. Finally the specification in this way of what any such atom does in given conditions allows the prediction activities of economists ONLY if nothing is allowed to counteract the actions of the atoms of analysis. Hence these atoms must additionally be assumed to act in isolation. It is easy to show that this ontology of closed systems of isolated atoms characterises all of the substantive theorising of mainstream economists.

It is also easy enough to show that the real world, the social reality in which we actually live, is of a nature that is anything but a set of closed systems of isolated atoms (see Lawson, [Economics and Reality, London and New York: Routledge] 1997, [Reorienting Economics, London and New York: Routledge] 2003).

Mathematical-statistical descriptions of economic phenomena are either faithful (if selective) depictions of one-off events (which are unlikely to recur) or highly stylized renditions of complex chains of events (which almost certainly won’t recur). As Arnold Kling says in his review of Richard Bookstaber’s The End of Theory,

people are assumed to know, now and for the indefinite future, the entire range of possibilities, and the likelihood of each. The alternative assumption, that the future has aspects that are not foreseeable today, goes by the name of “radical uncertainty.” But we might just call it the human condition. Bookstaber writes that radical uncertainty “leads the world to go in directions we had never imagined…. The world could be changing right now in ways that will blindside you down the road.”

I’m picking on economics because it’s an easy target. But the “hard sciences” have their problems, too. See, for example, my work in progress about Einstein’s special theory of relativity.


Related reading:

John Cochrane, “Mallaby, the Fed, and Technocratic Illusions“, The Grumpy Economist, July 5, 2017

Vincent Randall: “The Uncertainty Monster: Lessons from Non-Orthodox Economics“, Climate Etc., July 5, 2017

Related posts:

Modeling Is Not Science
Microeconomics and Macroeconomics
Why the “Stimulus” Failed to Stimulate
Baseball Statistics and the Consumer Price Index
The Keynesian Multiplier: Phony Math
Further Thoughts about the Keynesian Multiplier
The Wages of Simplistic Economics
The Essence of Economics
Economics and Science
Economists As Scientists
Mathematical Economics
Economic Modeling: A Case of Unrewarded Complexity
Economics from the Bottom Up
Unorthodox Economics: 1. What Is Economics?
Unorthodox Economics: 2. Pitfalls
Unorthodox Economics: 3. What Is Scientific about Economics?
Unorthodox Economics 4: A Parable of Political Economy

Roundup: Civil War, Solitude, Transgenderism, Academic Enemies, and Immigration

Civil War II

Are Americans really in the midst of Civil War II or a Cold Civil War? It has seemed that way for many years. I have written about it in “A New (Cold) Civil War or Secession?”, “The Culture War“, “Polarization and De-facto Partition“, and “Civil War?“.* Andrew Sullivan, whom I quit following several years ago for reasons that are evident in the following quotation (my irrepressible comments are in boldface and bracketed), has some provocative things to say about the situation:

Certain truths about human beings have never changed. We are tribal creatures in our very DNA; we have an instinctive preference for our own over others, for “in-groups” over “out-groups”; for hunter-gatherers, recognizing strangers as threats was a matter of life and death. We also invent myths and stories to give meaning to our common lives. Among those myths is the nation — stretching from the past into the future, providing meaning to our common lives in a way nothing else can. Strip those narratives away, or transform them too quickly, and humans will become disoriented. Most of us respond to radical changes in our lives, especially changes we haven’t chosen, with more fear than hope. We can numb the pain with legal cannabis or opioids, but it is pain nonetheless.

If we ignore these deeper facts about ourselves, we run the risk of fatal errors. It’s vital to remember that multicultural, multiracial, post-national societies are extremely new for the human species [but they are not “societies”], and keeping them viable and stable is a massive challenge. Globally, social trust is highest in the homogeneous Nordic countries, and in America, Pew has found it higher in rural areas than cities. The political scientist Robert Putnam has found that “people living in ethnically diverse settings appear to ‘hunker down,’ that is, to pull in like a turtle.” Not very encouraging about human nature — but something we can’t wish away, either. In fact, the American elite’s dismissal of these truths, its reduction of all resistance to cultural and demographic change as crude “racism” or “xenophobia,” only deepens the sense of siege many other Americans feel….

… Within the space of 50 years, America has gone from segregation to dizzying multiculturalism; … from homosexuality as a sin [or dangerous aberration] to homophobia as a taboo; from Christianity being the common culture to a secularism no society has ever sustained before ours [but mainly within the confines of the internet-media-academic complex, except where they have successfully enlisted government in the task of destroying social norms]….

And how can you seriously regard our political system and culture as worse than ever before in history? How self-centered do you have to be to dismiss the unprecedented freedom for women, racial minorities, and homosexuals? [How self-centered to you have to be to dismiss the fact that much of that “unprecedented freedom” has been bought at the expense of freedom of speech, freedom of association, property rights, and advancement based on merit — things that are at the very heart of liberty?]….

If the neo-reactionaries were entirely right, the collapse of our society would surely have happened long before now [Strawman alert: How does Sullivan know when “society” would have collapsed?]. But somehow, an historically unprecedented mix of races and cultures hasn’t led to civil war in the United States. [Not a shooting war, but a kind of civil war nevertheless.] … America has assimilated so many before, its culture churning into new forms, without crashing into incoherence. [Strawman alert 2: “America”, note being a “society”, doesn’t have a “culture”. But some “cultures” (e.g., welfare-dependency, “hate whitey”, drugs, political correctness) are ascendant, for those with eyes to see.] [“The Reactionary Temptation“, New York, April 30, 2017]

All in all, I would say that Mr. Sullivan protests too much. He protests so much that he confirms my view that America is smack in the middle of a Cold Civil War. (Despite that, and the fatuousness of Mr. Sullivan’s commentary, I am grateful to him for a clear explanation of the political philosophy of Leo Strauss,** the theme of which had heretofore been obscure to me.)

For other, more realistic views of the current state of affairs, see the following (listed in chronological order):

David French, “A Blue State ‘Secession’ Model I Can Get Behind” (National Review, March 19, 2017)

Daniel Greenfield, “The Civil War Is Here” (Frontpage Magazine, March 27, 2017)

Daniel Greenfield, “Winning the Civil War of Two Americas” (Frontpage Magazine, April 4, 2017)

Rick Moran, “War Between U.S. Government and Sanctuary Cities Heating Up” (American Thinker, April 10, 2017)

Angelo M. Codevilla, “The Cold Civil War” (Claremont Review of Books, April 25, 2017)


Solitude for the Masses

Paul Kingsworth reviews Michael Harris’s Solitude in “The End of Solitude: In a Hyperconnected World, Are We Losing the Art of Being Alone?” (New Statesman, April 26, 2017):

Harris has an intuition that being alone with ourselves, paying attention to inner silence and being able to experience outer silence, is an essential part of being human….

What happens when that calm separateness is destroyed by the internet of everything, by big-city living, by the relentless compulsion to be with others, in touch, all the time? Plenty of people know the answer already, or would do if they were paying attention to the question. Nearly half of all Americans, Harris tells us, now sleep with their smartphones on their bedside table, and 80 per cent are on their phone within 15 minutes of waking up. Three-quarters of adults use social networking sites regularly. But this is peanuts compared to the galloping development of the so-called Internet of Things. Within the next few years, anything from 30 to 50 billion objects, from cars to shirts to bottles of shampoo, will be connected to the net. The internet will be all around you, whether you want it or not, and you will be caught in its mesh like a fly. It’s not called the web for nothing….

What is the problem here? Why does this bother me, and why does it bother Harris? The answer is that all of these things intrude upon, and threaten to destroy, something ancient and hard to define, which is also the source of much of our creativity and the essence of our humanity. “Solitude,” Harris writes, “is a resource.” He likens it to an ecological niche, within which grow new ideas, an understanding of the self and therefore an understanding of others.

The book is full of examples of the genius that springs from silent and solitary moments. Beethoven, Dostoevsky, Kafka, Einstein, Newton – all developed their ideas and approach by withdrawing from the crowd….

Yet it is not only geniuses who have a problem: ordinary minds like yours and mine are threatened by the hypersocial nature of always-on urbanity….

So, what is to be done about all this? That’s the multibillion-dollar question, but it is one the book cannot answer. Harris spends many pages putting together a case for the importance of solitude and examining the forces that splinter it today….

Under the circumstances – and these are our circumstances – the only honest conclusion to draw is that the problem, which is caused primarily by the technological direction of our society, is going to get worse. There is no credible scenario in which we can continue in the same direction and not see the problem of solitude, or lack of it, continue to deepen….

… Short of a collapse so severe that the electricity goes off permanently, there is no escape from what the tech corporations and their tame hive mind have planned for us. The circle is closed, and the net is being hauled in. May as well play another round of Candy Crush while we wait to be dragged up on to the deck.

Well, the answer doesn’t lie in the kind of defeatism exemplified by Harris (whose book is evidently full of diagnosis and empty of remedy) or Kingsworth. It’s up to each person to decide whether or not to enlarge his scope of solitude or be defeated by the advance of technology and the breakdown of truly human connections.

But it’s not an all-or-nothing choice. Compromise is obviously necessary when it comes to making a living these days. That still leaves a lot of room for the practice of solitude, the practice and benefits of which I have addressed in “Flow“, “In Praise of Solitude“, “There’s Always Solitude“, and “The Glory of the Human Mind“.


More about the Transgender Fad

Is the transgender fad fading away, or is it just that I’m spending more time in solitude? Anyway, is was reminded of the fad by “Most Children Who Identify As Transgender Are Faking It, Says ‘Gender Clinic’ Psychiatrist” (The College Fix, April 17, 2017). It’s a brief post and the title tells the tale. So I’ll turn to my own post on the subject, “The Transgender Fad and Its Consequences“. Following a preamble and some long quotations from authoritative analysis of transgenderism, I continue with this:

Harm will come not only to  those who fall prey to the transgender delusion, but also to those who oppose its inevitable manifestations:

  • mandatory sex mingling in bathrooms, locker rooms, and dorm rooms — an invitation to predators and a further weakening of the norms of propriety that help to instill respect toward other persons
  • quotas for hiring self-described transgender persons, and for admitting them to universities, and for putting them in the ranks of police and armed forces, etc.
  • government-imposed penalties for saying “hateful and discriminatory” things about gender, the purpose of which will be to stifle dissent about the preceding matters
  • government-imposed penalties for attempts to exercise freedom of association, which is an unenumerated right under the Constitution that, properly understood, includes the right to refuse business from anyone at any time and for any reason (including but far from limited to refusing to serve drug-addled drag queens whose presence will repel other customers)….

How did America get from the pre-Kinsey view of sex as a private matter, kept that way by long-standing social norms, to the let-it-all-hang-out (literally) mentality being pushed by elites in the media, academy, and government?

I attribute much of it to the capitalist paradox. Capitalism — a misnomer for an economic system that relies mainly on free markets and private-property rights — encourages innovation, entrepreneurship, and economic growth. One result is that a “capitalist” economy eventually produces enough output to support large numbers of persons who don’t understand that living off the system and regulating it heavily will bring it down….

The social paradox is analogous to the capitalist paradox. Social relations are enriched and made more productive by the toleration of some new behaviors. But to ensure that a new behavior is enriching and productive, it must be tested in the acid of use.* Shortcuts — activism cloaked in academese, punditry, and political posturing — lead to the breakdown of the processes by which behaviors become accepted because they are enriching and productive.

In sum, the capitalist paradox breeds the very people who are responsible for the social paradox: those who are rich enough to be insulated from the vicissitudes of daily life, where living among and conversing with similar folk reinforces a distorted view of the real world.

It is the cossetted beneficiaries of capitalism who lead the way in forcing Americans to accept as “natural” and “of right” behavior that in saner times was rarely engaged in and even more rarely flaunted. That restraint wasn’t just a matter of prudery. It was a matter of two things: respect for others, and the preservation of norms that foster restraint.

How quaint. Avoiding offense to others, and teaching one’s children that normal behavior helps them to gain the acceptance and trust of others. Underlying those understood motivations was a deeper one: Children are susceptible creatures, easily gulled and led astray — led into making mistakes that will haunt them all their lives. There was, in those days, an understanding that “one thing leads to another.”…

… If the Kennedy Court of Social Upheaval continues to hold sway, its next “logical” steps  will be to declare the illegality of sexual identifiers and the prima facie qualification of any person for any job regardless of “its” mental and physical fitness for the job….

… [T[he parents of yesteryear didn’t have to worry about the transgender fad, but they did have to worry about drinking, drug-taking, and sex. Not everyone who “experimented” with those things went on to live a life of dissolution, shame, and regret. But many did. And so, too, will the many young children, adolescents, and young adults who succumb to the fad of transgenderism….

When did it all begin to go wrong? See “1963: The Year Zero.”

Thank you for working your way through this very long quotation from my own blog. But it just has to be said again and again: Transgenderism is a fad, a destructive fad, and a fad that is being used by the enemies of liberty to destroy what little of it is left in America.


The Academic Enemies of Liberty

Kurt Schlichter quite rightly says that “Academia Is Our Enemy So We Should Help It Commit Suicide“:

If Animal House were to be rebooted today, Bluto – who would probably be updated into a differently–abled trans being of heft – might ask, “See if you can guess what am I now?” before expelling a whole mass of pus-like root vegetable on the WASPrivileged villains and announcing, “I’m a university – get it?”

At least popping a zit gets rid of the infection and promotes healing. But today, the higher education racket festers on the rear end of our culture, a painful, useless carbuncle of intellectual fraud, moral bankruptcy, and pernicious liberal fascism that impoverishes the young while it subsidizes a bunch of old pinkos who can’t hack it at Real World U….

If traditional colleges performed some meaningful function that only they could perform, then there might be a rationale for them in the 21st Century. But there’s not. What do four-year colleges do today?

Well, they cater to weenies who feel “unsafe” that Mike Pence is speaking to their graduates. Seventy-some years ago, young people that age were feeling unsafe because the Wehrmacht was trying to kill them on Omaha Beach….

And in their quest to ensure their students’ perpetual unemployment, colleges are now teaching that punctuality is a social construct. Somewhere, a Starbucks manager is going to hear from Kaden the Barista that, “I like, totally couldn’t get here for my shift on time because, like intersectionality of my experience as a person of Scandinavianism and stuff. I feel unsafe because of your racist vikingaphobia and tardiness-shaming.”

Academia is pricing itself out of reach even as the antics of its inhabitants annoy and provoke those of us whose taxes already pick up a big chunk of the bill even without the “free college” okie-doke….

The quarter million dollar academic vacation model is economically unsustainable and poisonous to our culture. The world of Animal House was a lot more fun when it didn’t mean preemptive bankruptcy for its graduates and the fostering of a tyrannical training ground for future libfascists. It’s time to get all Bluto on the obsolete boil that is academia; time to give it a squeeze. [Townhall, April 13, 2017]

Cue my post, “Subsidizing the Enemies of Liberty“:

If there is a professional class that is almost solidly aligned against liberty it is the teachers and administrators who control the ideas that are pumped into the minds of students from kindergarten through graduate school. How are they aligned against liberty? Most of them are leftists, which means that they are statists who are dedicated to the suppression of liberty in favor of current left-wing orthodoxies. These almost always include the coddling of criminals, unrequited love for America’s enemies, redistribution of income and jobs toward less-productive (and non-productive) persons, restrictions on speech, and the destruction of civil society’s bulwarks: religion, marriage, and family.

In any event, spending on education in the United States amounted to $1.1 trillion in 2010, about 8 percent of GDP.  Most of that $1.1 trillion — $900 billion, in fact — was spent on public elementary and secondary schools and public colleges and universities. In other words, your tax dollars support the leftists who teach your children and grandchildren to bow at the altar of the state, to placate the enemies of liberty at home and abroad, and to tear down the traditions that have bound people in mutual trust and respect….

And what do tax-paying Americans get for their money? A strong left-wing bias, which is inculcated at universities and spreads throughout public schools (and a lot of private schools). This has been going on, in earnest, since the end of World War II. And, yet, the populace is roughly divided between hard-headed conservatives and squishy-minded “liberals.” The persistence of the divide speaks well for the dominance of nature over nurture. But it does not change the fact that American taxpayers have been subsidizing the enemies of liberty who dominate the so-called education system in this country.

See also “Academic Bias“, “Politics, Sophistry, and the Academy“, “Academic Ignorance“, and John C. Goodman’s “Brownshirts, Subsidized with Your Tax Dollars” (Townhall, May 20, 2017).


The High Cost of Untrammeled Immigration

The third entry in “Not-So-Random Thoughts (XVIII)” is about illegal immigration. It opens with this:

Ten years ago, I posted “An Immigration Roundup”, a collection of 13 posts dated March 29 through September 22, 2006. The bottom line: to encourage and allow rampant illegal immigration borders on social and economic suicide. I remain a hardliner because of the higher crime rate among Hispanics (“Immigration and Crime“), and because of Steven Camarota’s “So What Is the Fiscal and Economic Impact of Immigration?“ [National Review, September 22, 2016].

I suggest that you go to Camarota’s article, which I quote at length, to see the evidence that he has compiled. For more facts — as opposed to leftish magical thinking about immigration — see also “Welfare: Who’s on It, Who’s Not” (Truth Is Justice, April 16, 2017), which draws on

a report called “Welfare Use by Immigrant and Native Households.” The report’s principle finding is that fully 51 percent of immigrant households receive some form of welfare, compared to an already worrisomely high 30 percent of American native households. The study is based on the most accurate data available, the Census Bureau’s Survey of Income and Program Participation (SIPP). It also reports stark racial differences in the use of welfare programs.

I’ll throw in some excerpts:

Needless to say, the percentage of immigrants using some form of welfare varies enormously according to the part of the world from which they come. Rates are highest for households from Central America and Mexico (73 percent), the Caribbean (51 percent), and Africa (48 percent). Those from East Asia (32 percent), Europe (26 percent), and South Asia (17 percent) have the lowest rates….

A majority of native black and Hispanic households are on some form of means-tested welfare, compared to just 23 percent of native white households….

A striking 82 percent of black households with children receive welfare–double the white rate. Hispanic families are not far behind blacks….

Among natives, blacks receive cash handouts at more than three times the white rate; Hispanics at more than twice the white rate. Rates for black and Hispanic immigrants are relatively lower due to often-ignored restrictions on immigrant use of these programs….

Among all households, native blacks and Hispanics receive food handouts at three times the white rate; for Hispanic immigrants, the figure is four times the white rate. Among households with children, nearly all immigrant Hispanics–86 percent–get food aid. Native blacks and Hispanics aren’t far behind, with rates of 75 and 72 percent, respectively.

The takeaway: Tax-paying citizens already heavily subsidize native-born blacks and Hispanics. Adding welfare-dependent immigrants — especially from south of the border — adds injury to injury.

As long as the welfare state exists, immigration should be tightly controlled so that the United States admits only those persons (with their families) who have verifiable offers of employment from employers in the United States. Further, an immigrant’s income should be high enough to ensure that (a) he is unlikely to become dependent on any welfare program (federal, State, or local) and (b) he is likely to pay at least as much in taxes as he is likely to absorb in the way of schooling for his children, Social Security and Medicare benefits, etc.

(See also: Bob le Flambeur, “Against Open Borders“, Rightly Considered, February 8, 2017.)


* Sharp-eyed readers will notice that with this post I am adopting a “new” way of using quotation marks. The American convention is to enclose commas and periods within quotation marks, even where the commas and periods are not part of the quoted text or other material that belongs inside quotation marks (e.g., the title of a post). The American convention creates some ambiguity and awkwardness that is avoided by the British convention, which is to enclose inside quotation marks only that punctuation which is part of the quoted text or other material.

** This is from the article by Sullivan cited in the first section of this post:

[Leo] Strauss’s idiosyncratic genius defies easy characterization, but you could argue, as Mark Lilla did in his recent book The Shipwrecked Mind, that he was a reactionary in one specific sense: A Jewish refugee from Nazi Germany, Strauss viewed modernity as collapsing into nihilism and relativism and barbarism all around him. His response was to go back to the distant past — to the works of Plato, Aristotle, and Maimonides, among others — to see where the West went wrong, and how we could avoid the horrific crimes of the 20th century in the future.

One answer was America, where Strauss eventually found his home at the University of Chicago. Some of his disciples — in particular, the late professor Harry Jaffa — saw the American Declaration of Independence, with its assertion of the self-evident truth of the equality of human beings, as a civilizational high point in human self-understanding and political achievement. They believed it revived the ancient Greek and Roman conception of natural law. Yes, they saw the paradox of a testament to human freedom having been built on its opposite — slavery — but once the post–Civil War constitutional amendments were ratified, they believed that the American constitutional order was effectively set forever, and that the limited government that existed in the late-19th and early-20th centuries required no fundamental change.

Presidents and Economic Growth

There’s an old and recurring claim that Democrat presidents produce greater economic growth than Republican ones. I addressed and debunked such a claim nine years ago, saying this (in part):

Given the long, downward trend in the real rate of GDP growth, it is statistical nonsense to pin the growth rate in any given year to a particular year of a particular president’s term. It is evident that GDP growth has been influenced mainly by the cumulative, anti-growth effects of government regulation. And GDP growth, in any given year, has been an almost-random variation on a downward theme.

How random? This random:


Derived from Bureau of Economic Analysis, “Current dollar and ‘real’ GDP,” as of April 28, 2017.

The one-year lag (which is usual in such analyses) allows for the delayed effects (if any) of a president’s economic policies. The usual suspects are claiming, laughably, that the tepid growth rate in the first calendar quarter of 2017 is somehow Trump’s fault.

Anyway, here’s the real story:

This is an updated version of a graph in “The Rahn Curve Revisited.,” from which the following equation is taken:

Yg = 0.0275 – 0.347F + 0.0769A – 0.000327R – 0.135P , where

Yg = real rate of GDP growth in a 10-year span (annualized)

F = fraction of GDP spent by governments at all levels during the preceding 10 years

A = the constant-dollar value of private nonresidential assets (business assets) as a fraction of GDP, averaged over the preceding 10 years

R = average number of Federal Register pages, in thousands, for the preceding 10-year period

P = growth in the CPI-U during the preceding 10 years (annualized).

Random, short-run fluctuations in GDP growth have almost nothing to do with the policies of a particular president (see the first graph). But there’s nothing random about the steady growth of government spending, the steadier growth of the regulatory burden, and the combined investment-killing and inflationary effects of both (see the second graph).

The long-run trend in GDP growth reflects the cumulative effects of policies carried out by the “deep state” — the apparatus that churns on with little change in direction from president to president: the special interests represented in the many committees of Congress, the Social Security Administration (which also encompasses Medicare and Medicaid), and the entire alphabet soup of federal regulatory agencies. Most of those entities became committed, long ago, to the growth of government spending and regulation. It will take more than a slogan to drain the swamp.

John H. Arnold characterizes war as “long periods of boredom punctuated by short moments of excitement.” I would say that the economy of the United States has been on a long slide into stagnation punctuated by brief periods of misplaced optimism.

How to Pay for Streets and Highways

Tolls. Yes, everyone hates them. That’s an overstatement, of course. I love toll roads, as do a lot of people who either enjoy the less-stressful experience of driving on them or just want to get somewhere faster than they otherwise could.

Tolls are the way to go, because: Users — and only users — should pay for roads, in accordance with the frequency with which they use them and the amount of wear and tear to which they subject them. Sure, there are some taxes that are supposed to pay for streets and highways, but they don’t cover the full cost cost of construction and maintenance, and they’re often diverted to other uses.

It’s a simple matter to issue everyone a registration sticker that includes a toll tag. Big rigs get one kind of tag (which charges at the highest rate), and so on down to motorcycles and bicycles. Yes, that means you, the traffic-clogging bicyclist. From now on you’ll have to pay for the privilege of mixing with motor vehicles or cavorting in your own little-used lane, It’s a privilege that contributes to congestion by reducing the space available for motor-vehicle lanes and flow-enhancing features (e.g., turning lanes).

With mandatory toll tags, there would be no more mail-in payments, which means no more deadbeats. Everyone who wants to use a public highway would have to register a valid payment method: credit card, debit card, or direct debit to a checking account. No checking account? Too bad. Take the bus. If you don’t have a checking account, you probably can’t afford auto insurance. So you’re driving without it, and driving up other people’s insurance rates.

What about all the tag readers that would be required? I forgot to mention that registration stickers would have GPS trackers embedded in them.

Problem solved, except for the matter of “privacy,” that all-purpose excuse for the subversion of social norms. But “privacy” worshipers might be persuaded to go along, given these considerations:

  • “Unnecessary” trips would be discouraged, thus reducing the use of fossil fuels.
  • Businesses, as buyers of goods shipped over highways, would pay their “fair share.” (The cost of tolls would be passed on to customers, of course, but that wouldn’t negate the feel-good effect for anti-business crowd.)
  • “Sprawl” would be discouraged.
  • “Buy local” would be encouraged.
  • Internet retail would grow even faster than it has been growing (a negation of the preceding point, but the “buy local” crowd wouldn’t notice), which would further reduce the use of fossil fuels.

I suspect that the net effect of all this would be next to zero, but it would please me no end if users (and only users) paid for roads, and if bicyclists were forced to pay for the privilege of adding to traffic congestion — and for their smugness.

Another Thought about Prices

Prices are invaluable signals to buyers and sellers. When government acts to abolish prices (in effect) by commanding them (as in the minimum wage and edicts against “price gouging”), or when it interferes with the signals through regulation (as in whether certain products and services may be imported), it robs buyers and sellers of options, and thus diminishes their well-being.

But prices aren’t everything. This is from “A Man for No Seasons“:

[T]oo many economists justify free markets on utilitarian grounds, that is, because free markets produce more (i.e., are more efficient) than regulated markets. This happens to be true, but free markets can and should be justified mainly because they are free, that is, because they allow individuals to pursue otherwise lawful aims through voluntary, mutually beneficial exchanges of products and services. Liberty is a principle, a deep value; economic efficiency is merely a byproduct of adherence to that value.

In fact, prices only reflect marginal valuations of things. Both Joe and I might be willing to part with $2 for a gallon of gasoline, but that coincidence says nothing about the utility that Joe and I gain (separately) from the use of the gasoline. In sum, prices aren’t a guide to the well-being of an individual person, let alone millions of disparate persons whose values are incommensurable. (This is one reason why GDP doesn’t mean much.)

Here’s a good case in point. In an area that’s growing rapidly, real-estate prices tend to rise rapidly. That’s a boon to home owners, right? Not necessarily. It’s not a boon to homeowners who strongly prefer to stay where they are. It usually means that the cost of staying where they are rises: higher property taxes, more noise and traffic, more crime, etc. Even taking into account the higher prices that they (or their heirs) will one day realize when their homes are sold, many (perhaps most) of them will feel worse off — and will be worse off, materially.

No one promised them a rose garden, did they? Of course not. And I would be the last person to suggest that they be “made whole,” which would require burdening other persons with higher taxes.

My point is that prices are an uncertain and often misleading guide to the well-being of persons who aren’t involved in the transactions that are represented by prices. And prices provide only a glimpse of the fleeting and idiosyncratic valuations placed on those transactions by those who engage in them.

Institutional Bias

Arnold Kling:

On the question of whether Federal workers are overpaid relative to private sector workers, [Justin Fox] writes,

The Federal Salary Council, a government advisory body composed of labor experts and government-employee representatives, regularly finds that federal employees make about a third less than people doing similar work in the private sector. The conservative American Enterprise Institute and Heritage Foundation, on the other hand, have estimated that federal employees make 14 percent and 22 percent more, respectively, than comparable private-sector workers….

… Could you have predicted ahead of time which organization’s “research” would find a result favorable to Federal workers and which organization would find unfavorable results? Of course you could. So how do you sustain the belief that normative economics and positive economics are distinct from one another, that economic research cleanly separates facts from values?

I saw institutional bias at work many times in my career as an analyst at a tax-funded think-tank. My first experience with it came in the first project to which I was assigned. The issue at hand was a hot one on those days: whether the defense budget should be altered to increase the size of the Air Force’s land-based tactical air (tacair)  forces while reducing the size of Navy’s carrier-based counterpart. The Air Force’s think-tank had issued a report favorable to land-based tacair (surprise!), so the Navy turned to its think-tank (where I worked). Our report favored carrier-based tacair (surprise!).

How could two supposedly objective institutions study the same issue and come to opposite conclusions? Analytical fraud abetted by overt bias? No, that would be too obvious to the “neutral” referees in the Office of the Secretary of Defense. (Why “neutral”? Read this.)

Subtle bias is easily introduced when the issue is complex, as the tacair issue was. Where would tacair forces be required? What payloads would fighters and bombers carry? How easy would it be to set up land bases? How vulnerable would they be to an enemy’s land and air forces? How vulnerable would carriers be to enemy submarines and long-range bombers? How close to shore could carriers approach? How much would new aircraft, bases, and carriers cost to buy and maintain? What kinds of logistical support would they need, and how much would it cost? And on and on.

Hundreds, if not thousands, of assumptions underlay the results of the studies. Analysts at the Air Force’s think-tank chose those assumptions that favored the Air Force; analysts at the Navy’s think-tank chose those assumptions that favored the Navy.

Why? Not because analysts’ jobs were at stake; they weren’t. Not because the Air Force and Navy directed the outcomes of the studies; they didn’t. They didn’t have to because “objective” analysts are human beings who want “their side” to win. When you work for an institution you tend to identify with it; its success becomes your success, and its failure becomes your failure.

The same was true of the “neutral” analysts in the Office of the Secretary of Defense. They knew which way Mr. McNamara leaned on any issue, and they found themselves drawn to the assumptions that would justify his biases.

And so it goes. Bias is a rampant and ineradicable aspect of human striving. It’s ever-present in the political arena The current state of affairs in Washington, D.C., is just the tip of the proverbial iceberg.

The prevalence and influence of bias in matters that affect hundreds of millions of Americans is yet another good reason to limit the power of government.

Not-So-Random Thoughts (XX)

An occasional survey of web material that’s related to subjects about which I’ve posted. Links to the other posts in this series may be found at “Favorite Posts,” just below the list of topics.

In “The Capitalist Paradox Meets the Interest-Group Paradox,” I quote from Frédéric Bastiat’s “What Is Seen and What Is Not Seen“:

[A] law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

This might also be called the law of unintended consequences. It explains why so much “liberal” legislation is passed: the benefits are focused a particular group and obvious (if overestimated); the costs are borne by taxpayers in general, many of whom fail to see that the sum of “liberal” legislation is a huge tax bill.

Ross Douthat understands:

[A] new paper, just released through the National Bureau of Economic Research, that tries to look at the Affordable Care Act in full. Its authors find, as you would expect, a substantial increase in insurance coverage across the country. What they don’t find is a clear relationship between that expansion and, again, public health. The paper shows no change in unhealthy behaviors (in terms of obesity, drinking and smoking) under
Obamacare, and no statistically significant improvement in self-reported health since the law went into effect….

[T]he health and mortality data [are] still important information for policy makers, because [they] indicate[] that subsidies for health insurance are not a uniquely death-defying and therefore sacrosanct form of social spending. Instead, they’re more like other forms of redistribution, with costs and benefits that have to be weighed against one another, and against other ways to design a safety net. Subsidies for employer-provided coverage crowd out wages, Medicaid coverage creates benefit cliffs and work disincentives…. [“Is Obamacare a Lifesaver?The New York Times, March 29, 2017]

So does Roy Spencer:

In a theoretical sense, we can always work to make the environment “cleaner”, that is, reduce human pollution. So, any attempts to reduce the EPA’s efforts will be viewed by some as just cozying up to big, polluting corporate interests. As I heard one EPA official state at a conference years ago, “We can’t stop making the environment ever cleaner”.

The question no one is asking, though, is “But at what cost?

It was relatively inexpensive to design and install scrubbers on smokestacks at coal-fired power plants to greatly reduce sulfur emissions. The cost was easily absorbed, and electricty rates were not increased that much.

The same is not true of carbon dioxide emissions. Efforts to remove CO2 from combustion byproducts have been extremely difficult, expensive, and with little hope of large-scale success.

There is a saying: don’t let perfect be the enemy of good enough.

In the case of reducing CO2 emissions to fight global warming, I could discuss the science which says it’s not the huge problem it’s portrayed to be — how warming is only progressing at half the rate forecast by those computerized climate models which are guiding our energy policy; how there have been no obvious long-term changes in severe weather; and how nature actually enjoys the extra CO2, with satellites now showing a “global greening” phenomenon with its contribution to increases in agricultural yields.

But it’s the economics which should kill the Clean Power Plan and the alleged Social “Cost” of Carbon. Not the science.

There is no reasonable pathway by which we can meet more than about 20% of global energy demand with renewable energy…the rest must come mostly from fossil fuels. Yes, renewable energy sources are increasing each year, usually because rate payers or taxpayers are forced to subsidize them by the government or by public service commissions. But global energy demand is rising much faster than renewable energy sources can supply. So, for decades to come, we are stuck with fossil fuels as our main energy source.

The fact is, the more we impose high-priced energy on the masses, the more it will hurt the poor. And poverty is arguably the biggest threat to human health and welfare on the planet. [“Trump’s Rollback of EPA Overreach: What No One Is Talking About,” Roy Spencer, Ph.D.[blog], March 29, 2017]

*     *     *

I mentioned the Benedict Option in “Independence Day 2016: The Way Ahead,” quoting Bruce Frohnen in tacit agreement:

[Rod] Dreher has been writing a good deal, of late, about what he calls the Benedict Option, by which he means a tactical withdrawal by people of faith from the mainstream culture into religious communities where they will seek to nurture and strengthen the faithful for reemergence and reengagement at a later date….

The problem with this view is that it underestimates the hostility of the new, non-Christian society [e.g., this and this]….

Leaders of this [new, non-Christian] society will not leave Christians alone if we simply surrender the public square to them. And they will deny they are persecuting anyone for simply applying the law to revoke tax exemptions, force the hiring of nonbelievers, and even jail those who fail to abide by laws they consider eminently reasonable, fair, and just.

Exactly. John Horvat II makes the same point:

For [Dreher], the only response that still remains is to form intentional communities amid the neo-barbarians to “provide an unintentional political witness to secular culture,” which will overwhelm the barbarian by the “sheer humanity of Christian compassion, and the image of human dignity it honors.” He believes that setting up parallel structures inside society will serve to protect and preserve Christian communities under the new neo-barbarian dispensation. We are told we should work with the political establishment to “secure and expand the space within which we can be ourselves and our own institutions” inside an umbrella of religious liberty.

However, barbarians don’t like parallel structures; they don’t like structures at all. They don’t co-exist well with anyone. They don’t keep their agreements or respect religious liberty. They are not impressed by the holy lives of the monks whose monastery they are plundering. You can trust barbarians to always be barbarians. [“Is the Benedict Option the Answer to Neo-Barbarianism?Crisis Magazine, March 29, 2017]

As I say in “The Authoritarianism of Modern Liberalism, and the Conservative Antidote,”

Modern liberalism attracts persons who wish to exert control over others. The stated reasons for exerting control amount to “because I know better” or “because it’s good for you (the person being controlled)” or “because ‘social justice’ demands it.”

Leftists will not countenance a political arrangement that allows anyone to escape the state’s grasp — unless, of course, the state is controlled by the “wrong” party, In which case, leftists (or many of them) would like to exercise their own version of the Benedict Option. See “Polarization and De Facto Partition.”

*     *     *

Theodore Dalrymple understands the difference between terrorism and accidents:

Statistically speaking, I am much more at risk of being killed when I get into my car than when I walk in the streets of the capital cities that I visit. Yet this fact, no matter how often I repeat it, does not reassure me much; the truth is that one terrorist attack affects a society more deeply than a thousand road accidents….

Statistics tell me that I am still safe from it, as are all my fellow citizens, individually considered. But it is precisely the object of terrorism to create fear, dismay, and reaction out of all proportion to its volume and frequency, to change everyone’s way of thinking and behavior. Little by little, it is succeeding. [“How Serious Is the Terrorist Threat?City Journal, March 26, 2017]

Which reminds me of several things I’ve written, beginning with this entry from “Not-So-Random Thoughts (VI)“:

Cato’s loony libertarians (on matters of defense) once again trot out Herr Doktor Professor John Mueller. He writes:

We have calculated that, for the 12-year period from 1999 through 2010 (which includes 9/11, of course), there was one chance in 22 million that an airplane flight would be hijacked or otherwise attacked by terrorists. (“Serial Innumeracy on Homeland Security,” Cato@Liberty, July 24, 2012)

Mueller’s “calculation” consists of an recitation of known terrorist attacks pre-Benghazi and speculation about the status of Al-Qaeda. Note to Mueller: It is the unknown unknowns that kill you. I refer Herr Doktor Professor to “Riots, Culture, and the Final Showdown” and “Mission Not Accomplished.”

See also my posts “Getting It All Wrong about the Risk of Terrorism” and “A Skewed Perspective on Terrorism.”

*     *     *

This is from my post, “A Reflection on the Greatest Generation“:

The Greatest tried to compensate for their own privations by giving their children what they, the parents, had never had in the way of material possessions and “fun”. And that is where the Greatest Generation failed its children — especially the Baby Boomers — in large degree. A large proportion of Boomers grew up believing that they should have whatever they want, when they want it, with no strings attached. Thus many of them divorced, drank, and used drugs almost wantonly….

The Greatest Generation — having grown up believing that FDR was a secular messiah, and having learned comradeship in World War II — also bequeathed us governmental self-indulgence in the form of the welfare-regulatory state. Meddling in others’ affairs seems to be a predilection of the Greatest Generation, a predilection that the Millenials may be shrugging off.

We owe the Greatest Generation a great debt for its service during World War II. We also owe the Greatest Generation a reprimand for the way it raised its children and kowtowed to government. Respect forbids me from delivering the reprimand, but I record it here, for the benefit of anyone who has unduly romanticized the Greatest Generation.

There’s more in “The Spoiled Children of Capitalism“:

This is from Tim [of Angle’s] “The Spoiled Children of Capitalism“:

The rot set after World War II. The Taylorist techniques of industrial production put in place to win the war generated, after it was won, an explosion of prosperity that provided every literate American the opportunity for a good-paying job and entry into the middle class. Young couples who had grown up during the Depression, suddenly flush (compared to their parents), were determined that their kids would never know the similar hardships.

As a result, the Baby Boomers turned into a bunch of spoiled slackers, no longer turned out to earn a living at 16, no longer satisfied with just a high school education, and ready to sell their votes to a political class who had access to a cornucopia of tax dollars and no doubt at all about how they wanted to spend it….

I have long shared Tim’s assessment of the Boomer generation. Among the corroborating data are my sister and my wife’s sister and brother — Boomers all….

Low conscientiousness was the bane of those Boomers who, in the 1960s and 1970s, chose to “drop out” and “do drugs.”…

Now comes this:

According to writer and venture capitalist Bruce Gibney, baby boomers are a “generation of sociopaths.”

In his new book, he argues that their “reckless self-indulgence” is in fact what set the example for millennials.

Gibney describes boomers as “acting without empathy, prudence, or respect for facts – acting, in other words, as sociopaths.”

And he’s not the first person to suggest this.

Back in 1976, journalist Tom Wolfe dubbed the young adults then coming of age the “Me Generation” in the New York Times, which is a term now widely used to describe millennials.

But the baby boomers grew up in a very different climate to today’s young adults.

When the generation born after World War Two were starting to make their way in the world, it was a time of economic prosperity.

“For the first half of the boomers particularly, they came of age in a time of fairly effortless prosperity, and they were conditioned to think that everything gets better each year without any real effort,” Gibney explained to The Huffington Post.

“So they really just assume that things are going to work out, no matter what. That’s unhelpful conditioning.

“You have 25 years where everything just seems to be getting better, so you tend not to try as hard, and you have much greater expectations about what society can do for you, and what it owes you.”…

Gibney puts forward the argument that boomers – specifically white, middle-class ones – tend to have genuine sociopathic traits.

He backs up his argument with mental health data which appears to show that this generation have more anti-social characteristics than others – lack of empathy, disregard for others, egotism and impulsivity, for example. [Rachel Hosie, “Baby Boomers Are a Generation of Sociopaths,” Independent, March 23, 2017]

That’s what I said.

Kotlikoffian Casuistry

Economist Lawrence Kotlikoff recently opined to this effect in “Is a Loved One Uninsured? So Are You“:

I met former Supreme Court Justice Sandra Day O’Connor shortly after she retired in 2006, years before Obamacare.

We were both speakers at a conference in Washington, D.C. The justice, a person of extraordinary intellect, is generally exceptionally composed. That day she was upset. In her talk on health care she repeatedly asked, “Why can’t a nation as great and prosperous as ours provide health care for all?”

Universal health care wasn’t a Republican issue, so this seemed an unusual question coming from a prominent Republican. During the break, I asked her if someone she knew was uninsured. She said her son. I asked why. She said he couldn’t afford insurance because his child (her grandchild) had a pre-existing condition.

“This means you too are, in effect, uninsured.”

“Precisely. If they need medical care, I will, of course, help pay the bills, which could be enormous.”….

Yes, our current health care system — all of it — is a mess based on its cost and outcomes. But replacing Obamacare with Trumpcare violates the Hippocratic Oath: “First, do no harm.” If enacted, it will leave far more of us uninsured or underinsured, which means it will leave all of us uninsured or underinsured.

This, in turn, means we all need to save more for that unexpected call for help from a relative or friend.

Well, Trumpcare is off the board, for now. But Obamacare is by no means here to stay. It will erode by piecemeal legislation, regulatory discretion, and market-driven changes in health-care and insurance.

In the meantime, however, the Jesuitical Professor Kotlikoff can be expected to push for universal health care (whatever that means) by spewing nonsense like that quoted above.

I have questions for Herr Doctor Professor Kotlikoff:

Where is it written in the Constitution that the central government has the power to regulate and provide health care? (Don’t tell me that it’s in the General Welfare Clause; that clause confers no such power on the central government.)

Why is the health of a person who lives at the other end of the country any of my business? I have my own health to care for, and (possibly) the health of persons dear to me. And I (and they) have other needs. If the health of a stranger is my problem, doesn’t that make my other needs his problem? Where’s the limit?

And why limit yourself to the United States? Why not create a global version of Britain’s National Health Service, which has worked out so well for the British?

What’s wrong with expecting people to save more for their own health-care needs, if not for the health-care needs of friends and relatives? Isn’t that called personal responsibility? And hasn’t it been eroded by Social Security, Medicare, Medicaid, Obamacare, food stamps, etc., etc., etc.?

And why are you, as an economist, so ignorant of the impoverishing consequences of government spending and regulation? Don’t you know that if government had been minimized — held to its proper role as the defender of Americans from foreign and domestic predators — Americans at all income levels could amply afford market-provided, high-quality health care?

Thoughts for the Day

Excerpts of recent correspondence.

Robots, and their functional equivalents in specialized AI systems, can either replace people or make people more productive. I suspect that the latter has been true in the realm of medicine — so far, at least. But I have seen reportage of robotic units that are beginning to perform routine, low-level work in hospitals. So, as usual, the first people to be replaced will be those with rudimentary skills, not highly specialized training. Will it go on from there? Maybe, but the crystal ball is as cloudy as an old-time London fog.

In any event, I don’t believe that automation is inherently a job-killer. The real job-killer consists of government programs that subsidize non-work — early retirement under Social Security, food stamps and other forms of welfare, etc. Automation has been in progress for eons, and with a vengeance since the second industrial revolution. But, on balance, it hasn’t killed jobs. It just pushes people toward new and different jobs that fit the skills they have to offer. I expect nothing different in the future, barring government programs aimed at subsidizing the “victims” of technological displacement.

*      *      *

It’s civil war by other means (so far): David Wasserman, “Purple America Has All but Disappeared” (The New York Times, March 8, 2017).

*      *      *

I know that most of what I write (even the non-political stuff) has a combative edge, and that I’m therefore unlikely to persuade people who disagree with me. I do it my way for two reasons. First, I’m too old to change my ways, and I’m not going to try. Second, in a world that’s seemingly dominated by left-wing ideas, it’s just plain fun to attack them. If what I write happens to help someone else fight the war on leftism — or if it happens to make a young person re-think a mindless commitment to leftism — that’s a plus.

*     *     *

I am pessimistic about the likelihood of cultural renewal in America. The populace is too deeply saturated with left-wing propaganda, which is injected from kindergarten through graduate school, with constant reinforcement via the media and popular culture. There are broad swaths of people — especially in low-income brackets — whose lives revolve around mindless escape from the mundane via drugs, alcohol, promiscuous sex, etc. Broad swaths of the educated classes have abandoned erudition and contemplation and taken up gadgets and entertainment.

The only hope for conservatives is to build their own “bubbles,” like those of effete liberals, and live within them. Even that will prove difficult as long as government (especially the Supreme Court) persists in storming the ramparts in the name of “equality” and “self-creation.”

*     *     *

I correlated Austin’s average temperatures in February and August. Here are the correlation coefficients for following periods:

1854-2016 = 0.001
1875-2016 = -0.007
1900-2016 = 0.178
1925-2016 = 0.161
1950-2016 = 0.191
1975-2016 = 0.126

Of these correlations, only the one for 1900-2016 is statistically significant at the 0.05 level (less than a 5-percent chance of a random relationship). The correlations for 1925-2016 and 1950-2016 are fairly robust, and almost significant at the 0.05 level. The relationship for 1975-2016 is statistically insignificant. I conclude that there’s a positive relationship between February and August temperatures, but weak one. A warm winter doesn’t necessarily presage an extra-hot summer in Austin.

“They Deserve to Die”?

In “Prosperity Isn’t Everything” I quoted Megan McArdle’s observations about how thing have gotten better and worse for Americans. Here’s some of what she wrote:

By the standards of today, my grandparents were living in wrenching poverty. Some of this, of course, involves technologies that didn’t exist—as a young couple in the 1930s my grandparents had less access to health care than the most  neglected homeless person in modern America, simply because most of the treatments we now have had not yet been invented. That is not the whole story, however. Many of the things we now have already existed; my grandparents simply couldn’t afford them.  With some exceptions, such as microwave ovens and computers, most of the modern miracles that transformed 20th century domestic life already existed in some form by 1939. But they were out of the financial reach of most people….

[Not] everything has gotten better in every way, all the time. There are areas in which things have gotten broadly worse….

  • … Substance abuse, and the police response to it, has devastated both urban and rural communities.
  • Divorce broke up millions of families, and while the college educated class seems to have found a new equilibrium of stable and happy later marriages, marriage is collapsing among the majority who do not have a college degree, leaving millions of children in unstable family situations where fathers are often absent from the home, and their attention and financial resources are divided between multiple children with multiple women.
  • Communities are much less cohesive than they used to be, and while the educated elite may have found substitutes online, the rest of the country is “bowling alone” more and more often—which is not merely lonely, but also means they have fewer social supports when they find themselves in trouble.
  • A weekly wage packet may buy more than it did sixty years ago, but the stability of manufacturing jobs is increasingly being replaced by contingent and unreliable shift work that is made doubly and triply difficult by the instability of the families that tend to do these jobs. The inability to plan your life or work in turn makes it hard to form a family, and stressful to keep one together….

Charles Murray writes candidly but not unsympathetically about the plight of low-income white Americans in Coming Apart: The State of White America, 1960-2010:

Drawing on five decades of statistics and research, Coming Apart demonstrates that a new upper class and a new lower class have diverged so far in core behaviors and values that they barely recognize their underlying American kinship—divergence that has nothing to do with income inequality and that has grown during good economic times and bad.

The top and bottom of white America increasingly live in different cultures, Murray argues, with the powerful upper class living in enclaves surrounded by their own kind, ignorant about life in mainstream America, and the lower class suffering from erosions of family and community life that strike at the heart of the pursuit of happiness.

Along comes Kevin D. Williamson of the National Review to pour scorn upon low-income whites. Williamson’s article, which appeared in the print edition of March 28, 2016, was originally titled “The Father-Fuhrer,” a reference to Donald Trump. The online version is called “Chaos in the Family, Chaos in the State: The White Working Class’s Dysfunction.” Written before Trump had clinched the GOP nomination, the piece is a transparent attempt to discredit Trump by discrediting a key source of his support: low-income whites in chronically depressed regions of the country.

Here’s a key passage:

The truth about these dysfunctional, downscale communities is that they deserve to die. Economically, they are negative assets. Morally, they are indefensible. Forget all your cheap theatrical Bruce Springsteen crap. Forget your sanctimony about struggling Rust Belt factory towns and your conspiracy theories about the wily Orientals stealing our jobs…. The white American underclass is in thrall to a vicious, selfish culture whose main products are misery and used heroin needles. Donald Trump’s speeches make them feel good. So does OxyContin. What they need isn’t analgesics, literal or political. They need real opportunity, which means that they need real change, which means that they need U-Haul.

Disgusting.

Scott Grier, writing in The Daily Caller (“National Review Writer: Working-Class Communities ‘Deserve To Die’,” March 12, 2016), seems to share my disgust. He closes with this:

While Williamson blames the people living in run-down white communities for their own woes, he does not apply the same principle to run-down minority communities. In his book and articles on the failures of Detroit, for instance, the National Review writer blames “progressivism” and unions for ruining the predominately African-American city.

Spot on. As I say in “Prosperity Isn’t Everything,”

Let’s begin with social norms, which are the basis of social ties. If you and I observe the same social norms, we’re likely to feel bound in some way, even if we’re not friends or relatives. This, of course, is tribalism, which is verboten among those who view all of mankind as brothers, sisters, and whatevers under the skin — all mankind except smarty-pants Americans of East Asian descent, Israeli Jews and American Jews who support Israel, Southerners (remember the Civil War!), and everyone else who is a straight, non-Hispanic white male of European descent. To such people, the only legitimate tribe is the tribe of anti-tribalism.You may by now understand that I blame leftists for the breakdown of social norms and social ties. But how can that be if, as McArdle says, “the college educated class seems to have found a new equilibrium of stable and happy later marriages”? The college-educated class resides mostly on the left, and affluent leftists do seem to have avoided the rot.

Yes, but they caused it. You could think of it as a non-suicidal act of terror. But it would be kinder and more accurate to call it an act of involuntary manslaughter.  Leftists meant to make the changes that caused the rot; they just didn’t foresee or intend the rot. Nor is it obvious that they care about it, except as an excuse to “solve” social problems from on high by throwing money and behavioral prescriptions at them — which is why there’s social rot in the first place.

The good intentions embedded in governmental acts and decrees have stealthily expanded and centralized government’s power, and in the process have sundered civil society….

The undoing of traditional mores began in earnest in the 1960s, with a frontal assault on traditional morality and the misguided expansion of the regulatory-welfare state. The unraveling continues to this day. Traditional morality is notable in its neglect; social cohesion is almost non-existent, except where the bonds of religion and ethnicity remain strong. The social fabric that once bound vast swaths of America has rotted — and is almost certainly beyond repair.

The social fabric has frayed precisely because government has pushed social institutions aside and made dependents of hundreds of millions of Americans. As Ronald Reagan said in his first inaugural address, “In this present crisis, government is not the solution to our problem, government is the problem.”

Now for an ironic twist. Were the central government less profligate and intrusive, Americans would become much more prosperous.

Clearly, Kevin Williamson wants to distance himself from people who don’t share his elevated norms. In that respect, he’s no different from a sneering, leftist-voting yuppie. If he were truly conservative, he’d have compassion for the people about whom he writes.

But Williamson has shown himself to be a faux conservative: all economic efficiency and no heart.

Unorthodox Economics: 4. A Parable of Political Economy

This is the fourth entry in what I hope will become a book-length series of posts. That result, if it comes to pass, will amount to an unorthodox economics textbook. This first chapter gives a hint of things to come. Here are the chapters that have been posted to date:

1. What Is Economics?
2. Pitfalls
3. What Is Scientific about Economics?
4. A Parable of Political Economy

Imagine a simple society in which Jack and Jill own neighboring farms that are equally endowed in natural resources, tools, and equipment. Jack makes bread and Jill makes butter. Jack also could make butter and Jill also could make bread, but both of them have learned that they are better off if they specialize. Thus:

  • Jack can make 1 loaf of bread or 0.5 pound of butter a day. (The rate of transformation is linear; e.g. Jack could make 0.5 loaf of bread and 0.25 pound of butter daily.)
  • Jill can make 1 loaf of bread or 1 pound of butter a day. (Again, the rate of transformation is linear; Jill could make 0.5 loaf of bread and 0.5 pound of butter daily.)
  • If both Jack and Jill make bread and butter their total daily output might be 1 loaf and 0.75 pounds.
  • Alternatively, if Jack specializes in bread and Jill specializes in butter their total daily output could be 1 loaf and 1 pound.

Jill is more intelligent than Jack, and thus more innovative. That’s why she is able to reap as much wheat and make as much bread as Jack, even though he’s stronger. That’s also why she’s able to produce twice as much butter as Jack.

Jill has an absolute advantage over Jack, in that she can make as much bread as he can, and more butter than he can. But Jack has a comparative advantage in the production of bread; if he specializes in bread and Jill specializes in butter, he and Jill will be better off than if they both produce bread and butter for themselves.

Jack and Jill negotiate the exchange rate between bread and butter. Each ends up with 0.5 loaf of bread; but Jill gets 0.6 pound of butter to Jack’s 0.4 pound. Jill ends up with more butter than Jack because her greater productivity puts in her in superior bargaining position. In sum, she earns more because she produces more.

Jack and Jill have another neighbor, June, who makes clothing. Jack and Jill are more productive when they’re properly clothed during the colder months of the year. So they’re willing to trade some of their output to June, in return for heavy clothing.

Jerry, another neighbor, is a laborer who used to work for Jack and Jill, but has been unemployed for a long time because of Jill’s technological innovations. Jerry barely subsists on the fruit and game that he’s able to find and catch. Jack and Jill would hire Jerry but he insists on a wage that they can’t afford to pay unless they spends less to maintain their equipment, which would eventually result in a lower rate of output.

Along comes Juan, a wanderer from another region, who has nothing to offer but his labor. Juan is willing to work for a lower wage than Jerry, but has to be fed and clothed so that he becomes strong enough to deliver the requisite amount of labor to be worthy of hire.

Jack, Jill, and June meet to discuss Jerry and Juan. They are worried about Jerry because he’s a neighbor whom they’ve known for a long time. They also empathize with Juan’s plight, though they’re not attached to him because he’s a stranger and doesn’t speak their language well.

Jake — the gunslinger hired by Jack, Jill, and June to protect them from marauders — invites himself the meeting and brings Jerry with him. Jake likes to offset his stern image by feigning compassion. He tells Jack and Jill that they have a duty to pay Jerry the wage that he demands. He also requires Jack and Jill to feed and clothe Juan until he’s ready to work, and then they must hire him and pay him the same wage as Jerry. Jack and Jill demur because they can’t afford to do what Jake demands and make enough bread and butter to sustain their families and put something aside for retirement. June, who reacts with great sympathy to every misfortune around her — perceived and real — sides with Jake. Jerry argues that he should be helped, but Juan shouldn’t be helped because he’s just a stranger with a strange accent who’s looking for a handout.

Jake the gunslinger, disregarding Jerry’s reservation about Juan, announces that Jack and Jill must abide by his decision, inasmuch as there are 3 votes for it and only 2 votes against it — and he has the gun.

What happens next? Several things:

Jack and Jill quite properly accuse Jake of breach of contract. He has assumed a power that wasn’t given to him by Jack, Jill, and June when they hired him. Jake merely laughs at them.

Jack, Jill, and June (though she doesn’t understand it) have lost control of their businesses. They can no longer produce their goods efficiently. This means less output, that is less to trade with each other. Less output also means that they won’t be able to invest as much as before in the improvement and expansion of their operations.

June is happy, for the moment, because Jake sided with her. But she will be unhappy when Jake abuses his authority in a way that she disapproves, and when she finally understands what Jake has done to her business.

Jack and Jill have good reason to resent Juan and Jerry for using Jake to coerce them, and June for siding with Jerry and Juan. There is now a rift that will hinder cooperation for mutual benefit (e.g., willingness to help each other in times of illness).

Juan and Jerry have become dependent on Jake, thus undermining their ability to develop marketable skills and good work habits. Their dependency will keep them mired in near-poverty.

In a sane world, Jack and Jill would get rid of Jake, and the others would applaud them for doing it.

*     *     *

Related posts:
The Sentinel: A Tragic Parable of Economic Reality
Liberty, General Welfare, and the State
Monopoly and the General Welfare
Gains from Trade
Trade
A Conversation with Uncle Sam

Cost Disease in the Quasi-Government Sector

What is cost disease? According to Wikipedia, it

is a phenomenon described by William J. Baumol and William G. Bowen in the 1960s. It involves a rise of salaries in jobs that have experienced no increase of labor productivity, in response to rising salaries in other jobs that have experienced the labor productivity growth. This pattern seemingly goes against the theory in classical economics for which real wage growth is closely tied to labor productivity changes.

The rise of wages in jobs without productivity gains is from the requirement to compete for employees with jobs that have experienced gains and so can naturally pay higher salaries, just as classical economics predicts. For instance, if the retail sector pays its managers 19th-century-style salaries, the managers may decide to quit to get a job at an automobile factory, where salaries are higher because of high labor productivity. Thus, managers’ salaries are increased not by labor productivity increases in the retail sector but by productivity and corresponding wage increases in other industries.

There’s a lot more to cost disease than the kind of salary bloat described by Baumol and Bowen. Tyler Cowen addresses it here. Scott Alexander picks up the ball and runs with it here and here. Arnold Kling, as usual, gets to the heart of the matter:

1. At any given time, you will have sectors where demand is growing faster than productivity (think of health care and education) and other sectors where productivity is growing faster than demand (think of manufacturing). In the sectors where demand is growing faster than productivity, you have rising relative prices, or “cost disease.”

2. In health care and education, you also have a lot of government intervention, and government intervention almost always takes the form of subsidizing demand while restricting supply. Of course, that is going to cause relative prices to be higher, thereby exacerbating “cost disease.”

3. I would argue that there are plenty of barriers to competition in the college market. Accreditation is one such barrier. But there are natural incumbent advantages as well. You may be able to enter the market for high school graduates who are in no way prepared for college. But trying to enter the market at the level of a top 100 college is nearly impossible.

4. There are plenty of barriers in health care, also. Clinics are a good innovation, but the real expenses in health care are in chronic illnesses, and clinics do not compete to treat diabetes, Alzheimer’s, and so on.

5. It is in the nature of organizations for middle managers to try to build empires, adding to cost without necessarily creating value. In for-profit businesses, the owners have an incentive to check this, because the owners want to maximize profits. In non-profits, the natural checks operate only when revenues are not rising to cover the cost of expansion. Non-profits only worry about the bottom line when it threatens to go negative.

In short, some “cost disease” is natural. At any given time, some industries will have demand growing faster than productivity. However, much of it is artificial, as government subsidizes demand and restricts supply. Finally, some of it results from the fact that non-profits are less efficient than for-profit firms.

As a former officer of a tax-funded, non-profit, professional services corporation (TNPSC), I know about cost disease in the quasi-government sector of the economy.

First of all Baumol and Bowen’s definition of cost disease as salary bloat, though incomplete, is correct. Because my company — call it XYZ Corp. — derived all of its funds from government sources, our salary policies required the approval of government contracting officers. How did we gain that approval? Every few years XYZ hired a consulting firm that had access to salary data for private-sector companies. The consulting firm would then undertake a “study” to compare private-sector salaries with those of XYZ. Lo and behold, by selecting the right set of private-sector companies and the right set of jobs in those companies, the consulting firm found that XYZ’s salaries lagged, and should be boosted by more than the usual annual rate to keep pace with XYZ’s private-sector “competitors.” XYZ’s above-market benefits package (approved by contracting officers) and below-market turnover rate were conveniently ignored.

A related trick was to set executive salaries so that they kept pace with the salaries of executives at other TNPSCs. And how did the larger TNPSCs justify the high salaries to which XYZ aspired? With “studies” showing that their executive salaries lagged those of their private-sector “competitors.”

It’s a joke to compare salaries paid by relatively stable TNPSCs — organizations that have cozy, long-term relationships with their government sponsors — and salaries paid by private-sector companies. In addition to cushy benefits packages, employees of TNPSCs are well-insulated from competition, unlike their private-sector counterparts. Thus employees of TNPSCs are compensated not only with handsome salaries and benefits, but they also enjoy a high degree of job security. Which is why turnover rates at TNPSCs are low relative to private-sector companies.

How does Kling’s list of reasons for cost disease apply to TNPSCs?

Demand vs. productivity. I’m unfamiliar with the current state of “demand” for (i.e., government spending on) TNPSCs. But over the long haul, since the inception of TNPSCs during World War II, government spending on them has risen by orders of magnitude. It’s probably safe to say that the productivity of TNPSCs has risen little. Advances in computation and data storage have enabled such firms to collect and analyze data pertaining to a broader range of subjects, and to do it more rapidly. But there’s been little real innovation in the tools of analysis, most of which were devised during World War II and the decades immediately following the war. And the basic approach to “solving” the problems of government agencies remains the same as it was in World War II: Define the problem, collect the relevant data, analyze the data to find a preferred solution to the problem, and report the results to the government client. It was and still is a labor-intensive process.

Government intervention and barriers to competition. TNPSCs are formally designated by the government. There are relatively few of them, and most of them have pedigrees that date back to the 1940s, 1950s, and 1960s.

The cozy relationships between TNPSCs and their various government sponsors changed somewhat in the 1990s when profit-seeking professional-services firms declared war on TNPSCs. Some TNPSCs suffered funding cuts as a result, but the cuts were far from fatal and TNPSCs compensated by finding a broader range of government sponsors to maintain them in the style to which they had become accustomed. Some of them spun off for-profit counterparts, with the aid of fees earned on government contracts. More stringent contracting procedures imposed as a result of the war on TNPSCs also forced them to emulate the task-by-task funding of for-profits. But that’s just a cosmetic change; it adds to the cost of running TNPSCs, which the government defrays, of course.

Empire-building. Kling’s analysis is spot-on. Here’s some personal testimony: From the mid-1980s to the mid-1990s, the component of XYZ that I managed grew significantly. Staffing probably doubled, and costs rose accordingly. It wasn’t until 1995, when XYZ suffered funding cuts resulting from the war on TNPSCs, that my empire shrank. I ran the support side of XYZ, which encompassed contracting, accounting, information services, publication services, facility operations, security, computer operations, computer programming, and personnel (called “human resources,” of course). I handed off the computer programming function to another manager, who could sell its services to new clients, and cut the staffing of the other functions by about 20 percent. I did it so that the managers of the research divisions — the ones that do the work for which clients pay — could take much smaller staffing reductions. Did the 20-percent cut in support services hinder the work of the research divisions? Not that I noticed.

Why, then, did I grow the support division? Because I could. That’s empire-building, and I was far from the only empire-builder in XYZ or other TNPSCs. Ambition abounds, and it leads to empire-building for as long as the money is there to support it.

Kling is right. Cost disease prevails where government subsidizes demand and restricts supply. TNPSCs are small potatoes compared with the health-care industry, which is the largest component of the quasi-government sector of the economy. The industry is government subsidized (e.g., through Medicare, Medicaid, and research funding) and sheltered from serious competition by a vast web of laws and regulations. Those laws and regulations also impose heavy cost burdens on health-care providers, their suppliers, drug companies, and insurance companies. But the burdens are defrayed to a large extent by government funding. It’s a vicious cycle that’s largely responsible for the high cost of health care in the United States.

It’s even worse in the official government sector, which includes the vast federal apparatus, all manner of State and local agencies, public schools and universities (and heavily endowed private ones) — and myriad contractors to all of the foregoing. Massive cost overruns, dismal performance, administrative bloat, pension-fund raids on the public treasury (i.e., taxpayers), open-ended “entitlement” programs, etc., etc., etc.  It’s the non-accountability swamp. And the only way to drain it is to say “no” — period, full stop, end of discussion.

Prosperity Isn’t Everything

There is no denying that per-capita income rises with specialization and trade; for example:

  • A is a farmer with land that’s good for growing fruit trees; B is a farmer with land that’s good for raising cattle.
  • The total output of both apples and butter will be greater if A specializes in growing apples and B specializes in making butter than if both A and B grew apples and made butter.
  • A and B can then trade apples for butter so that of them is better off than he would have been in the absence of specialization and trade.

Sometimes A and B live in different cities, different States, and different countries. If the raison d’etre of specialization and trade is the maximization of income, it would be foolish to exclude international trade while allowing inter-State and inter-city trade. (Note that the preceding sentence begins with if.)

The combination of specialization, trade, invention, innovation, and entrepreneurship has wrought much good. Here’s Megan McArdle’s testimony:

By the standards of today, my grandparents were living in wrenching poverty. Some of this, of course, involves technologies that didn’t exist—as a young couple in the 1930s my grandparents had less access to health care than the most  neglected homeless person in modern America, simply because most of the treatments we now have had not yet been invented. That is not the whole story, however. Many of the things we now have already existed; my grandparents simply couldn’t afford them.  With some exceptions, such as microwave ovens and computers, most of the modern miracles that transformed 20th century domestic life already existed in some form by 1939. But they were out of the financial reach of most people.

If America today discovered a young couple where the husband had to drop out of high school to help his father clean tons of unsold, rotted produce out of their farm’s silos, and now worked a low-wage, low-skilled job, was living in a single room with no central heating and a single bathroom to share for two families, who had no refrigerator and scrubbed their clothes by hand in a washtub, who had serious conversations in low voices over whether they should replace or mend torn clothes, who had to share a single elderly vehicle or make the eight-mile walk to town  … that family would be the subject of a three-part Pulitzer prizewinning series on Poverty in America.

But in their time and place, my grandparents were a boring bourgeois couple, struggling to make ends meet as everyone did, but never missing a meal or a Sunday at church. They were excited about the indoor plumbing and electricity which had just been installed on his parents’ farm, and they were not too young to marvel at their amazing good fortune in owning an automobile. In some sense they were incredibly deprived, but there are millions of people in America today who are incomparably better off materially, and yet whose lives strike us (and them) as somehow objectively more difficult.

Much of that is true of my parents, who were of the same generation as McArdle’s grandparents. More of it is true of my maternal grandmother, who was born in 1880, wed in 1903, bore and raised ten children, and was widowed at the age of 60. I remember well the years before she reached the age of 70; until then she cooked on a wood-fired range, pumped water from a well in her backyard, and went to the outhouse for calls of nature. And yet, the following things, and much more, came to pass in her lifetime: alternating-current electricity, a telephone in most homes (though my grandmother lacked one until she was in her 70s), automobiles (though she never learned to drive), airplanes (she first flew at the age of 93), movies, radio, movies with sound, television (she never owned one), radar, penicillin, vaccinations against various debilitating diseases, electric typewriters, and early transistorized computers.

Because my dominant memories of my grandmother and her way of life in a small village are boyhood memories, it’s tempting to characterize them as nostalgic and somewhat romanticized. But I know that she was more or less typical of the residents of her village. Though she was far from rich, she wasn’t poor by the standards of the village. She certainly didn’t feel impoverished or resentful about her lack of material goods.

Today, however, relatively poor people in America have far, far more in the way of material goods than my grandmother ever dreamt of owning, yet they are anxious and even miserable, because… Here’s McArdle’s view:

[Not] everything has gotten better in every way, all the time. There are areas in which things have gotten broadly worse….

  • … Substance abuse, and the police response to it, has devastated both urban and rural communities.
  • Divorce broke up millions of families, and while the college educated class seems to have found a new equilibrium of stable and happy later marriages, marriage is collapsing among the majority who do not have a college degree, leaving millions of children in unstable family situations where fathers are often absent from the home, and their attention and financial resources are divided between multiple children with multiple women.
  • Communities are much less cohesive than they used to be, and while the educated elite may have found substitutes online, the rest of the country is “bowling alone” more and more often—which is not merely lonely, but also means they have fewer social supports when they find themselves in trouble.
  • A weekly wage packet may buy more than it did sixty years ago, but the stability of manufacturing jobs is increasingly being replaced by contingent and unreliable shift work that is made doubly and triply difficult by the instability of the families that tend to do these jobs. The inability to plan your life or work in turn makes it hard to form a family, and stressful to keep one together….
  • Widespread credit has democratized large purchases like furniture and cars. It has also enabled many people, particularly financially marginal people, to get into serious trouble.  Debt magnifies your life experience: when things are going relatively well, it gives you more options, but when things are going badly, it can turn a setback into a catastrophe—as many, many families found out in 2008….

This list illustrates why public policy seems to be struggling to come up with a plan of attack against our current insecurities. The welfare state is relatively good at giving people money: you collect the taxes, write a check, and now people have money. The welfare state has proven very bad at giving people stable jobs and stable families, a vibrant community life, promising career tracks, or a cure for their drug addiction. No wonder so many hopes now seem to be pinned on early childhood education, far in excess of the evidence to support them: it is the only thing we have not already tried and failed at.

But I think this list illustrates the poverty of trying to measure living standards by staring at median wages. Many of the changes of the last century show up in that statistic, but others, like the time no longer spent plucking chickens, or the joys of banishing lye from the pantry, appear nowhere.  Nor do the changes in job and family structure that have made the lives of people who are indisputably vastly materially richer than my young grandparents were, nonetheless feel much more precarious.

Where did it all go wrong? And I do believe that it went wrong. I say that as a man who has lived more than his three-score and ten years, remains in good health, lives comfortably, has a loving wife of 52 years, has two fine children and twelve joyous grandchildren, and is by nature an optimistic achiever who isn’t easily thrown off course by a setback.

It didn’t go wrong because of globalization, though globalization may have hastened the rot. It didn’t go wrong because of prosperity per se, though it was helped by the fevered pursuit of prosperity. It went wrong because of the fraying of the social ties that bound much of America for so long — even with the Civil War and its decades-long residue of bitterness.

Why did those ties fray? And why are they now weaker than than have been since the eve of the Civil War?

Let’s begin with social norms, which are the basis of social ties. If you and I observe the same social norms, we’re likely to feel bound in some way, even if we’re not friends or relatives. This, of course, is tribalism, which is verboten among those who view all of mankind as brothers, sisters, and whatevers under the skin — all mankind except smarty-pants Americans of East Asian descent, Israeli Jews and American Jews who support Israel, Southerners (remember the Civil War!), and everyone else who is a straight, non-Hispanic white male of European descent. To such people, the only legitimate tribe is the tribe of anti-tribalism.

You may by now understand that I blame leftists for the breakdown of social norms and social ties. But how can that be if, as McArdle says, “the college educated class seems to have found a new equilibrium of stable and happy later marriages”? The college-educated class resides mostly on the left, and affluent leftists do seem to have avoided the rot.

Yes, but they caused it. You could think of it as a non-suicidal act of terror. But it would be kinder and more accurate to call it an act of involuntary manslaughter.  Leftists meant to make the changes that caused the rot; they just didn’t foresee or intend the rot. Nor is it obvious that they care about it, except as an excuse to “solve” social problems from on high by throwing money and behavioral prescriptions at them — which is why there’s social rot in the first place.

The good intentions embedded in governmental acts and decrees have stealthily expanded and centralized government’s power, and in the process have sundered civil society. Walter Williams puts it this way in “Culture and Social Pathology” (creators.com, June 16, 2015):

A civilized society’s first line of defense is not the law, police and courts but customs, traditions, rules of etiquette and moral values. These behavioral norms — mostly transmitted by example, word of mouth and religious teachings — represent a body of wisdom distilled over the ages through experience and trial and error. They include important thou-shalt-nots, such as thou shalt not murder, thou shalt not steal and thou shalt not cheat. They also include all those courtesies that have traditionally been associated with ladylike and gentlemanly conduct.

The failure to fully transmit these values and traditions to subsequent generations represents one of the failings of what journalist Tom Brokaw called “The Greatest Generation.” People in this so-called great generation, who lived during the trauma of the Great Depression and fought World War II, not only failed to transmit the moral values of their parents but also are responsible for government programs that will deliver economic chaos….

For nearly three-quarters of a century, the nation’s liberals have waged war on traditional values, customs and morality. Our youths have been counseled that there are no moral absolutes. Instead, what’s moral or immoral is a matter of personal opinion. During the 1960s, the education establishment began to challenge and undermine lessons children learned from their parents and Sunday school with fads such as “values clarification.” So-called sex education classes are simply indoctrination that undermines family and church strictures against premarital sex. Lessons of abstinence were considered passe and replaced with lessons about condoms, birth control pills and abortions. Further undermining of parental authority came with legal and extralegal measures to assist teenage abortions with neither parental knowledge nor parental consent….

If it were only the economic decline threatening our future, there might be hope. It’s the moral decline that spells our doom.

The undoing of traditional mores began in earnest in the 1960s, with a frontal assault on traditional morality and the misguided expansion of the regulatory-welfare state. The unraveling continues to this day. Traditional morality is notable in its neglect; social cohesion is almost non-existent, except where the bonds of religion and ethnicity remain strong. The social fabric that once bound vast swaths of America has rotted — and is almost certainly beyond repair.

The social fabric has frayed precisely because government has pushed social institutions aside and made dependents of hundreds of millions of Americans. As Ronald Reagan said in his first inaugural address, “In this present crisis, government is not the solution to our problem, government is the problem.”

Now for an ironic twist. Were the central government less profligate and intrusive, Americans would become much more prosperous.

*     *     *

Related posts:
Social Norms and Liberty
Whiners — Left and Libertarian
The Adolescent Rebellion Syndrome
“Intellectuals and Society”: A Review
Government vs. Community
The Left’s Agenda
The Left and Its Delusions
The Destruction of Society in the Name of “Society”
The Spoiled Children of Capitalism
Politics, Sophistry, and the Academy
Society and the State
Are You in the Bubble?
The Culture War
Ruminations on the Left in America
God-Like Minds
Non-Judgmentalism as Leftist Condescension
An Addendum to (Asymmetrical) Ideological Warfare
Democracy, Human Nature, and the Future of America
1963: The Year Zero
Society
How Democracy Works
“Cheerful” Thoughts
How Government Subverts Social Norms
Turning Points
The Twilight’s Last Gleaming?
How America Has Changed

Unorthodox Economics: 3. What Is Scientific about Economics?

This is the third entry in what I hope will become a book-length series of posts. That result, if it comes to pass, will amount to an unorthodox economics textbook. Here are the chapters that have been posted to date:

1. What Is Economics?
2. Pitfalls
3. What Is Scientific about Economics?
4. A Parable of Political Economy

Perhaps the biggest pitfall that awaits an economist, student of economics, or reader of economic literature is the belief that economics is a science because of its mathematical and statistical content. David S. D’Amato takes a clear-headed view in “Is Economics a Hard Science?” (The American Spectator, January 4, 2017):

[E]conomists and social scientists are gathering and analyzing statistical data constantly. [But] those data are limited by the density of the causal atmosphere of the environment from which they emerge, a rich and variable sea of causes and effects. Isolating one or even a few factors becomes impossible.

As Jim Manzi explains in his book Uncontrolled, “[W]e can never be sure that any experiment actually has controlled for every possible alternative cause of an outcome.” And while this is, of course, true in every field of inquiry, the problem is especially acute within the social sciences, so-called. That’s because, as Manzi observes, “human social organizations have a causal density that dwarfs anything astrophysics considers.”…

For any given observable phenomenon, the scientist must attempt to parse a convoluted web of actual and potential causes. Unable to control the experiment, its environmental inputs, groups, etc., the social scientist is unable to know whether the hypothesis being tested has been confirmed. This causal density means economic data must always be the subject of several competing explanations, informed by ideology and extra-economic social theory…

…The great classical liberal political economist Jean-Baptiste Say foresaw the complacency of today’s economists, their tendency to oversell the power of data and mathematics. Anticipating the praxeology of Ludwig von Mises, Say held the proper foundations for economics are “the rigorous deductions of undeniable general facts,” not “new particular fact[s]” (i.e., statistics), but basic laws of human action….

If empirical data are often too messy, too causally intricate, without the help of a philosophical or interpretative framework, then mathematical models are in a sense too neat to tell us very much about reality; they reduce enormously complex concepts and arguments about economic behavior to sterile formulae. Sometimes this is useful, as in the case of an economic model that explains the relationship between supply and demand. But as economists address their model-building processes to more difficult questions, the serviceability of the models diminishes. And if we are to believe the critics of “mathiness,” whom we can find all over the spectrum of ideas, the preoccupation with practically useless mathematical models has all but completely overtaken the economics profession.

Mathematical models, agglomerations of equations using multivariable calculus, are, it turns out, not a language suited to the task of describing something as dynamic as human behavior. Among the axioms of modern economics is the idea that economic value is something assigned to good and services subjectively by individual buyers and sellers. As Austrian School economists frequently point out, there is an irreducible subjectivity at the heart of all economic action. This explanation of value in terms of subjective preference and marginal utility replaced classical theories that made value a function of the quantities of labor expended during a good’s production. If value subjectivism holds, then, for example, one’s partiality for Chicago-style pizza as opposed to New York-style pizza is simply not the kind of preference that can be quantified. There is, as the saying goes, no accounting for taste.

It’s a simple example, but it points to a much more general and far-reaching truth: Formal logic and mathematics are not a stable foundation for the economist. This has been borne out by the inability of computer models to anticipate the movements of actual markets. For all their complex mathematics and pretensions to rigorousness, these models rely on crude oversimplifications. As New York University economist Mario J. Rizzo notes, “Ceteris paribus prediction is prediction of ‘stylized facts,’” whose connection to the real world is tenuous at best.

Yet, as Arnold Kling explains in “An Important Emerging Economic Paradigm” (TCS Daily, March 2, 2005), many (perhaps most) economists have lost sight of the axioms of economics in their misplaced zeal to emulate the methods of the physical sciences:

The most distinctive trend in economic research over the past hundred years has been the increased use of mathematics. In the wake of Paul Samuelson’s (Nobel 1970) Ph.D dissertation, published in 1948, calculus became a requirement for anyone wishing to obtain an economics degree. By 1980, every serious graduate student was expected to be able to understand the work of Kenneth Arrow (Nobel 1972) and Gerard Debreu (Nobel 1983), which required mathematics several semesters beyond first-year calculus.

Today, the “theory sequence” at most top-tier graduate schools in economics is controlled by math bigots. As a result, it is impossible to survive as an economics graduate student with a math background that is less than that of an undergraduate math major. In fact, I have heard that at this year’s American Economic Association meetings, at a seminar on graduate education one professor quite proudly said that he ignored prospective students’ grades in economics courses, because their math proficiency was the key predictor of their ability to pass the coursework required to obtain an advanced degree.

The raising of the mathematical bar in graduate schools over the past several decades has driven many intelligent men and women (perhaps women especially) to pursue other fields. The graduate training process filters out students who might contribute from a perspective of anthropology, biology, psychology, history, or even intense curiosity about economic issues. Instead, the top graduate schools behave as if their goal were to produce a sort of idiot-savant, capable of appreciating and adding to the mathematical contributions of other idiot-savants, but not necessarily possessed of any interest in or ability to comprehend the world to which an economist ought to pay attention.

. . . The basic question of What Causes Prosperity? is not a question of how trading opportunities play out among a given array of goods. Instead, it is a question of how innovation takes place or does not take place in the context of institutional factors that are still poorly understood.

Economic models usually are clothed in the language of mathematics and statistics. But those aren’t scientific disciplines in themselves; they are tools of science. Expressing a theory in mathematical terms may lend the theory a scientific aura, but a theory couched in mathematical terms is not a scientific one unless (a) it can be tested against facts yet to be ascertained and events yet to occur, and (b) it is found to accord with those facts and events consistently, by rigorous statistical tests. In sum, modeling is not science.

Economics is a science only to the extent that it yields empirically valid insights about  specific economic phenomena (e.g., the effects of laws and regulations on the prices and outputs of specific goods and services). The Keynesian multiplier, about which I’ll say more in a later chapter, is not a scientific theory. It is a hypothesis that rests on a simplistic, hydraulic view of the economic system. (Other examples of pseudo-scientific economic theories are the labor theory of value and historical determinism.)

A scientific theory is a hypothesis that has thus far been confirmed by observation, and which has not yet been refuted (falsified) by observation.* (The Keynesian multiplier has been falsified.) Every scientific theory rests eventually on axioms: self-evident principles that are accepted as true without proof. Economics, as D’Amato notes, is no exception. It rests on these self-evident axioms:

1. Each person strives to maximize his or her sense of satisfaction, which may also be called well-being, happiness, or utility (an ugly word favored by economists). Striving isn’t the same as achieving, of course, because of lack of information, emotional decision-making, buyer’s remorse, etc

2. Happiness can and often does include an empathic or expedient concern for the well-being of others; that is, one’s happiness may be served by what is usually labelled altruism or self-sacrifice.

3. Happiness can be and often is served by the attainment of non-material ends. Not all persons (perhaps not even most of them) are interested in the maximization of wealth, that is, claims on the output of goods and services. In sum, not everyone is a wealth maximizer. (But see axiom number 12.)

4. The feeling of satisfaction that an individual derives from a particular product or service is situational — unique to the individual and to the time and place in which the individual undertakes to acquire or enjoy the product or service. Generally, however, there is a (situationally unique) point at which the acquisition or enjoyment of additional units of a particular product or service during a given period of time tends to offer less satisfaction than would the acquisition or enjoyment of units of other products or services that could be obtained at the same cost.

5. The value that a person places on a product or service is subjective. Products and services don’t have intrinsic values that apply to all persons at a given time or period of time.

6. The ability of a person to acquire products and services, and to accumulate wealth, depends (in the absence of third-party interventions) on the valuation of the products and services that are produced in part or whole by the person’s labor (mental or physical), or by the assets that he owns (e.g., a factory building, a software patent). That valuation is partly subjective (e.g., consumers’ valuation of the products and services, an employer’s qualitative evaluation of the person’s contributions to output) and partly objective (e.g., an employer’s knowledge of the price commanded by a product or service, an employer’s measurement of an employees’ contribution to the quantity of output).

7. The persons and firms from which products and services flow are motivated by the acquisition of income, with which they can acquire other products and services, and accumulate wealth for personal purposes (e.g., to pass to heirs) or business purposes (e.g., to expand the business and earn more income). So-called profit maximization (seeking to maximize the difference between the cost of production and revenue from sales) is a key determinant of business decisions but far from the only one. Others include, but aren’t limited to, being a “good neighbor,” providing employment opportunities for local residents, and underwriting philanthropic efforts.

8. The cost of production necessarily influences the price at which a good or and service will be offered for sale, but doesn’t solely determine the price at which it will be sold. Selling price depends on the subjective valuation of the products or service, prospective buyers’ incomes, and the prices of other products and services, including those that are direct or close substitutes and those to which users may switch, depending on relative prices.

9. The feeling of satisfaction that a person derives from the acquisition and enjoyment of the “basket” of products and services that he is able to buy, given his income, etc., doesn’t necessarily diminish, as long as the person has access to a great variety of products and services. (This axiom and axiom 12 put paid to the myth of diminishing marginal utility of income.)

10. Work may be a source of satisfaction in itself or it may simply be a means of acquiring and enjoying products and services, or acquiring claims to them by accumulating wealth. Even when work is satisfying in itself, it is subject to the “law” of diminishing marginal satisfaction.

11. Work, for many (but not all) persons, is no longer be worth the effort if they become able to subsist comfortably enough by virtue of the wealth that they have accumulated, the availability of redistributive schemes (e.g., Social Security and Medicare), or both. In such cases the accumulation of wealth often ceases and reverses course, as it is “cashed in” to defray the cost of subsistence (which may be far more than minimal).

12. However, there are not a few persons whose “work” is such a great source of satisfaction that they continue doing it until they are no longer capable of doing so. And there are some persons whose “work” is the accumulation of wealth, without limit. Such persons may want to accumulate wealth in order to “do good” or to leave their heirs well off or simply for the satisfaction of running up the score. The justification matters not. There is no theoretical limit to the satisfaction that a particular person may derive from the accumulation of wealth. Moreover, many of the persons (discussed in axiom 11) who aren’t able to accumulate wealth endlessly would do so if they had the ability and the means to take the required risks.

13. Individual degrees of satisfaction (happiness, etc.) are ephemeral, nonquantifiable, and incommensurable. There is no such thing as a social welfare function that a third party (e.g., government) can maximize by taking from A to give to B. If there were such a thing, its value would increase if, for example, A were to punch B in the nose and derive a degree of pleasure that somehow more than offsets the degree of pain incurred by B. (The absurdity of a social-welfare function that allows As to punch Bs in their noses ought to be enough shame inveterate social engineers into quietude — but it won’t. They derive great satisfaction from meddling.) Moreover, one of the primary excuses for meddling is that income (and thus wealth) has a  diminishing marginal utility, so it makes sense to redistribute from those with higher incomes (or more wealth) to those who have less of either. Marginal utility is, however, unknowable (see axioms 4 and 5), and may not always be negative (see axioms 9 and 12).

14. Whenever a third party (government, do-gooders, etc.) intervene in the affairs of others, that third party is merely imposing its preferences on those others. The third party sometimes claims to know what’s best for “society as a whole,” etc., but no third party can know such a thing. (See axiom 13.)

15. It follows from axiom 13 that the welfare of “society as a whole” can’t be aggregated or measured. An estimate of the monetary value of the economic output of a nation’s economy (Gross Domestic Product) is by no means an estimate of the welfare of “society as a whole.”

That may seem like a lot of axioms, which might give you pause about my claim that some aspects of economics are scientific. But economics is inescapably grounded in axioms such as the ones that I propound, just as much of modern physics is inescapably grounded in the principle of uniformity.**

It is important to distinguish between axioms, which are self-evidently true, and biases that stem from normative views of what ought to be. Behavioral economists, for example, see the world through the lens of wealth-and-utility-maximization. Their great crusade is to force everyone to make rational decisions (by their lights), through “nudging.” It almost goes without saying that government should be the nudger-in-chief. (See “The Perpetual Nudger” and the many posts linked to therein.)

Other economists — though not as many as in the past — are obsessed by monopoly and oligopoly (the domination of a market by one or a few sellers). They’re heirs to the trust-busting of the late 1800s and early 1900s, a movement led by non-economists who sought to blame the woes of working-class Americans on the “plutocrats” (Rockefeller, Carnegie, Ford, etc.) who had merely made life better and more affordable for Americans, while also creating jobs for millions of them and reaping rewards for the great financial risks that they took. (See “Monopoly and the General Welfare” and “Monopoly: Private Is Better than Public.”) As it turns out, the biggest and most destructive monopoly of all is the federal government, so beloved and trusted by trust-busters — and too many others. (See “The Rahn Curve Revisited.”)

Nowadays, a lot of economists are preoccupied by income inequality, as if it were something evil and not mainly an artifact of differences in intelligence, ambition, and education, etc. And inequality — the prospect of earning rather grand sums of money — is what drives a lot of economic endeavor, to the benefit of workers and consumers. (See “Mass (Economic) Hysteria: Income Inequality and Related Themes” and the many posts linked to therein.) Remove inequality and what do you get? The Soviet Union and Communist China, in which everyone is equal except party operatives and their families, friends, and favorites. As George Orwell put it in Animal Farm, “all [people] are equal, but some [people] are more equal than others.”

When the inequality-preoccupied economists are confronted by the facts of life, they usually turn their attention from inequality as a general problem to the (inescapable) fact that an income distribution has a top one-percent and top one-tenth of one-percent — as if there were something especially loathsome about people in those categories. (Paul Krugman shifted his focus to the top one-tenth of one percent when he realized that he’s in the top one percent, so perhaps he knows that’s he’s loathsome and wishes to deny it — to himself, at least.)

Crony capitalism is trotted out as a major cause of very high incomes. But that’s hardly a universal cause, given that a lot of very high incomes are earned by athletes and film stars beside whom most investment bankers and CEOs earn slave wages. Moreover, as I’ve said on several occasions, crony capitalists are bright and driven enough to be in the stratosphere of any income distribution. Further, the breeding ground of crony capitalism is the regulatory power of government that makes it possible.

Many economists became such, it would seem, in order to promote big government and its supposed good works — income redistribution being one of them. Joseph Stiglitz and Paul Krugman are two leading exemplars of what I call the New Deal school of economic thought, which amounts to throwing government and taxpayers’ money at every perceived problem, that is, every economic outcome that is deemed unacceptable by accountants of the soul. (See “Accountants of the Soul.”)

Stiglitz and Krugman — both Nobel laureates in economics — are typical “public intellectuals” whose intelligence breeds in them a kind of arrogance. (See “Intellectuals and Society: A Review.”) It’s the kind of arrogance that reveals itself in a penchant for deciding what’s best for others, even beyond the arrogance of behavioral “nudgers.”

New Deal economists like Stiglitz and Krugman carry it a few steps further. They ascribe to government an impeccable character, an intelligence to match their own, and a monolithic will. They then assume that this infallible and wise automaton can and will do precisely what they would do: Create the best of all possible worlds. (See the preceding chapter, in which I discuss the nirvana fallacy.)

I hold economists of the New Deal stripe partly responsible for the swamp of stagnation into which the nation’s economy has descended. (See “Economic Growth Since World War II.”) Largely responsible, of course, are opportunistic if not economically illiterate politicians who pander to rent-seeking, economically illiterate constituencies. (Yes, I’m thinking of pensioners and the many “disadvantaged” groups with which “compassionate” politicians have struck up an alliance of convenience.)

Enough said, for now. Some economics is science. Too much of it is nothing more than special pleading cloaked in the jargon of economics, and pseudo-scientific theorizing overlaid with a veneer of mathematics or statistics.

Caveat lector.
__________
* This is from Karl Popper‘s classic statement of the scientific method. Richard Feynman, a physicist (and real scientist), had a different view. I see Feynman’s view as complementary to Popper’s, not at odds with it. What is “constructive skepticism” (Feynman’s term) but a gentler way of saying that a hypothesis or theory might be falsified and that the act of falsification may point to a better hypothesis or theory?

** The principle of uniformity is a fundamental axiom of modern physics, most notably of Einstein’s special and general theories of relativity. According to the principle of uniformity, for example, if observer B is moving away from observer A at a certain speed, observer A will perceive that he is moving away from observer B at that speed. This statement holds only if A and B can’t see another object. But suppose, for example, there’s an object C that’s visible to A, and which A perceives as stationary. If A sees that B is moving away from C as well as from A, then A will perceive that B is in motion while A is at rest (relative to C, at least). That aside, A still doesn’t have an absolute velocity or direction of travel. Velocity and direction are always relative to an arbitrary reference point.

Unorthodox Economics: 2. Pitfalls

This is the second entry in what I hope will become a book-length series of posts. That result, if it comes to pass, will amount to an unorthodox economics textbook. Here are the chapters that have been posted to date:

1. What Is Economics?
2. Pitfalls
3. What Is Scientific about Economics?
4. A Parable of Political Economy

A person who wants to learn about economics should be forewarned about pernicious tendencies and beliefs — often used unthinkingly and expressed subtly — that lurk in writings and speeches about economics and economic issues. This chapter treats seven such tendencies and beliefs:

  • misuse of probability
  • reductionism
  • nirvana fallacy
  • social welfare
  • romanticizing the state
  • paternalism
  • judging motives instead of results

MISUSE OF PROBABILITY

Probability is seldom invoked in non-technical economics. But when it is, beware of it. A statement about the probability of an event is either (a) a subjective evaluation (“educated” guess) about what is likely to happen or (b) a strict, mathematical statement about the observed frequency of the occurrence of a well-defined random event. I will bet you even money that the first meaning applies in at least six of the next ten times that you read or hear a statement about probability or its cognate “chance,” as in 50-percent chance of rain. And my subjective evaluation is that I have a 90-percent probability of winning the bet.

Let’s take the chance of rain (or snow or sleet, etc.). You may rely heavily on a weather forecaster’s statement about the probability that it will rain today. If the stated probability is high, you may postpone an outing of some kind, or take an umbrella when you leave the house, or wear a water-repellent coat instead of a cloth one, and so on. That’s prudent behavior on your part, even though the weather forecaster’s statement isn’t really probabilistic.

What the weather forecaster is telling you (or relaying to you from the National Weather Service) is a subjective evaluation of the “chance” that it will rain in a given geographic area, based on known conditions (e.g., wind direction, presence of a nearby front, water-vapor imagery). The “chance” may be computed mathematically, but its computation rests on judgments about the occurrence of rain-producing events, such as the speed of a front’s movement and the direction of water-vapor flow. In the end, however, you’re left with only a weather forecaster’s judgment, and it’s up to you to evaluate it and act accordingly.

What about something that involves “harder” numbers, such as the likelihood of winning a lottery (where there’s good information about the number of tickets sold) or casting the deciding vote in an election (where there’s good information about the number of votes that will be cast)? I will continue with the case of voting, which is discussed in chapter 1 as an example of the extent to which economics has spread beyond its former preoccupations with buyers, sellers, and the aggregation of their activities.

An economist named Bryan Caplan has written a lot about voting. For example, he says the following in “Why I Don’t Vote: The Honest Truth” (EconLog, September 13, 2016):

Aren’t we [economists] always advising people to choose their best option, even when their best option is bleak?  Sure, but abstention [from voting] is totally an option.  And while politicians have a clear incentive to ignore we abstainers, only remaining aloof from our polity gives me inner peace.

You could respond, “Inner peace at what price?”  It is only at this point that I invoke the miniscule probability of voter decisiveness.  If I had a 5% chance of tipping an electoral outcome, I might hold my nose, scrupulously compare the leading candidates, and vote for the Lesser Evil.  Indeed, if, like von Stauffenberg, I had a 50/50 shot of saving millions of innocent lives by putting my own in grave danger, I’d consider it.  But I refuse to traumatize myself for a one-in-a-million chance of moderately improving the quality of American governance.  And one-in-a-million is grossly optimistic.

Caplan links to a portion of his lecture notes for a course in the logic of collective action. The notes include this mathematical argument:

III. Calculating the Probability of Decisiveness, I: Mathematics

A. When does a vote matter? At least in most systems, it only matters if it “flips” the outcome of the election.

B. This can only happen if the winner wins by a single vote. In that case, each voter is “decisive”; if one person decided differently, the outcome would change.

C. In all other cases, the voter is not decisive; the outcome would not change if one person decided differently.

D. It is obvious that the probability of casting the decisive vote in a large electorate is extremely small….

H. Now suppose that everyone but yourself votes “for” with probability p – and “against” with probability (1-p).

I. Then from probability theory: caplan-on-voting-probability-of-tie

J. From this formula, we can see that the probability of a tie falls when the number of voters goes up….

K. Intuitively, the more people there are, the less likely one person makes a difference….

IV. Calculating the Probability of Decisiveness, II: Examples

A. What is neat about the above formula is that it allows us to say not just how the probability of decisiveness changes, but how much….

I. Upshot: For virtually any real-world election, the probability of casting the decisive vote is not just small; it is normally infinitesimal. The extreme observation that “You will not affect the outcome of an election by voting” is true for all practical purposes.

J. Even if you were to play around with the formula to increase your estimate a thousand-fold, your estimated answer would remain vanishingly small.

What Caplan and other economists who write in the same vein ignore is the influence of their point of view. It’s self-defeating because it appeals to extremely rationalistic people like Caplan. One aspect of their rationalism is a cold-eyed view of government, namely, that it almost always does more harm than good. That’s a position with which I agree, but it’s a reason to vote rather than abstain. If rationalists like Caplan abstain from voting in large numbers, their abstention may well cause some elections to be won by candidates who favor more government rather than less.

Moreover, Caplan’s argument against voting is really a way of rationalizing his disdain for voting. This is from “Why I Don’t Vote: The Honest Truth”:

My honest answer begins with extreme disgust.  When I look at voters, I see human beings at their hysterical, innumerate worst.  When I look at politicians, I see mendacious, callous bullies.  Yes, some hysterical, innumerate people are more hysterical and innumerate than others.  Yes, some mendacious, callous bullies are more mendacious, callous, and bully-like than others.  But even a bare hint of any of these traits appalls me.  When someone gloats, “Politifact says Trump is pants-on-fire lying 18% of the time, versus just 2% for Hillary,” I don’t want to cheer Hillary.  I want to retreat into my Bubble, where people dutifully speak the truth or stay silent.

Thus demonstrating the confirmation bias in Caplan’s mathematical “proof” of the futility of voting.

Nor is his “proof” really probabilistic. A single event — be it an election, a lottery drawing, of the toss of a fair coin — doesn’t have a probability.  What does it mean to say, for example, that there’s a probability of 0.5 (50 percent) that a tossed coin will come up heads (H), and a probability of 0.5 that it will come up tails (T)? Does such a statement have any bearing on the outcome of a single toss of a coin? No, it doesn’t. The statement is only a shorthand way of saying that in a sufficiently large number of tosses, approximately half will come up H and half will come up T. The result of each toss, however, is a random event — it has no probability. You may have an opinion (or a hunch or a guess) about the outcome of a single coin toss, but it’s only your opinion (hunch, guess). In the end, you have to bet on a discrete outcome.

An election that hasn’t taken place can’t have a probability. There will be opinion polls — a lot of them in the case of a presidential election — but choosing to vote (or not) because of opinion polls can be self-defeating. Take the recent presidential election. Almost all of the polls, including those that forecast the electoral vote as well as the popular vote, had Mrs. Clinton winning over Mr. Trump.

But despite the high “probability” of a victory by Mrs. Clinton, she lost. Why? Because the “ignorant” voters in several swing States turned out in large numbers, while too many pro-Clinton voters evidently didn’t bother to vote. It’s possible that she lost some crucial States because of the abstention of voters who believed the high “probability” that she would win.

The election of 2016 — like every other election — isn’t even close to being something as simple as the toss of a fair coin. And, despite its mathematical precision, a statement about the probability of the next toss of a fair coin is meaningless. It will come up H or it will come up T, but it will not come up 0.5 H or T.

REDUCTIONISM

This subject is more important than probability, so I will say far less about it.

Reductionism is the adoption of a theory or method which holds that a complex idea or system can be completely understood in terms of its simpler components. Most reductionists will defend their theory or method by agreeing that it is simple, if not simplistic. But they will nevertheless adhere to that theory or method because it’s “the best we have.” That claim should remind you of the hoary joke about the drunk who searched for his keys under a street light because he could see the ground there, even though he had dropped the keys half a block away.

Caplan’s adherence to the simplistic, mathematical analysis of voting is a good example of reductionism. Why? Because it omits the crucial influence of group behavior. It also omits other reasons for voting (or not). It certainly omits Caplan’s real reason, which is his “extreme disgust” for voters and the candidates from whom they must choose. Finally, it omits the psychic value of voting — its “feel good” effect.

Economists also are guilty of reductionism when they suggest that persons act rationally only when they pursue the maximization of income or wealth. I’ll say more about that when I get to paternalism.

NIRVANA FALLACY

The nirvana fallacy is the logical error of comparing actual things with unrealistic, idealized alternatives. The actual things usually are the “somethings” about which government is supposed to “do something.” The unrealistic, idealized alternatives are the outcomes sought by the proponents of a particular course of government action.

There is also a pervasive nirvana fallacy about government itself. Government — which is a mere collection of fallible, squabbling, power-lusting humans — is too often thought and spoken of as if it were a kind of omniscient, single-minded, benevolent being that can overcome the forces of nature and human nature which give rise, in the first place, to the “something” about which “something must be done.”

Specific examples of the nirvana fallacy will arise in later chapters of this book.

SOCIAL WELFARE

Wouldn’t you like to arrange the world so that everyone is better off? If you would — and I suspect that most people would — you’d have to define “better off.” Happier, healthier, and wealthier make a good starting point. Of course, you’d have to arrange it so that everyone would be happier and healthier and wealthier in the future as well as in the present. That is, for example, you couldn’t arrange greater happiness at the cost of greater wealth, or at the cost of the greater happiness or wealth of those living today or their descendants.

It’s a tall order isn’t it? In fact, it’s an impossibility. (You might even call it a state of nirvana.) In the real world of limited resources, the best that can happen is that a change of some kind (e.g., the invention of an anti-polio vaccine, hybridization to produce healthier and more abundant crops) makes it possible for many people to be better off — but at a price. There is no free lunch. Someone must bear the costs of devising and implementing beneficial changes. In market economies, those costs are borne by the people who reap the benefits because they (the beneficiaries) voluntarily pay for whatever it is that makes their lives better.

Enter government, whose agents decide such things what lines of medical research to fund, and how much to spend on each line of research. A breakthrough in a line of research might be a boon to millions of Americans. But other millions of Americans — many more millions, in fact — won’t benefit from the breakthrough, though a large fraction of them will have funded the underlying research through taxes extracted from them by force. I say by force because tax collections would decline sharply if it weren’t for the credible threat of heavy fines and imprisonment tax collections.

A voluntary exchange results when each of the parties to the exchange believes that he will be better off as a result of the exchange. An honest voluntary exchange — one in which there is no deception or material lack of information — therefore improves the well-being (welfare) of all parties. An involuntary exchange, as in the case of tax-funded medical research, cannot result make all parties better off. No government agent — or economist, pundit, or politician — can look into the minds of millions of people and say that each of them would willingly donate a certain amount of money to fund this or that government program. And yet, that is the presumption which lies behind government spending.

That presumption is the fallacious foundation of cost-benefit analysis undertaken to evaluate government programs. If the “social benefit” of a program is said to equal or exceed its cost, the program is presumably justified because the undertaking of it would cause “social welfare” to increase. But a “social benefit” — like a breakthrough in medical research — is a always a benefit to some persons, while the taxes paid to elicit the benefit are nothing but a burden to other persons, who have their own problems and priorities.

Why doesn’t the good outweigh the bad? Think of it this way: If a bully punches you in the nose, thus deriving much pleasure at your expense, who is to say that the bully’s pleasure outweighs your pain? Do you believe that there’s a third party who is entitled to say that the result of your transaction with the bully is a heightened state of social welfare? Evidently, there are a lot of voters, economists, pundits, and politician who act as if they believe it.

ROMANTICIZING THE STATE

This section is a corollary to the preceding one.

It is a logical and factual error to apply the collective “we” to Americans, except when referring generally to the citizens of the United States. Other instances of “we” (e.g., “we” won World War II, “we” elected Barack Obama) are fatuous and presumptuous. In the first instance, only a small fraction of Americans still living had a hand in the winning of World War II. In the second instance, Barack Obama was elected by amassing the votes of fewer than 25 percent of the number of Americans living in 2008 and 2012. “We the People” — that stirring phrase from the Constitution’s preamble — was never more hollow than it is today.

Further, the logical and factual error supports the unwarranted view that the growth of government somehow reflects a “national will” or consensus of Americans. Thus, appearances to the contrary (e.g., the adoption and expansion of national “social insurance” schemes, the proliferation of cabinet departments, the growth of the administrative state) a sizable fraction of Americans (perhaps a majority) did not want government to grow to its present size and degree of intrusiveness. And a sizable fraction (perhaps a majority) would still prefer that it shrink in both dimensions. In fact, The growth of government is an artifact of formal and informal arrangements that, in effect, flout the wishes of many (most?) Americans. The growth of government was not and is not the will of “we Americans,” “Americans on the whole,” “Americans in the aggregate,” or any other mythical consensus.

PATERNALISM

Paternalism arises from the same source as “social welfare”; that is, it reflects a presumption that there are some persons who are competent to decide what’s best for other persons. That may be true of parents, but it is most assuredly not true of so-called libertarian paternalists.

Consider an example that’s used to explain libertarian paternalism. Some workers choose “irrationally” — according to libertarian paternalists — when they decline to sign up for an employer’s 401(k) plan. The paternalists characterize the “do not join” option as the default option. In my experience, there is no default option: An employee must make a deliberate choice between joining a 401(k) or not joining it. And if the employee chooses not to join it, he or she must sign a form certifying that choice. That’s not a default, it’s a clear-cut and deliberate choice which reflects the employee’s best judgment, at that time, as to the best way to allocate his or her income. Nor is it an irrevocable choice; it can be revisited annually (or more often under certain circumstances).

But to help employees make the “right” choice, libertarian paternalists would find a way to herd employees into 401(k) plans (perhaps by law). In one variant of this bit of paternalism, an employee is automatically enrolled in a 401(k) and isn’t allowed to opt out for some months, by which time he or she has become used to the idea of being enrolled and declines to opt out.

The underlying notion is that people don’t always choose what’s “best” for themselves. Best according to whom? According to libertarian paternalists, of course, who tend to equate “best” with wealth maximization. They simply disregard or dismiss the truly rational preferences of those who must live with the consequences of their decisions.

Libertarian paternalism incorporates two fallacies. One is what I call the rationality fallacy (a kind of reductionism), the other is the fallacy of central planning.

As for the rationality fallacy, there is simply a lot more to maximizing satisfaction than maximizing wealth. That’s why some couples choose to have a lot of children, when doing so obviously reduces the amount of wealth that they can accumulate. That’s why some persons choose to retire early rather than stay in stressful jobs. Rationality and wealth maximization are two very different things, but a lot of laypersons and too many economists are guilty of equating them.

Nevertheless, many economists do equate rationality and wealth maximization, which leads them to propose schemes for forcing us to act more “rationally.” Such schemes, of course, are nothing more than central planning, dreamt up by self-anointed wise men who seek to impose their preferences on the rest of us. They are, in other words, schemes to maximize that which can’t be maximized: social welfare.

JUDGING MOTIVES INSTEAD OF RESULTS

If a person commits what seems to be an altruistic act, that person may seem to sacrifice something (e.g., a life, a fortune) but the “sacrifice” was that person’s choice. An altruistic act serves an end: the satisfaction of one’s personal values — nothing more, nothing less. There is nothing inherent in a supposedly altruistic act that makes it morally superior to profit-seeking, which is usually thought of as the opposite of altruism.

To illustrate my point I resort to the following bits of caricature:

1. Suppose Mother Teresa’s acts of “sacrifice” were born of rebellion against parents who wanted her to take over their business empire. That is, suppose Mother Teresa derived great satisfaction in defying her parents, and it is that which drove her to impoverish herself and suffer many hardships. The more she “suffered” the more her parents suffered and the happier she became.

2. Suppose Bill Gates really wanted to become a male version of Mother Teresa but his grandmother, on her deathbed, said “Billy, I want you to make the world safe from the Apple computer.” So, Billy went out and did that, for his grandmother’s sake, even though he really wanted to be the male Mother Teresa. Then he wound up being immensely wealthy, much to his regret. But Billy obviously put his affection for or fear of his grandmother above his desire to become a male version of Mother Teresa. He satisfied his personal values. And in doing so, he make life better for millions of people, many millions more than were served by Mother Teresa’s efforts. It’s just that Billy’s efforts weren’t heart-rending, and were seemingly motivated by profit-seeking.

Now, tell me, who is the altruist, my fictional Mother Teresa or my fictional Bill Gates? You might now say Bill Gates. I would say neither; each acted in accordance with her and his personal values. One might call the real Mother Teresa altruistic because her actions seem altruistic, in the common meaning of the word. But one can’t say (for sure) why she took those actions. Suppose that the real Mother Teresa acted as she did not only because she wanted to help the poor but also because she sought spiritual satisfaction or salvation. Would that negate her acts? No, her acts would still be her acts, regardless of their motivation. The same goes for the real Bill Gates.

Results matter more than motivations. (“The road to hell,” and all that.) It is arguable that profit-seekers like the real Bill Gates — and the real John D. Rockefeller, Andrew Carnegie, Henry Ford, and their ilk — brought more happiness to humankind than did Mother Teresa and others of her ilk.

That insight is at least 240 years old. Adam Smith put it this way in The Wealth of Nations (1776):

By pursuing his own interest [a person] frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.

A person who makes a profit makes it by doing something of value for others.

Unorthodox Economics: 1. What Is Economics?

This is the first entry in what I hope will become a book-length series of posts. That result, if it comes to pass, will amount to an unorthodox economics textbook. This first chapter gives a hint of things to come. Here are the chapters that have been posted to date:

1. What is Economics?
2. Pitfalls
3. What Is Scientific about Economics?
4. A Parable of Political Economy

A book about economics should begin by explaining what the author means by the word. Many economists have given many definitions of economics. You can look them up.

Regardless of where it started, economics seems to have become the study of how human beings make choices and how those choices affect them directly (e.g., the demand for and supply of new automobiles, enrollment in an employer’s retirement plan) and indirectly (e.g., the effects of government actions on the income available for the purchase of new automobiles or on the benefits paid out by retirement plans). The parenthetical examples are about choices that usually come with dollar signs attached. And most non-economists probably think of economics as having something (or everything) to do with money – earning it, spending it, making a profit (or not) by making and selling things, adding up the dollar value of items bought and sold to arrive at an estimate of aggregate economic activity, and understanding why the aggregate grows and shrinks, for example.

But there are many economists nowadays who have taken the study of choice into areas that would seem strange to economists of yore. Here’s just one example: voting, as in whether or not to vote and how much time (if any) to spend in the pursuit of information about the candidates or issues on the ballot. Some economists tackle voting as they would any other aspect of economics: by arguing (pro or con) that voting is rational (or irrational) given the amount of time involved (time that could spent on other pursuits, such as making money), the vanishingly small chance that an individual vote will tip the balance in an election (at least in an election where there are more than a few hundred voters), and the effect of the election results on the individual voter’s well-being (usually in terms of money).

On the other hand (as economists are supposedly fond of saying), there are economists who recognize that casting a ballot is a “feel good” act, and that voting is therefore rational if it makes one happier. But that’s only a local, short-run effect. Some economists understand that voting leads to the enactment of policies that harm voters (or many of them), regardless of why they choose to vote. This points to two conclusions: (1) Voting should be discouraged, and (2) the power of government should be curbed so that voters can feel good without causing harm (or as much of it as they do now).

So, which is it? Is voting a waste of time or is it a good use of time if it makes the voter feel good? And is it worse than a waste of time if it leads to harm? This conundrum illustrates a key point about economics (and analysis in general): It leads to conclusions that are built into the assumptions (usually implicit) that guide the economist who studies an issue. If the economist cares about liberty, he is likely to tackle the issue of voting as it affects persons other than the voter. If the economist isn’t interested in liberty – or if he sees it only as a peripheral issue — he is likely to tackle the issue of voting as it affects the voter.

Unfortunately, too many economists take the view that if government can do something to promote economic well-being, it ought to be empowered to do so. But economic well-being is in the eye of the beholder. And in this era of massive redistribution, one person’s benefit is another person’s cost. Who, other than an arrogant economist, presumes to weigh one person’s benefit against another person’s cost? My list begins with the greedy voter who believes that he can get something for nothing; the smug pundit; and the power-hungry, vote-buying politician.

There is much more to be said about the wayward paths taken by economists, and the essays in this book say a lot of it. But more than that, this book is a defense of liberty against economists who – wittingly or not – undermine it. And, ironically, the diminution of liberty results in the diminution of prosperity, which economists claim to love.

In sum economics is fraught with dangerous error. This book is meant as a warning and antidote.