Not-So-Random Thoughts (XXII)

This is a long-overdue entry; the previous one was posted on October 4, 2017. Accordingly, it is a long entry, consisting of these parts:

Censorship and Left-Wing Bias on the Web

The Real Collusion Story

“Suicide” of the West

Evolution, Intelligence, and Race

Will the Real Fascists Please Stand Up?

Consciousness

Empathy Is Over-Rated

“Nudging”



CENSORSHIP AND LEFT-WING BIAS ON THE WEB

It’s a hot topic these days. See, for example, this, this, this, this, and this. Also, this, which addresses Google’s slanting of search results about climate research. YouTube is at it, too.

A lot of libertarian and conservative commentators are loath to demand governmental intervention because the censorship is being committed by private companies: Apple, Facebook, Google, Twitter, YouTube, et al. Some libertarians and conservatives are hopeful that libertarian-conservative options will be successful (e.g., George Gilder). I am skeptical. I have seen and tried some of those options, and they aren’t in the same league as the left-wingers, which have pretty well locked up users and advertisers. (It’s called path-dependence.) And even if they finally succeed in snapping up a respectable share of the information market, the damage will have been done; libertarians and conservatives will have been marginalized, criminalized, and suppressed.

The time to roll out the big guns is now, as I explain here:

Given the influence that Google and the other members of the left-wing information-technology oligarchy exert in this country, that oligarchy is tantamount to a state apparatus….

These information-entertainment-media-academic institutions are important components of what I call the vast left-wing conspiracy in America. Their purpose and effect is the subversion of the traditional norms that made America a uniquely free, prosperous, and vibrant nation….

What will happen in America if that conspiracy succeeds in completely overthrowing “bourgeois culture”? The left will frog-march America in whatever utopian direction captures its “feelings” (but not its reason) at the moment…

Complete victory for the enemies of liberty is only a few election cycles away. The squishy center of the American electorate — as is its wont — will swing back toward the Democrat Party. With a Democrat in the White House, a Democrat-controlled Congress, and a few party switches in the Supreme Court, the dogmas of the information-entertainment-media-academic complex will become the law of the land….

[It is therefore necessary to] enforce the First Amendment against information-entertainment-media-academic complex. This would begin with action against high-profile targets (e.g., Google and a few large universities that accept federal money). That should be enough to bring the others into line. If it isn’t, keep working down the list until the miscreants cry uncle.

What kind of action do I have in mind?…

Executive action against state actors to enforce the First Amendment:

Amendment I to the Constitution says that “Congress shall make no law … abridging the freedom of speech”.

Major entities in the telecommunications, news, entertainment, and education industries have exerted their power to suppress speech because of its content. (See appended documentation.) The collective actions of these entities — many of them government- licensed and government-funded — effectively constitute a governmental violation of the Constitution’s guarantee of freedom of speech (See Smith v. Allwright, 321 U.S. 649 (1944) and Marsh v. Alabama, 326 U.S. 501 (1946).)

And so on. Read all about it here.



THE REAL COLLUSION STORY

Not quite as hot, but still in the news, is Spygate. Collusion among the White House, CIA, and FBI (a) to use the Trump-Russia collusion story to swing the 2016 election to Clinton, and (b) failing that, to cripple Trump’s presidency and provide grounds for removing him from office. The latest twist in the story is offered by Byron York:

Emails in 2016 between former British spy Christopher Steele and Justice Department official Bruce Ohr suggest Steele was deeply concerned about the legal status of a Putin-linked Russian oligarch, and at times seemed to be advocating on the oligarch’s behalf, in the same time period Steele worked on collecting the Russia-related allegations against Donald Trump that came to be known as the Trump dossier. The emails show Steele and Ohr were in frequent contact, that they intermingled talk about Steele’s research and the oligarch’s affairs, and that Glenn Simpson, head of the dirt-digging group Fusion GPS that hired Steele to compile the dossier, was also part of the ongoing conversation….

The newly-released Ohr-Steele-Simpson emails are just one part of the dossier story. But if nothing else, they show that there is still much for the public to learn about the complex and far-reaching effort behind it.

My take is here. The post includes a long list of related — and enlightening — reading, to which I’ve just added York’s piece.



“SUICIDE” OF THE WEST

Less “newsy”, but a hot topic on the web a few weeks back, is Jonah Goldberg’s Suicide of the West. It received mixed reviews. It is also the subject of an excellent non-review by Hubert Collins.

Here’s my take:

The Framers held a misplaced faith in the Constitution’s checks and balances (see Madison’s Federalist No. 51 and Hamilton’s Federalist No. 81). The Constitution’s wonderful design — containment of a strictly limited central government through horizontal and vertical separation of powers — worked rather well until the Progressive Era. The design then cracked under the strain of greed and the will to power, as the central government began to impose national economic regulation at the behest of muckrakers and do-gooders. The design then broke during the New Deal, which opened the floodgates to violations of constitutional restraint (e.g., Medicare, Medicaid, Obamacare,  the vast expansion of economic regulation, and the destruction of civilizing social norms), as the Supreme Court has enabled the national government to impose its will in matters far beyond its constitutional remit.

In sum, the “poison pill” baked into the nation at the time of the Founding is human nature, against which no libertarian constitution is proof unless it is enforced resolutely by a benign power.



EVOLUTION, INTELLIGENCE, AND RACE

Evolution is closely related to and intertwined with intelligence and race. Two posts of mine (here and here) delve some of the complexities. The latter of the two posts draws on David Stove‘s critique of evolutionary theory, “So You Think You Are a Darwinian?“.

Fred Reed is far more entertaining than Stove, and no less convincing. His most recent columns on evolution are here and here. In the first of the two, he writes this:

What are some of the problems with official Darwinism? First, the spontaneous generation of life has not been replicated…. Nor has anyone assembled in the laboratory a chemical structure able to metabolize, reproduce, and thus to evolve. It has not been shown to be mathematically possible….

Sooner or later, a hypothesis must be either confirmed or abandoned. Which? When? Doesn’t science require evidence, reproducibility, demonstrated theoretical possibility? These do not exist….

Other serious problems with the official story: Missing intermediate fossils–”missing links”– stubbornly remain missing. “Punctuated equilibrium,” a theory of sudden rapid evolution invented to explain the lack of fossil evidence, seems unable to generate genetic information fast enough. Many proteins bear no resemblance to any others and therefore cannot have evolved from them. On and on.

Finally, the more complex an event, the less likely it is to  occur by chance. Over the years, cellular mechanisms have been found to be  ever more complex…. Recently with the discovery of epigenetics, complexity has taken a great leap upward. (For anyone wanting to subject himself to such things, there is The Epigenetics Revolution. It is not light reading.)

Worth noting is that  that the mantra of evolutionists, that “in millions and millions and billions of years something must have evolved”–does not necessarily hold water. We have all heard of Sir James Jeans assertion that a monkey, typing randomly, would eventually produce all the books in the British Museum. (Actually he would not produce a single chapter in the accepted age of the universe, but never mind.) A strong case can be made that spontaneous generation is similarly of mathematically vanishing probability. If evolutionists could prove the contrary, they would immensely strengthen their case. They haven’t….

Suppose that you saw an actual monkey pecking at a keyboard and, on examining his output, saw that he was typing, page after page, The Adventures of Tom Sawyer, with no errors.

You would suspect fraud, for instance that the typewriter was really a computer programmed with Tom. But no, on inspection you find that it is a genuine typewriter. Well then, you think, the monkey must be a robot, with Tom in RAM. But  this too turns out to be wrong: The monkey in fact is one. After exhaustive examination, you are forced to conclude that Bonzo really is typing at random.

Yet he is producing Tom Sawyer. This being impossible, you would have to conclude that something was going on that you did not understand.

Much of biology is similar. For a zygote, barely visible, to turn into a baby is astronomically improbable, a suicidal assault on Murphy’s Law. Reading embryology makes this apparent. (Texts are prohibitively expensive, but Life Unfolding serves.) Yet every step in the process is in accord with chemical principles.

This doesn’t make sense. Not, anyway, unless one concludes that something deeper is going on that we do not understand. This brings to mind several adages that might serve to ameliorate our considerable arrogance. As Haldane said, “The world is not only queerer than we think, but queerer than we can think.” Or Fred’s Principle, “The smartest of a large number of hamsters is still a hamster.”

We may be too full of ourselves.

On the subject of race, Fred is no racist, but he is a realist; for example:

We have black football players refusing to stand for the national anthem.  They think that young black males are being hunted down by cops. Actually of  course black males are hunting each other down in droves but black football players apparently have no objection to this. They do not themselves convincingly suffer discrimination. Where else can you get paid six million green ones a year for grabbing something and running? Maybe in a district of jewelers.

The non-standing is racial hostility to whites. The large drop in attendance of games, of television viewership, is racial blowback by whites. Millions of whites are thinking, that, if America doesn’t suit them, football players can afford a ticket to Kenya. While this line of reasoning is tempting, it doesn’t really address the problem and so would be a waste of time.

But what, really, is the problem?

It is one that dare not raise its head: that blacks cannot compete with whites, Asians, or Latin-Americans. Is there counter-evidence? This leaves them in an incurable state of resentment and thus hostility. I think we all know this: Blacks know it, whites know it, liberals know it, and conservatives know it. If any doubt this, the truth would be easy enough to determine with carefully done tests. [Which have been done.] The furious resistance to the very idea of measuring intelligence suggests awareness of the likely outcome. You don’t avoid a test if you expect good results.

So we do nothing while things worsen and the world looks on astounded. We have mob attacks by Black Lives Matter, the never-ending Knockout Game, flash mobs looting stores and subway trains, occasional burning cities, and we do nothing. Which makes sense, because there is nothing to be done short of restructuring the country.

Absolute, obvious, unacknowledged disaster.

Regarding which: Do we really want, any of us, what we are doing? In particular, has anyone asked ordinary blacks, not black pols and race hustlers. “Do you really want to live among whites, or would you prefer a safe middle-class black neighborhood? Do your kids want to go to school with whites? If so, why? Do you want them to? Why? Would you prefer black schools to decide what and how to teach your children? Keeping whites out of it? Would you prefer having only black police in your neighborhood?”

And the big one: “Do you, and the people you actually know in your neighborhood, really want integration? Or is it something imposed on you by oreo pols and white ideologues?”

But these are things we must never think, never ask.

Which brings me to my most recent post about blacks and crime, which is here. As for restructuring the country, Lincoln saw what was needed.

The touchy matter of intelligence — its heritability and therefore its racial component — is never far from my thoughts. I commend to you Gregory Hood’s excellent piece, “Forbidden Research: How the Study of Intelligence is Crippled by Ideology“. Hood mentions some of the scientists whose work I have cited in my writings about intelligence and its racial component. See this page, for example, which give links to several related posts and excerpts of relevant research about intelligence.

As for the racial component, my most recent post on the subject (which provides links to related posts) addresses the question “Why study race and intelligence?”. Here’s why:

Affirmative action and similar race-based preferences are harmful to blacks. But those preferences persist because most Americans do not understand that there are inherent racial differences that prevent blacks, on the whole, from doing as well as whites (and Asians) in school and in jobs that require above-average intelligence. But magical thinkers (like [Professor John] McWhorter) want to deny reality. He admits to being driven by hope: “I have always hoped the black–white IQ gap was due to environmental causes.”…

Magical thinking — which is rife on the left — plays into the hands of politicians, most of whom couldn’t care less about the truth. They just want the votes of those blacks who relish being told, time and again, that they are “down” because they are “victims”, and Big Daddy government will come to their rescue. But unless you are the unusual black of above-average intelligence, or the more usual black who has exceptional athletic skills, dependence on Big Daddy is self-defeating because (like a drug addiction) it only leads to more of the same. The destructive cycle of dependency can be broken only by willful resistance to the junk being peddled by cynical politicians.

It is for the sake of blacks that the truth about race and intelligence ought to be pursued — and widely publicized. If they read and hear the truth often enough, perhaps they will begin to realize that the best way to better themselves is to make the best of available opportunities instead of moaning abut racism and relying on preferences and handouts.



WILL THE REAL FASCISTS PLEASE STAND UP?

I may puke if I hear Trump called a fascist one more time. As I observe here,

[t]he idea … that Trump is the new Hitler and WaPo [The Washington Post] and its brethren will keep us out of the gas chambers by daring to utter the truth (not)…. is complete balderdash, inasmuch as WaPo and its ilk are enthusiastic hand-maidens of “liberal” fascism.

“Liberals” who call conservatives “fascists” are simply engaging in psychological projection. This is a point that I address at length here.

As for Mr. Trump, I call on Shawn Mitchell:

A lot of public intellectuals and writers are pushing an alarming thesis: President Trump is a menace to the American Republic and a threat to American liberties. The criticism is not exclusively partisan; it’s shared by prominent conservatives, liberals, and libertarians….

Because so many elites believe Trump should be impeached, or at least shunned and rendered impotent, it’s important to agree on terms for serious discussion. Authoritarian means demanding absolute obedience to a designated authority. It means that somewhere, someone, has unlimited power. Turning the focus to Trump, after 15 months in office, it’s impossible to assign him any of those descriptions….

…[T]here are no concentration camps or political arrests. Rather, the #Resistance ranges from fervent to rabid. Hollywood and media’s brightest stars regularly gather at galas to crudely declare their contempt for Trump and his deplorable supporters. Academics and reporters lodged in elite faculty lounges and ivory towers regularly malign his brains, judgment, and temperament. Activists gather in thousands on the streets to denounce Trump and his voters. None of these people believe Trump is an autocrat, or, if they do they are ignorant of the word’s meaning. None fear for their lives, liberty, or property.

Still, other elites pile on. Federal judges provide legal backup, contriving frivolous theories to block administrations moves. Some rule Trump lacks even the authority to undo by executive order things Obama himself introduced by executive order. Governors from states like California, Oregon and New York announce they will not cooperate with administration policy (current law, really) on immigration, the environment, and other issues.

Amidst such widespread rebellion, waged with impunity against the constitutionally elected president, the critics’ dark warnings that America faces a dictator are more than wrong; they are surreal and damnable. They are what amounts to the howl of that half the nation still refusing to accept election results it dislikes.

Conceding Trump lacks an inmate or body count, critics still offer theories to categorize him in genus monsterus. The main arguments cite Trump’s patented belligerent personality and undisciplined tweets, his use of executive orders; his alleged obstruction in firing James Comey and criticizing Robert Mueller, his blasts at the media, and his immigration policies. These attacks weigh less than the paper they might be printed on.

Trump’s personality doubtless is sui generis for national office. If he doesn’t occasionally offend listeners they probably aren’t listening. But so what? Personality is not policy. A sensibility is not a platform, and bluster and spittle are not coercive state action. The Human Jerk-o-meter could measure Trump in the 99th percentile, and the effect would not change one law, eliminate one right, or jail one critic.

Executive Orders are misunderstood. All modern presidents used them. There is nothing wrong in concept with executive orders. Some are constitutional some are not. What matters is whether they direct executive priorities within U.S. statutes or try to push authority beyond the law to change the rights and duties of citizens. For example, a president might order the EPA to focus on the Clean Air Act more than the Clean Water Act, or vice versa. That is fine. But, if a president orders the EPA to regulate how much people can water their lawns or what kind of lawns to plant, the president is trying to legislate and create new controls. That is unconstitutional.

Many of Obama’s executive orders were transgressive and unconstitutional. Most of Trump’s executive orders are within the law, and constitutional. However that debate turns out, though, it is silly to argue the issue implicates authoritarianism.

The partisan arguments over Trump’s response to the special counsel also miss key points. Presidents have authority to fire subordinates. The recommendation authored by Deputy Attorney General Rod Rosenstein provides abundant reason for Trump to have fired James Comey, who increasingly is seen as a bitter anti-Trump campaigner. As for Robert Mueller, criticizing is not usurping. Mueller’s investigation continues, but now readily is perceived as a target shoot, unmoored from the original accusations about Russia, in search of any reason to draw blood from Trump. Criticizing that is not dictatorial, it is reasonable.

No doubt Trump criticizes the media more than many modern presidents. But criticism is not oppression. It attacks not freedom of the press but the credibility of the press. That is civically uncomfortable, but the fact is, the war of words between Trump and the media is mutual. The media attacks Trump constantly, ferociously and very often inaccurately as Mollie Hemingway and Glenn Greenwald document from different political perspectives. Trump fighting back is not asserting government control. It is just challenging media assumptions and narratives in a way no president ever has. Reporters don’t like it, so they call it oppression. They are crybabies.

Finally, the accusation that Trump wants to enforce the border under current U.S. laws, as well as better vet immigration from a handful of failed states in the Middle East with significant militant activity hardly makes him a tyrant. Voters elected Trump to step up border enforcement. Scrutinizing immigrants from a handful of countries with known terrorist networks is not a “Muslim ban.” The idea insults the intelligence since there are about 65 majority Muslim countries the order does not touch.

Trump is not Hitler. Critics’ attacks are policy disputes, not examples of authoritarianism. The debate is driven by sore losers who are willing to erode norms that have preserved the republic for 240 years.

Amen.



CONSCIOUSNESS

For a complete change of pace I turn to a post by Bill Vallicella about consciousness:

This is an addendum to Thomas Nagel on the Mind-Body Problem. In that entry I set forth a problem in the philosophy of mind, pouring it into the mold of an aporetic triad:

1) Conscious experience is not an illusion.

2) Conscious experience has an essentially subjective character that purely physical processes do not share.

3) The only acceptable explanation of conscious experience is in terms of physical properties alone.

Note first that the three propositions are collectively inconsistent: they cannot all be true.  Any two limbs entail the negation of the remaining one. Note second that each limb exerts a strong pull on our acceptance. But we cannot accept them all because they are logically incompatible.

This is one hard nut to crack.  So hard that many, following David Chalmers, call it, or something very much like it, the Hard Problem in the philosophy of mind.  It is so hard that it drives some into the loony bin. I am thinking of Daniel Dennett and those who have the chutzpah to deny (1)….

Sophistry aside, we either reject (2) or we reject (3).  Nagel and I accept (1) and (2) and reject (3). Those of a  scientistic stripe accept (1) and (3) and reject (2)….

I conclude that if our aporetic triad has a solution, the solution is by rejecting (3).

Vallicella reaches his conclusion by subtle argumentation, which I will not attempt to parse in this space.

My view is that (2) is false because the subjective character of conscious experience is an illusion that arises from the physical properties of the central nervous system. Consciousness itself is not an illusion. I accept (1) and (3). For more, see this and this.



EMPATHY IS OVER-RATED

Andrew Scull addresses empathy:

The basic sense in which most of us use “empathy” is analogous to what Adam Smith called “sympathy”: the capacity we possess (or can develop) to see the world through the eyes of another, to “place ourselves in his situation . . . and become in some measure the same person with him, and thence from some idea of his sensations, and even feel something which, though weaker in degree, is not altogether unlike them”….

In making moral choices, many would claim that empathy in this sense makes us more likely to care about others and to consider their interests when choosing our own course of action….

Conversely, understanding others’ feelings doesn’t necessarily lead one to treating them better. On the contrary: the best torturers are those who can anticipate and intuit what their victims most fear, and tailor their actions accordingly. Here, Bloom effectively invokes the case of Winston Smith’s torturer O’Brien in Orwell’s Nineteen Eighty-four, who is able to divine the former’s greatest dread, his fear of rats, and then use it to destroy him.

Guest blogger L.P. addressed empathy in several posts: here, here, here, here, here, and here. This is from the fourth of those posts:

Pro-empathy people think less empathetic people are “monsters.” However, as discussed in part 2 of this series, Baron-Cohen, Kevin Dutton in The Wisdom of Psychopaths, and other researchers establish that empathetic people, particularly psychopaths who have both affective and cognitive empathy, can be “monsters” too.

In fact, Kevin Dutton’s point about psychopaths generally being able to blend in and take on the appearance of the average person makes it obvious that they must have substantial emotional intelligence (linked to cognitive empathy) and experience of others’ feelings in order to mirror others so well….

Another point to consider however, as mentioned in part 1, is that those who try to empathize with others by imagining how they would experience another’s situation aren’t truly empathetic. They’re just projecting their own feelings onto others. This brings to mind Jonathan Haidt’s study on morality and political orientation. On the “Identification with All of Humanity Scale,” liberals most strongly endorsed the dimension regarding identification with “everyone around the world.” (See page 25 of “Understanding Libertarian Morality: The psychological roots of an individualist ideology.”) How can anyone empathize with billions of persons about whom one knows nothing, and a great number of whom are anything but liberal?

Haidt’s finding is a terrific example of problems with self-evaluation and self-reported data – liberals overestimating themselves in this case. I’m not judgmental about not understanding everyone in the world. There are plenty of people I don’t understand either. However, I don’t think people who overestimate their ability to understand people should be in a position that allows them to tamper with, or try to “improve,” the lives of people they don’t understand….

I conclude by quoting C. Daniel Batson who acknowledges the prevailing bias when it comes to evaluating altruism as a virtue. This is from his paper, “Empathy-Induced Altruistic Motivation,” written for the Inaugural Herzliya Symposium on Prosocial Motives, Emotions, and Behavior:

[W]hereas there are clear social sanctions against unbridled self-interest, there are not clear sanctions against altruism. As a result, altruism can at times pose a greater threat to the common good than does egoism.



“NUDGING”

I have addressed Richard Thaler and Cass Sunstein’s “libertarian” paternalism and “nudging in many posts. (See this post, the list at the bottom of it, and this post.) Nothing that I have written — clever and incisive as it may be — rivals Deirdre McCloskey’s take on Thaler’s non-Nobel prize, “The Applied Theory of Bossing“:

Thaler is distinguished but not brilliant, which is par for the course. He works on “behavioral finance,” the study of mistakes people make when they talk to their stock broker. He can be counted as the second winner for “behavioral economics,” after the psychologist Daniel Kahneman. His prize was for the study of mistakes people make when they buy milk….

Once Thaler has established that you are in myriad ways irrational it’s much easier to argue, as he has, vigorously—in his academic research, in popular books, and now in a column for The New York Times—that you are too stupid to be treated as a free adult. You need, in the coinage of Thaler’s book, co-authored with the law professor and Obama adviser Cass Sunstein, to be “nudged.” Thaler and Sunstein call it “libertarian paternalism.”*…

Wikipedia lists fully 257 cognitive biases. In the category of decision-making biases alone there are anchoring, the availability heuristic, the bandwagon effect, the baseline fallacy, choice-supportive bias, confirmation bias, belief-revision conservatism, courtesy bias, and on and on. According to the psychologists, it’s a miracle you can get across the street.

For Thaler, every one of the biases is a reason not to trust people to make their own choices about money. It’s an old routine in economics. Since 1848, one expert after another has set up shop finding “imperfections” in the market economy that Smith and Mill and Bastiat had come to understand as a pretty good system for supporting human flourishing….

How to convince people to stand still for being bossed around like children? Answer: Persuade them that they are idiots compared with the great and good in charge. That was the conservative yet socialist program of Kahneman, who won the 2002 Nobel as part of a duo that included an actual economist named Vernon Smith…. It is Thaler’s program, too.

Like with the psychologist’s list of biases, though, nowhere has anyone shown that the imperfections in the market amount to much in damaging the economy overall. People do get across the street. Income per head since 1848 has increased by a factor of 20 or 30….

The amiable Joe Stiglitz says that whenever there is a “spillover” — my ugly dress offending your delicate eyes, say — the government should step in. A Federal Bureau of Dresses, rather like the one Saudi Arabia has. In common with Thaler and Krugman and most other economists since 1848, Stiglitz does not know how much his imagined spillovers reduce national income overall, or whether the government is good at preventing the spill. I reckon it’s about as good as the Army Corps of Engineers was in Katrina.

Thaler, in short, melds the list of psychological biases with the list of economic imperfections. It is his worthy scientific accomplishment. His conclusion, unsupported by evidence?

It’s bad for us to be free.

CORRECTION: Due to an editing error, an earlier version of this article referred to Thaler’s philosophy as “paternalistic libertarianism.” The correct term is “libertarian paternalism.”

No, the correct term is paternalism.

I will end on that note.

Whither the Stock Market?

Drawing on the database maintained by Robert Shiller, author of Irrational Exuberance, I estimated the constant-dollar value of the S&P Composite Index (S&P) with dividends reinvested. The validity of my estimate is confirmed by comparing it with the Wilshire 5000 Total Return Index (WLX), which is based on the reinvestment of dividends in the underlying stocks:

FIGURE 1

“Real” means that the underlying values are inflation-adjusted. The indices are equated to 1 in December 1970 because that is the first month of the WLX.

Shiller uses a cyclically adjusted price-earnings ratio (CAPE) based on the inflation-adjusted value of S&P and earnings on the constituent stocks. Specifically, he uses the current inflation-adjusted price divided by the average of inflation-adjusted earnings for the preceding 10 years. Accordingly, he calls it CAPE-10:

FIGURE 2

What is the relationship between the value of CAPE-10 for a particular month and the total return on the S&P over an extended period? Shiller’s database (which is reconstructed, of course) goes back to January 1871. January 1881 is therefore the date of his earliest CAPE-10 value. This graph shows the relationship between CAPE-10 and total returns for all 15-year periods beginning January 1881 and ending June 2018:

FIGURE 3

There’s an inverse relationship, as you would expect. But it’s a loose one because of marked shifts in the value of CAPE-10.

There’s a much tighter relationship for the “modern” financial era. I trace the beginning of this era to about 1982, when the stock market bottomed (see Figures 1 and 2) while inflation was receding from its post-World War II peak in 1980:

FIGURE 4

Here’s the relationship between CAPE-10 and real, annualized 15-year returns on the S&P since 1982:

FIGURE 5

The current value of CAPE-10 is about 32. If the relationship in Figure 5 holds true for the next 15 years, investors can expect real, annualized returns (with dividends reinvested) of 2 percent to 4 percent on broadly diversified mutual funds and stock portfolios.

Not great, you say? Well, the current real return on Baa-rated corporate bonds is about 1.5 percent. It’s less than that for Aaa-rated bonds, Treasury issues, most CDs, money-market funds, and deposit accounts. So if you’re into buy-and-hold, the stock market isn’t a bad bet. Alternatively, you can try to pick the next “big thing” — Tesla, for example.

Unorthodox Economics: 5. Economic Progress, Microeconomics, and Microeconomics

This is the fifth 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
5. Economic Progress, Microeconomics, and Macroeconomics

What is economic progress? It is usually measured as an increase in gross domestic product (GDP) or, better yet, per-capita GDP. But such measures say nothing about the economic status or progress of particular economic units. In fact, the economic progress of some economic units will be accompanied by the economic regress of others. GDP captures the net monetary effect of those gains and losses. And if the net effect is positive, the nation under study is said to have made economic progress. But that puts the cart of aggregate measures (macroeconomics) before the horse of underlying activity (microeconomics). This chapter puts them in the right order.

The economy of the United States (or any large political entity) consists of myriad interacting units. Some of them contribute to the output of the economy; some of them constrain the output; some of them are a drain upon it. The contributing units are the persons, families, private charities, and business (small and large) that produce economic goods (products and services) which are voluntarily exchanged for the mutual benefit of the trading parties. (Voluntary, private charities are among the contributing units because they help willing donors attain the satisfaction of improving the lot of persons in need. Voluntary charity — there is no other kind — is not a drain on the economy.)

Government is also a contributing unit to the extent that it provides a safe zone for the production and exchange of economic goods, to eliminate or reduce the debilitating effects of force and fraud. The safe zone is international as well as domestic when the principals of the U.S. government have the wherewithal and will to protect Americans’ overseas interests. The provision of a safe zone is usually referred to as the “rule of law”.

Most other governmental functions constrain or drain the economy. Those functions consist mainly of regulatory hindrances and forced “charity,” which includes Social Security, Medicare, Medicaid, and other federal, State, and local “welfare” programs. In “The Rahn Curve Revisited,” I estimate the significant negative effects of regulation and government spending on GDP.

There is a view that government contributes directly to economic progress by providing “infrastructure” (e.g., the interstate highway system) and underwriting innovations that are adopted and adapted by the private sector (e.g., the internet). Any such positive effects are swamped by the negative ones (see “The Rahn Curve Revisited”). Diverting resources to government uses in return for the occasional “social benefit” is like spending one’s paycheck on lottery tickets in return for the occasional $5 winner. Moreover, when government commandeers resources for any purpose — including the occasional ones that happen to have positive payoffs — the private sector is deprived of opportunities to put those resources to work in ways that more directly advance the welfare of consumers.

I therefore dismiss the thrill of occasionally discovering  a gold nugget in the swamp of government, and turn to the factors that underlie steady, long-term economic progress: hard work; smart work; saving and investment; invention and innovation; implementation (entrepreneurship); specialization and trade; population growth; and the rule of law. These are defined in the first section of “Economic Growth Since World War II“.

It follows that economic progress — or a lack thereof — is a microeconomic phenomenon, even though it is usually treated as a macroeconomic one. One cannot write authoritatively about macroeconomic activity without understanding the microeconomic activity that underlies it. Moreover, macroeconomic aggregates (e.g., aggregate demand, aggregate supply, GDP) are essentially meaningless because they represent disparate phenomena.

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

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

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

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

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

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

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

The essential problem is that A and B will derive different kinds and amounts of enjoyment from clothing and food, and those different kinds and amounts of enjoyment cannot be summed in any meaningful way. If meaningful aggregation is impossible for A and B, how can it be possible for an economy that consists of millions of economic actors and an untold, constantly changing, often improving variety of goods and services?

GDP, in other words, is nothing more than what it seems to be on the surface: an estimate of the dollar value of economic output. It is not a measure of “social welfare” because there is no such thing. (See “Social Welfare” in Chapter 2). And yet it is a concept that infests microeconomics and macroeconomics.

Aggregate demand and aggregate supply are nothing but aggregations of the dollar values of myriad transactions. Aggregate demand is an after-the-fact representation of the purchases made by economic units; aggregate supply is an after-the-fact representation of the sales made by economic units. There is no “aggregate demander” or “aggregate supplier”.

Interest rates, though they tend to move in concert, are set at the microeconomic level by lenders and borrowers. Interest rates tend to move in concert because of factors that influence them: inflation, economic momentum, and the supply of money.

Inflation is a microeconomic phenomenon which is arbitrarily estimated by sampling the prices of defined “baskets” of products and services. The arithmetic involved doesn’t magically transform inflation into a macroeconomic phenomenon.

Economic momentum, as measured by changes in GDP, is likewise a microeconomic phenomenon disguised as a macroeconomic, as previously discussed.

The supply of money, over which the Federal Reserve has some control, is the closest thing there is to a truly macroeconomic phenomenon. But the Fed’s control of the supply of money, and therefor of interest rates, is tenuous.

Macroeconomic models of the economy are essentially worthless because they can’t replicate the billions of transactions that are the flesh and blood of the real economy. (See “Economic Modeling: A Case of Unrewarded Complexity“.) One of the simplest macroeconomic models — the Keynesian multiplier — is nothing more than a mathematical trick. (See “The Keynesian Multiplier: Fiction vs. Fact”.)

Macroeconomics is a sophisticated form of mental masturbation — nothing more, nothing less.

Econ 101

Whether you call it economics, econ, or eco — and whether the course number is 1, 10, 101, or something similar — one of the first things you learn (or did learn before PC-ness set in) was that unionization and the minimum wage reduce employment. Why? Because the objective of unionization and the minimum wage is to dictate a wage that is higher than workers would otherwise attain. The result, of course, is that employers will hire fewer workers than they would otherwise hire.

Ed Rensi, former CEO of McDonald’s USA, offers this testimony:

As of 2020, self-service ordering kiosks will be implemented at all U.S. McDonald’s locations. Other chains, including fast-casual brands like Panera and casual-dining brands like Chili’s, have already embraced this trend. Some restaurant concepts have even automated the food-preparation process; earlier this year, NBC News profiled “Flippy,” a robot hamburger flipper. Other upcoming concepts include virtual restaurants which eliminate the need for full-service restaurants (and staff) by only offering home delivery….

My concern about this is personal. Without my opportunity to start as a grill man, I would have never ended up running one of largest fast food chains in the world. I started working at McDonald’s making the minimum wage of 85 cents an hour. I worked hard and earned a promotion to restaurant manager within just one year, then went on to hold almost every position available throughout the company, eventually rising to CEO of McDonalds USA.

The kind of job that allowed me and many others to rise through the ranks is now being threatened by a rising minimum wage that’s pricing jobs out of the market. Without sacrificing food quality or taste, or abandoning the much-loved value menu, franchise owners must keep labor costs under control. One way to combat rising labor costs is by reducing the amount of employees needed.

Low-skill workers have to start somewhere. Unionization and the minimum wage kill entry-level jobs. This should be taught in 9th grade social studies (or whatever it’s called now), but it won’t be because the unionized lefties who control public schools wouldn’t allow it. They are greedy, hypocritical idiots who proclaim compassion for the poor while ensuring that they stay poor.

(H/T Dyspepsia Generation)


Related posts:
A Short Course in Economics
Addendum to a Short Course in Economics
Does the Minimum Wage Increase Unemployment?
The Public-School Swindle (a parallel treatment of the effects of unionization on teachers’ wages and employment)
Why I Am Anti-Union

The Keynesian Multiplier: Fiction vs. Fact

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

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

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

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

MULTIPLIER MATH

To show why the math is phony, I’ll start with a derivation of the multiplier. The derivation begins with the accounting identity  Y = C + I + G, which means that total output (Y) = consumption (C) + investment (I) + government spending (G). I could use a more complex identity that involves taxes, exports, and imports. But no matter; the bottom line remains the same, so I’ll keep it simple and use Y = C + I  + G.

Keep in mind that the aggregates that I’m writing about here — Y , C , I , G, and later S  — are supposed to represent real quantities of goods and services, not mere money. Keep in mind, also, that Y stands for gross domestic product (GDP); there is no real income unless there is output, that is, product.

Now for the derivation (right-click to enlarge this and later images):

Derivation of investment-govt spending multiplier

So far, so good. Now, let’s say that b = 0.8. This means that income-earners, on average, will spend 80 percent of their additional income on consumption goods (C), while holding back (saving, S) 20 percent of their additional income. With b = 0.8, k = 1/(1 – 0.8) = 1/0.2 = 5.  That is, every $1 of additional spending — let us say additional government spending (∆G) rather than investment spending (∆I) — will yield ∆Y = $5. In short, ∆Y = k(∆G), as a theoretical maximum. (Even if the multiplier were real, there are many things that would cause it to fall short of its theoretical maximum; see this, for example.)

How is it supposed to work? The initial stimulus (∆G) creates income (don’t ask how), a fraction of which (b) goes to C. That spending creates new income, a fraction of which goes to C. And so on. Thus the first round = ∆G, the second round = b(∆G), the third round = b(b)(∆G) , and so on. The sum of the “rounds” asymptotically approaches k(∆G). (What happens to S, the portion of income that isn’t spent? That’s part of the complicated phony story that I’ll examine in a future post.)

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

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

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

An aside is in order here: Proponents of big government like to trumpet the supposedly stimulating effects of G on the economy when they propose programs that would lead to permanent increases in G, holding other things constant. And other things (other government programs) are constant (at least) because they have powerful patrons and constituents, and are harder to kill than Hydra. If the proponents of big government were aware of the economically debilitating effects of G and the things that accompany it (e.g., regulations), most of them would simply defend their favorite programs all the more fiercely.

WHY MULTIPLIER MATH IS PHONY MATH

Now for my exposé of the phony math. I begin with Steven Landsburg, who borrows from the late Murray Rothbard:

. . . We start with an accounting identity, which nobody can deny:

Y = C + I + G

. . . Since all output ends up somewhere, and since households, firms and government exhaust the possibilities, this equation must be true.

Next, we notice that people tend to spend, oh, say about 80 percent of their incomes. What they spend is equal to the value of what ends up in their households, which we’ve already called C. So we have

C = .8Y

Now we use a little algebra to combine our two equations and quickly derive a new equation:

Y = 5(I+G)

That 5 is the famous Keynesian multiplier. In this case, it tells you that if you increase government spending by one dollar, then economy-wide output (and hence economy-wide income) will increase by a whopping five dollars. What a deal!

. . . [I]t was Murray Rothbard who observed that the really neat thing about this argument is that you can do exactly the same thing with any accounting identity. Let’s start with this one:

Y = L + E

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

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

E = .99999999 Y

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

Y = 100,000,000

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

The policy implications are unmistakable. It’s just Eco 101!! [“The Landsburg Multiplier: How to Make Everyone Rich”, The Big Questions blog, June 25, 2013]

Landsburg attributes the nonsensical result to the assumption that

equations describing behavior would remain valid after a policy change. Lucas made the simple but pointed observation that this assumption is almost never justified.

. . . None of this means that you can’t write down [a] sensible Keynesian model with a multiplier; it does mean that the Eco 101 version of the Keynesian cross is not an example of such. This in turn calls into question the wisdom of the occasional pundit [Paul Krugman] who repeatedly admonishes us to be guided in our policy choices by the lessons of Eco 101. [“Multiple Comments”, op. cit,, June 26, 2013]

It’s worse than that, as Landsburg almost acknowledges when he observes (correctly) that Y = C + I + G is an accounting identity. That is to say, it isn’t a functional representation — a model — of the dynamics of the economy. Assigning a value to b (the marginal propensity to consume) — even if it’s an empirical value — doesn’t alter that fact that the derivation is nothing more than the manipulation of a non-functional relationship, that is, an accounting identity.

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

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

PHONY MATH DOESN’T EVEN ADD UP

Recall the story that’s supposed to explain how the multiplier works: The initial stimulus (∆G) creates income, a fraction of which (b) goes to C. That spending creates new income, a fraction of which goes to C. And so on. Thus the first round = ∆G, the second round = b(∆G), the third round = b(b)(∆G) , and so on. The sum of the “rounds” asymptotically approaches k(∆G). So, if b = 0.8, k = 5, and ∆G = $1 trillion, the resulting cumulative ∆Y = $5 trillion (in the limit). And it’s all in addition to the output that would have been generated in the absence of ∆G, as long as many conditions are met. Chief among them is the condition that the additional output in each round is generated by resources that had been unemployed.

In addition to the fact that the math behind the multiplier is phony, as explained above, it also yields contradictory results. If one can derive an investment/government-spending multiplier, one can also derive a “consumption multiplier”:

Derivation of consumption multiplier

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

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

CAN AN INCREASE IN G HELP IN THE SHORT RUN?

Can an exogenous increase in G spending really yield a short-term, temporary increase in GDP? Perhaps, but there’s many a slip between cup and lip. The following example goes beyond the bare theory of the Keynesian multiplier to address several practical and theoretical shortcomings (some which are discussed  “here” and “here“):

  1. Annualized real GDP (Y) drops from $16.5 trillion a year to $14 trillion a year because of the unemployment of resources. (How that happens is a different subject.)
  2. Government spending (G) is temporarily and quickly increased by an annual rate of $500 billion; that is, ∆G = $0.5 trillion. The idea is to restore Y to $16 trillion, given a multiplier of 5 (In standard multiplier math: ∆Y = (k)(∆G), where k = 1/(1 – MPC); k = 5, where MPC = 0.8.)
  3. The ∆G is financed in a way that doesn’t reduce private-sector spending. (This is almost impossible, given Ricardian equivalence — the tendency of private actors to take into account the long-term, crowding-out effects of government spending as they make their own spending decisions. The closest approximation to neutrality can be attained by financing additional G through money creation, rather than additional taxes or borrowing that crowds out the financing of private-sector consumption and investment spending.)
  4. To have the greatest leverage, ∆G must be directed so that it employs only those resources that are idle, which then acquire purchasing power that they didn’t have before. (This, too, is almost impossible, given the clumsiness of government.)
  5. A fraction of the new purchasing power flows, through consumption spending (C), to the employment of other idle resources. That fraction is called the marginal propensity to consume (MPC), which is the rate at which the owners of idle resources spend additional income on so-called consumption goods. (As many economists have pointed out, the effect could also occur as a result of investment spending. A dollar spent is a dollar spent, and investment  spending has the advantage of directly enabling economic growth, unlike consumption spending.)
  6. A remainder goes to saving (S) and is therefore available for investment (I) in future production capacity. But S and I are ignored in the multiplier equation: One story goes like this: S doesn’t elicit I because savers hoard cash and investment is discouraged by the bleak economic outlook. Here is a more likely story: The multiplier would be infinite (and therefore embarrassingly inexplicable) if S generated an equivalent amount of I, because the marginal propensity to spend (MPS) would be equal to 1, and the multiplier equation would look like this: k = 1/(1 – MPS) = ∞, where MPS = 1.
  7. In any event, the initial increment of C (∆C) brings forth a new “round” of production, which yields another increment of C, and so on, ad infinitum. If MPC = 0.8, then assuming away “leakage” to taxes and imports, the multiplier = k = 1/(1 – MPC), or k = 5 in this example.  (The multiplier rises with MPC and reaches infinity if MPC = 1. This suggests that a very high MPC is economically beneficial, even though a very high MPC implies a very low rate of saving and therefore a very low rate of growth-producing investment.)
  8. Given k = 5,  ∆G = $0.5T would cause an eventual increase in real output of $2.5 trillion (assuming no “leakage” or offsetting reductions in private consumption and investment); that is, ∆Y = [k][∆G]= $2.5 trillion. However, because G and Y usually refer to annual rates, this result is mathematically incoherent; ∆G = $0.5 trillion does not restore Y to $16.5 trillion.
  9. In any event, the increase in Y isn’t permanent; the multiplier effect disappears after the “rounds” resulting from ∆G have played out. If the theoretical multiplier is 5, and if transactional velocity is 4 (i.e., 4 “rounds” of spending in a year), more than half of the multiplier effect would be felt within a year from each injection of spending, and about two-thirds would be felt within two years of each injection. It seems unlikely, however, that the multiplier effect would be felt for much longer, because of changing conditions (e.g., an exogenous boost in private investment, private reemployment of resources, discouraged workers leaving the labor force, shifts in expectations about inflation and returns on investment).
  10. All of this ignores that fact that the likely cause of the drop in Y is not insufficient “aggregate demand”, but a “credit crunch” (Michael D. Bordo and Joseph G. Haubrich in “Credit Crises, Money, and Contractions: A Historical View”, Federal Reserve Bank of Cleveland, Working Paper 09-08, September 2009). “Aggregate demand” doesn’t exist, except as an after-the-fact measurement of the money value of goods and services comprised in Y. “Aggregate demand”, in other words, is merely the sum of millions of individual transactions, the rate and total money value of which decline for specific reasons, “credit crunch” being chief among them. Given that, an exogenous increase in G is likely to yield a real increase in Y only if the increase in G leads to an increase in the money supply (as it is bound to do when the Fed, in effect, prints money to finance it). But because of cash hoarding and a bleak investment outlook, the increase in the money supply is unlikely to generate much additional economic activity.

So much for that.

THE THEORETICAL MAXIMUM

A somewhat more realistic version of multiplier math — as opposed to the version addressed earlier — yields a maximum value of k = 1:

More rigorous derivation of Keynesian multiplier

How did I do that? In step 3, I made C a function of P (private-sector GDP) instead of Y (usually taken as the independent variable). Why? C is more closely linked to P than to Y, as an analysis of GDP statistics will prove. (Go here, download the statistics for the post-World War II era from tables 1.1.5 and 3.1, and see for yourself.)

THE TRUE MULTIPLIER

In fact, a sustained increase in government spending will have a negative effect on real output — a multiplier of less than 1, in other words.

Robert J. Barro of Harvard University opens an article in The Wall Street Journal with the statement that “economists have not come up with explanations … for multipliers above one”. Barro continues:

A much more plausible starting point is a multiplier of zero. In this case, the GDP is given, and a rise in government purchases requires an equal fall in the total of other parts of GDP — consumption, investment and net exports….

What do the data show about multipliers? Because it is not easy to separate movements in government purchases from overall business fluctuations, the best evidence comes from large changes in military purchases that are driven by shifts in war and peace. A particularly good experiment is the massive expansion of U.S. defense expenditures during World War II. The usual Keynesian view is that the World War II fiscal expansion provided the stimulus that finally got us out of the Great Depression. Thus, I think that most macroeconomists would regard this case as a fair one for seeing whether a large multiplier ever exists.

I have estimated that World War II raised U.S. defense expenditures by $540 billion (1996 dollars) per year at the peak in 1943-44, amounting to 44% of real GDP. I also estimated that the war raised real GDP by $430 billion per year in 1943-44. Thus, the multiplier was 0.8 (430/540). The other way to put this is that the war lowered components of GDP aside from military purchases. The main declines were in private investment, nonmilitary parts of government purchases, and net exports — personal consumer expenditure changed little. Wartime production siphoned off resources from other economic uses — there was a dampener, rather than a multiplier….

There are reasons to believe that the war-based multiplier of 0.8 substantially overstates the multiplier that applies to peacetime government purchases. For one thing, people would expect the added wartime outlays to be partly temporary (so that consumer demand would not fall a lot). Second, the use of the military draft in wartime has a direct, coercive effect on total employment. Finally, the U.S. economy was already growing rapidly after 1933 (aside from the 1938 recession), and it is probably unfair to ascribe all of the rapid GDP growth from 1941 to 1945 to the added military outlays. [“Government Spending Is No Free Lunch”, The Wall Street Journal, January 22, 2009]

This is from a paper by Valerie A. Ramsey:

… [I]t appears that a rise in government spending does not stimulate private spending; most estimates suggest that it significantly lowers private spending. These results imply that the government spending multiplier is below unity. Adjusting the implied multiplier for increases in tax rates has only a small effect. The results imply a multiplier on total GDP of around 0.5. [“Government Spending and Private Activity”, National Bureau of Economic Research, January 2012]

There is a key component of government spending which usually isn’t captured in estimates of the multiplier: transfer payments, which are mainly “social benefits” (e.g., Social Security, Medicare, and Medicaid). In fact, actual government spending in the U.S., including transfer payments, is about double the nominal amount that is represented in G, the standard measure of government spending (the actual cost of government operations, buildings, equipment, etc.). But transfer payments — like other government spending — are subsidized by directing resources from persons who are directly productive (active worker) and whose investments are directly productive (innovators, entrepreneurs, stockholders, etc.) to persons who (for the most part) are economically unproductive and counterproductive. It follows that real economic output must be affected by transfer payments.

Other factors are also important to economic growth, namely, private investment in business assets, the rate at which regulations are being issued, and inflation. The combined effects of these factors and aggregate government spending have been estimated:. I borrow from that estimate, with a slight, immaterial change in nomenclature:

gr = 0.0275 -0.347F + 0.0769A – 0.000327R – 0.135P

Where,

gr = 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 [including transfer payments]

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).

The r-squared of the equation is 0.73 and the F-value is 2.00E-12. The p-values of the intercept and coefficients are 0.099, 1.75E-07, 1.96E-08, 8.24E-05, and 0.0096. The standard error of the estimate is 0.0051, that is, about half a percentage point.

Assume, for the sake of argument, that F rises while the other independent variables remain unchanged. A rise in F from 0.24 to 0.33 (the actual change from 1947 to 2007) would reduce the real rate of economic growth by 0.031 percentage points. The real rate of growth from 1947 to 1957 was 4 percent. Other things being the same, the rate of growth would have dropped to 0.9 percent in the period 2008-2017. It actually dropped to 1.4 percent, which is within the standard error of the equation. And the discrepancy could be the result of changes in the other variables — a disproportionate increase in business assets (A), for example.

Given that rg = -0.347F, other things being the same, then

Y1 = Y0(c – 0.347F)

Where,

Y1 = real GDP in the period after a change in F, other things being the same

Y0 = real GDP in the period during which F changes

c = a constant, representing the sum of 1 + 0.025 + the coefficients obtained from fixed values of A, R, and P

The true F multiplier, kT, is therefore negative:

kT = ∆Y/∆F = -0.347Y0

For example, with Y0 = 1000 , F =0 , and other things being the same,

∆Y = [1000 – (0)(1000)] = 1000, when F = 0

∆Y = [1000 – (-0.347)(1000)] = 653, when F = 1

Keeping in mind that the equation is based on an analysis of successive 10-year periods, the true F multiplier should be thought of as representing the effect of a change in the average value of F in a 10-year period on the average value of Y in a subsequent 10-year period.

This is not to minimize the deleterious effect of F (and other government-related factors) on Y. If the 1947-1957 rate of growth (4 percent) had been sustained through 2017, Y would have risen from $1.9 trillion in 1957 to $20 trillion in 2017. But because F, R, and P rose markedly over the years, the real rate of growth dropped sharply and Y reached only $17.1 trillion in 2017. That’s a difference of almost $3 trillion in a single year.

Such losses, summed over several decades, represent millions of jobs that weren’t created, significantly lower standards of living, greater burdens on the workers who support retirees and subsidize their medical care, and the loss of liberty that inevitably results when citizens are subjugated to tax collectors and regulators.

ADDENDUM: A REAL ECONOMIC EXPLANATION FOR THE INEFFECTIVENESS OF “STIMULUS” SPENDING

Consider a static, full-employment economy, in which the same goods and services are produced year after year, yielding the same incomes to the same owners of the same factors of production, which do not change in character (capital goods are maintained and replaced in kind). The owners of the factors of production spend and save their incomes in the same way year after year, so that the same goods and services are produced year after year, and those goods and services encompass the maintenance and in-kind replacement of capital goods. Further, the production cycle is such that all goods and services become available to buyers on the last day of the year, for use by the buyers during the coming year. (If that seems far-fetched, just change all instances of “year” in this post to “month”, “week”, “day”, “hour”, “minute”, or “second.” The analysis applies in every case.)

What would happen if there were a sudden alteration in this circular flow of production (supply), on the one hand, and consumption and investment (demand), on the other hand? Specifically, suppose that a component of the circular flow is a bilateral exchange between a gunsmith and a dairyman who produces butter: one rifle for ten pounds of butter. If the gunsmith decides that he no longer wants ten pounds of butter, and therefore doesn’t produce a rifle to trade for butter, the dairyman would reduce his output of butter by ten pounds.

A Keynesian would describe the situation as a drop in aggregate demand. There is no such thing as “aggregate demand”, of course; it’s just an abstraction for the level of economic activity, which really consists of a host of disparate transactions, the dollar value of which can be summed. Further, those disparate transactions represent not just demand, but demand and supply, which are two sides of the same coin.

In the case of the gunsmith and the dairyman, aggregate output drops by one rifle and ten pounds of butter. The reduction of output by one rifle is voluntary and can’t be changed by government action. The reduction of output by ten pounds of butter would be considered involuntary and subject to remediation by government – in the Keynesian view.

What can government do about the dairyman’s involuntary underemployment? Keynesians would claim that the federal government could print some money and buy the dairyman’s butter. This would not, however, result in the production of a rifle; that is, it would not restore the status quo ante. If the gunsmith has decided not to produce a rifle for reasons having nothing to do with the availability of ten pounds of butter, the government can’t change that by buying ten pounds of butter.

But … a Keynesian would say … if the government buys the ten pounds of butter, the dairyman will have money with which to buy other things, and that will stimulate the economy to produce additional goods and services worth at least as much as the rifle that’s no longer being produced. The Keynesian would have to explain how it’s possible to produce additional goods and services of any kind if only the gunsmith and dairyman are underemployed (one voluntarily, the other involuntarily). The gunsmith has declined to produce a rifle for reasons of his own, and it would be pure Keynesian presumption to assert that he could be lured into producing a rifle for newly printed money when he wouldn’t produce it for something real, namely, ten pounds of butter.

Well, what about the dairyman, who now has some newly printed money in his pocket? Surely, he can entice other economic actors to produce additional goods and services with the money, and trade those goods and services for his ten pounds of butter. The offer of newly printed money might entice some of them to divert some of their production to the dairyman, so that he would have buyers for his ten pounds of butter. Thus the dairyman might become fully employed, but the diversion of output in his direction would cause some other economic actors to be less than fully employed.

Would the newly printed money entice the entry of new producers, some combination of whom might buy the dairyman’s ten pounds of butter and restore him to full employment? It might, but so would private credit expansion in the normal course of events. The Keynesian money-printing solution would lead to additional output only where (a) private credit markets wouldn’t finance new production and (b) new production would be forthcoming despite the adverse conditions implied by (a). And the fact would remain that economic output has declined by one rifle, which fact can’t be changed by deficit spending or monetary expansion.

This gets us to the heart of the problem. Deficit spending (or expansionary monetary policy) can entice additional output only if there is involuntary underemployment, as in the case of the dairyman who would prefer to continue making and selling the ten pounds of butter that he had been selling to the gunsmith. And how do resources become involuntarily underemployed? Here are the causes, which aren’t mutually exclusive:

  • changes in perceived wants, tastes, and preferences, as in the case of the gunsmith’s decision to make one less rifle and forgo ten pounds of butter
  • reductions in output that are occasioned by forecasts of lower demand for particular goods and services
  • changes in perceptions of or attitudes toward risk, which reduce producers’ demand for resources, buyers’ demand for goods and services, or financiers’ willingness to extend credit to producers and buyers.

I am unaware of claims that deficit spending or monetary expansion can affect the first cause of underemployment, though there is plenty of government activity aimed at changing wants, tastes, and preferences for paternalistic reasons.

What about the second and third causes? Can government alleviate them by buying things or making more money available with which to buy things? The answer is no. What signal is sent by deficit spending or monetary expansion? This: Times are tough, demand is falling, credit is tight, In those circumstances, why would newly printed money in the pockets of buyers (e.g., the dairyman) or in the hands of banks entice additional production, purchases, lending, or borrowing?

The evidence of the Great Recession suggests strongly that printing money and spending it or placing it with banks does little if any good. The passing of the Great Recession — and of the Great Depression seventy years earlier — was owed to the eventual restoration of the confidence of buyers and sellers in the future course of the economy. In the case of the Great Depression, confidence was restored when the entry of the United States into World War II put an end to the New Deal, which actually prolonged the depression

In the case of the Great Recession, confidence was restored (though not as fully) by the end of “stimulus” spending. The lingering effort on the part of the Fed to stimulate the economy through quantitative easing probably undermined confidence rather than restoring it. In fact, the Fed announced that it would begin to raise interest rates in an effort to convince the business community that the Great Recession is really coming to an end.


Related reading:

Robert Higgs, “Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War”, Independent Review, Spring 1997

Harold L. Cole and Lee E. Ohanian, “New Deal Policies and the Persistence
of the Great Depression: A General Equilibrium Analysis”, Federal Reserve Bank of Minneapolis, Working Paper 597, revised May 2001 (later published in the Journal of Political Economy, August 2004)

Casey B. Mulligan, “Simple Analytics and Empirics of the Government Spending Multiplier and Other ‘Keynesian’ Paradoxes”, National Bureau of Economic Research, Working Paper 15800, March 2010

Daniel J. Mitchell, “Data in New World Bank Report Shows that Large Public Sectors Reduce Economic Growth“, Cato at Liberty, February 9, 2012

Steven Kates et al., “Reassessing the Political Economy of John Stuart Mill”, Online Library of Liberty, July 2015

Related posts:

A Keynesian Fantasy Land
The Keynesian Fallacy and Regime Uncertainty
Why the “Stimulus” Failed to Stimulate
Say’s Law, Government, and Unemployment
Regime Uncertainty and the Great Recession
The Rahn Curve Revisited

The Balderdash Chronicles

Balderdash is nonsense, to put it succinctly. Less succinctly, balderdash is stupid or illogical talk; senseless rubbish. Rather thoroughly, it is

balls, bull, rubbish, shit, rot, crap, garbage, trash, bunk, bullshit, hot air, tosh, waffle, pap, cobblers, bilge, drivel, twaddle, tripe, gibberish, guff, moonshine, claptrap, hogwash, hokum, piffle, poppycock, bosh, eyewash, tommyrot, horsefeathers, or buncombe.

I have encountered innumerable examples of balderdash in my 35 years of full-time work,  14 subsequent years of blogging, and many overlapping years as an observer of the political scene.  This essay documents some of the worst balderdash that I have come across.

THE LIMITS OF SCIENCE

Science (or what too often passes for it) generates an inordinate amount of balderdash. Consider an article in The Christian Science Monitor: “Why the Universe Isn’t Supposed to Exist”, which reads in part:

The universe shouldn’t exist — at least according to a new theory.

Modeling of conditions soon after the Big Bang suggests the universe should have collapsed just microseconds after its explosive birth, the new study suggests.

“During the early universe, we expected cosmic inflation — this is a rapid expansion of the universe right after the Big Bang,” said study co-author Robert Hogan, a doctoral candidate in physics at King’s College in London. “This expansion causes lots of stuff to shake around, and if we shake it too much, we could go into this new energy space, which could cause the universe to collapse.”

Physicists draw that conclusion from a model that accounts for the properties of the newly discovered Higgs boson particle, which is thought to explain how other particles get their mass; faint traces of gravitational waves formed at the universe’s origin also inform the conclusion.

Of course, there must be something missing from these calculations.

“We are here talking about it,” Hogan told Live Science. “That means we have to extend our theories to explain why this didn’t happen.”

No kidding!

Though there’s much more to come, this example should tell you all that you need to know about the fallibility of scientists. If you need more examples, consider these.

MODELS LIE WHEN LIARS MODEL

Not that there’s anything wrong with being wrong, but there’s a great deal wrong with seizing on a transitory coincidence between two variables (CO2 emissions and “global” temperatures in the late 1900s) and spurring a massively wrong-headed “scientific” mania — the mania of anthropogenic global warming.

What it comes down to is modeling, which is simply a way of baking one’s assumptions into a pseudo-scientific mathematical concoction. Any model is dangerous in the hands of a skilled, persuasive advocate. A numerical model is especially dangerous because:

  • There is abroad a naïve belief in the authoritativeness of numbers. A bad guess (even if unverifiable) seems to carry more weight than an honest “I don’t know.”
  • Relatively few people are both qualified and willing to examine the parameters of a numerical model, the interactions among those parameters, and the data underlying the values of the parameters and magnitudes of their interaction.
  • It is easy to “torture” or “mine” the data underlying a numerical model so as to produce a model that comports with the modeler’s biases (stated or unstated).

There are many ways to torture or mine data; for example: by omitting certain variables in favor of others; by focusing on data for a selected period of time (and not testing the results against all the data); by adjusting data without fully explaining or justifying the basis for the adjustment; by using proxies for missing data without examining the biases that result from the use of particular proxies.

So, the next time you read about research that purports to “prove” or “predict” such-and-such about a complex phenomenon — be it the future course of economic activity or global temperatures — take a deep breath and ask these questions:

  • Is the “proof” or “prediction” based on an explicit model, one that is or can be written down? (If the answer is “no,” you can confidently reject the “proof” or “prediction” without further ado.)
  • Are the data underlying the model available to the public? If there is some basis for confidentiality (e.g., where the data reveal information about individuals or are derived from proprietary processes) are the data available to researchers upon the execution of confidentiality agreements?
  • Are significant portions of the data reconstructed, adjusted, or represented by proxies? If the answer is “yes,” it is likely that the model was intended to yield “proofs” or “predictions” of a certain type (e.g., global temperatures are rising because of human activity).
  • Are there well-documented objections to the model? (It takes only one well-founded objection to disprove a model, regardless of how many so-called scientists stand behind it.) If there are such objections, have they been answered fully, with factual evidence, or merely dismissed (perhaps with accompanying scorn)?
  • Has the model been tested rigorously by researchers who are unaffiliated with the model’s developers? With what results? Are the results highly sensitive to the data underlying the model; for example, does the omission or addition of another year’s worth of data change the model or its statistical robustness? Does the model comport with observations made after the model was developed?

For two masterful demonstrations of the role of data manipulation and concealment in the debate about climate change, read Steve McIntyre’s presentation and this paper by Syun-Ichi Akasofu. For a general explanation of the sham, see this.

SCIENCE VS. SCIENTISM: STEVEN PINKER’S BALDERDASH

The examples that I’ve adduced thus far (and most of those that follow) demonstrate a mode of thought known as scientism: the application of the tools and language of science to create a pretense of knowledge.

No less a personage than Steven Pinker defends scientism in “Science Is Not Your Enemy”. Actually, Pinker doesn’t overtly defend scientism, which is indefensible; he just redefines it to mean science:

The term “scientism” is anything but clear, more of a boo-word than a label for any coherent doctrine. Sometimes it is equated with lunatic positions, such as that “science is all that matters” or that “scientists should be entrusted to solve all problems.” Sometimes it is clarified with adjectives like “simplistic,” “naïve,” and “vulgar.” The definitional vacuum allows me to replicate gay activists’ flaunting of “queer” and appropriate the pejorative for a position I am prepared to defend.

Scientism, in this good sense, is not the belief that members of the occupational guild called “science” are particularly wise or noble. On the contrary, the defining practices of science, including open debate, peer review, and double-blind methods, are explicitly designed to circumvent the errors and sins to which scientists, being human, are vulnerable.

After that slippery performance, it’s all smooth sailing — or so Pinker thinks — because all he has to do is point out all the good things about science. And if scientism=science, then scientism is good, right?

Wrong. Scientism remains indefensible, and there’s a lot of scientism in what passes for science. Pinker says this, for example:

The new sciences of the mind are reexamining the connections between politics and human nature, which were avidly discussed in Madison’s time but submerged during a long interlude in which humans were assumed to be blank slates or rational actors. Humans, we are increasingly appreciating, are moralistic actors, guided by norms and taboos about authority, tribe, and purity, and driven by conflicting inclinations toward revenge and reconciliation.

There is nothing new in this, as Pinker admits by adverting to Madison. Nor was the understanding of human nature “submerged” except in the writings of scientistic social “scientists”. We ordinary mortals were never fooled. Moreover, Pinker’s idea of scientific political science seems to be data-dredging:

With the advent of data science—the analysis of large, open-access data sets of numbers or text—signals can be extracted from the noise and debates in history and political science resolved more objectively.

As explained here, data-dredging is about as scientistic as it gets:

When enough hypotheses are tested, it is virtually certain that some falsely appear statistically significant, since every data set with any degree of randomness contains some spurious correlations. Researchers using data mining techniques if they are not careful can be easily misled by these apparently significant results, even though they are mere artifacts of random variation.

Turning to the humanities, Pinker writes:

[T]here can be no replacement for the varieties of close reading, thick description, and deep immersion that erudite scholars can apply to individual works. But must these be the only paths to understanding? A consilience with science offers the humanities countless possibilities for innovation in understanding. Art, culture, and society are products of human brains. They originate in our faculties of perception, thought, and emotion, and they cumulate [sic] and spread through the epidemiological dynamics by which one person affects others. Shouldn’t we be curious to understand these connections? Both sides would win. The humanities would enjoy more of the explanatory depth of the sciences, to say nothing of the kind of a progressive agenda that appeals to deans and donors. The sciences could challenge their theories with the natural experiments and ecologically valid phenomena that have been so richly characterized by humanists.

What on earth is Pinker talking about? This is over-the-top bafflegab worthy of Professor Irwin Corey. But because it comes from the keyboard of a noted (self-promoting) academic, we are meant to take it seriously.

Yes, art, culture, and society are products of human brains. So what? Poker is, too, and it’s a lot more amenable to explication by the mathematical tools of science. But the successful application of those tools depends on traits that are more art than science (e.g., bluffing, spotting “tells”, and avoiding “tells”).

More “explanatory depth” in the humanities means a deeper pile of B.S. Great art, literature, and music aren’t concocted formulaically. If they could be, modernism and postmodernism wouldn’t have yielded mountains of trash.

Oh, I know: It will be different next time. As if the tools of science are immune to misuse by obscurantists, relativists, and practitioners of political correctness. Tell it to those climatologists who dare to challenge the conventional wisdom about anthropogenic global warming. Tell it to the “sub-human” victims of the Third Reich’s medical experiments and gas chambers.

Pinker anticipates this kind of objection:

At a 2011 conference, [a] colleague summed up what she thought was the mixed legacy of science: the eradication of smallpox on the one hand; the Tuskegee syphilis study on the other. (In that study, another bloody shirt in the standard narrative about the evils of science, public-health researchers beginning in 1932 tracked the progression of untreated, latent syphilis in a sample of impoverished African Americans.) The comparison is obtuse. It assumes that the study was the unavoidable dark side of scientific progress as opposed to a universally deplored breach, and it compares a one-time failure to prevent harm to a few dozen people with the prevention of hundreds of millions of deaths per century, in perpetuity.

But the Tuskegee study was only a one-time failure in the sense that it was the only Tuskegee study. As a type of failure — the misuse of science (witting and unwitting) — it goes hand-in-hand with the advance of scientific knowledge. Should science be abandoned because of that? Of course not. But the hard fact is that science, qua science, is powerless against human nature.

Pinker plods on by describing ways in which science can contribute to the visual arts, music, and literary scholarship:

The visual arts could avail themselves of the explosion of knowledge in vision science, including the perception of color, shape, texture, and lighting, and the evolutionary aesthetics of faces and landscapes. Music scholars have much to discuss with the scientists who study the perception of speech and the brain’s analysis of the auditory world.

As for literary scholarship, where to begin? John Dryden wrote that a work of fiction is “a just and lively image of human nature, representing its passions and humours, and the changes of fortune to which it is subject, for the delight and instruction of mankind.” Linguistics can illuminate the resources of grammar and discourse that allow authors to manipulate a reader’s imaginary experience. Cognitive psychology can provide insight about readers’ ability to reconcile their own consciousness with those of the author and characters. Behavioral genetics can update folk theories of parental influence with discoveries about the effects of genes, peers, and chance, which have profound implications for the interpretation of biography and memoir—an endeavor that also has much to learn from the cognitive psychology of memory and the social psychology of self-presentation. Evolutionary psychologists can distinguish the obsessions that are universal from those that are exaggerated by a particular culture and can lay out the inherent conflicts and confluences of interest within families, couples, friendships, and rivalries that are the drivers of plot.

I wonder how Rembrandt and the Impressionists (among other pre-moderns) managed to create visual art of such evident excellence without relying on the kinds of scientific mechanisms invoked by Pinker. I wonder what music scholars would learn about excellence in composition that isn’t already evident in the general loathing of audiences for most “serious” modern and contemporary music.

As for literature, great writers know instinctively and through self-criticism how to tell stories that realistically depict character, social psychology, culture, conflict, and all the rest. Scholars (and critics), at best, can acknowledge what rings true and has dramatic or comedic merit. Scientistic pretensions in scholarship (and criticism) may result in promotions and raises for the pretentious, but they do not add to the sum of human enjoyment — which is the real test of literature.

Pinker inveighs against critics of scientism (science, in Pinker’s vocabulary) who cry “reductionism” and “simplification”. With respect to the former, Pinker writes:

Demonizers of scientism often confuse intelligibility with a sin called reductionism. But to explain a complex happening in terms of deeper principles is not to discard its richness. No sane thinker would try to explain World War I in the language of physics, chemistry, and biology as opposed to the more perspicuous language of the perceptions and goals of leaders in 1914 Europe. At the same time, a curious person can legitimately ask why human minds are apt to have such perceptions and goals, including the tribalism, overconfidence, and sense of honor that fell into a deadly combination at that historical moment.

It is reductionist to explain a complex happening in terms of a deeper principle when that principle fails to account for the complex happening. Pinker obscures that essential point by offering a silly and irrelevant example about World War I. This bit of misdirection is unsurprising, given Pinker’s foray into reductionism, The Better Angels of Our Nature: Why Violence Has Declined, discussed later.

As for simplification, Pinker says:

The complaint about simplification is misbegotten. To explain something is to subsume it under more general principles, which always entails a degree of simplification. Yet to simplify is not to be simplistic.

Pinker again dodges the issue. Simplification is simplistic when the “general principles” fail to account adequately for the phenomenon in question.

Much of the problem arises because of a simple fact that is too often overlooked: Scientists, for the most part, are human beings with a particular aptitude for pattern-seeking and the manipulation of abstract ideas. They can easily get lost in such pursuits and fail to notice that their abstractions have taken them a long way from reality (e.g., Einstein’s special theory of relativity).

In sum, scientists are human and fallible. It is in the best tradition of science to distrust their scientific claims and to dismiss their non-scientific utterances.

ECONOMICS: PHYSICS ENVY AT WORK

Economics is rife with balderdash cloaked in mathematics. Economists who rely heavily on mathematics like to say (and perhaps even believe) that mathematical expression is more precise than mere words. But, as Arnold Kling points out in “An Important Emerging Economic Paradigm”, mathematical economics is a language of faux precision, which is useful only when applied to well defined, narrow problems. It can’t address the big issues — such as economic growth — which depend on variables such as the rule of law and social norms which defy mathematical expression and quantification.

I would go a step further and argue that mathematical economics borders on obscurantism. It’s a cult whose followers speak an arcane language not only to communicate among themselves but to obscure the essentially bankrupt nature of their craft from others. Mathematical expression actually hides the assumptions that underlie it. It’s far easier to identify and challenge the assumptions of “literary” economics than it is to identify and challenge the assumptions of mathematical economics.

I daresay that this is true even for persons who are conversant in mathematics. They may be able to manipulate easily the equations of mathematical economics, but they are able to do so without grasping the deeper meanings — the assumptions and complexities — hidden by those equations. In fact, the ease of manipulating the equations gives them a false sense of mastery of the underlying, real concepts.

Much of the economics profession is nevertheless dedicated to the protection and preservation of the essential incompetence of mathematical economists. This is from “An Important Emerging Economic Paradigm”:

One of the best incumbent-protection rackets going today is for mathematical theorists in economics departments. The top departments will not certify someone as being qualified to have an advanced degree without first subjecting the student to the most rigorous mathematical economic theory. The rationale for this is reminiscent of fraternity hazing. “We went through it, so should they.”

Mathematical hazing persists even though there are signs that the prestige of math is on the decline within the profession. The important Clark Medal, awarded to the most accomplished American economist under the age of 40, has not gone to a mathematical theorist since 1989.

These hazing rituals can have real consequences. In medicine, the controversial tradition of long work hours for medical residents has come under scrutiny over the last few years. In economics, mathematical hazing is not causing immediate harm to medical patients. But it probably is working to the long-term detriment of the profession.

The hazing ritual in economics has as least two real and damaging consequences. First, it discourages entry into the economics profession by persons who, like Kling, can discuss economic behavior without resorting to the sterile language of mathematics. Second, it leads to economics that’s irrelevant to the real world — and dead wrong.

How wrong? Economists are notoriously bad at constructing models that adequately predict near-term changes in GDP. That task should be easier than sorting out the microeconomic complexities of the labor market.

Take Professor Ray Fair, for example. Professor Fair teaches macroeconomic theory, econometrics, and macroeconometric models at Yale University. He has been plying his trade since 1968, first at Princeton, then at M.I.T., and (since 1974) at Yale. Those are big-name schools, so I assume that Prof. Fair is a big name in his field.

Well, since 1983, Prof. Fair has been forecasting changes in real GDP over the next four quarters. He has made 80 such forecasts based on a model that he has undoubtedly tweaked over the years. The current model is here. His forecasting track record is here. How has he done? Here’s how:

1. The median absolute error of his forecasts is 30 percent.

2. The mean absolute error of his forecasts is 70 percent.

3. His forecasts are rather systematically biased: too high when real, four-quarter GDP growth is less than 4 percent; too low when real, four-quarter GDP growth is greater than 4 percent.

4. His forecasts have grown generally worse — not better — with time.

Prof. Fair is still at it. And his forecasts continue to grow worse with time:

fair-model-forecasting-errors-vs-time
This and later graphs pertaining to Prof. Fair’s forecasts were derived from The Forecasting Record of the U.S. Model, Table 4: Predicted and Actual Values for Four-Quarter Real Growth, at Prof. Fair’s website. The vertical axis of this graph is truncated for ease of viewing; 8 percent of the errors exceed 200 percent.

You might think that Fair’s record reflects the persistent use of a model that’s too simple to capture the dynamics of a multi-trillion-dollar economy. But you’d be wrong. The model changes quarterly. This page lists changes only since late 2009; there are links to archives of earlier versions, but those are password-protected.

As for simplicity, the model is anything but simple. For example, go to Appendix A: The U.S. Model: July 29, 2016, and you’ll find a six-sector model comprising 188 equations and hundreds of variables.

And what does that get you? A weak predictive model:

fair-model-estimated-vs-actual-growth-rate

It fails the most important test; that is, it doesn’t reflect the downward trend in economic growth:

fair-model-year-over-year-growth-estimated-and-actual

THE INVISIBLE ELEPHANT IN THE ROOM

Professor Fair and his prognosticating ilk are pikers compared with John Maynard Keynes and his disciples. The Keynesian multiplier is the fraud of all frauds, not just in economics but in politics, where it is too often invoked as an excuse for taking money from productive uses and pouring it down the rathole of government spending.

The Keynesian (fiscal) multiplier is defined as

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

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

What’s wrong is the phony math by which the multiplier is derived, and the phony story that was long ago concocted to explain the operation of the multiplier. Please go to “The Keynesian Multiplier: Fiction vs. Fact” for a detailed explanation of the phony math and a derivation of the true multiplier, which is decidedly negative. Here’s the short version:

  • The phony math involves the use of an accounting identity that can be manipulated in many ways, to “prove” many things. But the accounting identity doesn’t express an operational (or empirical) relationship between a change in government spending and a change in GDP.
  • The true value of the multiplier isn’t 5 (a common mathematical estimate), 1.5 (a common but mistaken empirical estimate used for government purposes), or any positive number. The true value represents the negative relationship between the change in government spending (including transfer payments) as a fraction of GDP and the change in the rate of real GDP growth. Specifically, where F represents government spending as a fraction of GDP,

a rise in F from 0.24 to 0.33 (the actual change from 1947 to 2007) would reduce the real rate of economic growth by 0.031 percentage points. The real rate of growth from 1947 to 1957 was 4 percent. Other things being the same, the rate of growth would have dropped to 0.9 percent in the period 2008-2017. It actually dropped to 1.4 percent, which is within the standard error of the estimate.

  • That kind of drop makes a huge difference in the incomes of Americans. In 10 years, rise GDP rises by almost 50 percent when the rate of growth is 4 percent, but only by 15 percent when the rate of growth is 1.9 percent. Think of the tens of millions of people who would be living in comfort rather than squalor were it not for Keynesian balderdash, which turns reality on its head in order to promote big government.

MANAGEMENT “SCIENCE”

A hot new item in management “science” a few years ago was the Candle Problem. Graham Morehead describes the problem and discusses its broader, “scientifically” supported conclusions:

The Candle Problem was first presented by Karl Duncker. Published posthumously in 1945, “On problem solving” describes how Duncker provided subjects with a candle, some matches, and a box of tacks. He told each subject to affix the candle to a cork board wall in such a way that when lit, the candle won’t drip wax on the table below (see figure at right). Can you think of the answer?

The only answer that really works is this: 1.Dump the tacks out of the box, 2.Tack the box to the wall, 3.Light the candle and affix it atop the box as if it were a candle-holder. Incidentally, the problem was much easier to solve if the tacks weren’t in the box at the beginning. When the tacks were in the box the participant saw it only as a tack-box, not something they could use to solve the problem. This phenomenon is called “Functional fixedness.”

Sam Glucksberg added a fascinating twist to this finding in his 1962 paper, “Influece of strength of drive on functional fixedness and perceptual recognition.” (Journal of Experimental Psychology 1962. Vol. 63, No. 1, 36-41). He studied the effect of financial incentives on solving the candle problem. To one group he offered no money. To the other group he offered an amount of money for solving the problem fast.

Remember, there are two candle problems. Let the “Simple Candle Problem” be the one where the tacks are outside the box — no functional fixedness. The solution is straightforward. Here are the results for those who solved it:

Simple Candle Problem Mean Times :

  • WITHOUT a financial incentive : 4.99 min
  • WITH a financial incentive : 3.67 min

Nothing unexpected here. This is a classical incentivization effect anybody would intuitively expect.

Now, let “In-Box Candle Problem” refer to the original description where the tacks start off in the box.

In-Box Candle Problem Mean Times :

  • WITHOUT a financial incentive : 7:41 min
  • WITH a financial incentive : 11:08 min

How could this be? The financial incentive made people slower? It gets worse — the slowness increases with the incentive. The higher the monetary reward, the worse the performance! This result has been repeated many times since the original experiment.

Glucksberg and others have shown this result to be highly robust. Daniel Pink calls it a legally provable “fact.” How should we interpret the above results?

When your employees have to do something straightforward, like pressing a button or manning one stage in an assembly line, financial incentives work. It’s a small effect, but they do work. Simple jobs are like the simple candle problem.

However, if your people must do something that requires any creative or critical thinking, financial incentives hurt. The In-Box Candle Problem is the stereotypical problem that requires you to think “Out of the Box,” (you knew that was coming, didn’t you?). Whenever people must think out of the box, offering them a monetary carrot will keep them in that box.

A monetary reward will help your employees focus. That’s the point. When you’re focused you are less able to think laterally. You become dumber. This is not the kind of thing we want if we expect to solve the problems that face us in the 21st century.

All of this is found in a video (to which Morehead links), wherein Daniel Pink (an author and journalist whose actual knowledge of science and business appears to be close to zero) expounds the lessons of the Candle Problem. Pink displays his (no-doubt-profitable) conviction that the Candle Problem and related “science” reveals (a) the utter bankruptcy of capitalism and (b) the need to replace managers with touchy-feely gurus (like himself, I suppose). That Pink has worked for two of the country’s leading anti-capitalist airheads — Al Gore and Robert Reich — should tell you all that you need to know about Pink’s real agenda.

Here are my reasons for sneering at Pink and his ilk:

1. I have been there and done that. That is to say, as a manager, I lived through (and briefly bought into) the touchy-feely fads of the ’80s and ’90s. Think In Search of Excellence, The One Minute Manager, The Seven Habits of Highly Effective People, and so on. What did anyone really learn from those books and the lectures and workshops based on them? A perceptive person would have learned that it is easy to make up plausible stories about the elements of success, and having done so, it is possible to make a lot of money peddling those stories. But the stories are flawed because (a) they are based on exceptional cases; (b) they attribute success to qualitative assessments of behaviors that seem to be present in those exceptional cases; and (c) they do not properly account for the surrounding (and critical) circumstances that really led to success, among which are luck and rare combinations of personal qualities (e.g., high intelligence, perseverance, people-reading skills). In short, Pink and his predecessors are guilty of reductionism and the post hoc ergo propter hoc fallacy.

2. Also at work is an undue generalization about the implications of the Candle Problem. It may be true that workers will perform better — at certain kinds of tasks (very loosely specified) — if they are not distracted by incentives that are related to the performance of those specific tasks. But what does that have to do with incentives in general? Not much, because the Candle Problem is unlike any work situation that I can think of. Tasks requiring creativity are not performed under deadlines of a few minutes; tasks requiring creativity are (usually) assigned to persons who have demonstrated a creative flair, not to randomly picked subjects; most work, even in this day, involves the routine application of protocols and tools that were designed to produce a uniform result of acceptable quality; it is the design of protocols and tools that requires creativity, and that kind of work is not done under the kind of artificial constraints found in the Candle Problem.

3. The Candle Problem, with its anti-incentive “lesson”, is therefore inapplicable to the real world, where incentives play a crucial and positive role:

  • The profit incentive leads firms to invest resources in the development and/or production of things that consumers are willing to buy because those things satisfy wants at the right price.
  • Firms acquire resources to develop and produce things by bidding for those resources, that is, by offering monetary incentives to attract the resources required to make the things that consumers are willing to buy.
  • The incentives (compensation) offered to workers of various kinds (from scientists with doctorates to burger-flippers) are generally commensurate with the contributions made by those workers to the production of things of value to consumers, and to the value placed on those things by consumers.
  • Workers agree to the terms and conditions of employment (including compensation) before taking a job. The incentive for most workers is to keep a job by performing adequately over a sustained period — not by demonstrating creativity in a few minutes. Some workers (but not a large fraction of them) are striving for performance-based commissions, bonuses, and profit-sharing distributions. But those distributions are based on performance over a sustained period, during which the striving workers have plenty of time to think about how they can perform better.
  • Truly creative work is done, for the most part, by persons who are hired for such work on the basis of their credentials (education, prior employment, test results). Their compensation is based on their credentials, initially, and then on their performance over a sustained period. If they are creative, they have plenty of psychological space in which to exercise and demonstrate their creativity.
  • On-the-job creativity — the improvement of protocols and tools by workers using them — does not occur under conditions of the kind assumed in the Candle Problem. Rather, on-the-job creativity flows from actual work and insights about how to do the work better. It happens when it happens, and has nothing to do with artificial time constraints and monetary incentives to be “creative” within those constraints.
  • Pink’s essential pitch is that incentives can be replaced by offering jobs that yield autonomy (self-direction), mastery (the satisfaction of doing difficult things well), and purpose (that satisfaction of contributing to the accomplishment of something important). Well, good luck with that, but I (and millions of other consumers) want what we want, and if workers want to make a living they will just have to provide what we want, not what turns them on. Yes, there is a lot to be said for autonomy, mastery, and purpose, but there is also a lot to be said for getting a paycheck. And, contrary to Pink’s implication, getting a paycheck does not rule out autonomy, mastery, and purpose — where those happen to go with the job.

Pink and company’s “insights” about incentives and creativity are 180 degrees off-target. McDonald’s could use the Candle Problem to select creative burger-flippers who will perform well under tight deadlines because their compensation is unrelated to the creativity of their burger-flipping. McDonald’s customers should be glad that McDonald’s has taken creativity out of the picture by reducing burger-flipping to the routine application of protocols and tools.

In summary:

  • The Candle Problem is an interesting experiment, and probably valid with respect to the performance of specific tasks against tight deadlines. I think the results apply whether the stakes are money or any other kind of prize. The experiment illustrates the “choke” factor, and nothing more profound than that.
  • I question whether the experiment applies to the usual kind of incentive (e.g., a commissions or bonus), where the “incentee” has ample time (months, years) for reflection and research that will enable him to improve his performance and attain a bigger commission or bonus (which usually isn’t an all-or-nothing arrangement).
  • There’s also the dissimilarity of the Candle Problem — which involves more-or-less randomly chosen subjects, working against an artificial deadline — and actual creative thinking — usually involving persons who are experts (even if the expertise is as mundane as ditch-digging), working against looser deadlines or none at all.

PARTISAN POLITICS IN THE GUISE OF PSEUDO-SCIENCE

There’s plenty of it to go around, but this one is a whopper. Peter Singer outdoes his usual tendentious self in this review of Steven Pinker’s The Better Angels of Our Nature: Why Violence Has Declined. In the course of the review, Singer writes:

Pinker argues that enhanced powers of reasoning give us the ability to detach ourselves from our immediate experience and from our personal or parochial perspective, and frame our ideas in more abstract, universal terms. This in turn leads to better moral commitments, including avoiding violence. It is just this kind of reasoning ability that has improved during the 20th century. He therefore suggests that the 20th century has seen a “moral Flynn effect, in which an accelerating escalator of reason carried us away from impulses that lead to violence” and that this lies behind the long peace, the new peace, and the rights revolution. Among the wide range of evidence he produces in support of that argument is the tidbit that since 1946, there has been a negative correlation between an American president’s I.Q. and the number of battle deaths in wars involving the United States.

Singer does not give the source of the IQ estimates on which Pinker relies, but the supposed correlation points to a discredited piece of historiometry by Dean Keith Simonton, Simonton jumps through various hoops to assess the IQs of  every president from Washington to Bush II — to one decimal place. That is a feat on a par with reconstructing the final thoughts of Abel, ere Cain slew him.

Before I explain the discrediting of Simonton’s obviously discreditable “research”, there is some fun to be had with the Pinker-Singer story of presidential IQ (Simonton-style) for battle deaths. First, of course, there is the convenient cutoff point of 1946. Why 1946? Well, it enables Pinker-Singer to avoid the inconvenient fact that the Civil War, World War I, and World War II happened while the presidency was held by three men who (in Simonton’s estimation) had high IQs: Lincoln, Wilson, and FDR.

The next several graphs depict best-fit relationships between Simonton’s estimates of presidential IQ and the U.S. battle deaths that occurred during each president’s term of office.* The presidents, in order of their appearance in the titles of the graphs are Harry S Truman (HST), George W. Bush (GWB), Franklin Delano Roosevelt (FDR), (Thomas) Woodrow Wilson (WW), Abraham Lincoln (AL), and George Washington (GW). The number of battle deaths is rounded to the nearest thousand, so that the prevailing value is 0, even in the case of the Spanish-American War (385 U.S. combat deaths) and George H.W. Bush’s Gulf War (147 U.S. combat deaths).

This is probably the relationship referred to by Singer, though Pinker may show a linear fit, rather than the tighter polynomial fit used here:

It looks bad for the low “IQ” presidents — if you believe Simonton’s estimates of IQ, which you shouldn’t, and if you believe that battle deaths are a bad thing per se, which they aren’t. I will come back to those points. For now, just suspend your well-justified disbelief.

If the relationship for the HST-GWB era were statistically meaningful, it would not change much with the introduction of additional statistics about “IQ” and battle deaths, but it does:




If you buy the brand of snake oil being peddled by Pinker-Singer, you must believe that the “dumbest” and “smartest” presidents are unlikely to get the U.S. into wars that result in a lot of battle deaths, whereas some (but, mysteriously, not all) of the “medium-smart” presidents (Lincoln, Wilson, FDR) are likely to do so.

In any event, if you believe in Pinker-Singer’s snake oil, you must accept the consistent “humpback” relationship that is depicted in the preceding four graphs, rather than the highly selective, one-shot negative relationship of the HST-GWB graph.

More seriously, the relationship in the HST-GWB graph is an evident ploy to discredit certain presidents (especially GWB, I suspect), which is why it covers only the period since WWII. Why not just say that you think GWB is a chimp-like, war-mongering, moron and be done with it? Pseudo-statistics of the kind offered up by Pinker-Singer is nothing more than a talking point for those already convinced that Bush=Hitler.

But as long as this silly game is in progress, let us continue it, with a new rule. Let us advance from one to two explanatory variables. The second explanatory variable that strongly suggests itself is political party. And because it is not good practice to omit relevant statistics (a favorite gambit of liars), I estimated an equation based on “IQ” and battle deaths for the 27 men who served as president from the first Republican presidency (Lincoln’s) through the presidency of GWB.  The equation looks like this:

U.S. battle deaths (000) “owned” by a president =

-80.6 + 0.841 x “IQ” – 31.3 x party (where 0 = Dem, 1 = GOP)

In other words, battle deaths rise at the rate of 841 per IQ point (so much for Pinker-Singer). But there will be fewer deaths with a Republican in the White House (so much for Pinker-Singer’s implied swipe at GWB).

All of this is nonsense, of course, for two reasons: Simonton’s estimates of IQ are hogwash, and the number of U.S. battle deaths is a meaningless number, taken by itself.

With regard to the hogwash, Simonton’s estimates of presidents’ IQs put every one of them — including the “dumbest,” U.S. Grant — in the top 2.3 percent of the population. And the mean of Simonton’s estimates puts the average president in the top 0.1 percent (one-tenth of one percent) of the population. That is literally incredible. Good evidence of the unreliability of Simonton’s estimates is found in an entry by Thomas C. Reeves at George Mason University’s History New Network. Reeves is the author of A Question of Character: A Life of John F. Kennedy, the negative reviews of which are evidently the work of JFK idolators who refuse to be disillusioned by facts. Anyway, here is Reeves:

I’m a biographer of two of the top nine presidents on Simonton’s list and am highly familiar with the histories of the other seven. In my judgment, this study has little if any value. Let’s take JFK and Chester A. Arthur as examples.

Kennedy was actually given an IQ test before entering Choate. His score was 119…. There is no evidence to support the claim that his score should have been more than 40 points higher [i.e., the IQ of 160 attributed to Kennedy by Simonton]. As I described in detail in A Question Of Character [link added], Kennedy’s academic achievements were modest and respectable, his published writing and speeches were largely done by others (no study of Kennedy is worthwhile that downplays the role of Ted Sorensen)….

Chester Alan Arthur was largely unknown before my Gentleman Boss was published in 1975. The discovery of many valuable primary sources gave us a clear look at the president for the first time. Among the most interesting facts that emerged involved his service during the Civil War, his direct involvement in the spoils system, and the bizarre way in which he was elevated to the GOP presidential ticket in 1880. His concealed and fatal illness while in the White House also came to light.

While Arthur was a college graduate, and was widely considered to be a gentleman, there is no evidence whatsoever to suggest that his IQ was extraordinary. That a psychologist can rank his intelligence 2.3 points ahead of Lincoln’s suggests access to a treasure of primary sources from and about Arthur that does not exist.

This historian thinks it impossible to assign IQ numbers to historical figures. If there is sufficient evidence (as there usually is in the case of American presidents), we can call people from the past extremely intelligent. Adams, Wilson, TR, Jefferson, and Lincoln were clearly well above average intellectually. But let us not pretend that we can rank them by tenths of a percentage point or declare that a man in one era stands well above another from a different time and place.

My educated guess is that this recent study was designed in part to denigrate the intelligence of the current occupant of the White House….

That is an excellent guess.

The meaninglessness of battle deaths as a measure of anything — but battle deaths — should be evident. But in case it is not evident, here goes:

  • Wars are sometimes necessary, sometimes not. (I give my views about the wisdom of America’s various wars at this post.) Necessary or not, presidents usually act in accordance with popular and elite opinion about the desirability of a particular war. Imagine, for example, the reaction if FDR had not gone to Congress on December 8, 1941, to ask for a declaration of war against Japan, or if GWB had not sought the approval of Congress for action in Afghanistan.
  • Presidents may have a lot to do with the decision to enter a war, but they have little to do with the external forces that help to shape that decision. GHWB, for example, had nothing to do with Saddam’s decision to invade Kuwait and thereby threaten vital U.S. interests in the Middle East. GWB, to take another example, was not a party to the choices of earlier presidents (GHWB and Clinton) that enabled Saddam to stay in power and encouraged Osama bin Laden to believe that America could be brought to its knees by a catastrophic attack.
  • The number of battle deaths in a war depends on many things outside the control of a particular president; for example, the size and capabilities of enemy forces, the size and capabilities of U.S. forces (which have a lot to do with the decisions of earlier administrations and Congresses), and the scope and scale of a war (again, largely dependent on the enemy).
  • Battle deaths represent personal tragedies, but — in and of themselves — are not a measure of a president’s wisdom or acumen. Whether the deaths were in vain is a separate issue that depends on the aforementioned considerations. To use battle deaths as a single, negative measure of a president’s ability is rank cynicism — the rankness of which is revealed in Pinker’s decision to ignore Lincoln and FDR and their “good” but deadly wars.

To put the last point another way, if the number of battle death deaths is a bad thing, Lincoln and FDR should be rotting in hell for the wars that brought an end to slavery and Hitler.
__________
* The numbers of U.S. battle deaths, by war, are available at infoplease.com, “America’s Wars: U.S. Casualties and Veterans”. The deaths are “assigned” to presidents as follows (numbers in parentheses indicate thousands of deaths):

All of the deaths (2) in the War of 1812 occurred on Madison’s watch.

All of the deaths (2) in the Mexican-American War occurred on Polk’s watch.

I count only Union battle deaths (140) during the Civil War; all are “Lincoln’s.” Let the Confederate dead be on the head of Jefferson Davis. This is a gift, of sorts, to Pinker-Singer because if Confederate dead were counted as Lincoln, with his high “IQ,” it would make Pinker-Singer’s hypothesis even more ludicrous than it is.

WW is the sole “owner” of WWI battle deaths (53).

Some of the U.S. battle deaths in WWII (292) occurred while HST was president, but Truman was merely presiding over the final months of a war that was almost won when FDR died. Truman’s main role was to hasten the end of the war in the Pacific by electing to drop the A-bombs on Hiroshima and Nagasaki. So FDR gets “credit” for all WWII battle deaths.

The Korean War did not end until after Eisenhower succeeded Truman, but it was “Truman’s war,” so he gets “credit” for all Korean War battle deaths (34). This is another “gift” to Pinker-Singer because Ike’s “IQ” is higher than Truman’s.

Vietnam was “LBJ’s war,” but I’m sure that Singer would not want Nixon to go without “credit” for the battle deaths that occurred during his administration. Moreover, LBJ had effectively lost the Vietnam war through his gradualism, but Nixon chose nevertheless to prolong the agony. So I have shared the “credit” for Vietnam War battle deaths between LBJ (deaths in 1965-68: 29) and RMN (deaths in 1969-73: 17). To do that, I apportioned total Vietnam War battle deaths, as given by infoplease.com, according to the total number of U.S. deaths in each year of the war, 1965-1973.

The wars in Afghanistan and Iraq are “GWB’s wars,” even though Obama has continued them. So I have “credited” GWB with all the battle deaths in those wars, as of May 27, 2011 (5).

The relative paucity of U.S. combat  deaths in other post-WWII actions (e.g., Lebanon, Somalia, Persian Gulf) is attested to by “Post-Vietnam Combat Casualties”, at infoplease.com.

A THIRD APPEARANCE BY PINKER

Steven Pinker, whose ignominious outpourings I have addressed twice here, deserves a third strike (which he shall duly be awarded). Pinker’s The Better Angels of Our Nature is cited gleefully by leftists and cockeyed optimists as evidence that human beings, on the whole, are becoming kinder and gentler because of:

  • The Leviathan – The rise of the modern nation-state and judiciary “with a monopoly on the legitimate use of force,” which “can defuse the [individual] temptation of exploitative attack, inhibit the impulse for revenge, and circumvent…self-serving biases.”
  • Commerce – The rise of “technological progress [allowing] the exchange of goods and services over longer distances and larger groups of trading partners,” so that “other people become more valuable alive than dead” and “are less likely to become targets of demonization and dehumanization”;
  • Feminization – Increasing respect for “the interests and values of women.”
  • Cosmopolitanism – the rise of forces such as literacy, mobility, and mass media, which “can prompt people to take the perspectives of people unlike themselves and to expand their circle of sympathy to embrace them”;
  • The Escalator of Reason – an “intensifying application of knowledge and rationality to human affairs,” which “can force people to recognize the futility of cycles of violence, to ramp down the privileging of their own interests over others’, and to reframe violence as a problem to be solved rather than a contest to be won.”

I can tell you that Pinker’s book is hogwash because two very bright leftists — Peter Singer and Will Wilkinson — have strongly and wrongly endorsed some of its key findings. I dispatched Singer in earlier. As for Wilkinson, he praises statistics adduced by Pinker that show a decline in the use of capital punishment:

In the face of such a decisive trend in moral culture, we can say a couple different things. We can say that this is just change and says nothing in particular about what is really right or wrong, good or bad. Or we can take take say this is evidence of moral progress, that we have actually become better. I prefer the latter interpretation for basically the same reasons most of us see the abolition of slavery and the trend toward greater equality between races and sexes as progress and not mere morally indifferent change. We can talk about the nature of moral progress later. It’s tricky. For now, I want you to entertain the possibility that convergence toward the idea that execution is wrong counts as evidence that it is wrong.

I would count convergence toward the idea that execution is wrong as evidence that it is wrong, if that idea were (a) increasingly held by individuals who (b) had arrived at their “enlightenment” unnfluenced by operatives of the state (legislatures and judges), who take it upon themselves to flout popular support of the death penalty. What we have, in the case of the death penalty, is moral regress, not moral progress.

Moral regress because the abandonment of the death penalty puts innocent lives at risk. Capital punishment sends a message, and the message is effective when it is delivered: it deters homicide. And even if it didn’t, it would at least remove killers from our midst, permanently. By what standard of morality can one claim that it is better to spare killers than to protect innocents? For that matter, by what standard of morality is it better to kill innocents in the womb than to spare killers? Proponents of abortion (like Singer and Wilkinson) — who by and large oppose capital punishment — are completely lacking in moral authority.

Returning to Pinker’s thesis that violence has declined, I quote a review at Foseti:

Pinker’s basic problem is that he essentially defines “violence” in such a way that his thesis that violence is declining becomes self-fulling. “Violence” to Pinker is fundamentally synonymous with behaviors of older civilizations. On the other hand, modern practices are defined to be less violent than newer practices.

A while back, I linked to a story about a guy in my neighborhood who’s been arrested over 60 times for breaking into cars. A couple hundred years ago, this guy would have been killed for this sort of vandalism after he got caught the first time. Now, we feed him and shelter him for a while and then we let him back out to do this again. Pinker defines the new practice as a decline in violence – we don’t kill the guy anymore! Someone from a couple hundred years ago would be appalled that we let the guy continue destroying other peoples’ property without consequence. In the mind of those long dead, “violence” has in fact increased. Instead of a decline in violence, this practice seems to me like a decline in justice – nothing more or less.

Here’s another example, Pinker uses creative definitions to show that the conflicts of the 20th Century pale in comparison to previous conflicts. For example, all the Mongol Conquests are considered one event, even though they cover 125 years. If you lump all these various conquests together and you split up WWI, WWII, Mao’s takeover in China, the Bolshevik takeover of Russia, the Russian Civil War, and the Chinese Civil War (yes, he actually considers this a separate event from Mao), you unsurprisingly discover that the events of the 20th Century weren’t all that violent compared to events in the past! Pinker’s third most violent event is the “Mideast Slave Trade” which he says took place between the 7th and 19th Centuries. Seriously. By this standard, all the conflicts of the 20th Century are related. Is the Russian Revolution or the rise of Mao possible without WWII? Is WWII possible without WWI? By this consistent standard, the 20th Century wars of Communism would have seen the worst conflict by far. Of course, if you fiddle with the numbers, you can make any point you like.

There’s much more to the review, including some telling criticisms of Pinker’s five reasons for the (purported) decline in violence. That the reviewer somehow still wants to believe in the rightness of Pinker’s thesis says more about the reviewer’s optimism than it does about the validity of Pinker’s thesis.

That thesis is fundamentally flawed, as Robert Epstein points out in a review at Scientific American:

[T]he wealth of data [Pinker] presents cannot be ignored—unless, that is, you take the same liberties as he sometimes does in his book. In two lengthy chapters, Pinker describes psychological processes that make us either violent or peaceful, respectively. Our dark side is driven by a evolution-based propensity toward predation and dominance. On the angelic side, we have, or at least can learn, some degree of self-control, which allows us to inhibit dark tendencies.

There is, however, another psychological process—confirmation bias—that Pinker sometimes succumbs to in his book. People pay more attention to facts that match their beliefs than those that undermine them. Pinker wants peace, and he also believes in his hypothesis; it is no surprise that he focuses more on facts that support his views than on those that do not. The SIPRI arms data are problematic, and a reader can also cherry-pick facts from Pinker’s own book that are inconsistent with his position. He notes, for example, that during the 20th century homicide rates failed to decline in both the U.S. and England. He also describes in graphic and disturbing detail the savage way in which chimpanzees—our closest genetic relatives in the animal world—torture and kill their own kind.

Of greater concern is the assumption on which Pinker’s entire case rests: that we look at relative numbers instead of absolute numbers in assessing human violence. But why should we be content with only a relative decrease? By this logic, when we reach a world population of nine billion in 2050, Pinker will conceivably be satisfied if a mere two million people are killed in war that year.

The biggest problem with the book, though, is its overreliance on history, which, like the light on a caboose, shows us only where we are not going. We live in a time when all the rules are being rewritten blindingly fast—when, for example, an increasingly smaller number of people can do increasingly greater damage. Yes, when you move from the Stone Age to modern times, some violence is left behind, but what happens when you put weapons of mass destruction into the hands of modern people who in many ways are still living primitively? What happens when the unprecedented occurs—when a country such as Iran, where women are still waiting for even the slightest glimpse of those better angels, obtains nuclear weapons? Pinker doesn’t say.

Pinker’s belief that violence is on the decline reminds me of “it’s different this time”, a phrase that was on the lips of hopeful stock-pushers, stock-buyers, and pundits during the stock-market bubble of the late 1990s. That bubble ended, of course, in the spectacular crash of 2000.

Predictions about the future of humankind are better left in the hands of writers who see human nature whole, and who are not out to prove that it can be shaped or contained by the kinds of “liberal” institutions that Pinker so obviously favors.

Consider this, from an article by Robert J. Samuelson at The Washington Post:

[T]he Internet’s benefits are relatively modest compared with previous transformative technologies, and it brings with it a terrifying danger: cyberwar. Amid the controversy over leaks from the National Security Agency, this looms as an even bigger downside.

By cyberwarfare, I mean the capacity of groups — whether nations or not — to attack, disrupt and possibly destroy the institutions and networks that underpin everyday life. These would be power grids, pipelines, communication and financial systems, business record-keeping and supply-chain operations, railroads and airlines, databases of all types (from hospitals to government agencies). The list runs on. So much depends on the Internet that its vulnerability to sabotage invites doomsday visions of the breakdown of order and trust.

In a report, the Defense Science Board, an advisory group to the Pentagon, acknowledged “staggering losses” of information involving weapons design and combat methods to hackers (not identified, but probably Chinese). In the future, hackers might disarm military units. “U.S. guns, missiles and bombs may not fire, or may be directed against our own troops,” the report said. It also painted a specter of social chaos from a full-scale cyberassault. There would be “no electricity, money, communications, TV, radio or fuel (electrically pumped). In a short time, food and medicine distribution systems would be ineffective.”

But Pinker wouldn’t count the resulting chaos as violence, as long as human beings were merely starving and dying of various diseases. That violence would ensue, of course, is another story, which is told by John Gray in The Silence of Animals: On Progress and Other Modern Myths. Gray’s book — published  18 months after Better Angels — could be read as a refutation of Pinker’s book, though Gray doesn’t mention Pinker or his book.

The gist of Gray’s argument is faithfully recounted in a review of Gray’s book by Robert W. Merry at The National Interest:

The noted British historian J. B. Bury (1861–1927) … wrote, “This doctrine of the possibility of indefinitely moulding the characters of men by laws and institutions . . . laid a foundation on which the theory of the perfectibility of humanity could be raised. It marked, therefore, an important stage in the development of the doctrine of Progress.”

We must pause here over this doctrine of progress. It may be the most powerful idea ever conceived in Western thought—emphasizing Western thought because the idea has had little resonance in other cultures or civilizations. It is the thesis that mankind has advanced slowly but inexorably over the centuries from a state of cultural backwardness, blindness and folly to ever more elevated stages of enlightenment and civilization—and that this human progression will continue indefinitely into the future…. The U.S. historian Charles A. Beard once wrote that the emergence of the progress idea constituted “a discovery as important as the human mind has ever made, with implications for mankind that almost transcend imagination.” And Bury, who wrote a book on the subject, called it “the great transforming conception, which enables history to define her scope.”

Gray rejects it utterly. In doing so, he rejects all of modern liberal humanism. “The evidence of science and history,” he writes, “is that humans are only ever partly and intermittently rational, but for modern humanists the solution is simple: human beings must in future be more reasonable. These enthusiasts for reason have not noticed that the idea that humans may one day be more rational requires a greater leap of faith than anything in religion.” In an earlier work, Straw Dogs: Thoughts on Humans and Other Animals, he was more blunt: “Outside of science, progress is simply a myth.”

… Gray has produced more than twenty books demonstrating an expansive intellectual range, a penchant for controversy, acuity of analysis and a certain political clairvoyance.

He rejected, for example, Francis Fukuyama’s heralded “End of History” thesis—that Western liberal democracy represents the final form of human governance—when it appeared in this magazine in 1989. History, it turned out, lingered long enough to prove Gray right and Fukuyama wrong….

Though for decades his reputation was confined largely to intellectual circles, Gray’s public profile rose significantly with the 2002 publication of Straw Dogs, which sold impressively and brought him much wider acclaim than he had known before. The book was a concerted and extensive assault on the idea of progress and its philosophical offspring, secular humanism. The Silence of Animals is in many ways a sequel, plowing much the same philosophical ground but expanding the cultivation into contiguous territory mostly related to how mankind—and individual humans—might successfully grapple with the loss of both metaphysical religion of yesteryear and today’s secular humanism. The fundamentals of Gray’s critique of progress are firmly established in both books and can be enumerated in summary.

First, the idea of progress is merely a secular religion, and not a particularly meaningful one at that. “Today,” writes Gray in Straw Dogs, “liberal humanism has the pervasive power that was once possessed by revealed religion. Humanists like to think they have a rational view of the world; but their core belief in progress is a superstition, further from the truth about the human animal than any of the world’s religions.”

Second, the underlying problem with this humanist impulse is that it is based upon an entirely false view of human nature—which, contrary to the humanist insistence that it is malleable, is immutable and impervious to environmental forces. Indeed, it is the only constant in politics and history. Of course, progress in scientific inquiry and in resulting human comfort is a fact of life, worth recognition and applause. But it does not change the nature of man, any more than it changes the nature of dogs or birds. “Technical progress,” writes Gray, again in Straw Dogs, “leaves only one problem unsolved: the frailty of human nature. Unfortunately that problem is insoluble.”

That’s because, third, the underlying nature of humans is bred into the species, just as the traits of all other animals are. The most basic trait is the instinct for survival, which is placed on hold when humans are able to live under a veneer of civilization. But it is never far from the surface. In The Silence of Animals, Gray discusses the writings of Curzio Malaparte, a man of letters and action who found himself in Naples in 1944, shortly after the liberation. There he witnessed a struggle for life that was gruesome and searing. “It is a humiliating, horrible thing, a shameful necessity, a fight for life,” wrote Malaparte. “Only for life. Only to save one’s skin.” Gray elaborates:

Observing the struggle for life in the city, Malaparte watched as civilization gave way. The people the inhabitants had imagined themselves to be—shaped, however imperfectly, by ideas of right and wrong—disappeared. What were left were hungry animals, ready to do anything to go on living; but not animals of the kind that innocently kill and die in forests and jungles. Lacking a self-image of the sort humans cherish, other animals are content to be what they are. For human beings the struggle for survival is a struggle against themselves.

When civilization is stripped away, the raw animal emerges. “Darwin showed that humans are like other animals,” writes Gray in Straw Dogs, expressing in this instance only a partial truth. Humans are different in a crucial respect, captured by Gray himself when he notes that Homo sapiens inevitably struggle with themselves when forced to fight for survival. No other species does that, just as no other species has such a range of spirit, from nobility to degradation, or such a need to ponder the moral implications as it fluctuates from one to the other. But, whatever human nature is—with all of its capacity for folly, capriciousness and evil as well as virtue, magnanimity and high-mindedness—it is embedded in the species through evolution and not subject to manipulation by man-made institutions.

Fourth, the power of the progress idea stems in part from the fact that it derives from a fundamental Christian doctrine—the idea of providence, of redemption….

“By creating the expectation of a radical alteration in human affairs,” writes Gray, “Christianity . . . founded the modern world.” But the modern world retained a powerful philosophical outlook from the classical world—the Socratic faith in reason, the idea that truth will make us free; or, as Gray puts it, the “myth that human beings can use their minds to lift themselves out of the natural world.” Thus did a fundamental change emerge in what was hoped of the future. And, as the power of Christian faith ebbed, along with its idea of providence, the idea of progress, tied to the Socratic myth, emerged to fill the gap. “Many transmutations were needed before the Christian story could renew itself as the myth of progress,” Gray explains. “But from being a succession of cycles like the seasons, history came to be seen as a story of redemption and salvation, and in modern times salvation became identified with the increase of knowledge and power.”

Thus, it isn’t surprising that today’s Western man should cling so tenaciously to his faith in progress as a secular version of redemption. As Gray writes, “Among contemporary atheists, disbelief in progress is a type of blasphemy. Pointing to the flaws of the human animal has become an act of sacrilege.” In one of his more brutal passages, he adds:

Humanists believe that humanity improves along with the growth of knowledge, but the belief that the increase of knowledge goes with advances in civilization is an act of faith. They see the realization of human potential as the goal of history, when rational inquiry shows history to have no goal. They exalt nature, while insisting that humankind—an accident of nature—can overcome the natural limits that shape the lives of other animals. Plainly absurd, this nonsense gives meaning to the lives of people who believe they have left all myths behind.

In the Silence of Animals, Gray explores all this through the works of various writers and thinkers. In the process, he employs history and literature to puncture the conceits of those who cling to the progress idea and the humanist view of human nature. Those conceits, it turns out, are easily punctured when subjected to Gray’s withering scrutiny….

And yet the myth of progress is so powerful in part because it gives meaning to modern Westerners struggling, in an irreligious era, to place themselves in a philosophical framework larger than just themselves….

Much of the human folly catalogued by Gray in The Silence of Animals makes a mockery of the earnest idealism of those who later shaped and molded and proselytized humanist thinking into today’s predominant Western civic philosophy.

RACE AS A SOCIAL CONSTRUCT

David Reich‘s hot new book, Who We Are and How We Got Here, is causing a stir in genetic-research circles. Reich, who takes great pains to assure everyone that he isn’t a racist, and who deplores racism, is nevertheless candid about race:

I have deep sympathy for the concern that genetic discoveries could be misused to justify racism. But as a geneticist I also know that it is simply no longer possible to ignore average genetic differences among “races.”

Groundbreaking advances in DNA sequencing technology have been made over the last two decades. These advances enable us to measure with exquisite accuracy what fraction of an individual’s genetic ancestry traces back to, say, West Africa 500 years ago — before the mixing in the Americas of the West African and European gene pools that were almost completely isolated for the last 70,000 years. With the help of these tools, we are learning that while race may be a social construct, differences in genetic ancestry that happen to correlate to many of today’s racial constructs are real….

Self-identified African-Americans turn out to derive, on average, about 80 percent of their genetic ancestry from enslaved Africans brought to America between the 16th and 19th centuries. My colleagues and I searched, in 1,597 African-American men with prostate cancer, for locations in the genome where the fraction of genes contributed by West African ancestors was larger than it was elsewhere in the genome. In 2006, we found exactly what we were looking for: a location in the genome with about 2.8 percent more African ancestry than the average.

When we looked in more detail, we found that this region contained at least seven independent risk factors for prostate cancer, all more common in West Africans. Our findings could fully account for the higher rate of prostate cancer in African-Americans than in European-Americans. We could conclude this because African-Americans who happen to have entirely European ancestry in this small section of their genomes had about the same risk for prostate cancer as random Europeans.

Did this research rely on terms like “African-American” and “European-American” that are socially constructed, and did it label segments of the genome as being probably “West African” or “European” in origin? Yes. Did this research identify real risk factors for disease that differ in frequency across those populations, leading to discoveries with the potential to improve health and save lives? Yes.

While most people will agree that finding a genetic explanation for an elevated rate of disease is important, they often draw the line there. Finding genetic influences on a propensity for disease is one thing, they argue, but looking for such influences on behavior and cognition is another.

But whether we like it or not, that line has already been crossed. A recent study led by the economist Daniel Benjamin compiled information on the number of years of education from more than 400,000 people, almost all of whom were of European ancestry. After controlling for differences in socioeconomic background, he and his colleagues identified 74 genetic variations that are over-represented in genes known to be important in neurological development, each of which is incontrovertibly more common in Europeans with more years of education than in Europeans with fewer years of education.

It is not yet clear how these genetic variations operate. A follow-up study of Icelanders led by the geneticist Augustine Kong showed that these genetic variations also nudge people who carry them to delay having children. So these variations may be explaining longer times at school by affecting a behavior that has nothing to do with intelligence.

This study has been joined by others finding genetic predictors of behavior. One of these, led by the geneticist Danielle Posthuma, studied more than 70,000 people and found genetic variations in more than 20 genes that were predictive of performance on intelligence tests.

Is performance on an intelligence test or the number of years of school a person attends shaped by the way a person is brought up? Of course. But does it measure something having to do with some aspect of behavior or cognition? Almost certainly. And since all traits influenced by genetics are expected to differ across populations (because the frequencies of genetic variations are rarely exactly the same across populations), the genetic influences on behavior and cognition will differ across populations, too.

You will sometimes hear that any biological differences among populations are likely to be small, because humans have diverged too recently from common ancestors for substantial differences to have arisen under the pressure of natural selection. This is not true. The ancestors of East Asians, Europeans, West Africans and Australians were, until recently, almost completely isolated from one another for 40,000 years or longer, which is more than sufficient time for the forces of evolution to work. Indeed, the study led by Dr. Kong showed that in Iceland, there has been measurable genetic selection against the genetic variations that predict more years of education in that population just within the last century….

So how should we prepare for the likelihood that in the coming years, genetic studies will show that many traits are influenced by genetic variations, and that these traits will differ on average across human populations? It will be impossible — indeed, anti-scientific, foolish and absurd — to deny those differences. [“How Genetics Is Changing Our Understanding of ‘Race’“, The New York Times, March 23, 2018]

Reich engages in a lot of non-scientific wishful thinking about racial differences and how they should be treated by “society” — none of which is in his purview as a scientist. Reich’s forays into psychobabble have been addressed at length by Steve Sailer (here and here) and Gregory Cochran (here, here, here, here, and here). Suffice it to say that Reich is trying in vain to minimize the scientific fact of racial differences that show up crucially in intelligence and rates of violent crime.

The lesson here is that it’s all right to show that race isn’t a social construct as long as you proclaim that it is a social construct. This is known as talking out of both sides of one’s mouth — another manifestation of balderdash.

DIVERSITY IS GOOD, EXCEPT WHEN IT ISN’T

I now invoke Robert Putnam, a political scientist known mainly for his book Bowling Alone: The Collapse and Revival of American Community (2005), in which he

makes a distinction between two kinds of social capital: bonding capital and bridging capital. Bonding occurs when you are socializing with people who are like you: same age, same race, same religion, and so on. But in order to create peaceful societies in a diverse multi-ethnic country, one needs to have a second kind of social capital: bridging. Bridging is what you do when you make friends with people who are not like you, like supporters of another football team. Putnam argues that those two kinds of social capital, bonding and bridging, do strengthen each other. Consequently, with the decline of the bonding capital mentioned above inevitably comes the decline of the bridging capital leading to greater ethnic tensions.

In later work on diversity and trust within communities, Putnam concludes that

other things being equal, more diversity in a community is associated with less trust both between and within ethnic groups….

Even when controlling for income inequality and crime rates, two factors which conflict theory states should be the prime causal factors in declining inter-ethnic group trust, more diversity is still associated with less communal trust.

Lowered trust in areas with high diversity is also associated with:

  • Lower confidence in local government, local leaders and the local news media.
  • Lower political efficacy – that is, confidence in one’s own influence.
  • Lower frequency of registering to vote, but more interest and knowledge about politics and more participation in protest marches and social reform groups.
  • Higher political advocacy, but lower expectations that it will bring about a desirable result.
  • Less expectation that others will cooperate to solve dilemmas of collective action (e.g., voluntary conservation to ease a water or energy shortage).
  • Less likelihood of working on a community project.
  • Less likelihood of giving to charity or volunteering.
  • Fewer close friends and confidants.
  • Less happiness and lower perceived quality of life.
  • More time spent watching television and more agreement that “television is my most important form of entertainment”.

It’s not as if Putnam is a social conservative who is eager to impart such news. To the contrary, as Michal Jonas writes in “The Downside of Diversity“, Putnam’s

findings on the downsides of diversity have also posed a challenge for Putnam, a liberal academic whose own values put him squarely in the pro-diversity camp. Suddenly finding himself the bearer of bad news, Putnam has struggled with how to present his work. He gathered the initial raw data in 2000 and issued a press release the following year outlining the results. He then spent several years testing other possible explanations.

When he finally published a detailed scholarly analysis … , he faced criticism for straying from data into advocacy. His paper argues strongly that the negative effects of diversity can be remedied, and says history suggests that ethnic diversity may eventually fade as a sharp line of social demarcation.

“Having aligned himself with the central planners intent on sustaining such social engineering, Putnam concludes the facts with a stern pep talk,” wrote conservative commentator Ilana Mercer….

After releasing the initial results in 2001, Putnam says he spent time “kicking the tires really hard” to be sure the study had it right. Putnam realized, for instance, that more diverse communities tended to be larger, have greater income ranges, higher crime rates, and more mobility among their residents — all factors that could depress social capital independent of any impact ethnic diversity might have.

“People would say, ‘I bet you forgot about X,’” Putnam says of the string of suggestions from colleagues. “There were 20 or 30 X’s.”

But even after statistically taking them all into account, the connection remained strong: Higher diversity meant lower social capital. In his findings, Putnam writes that those in more diverse communities tend to “distrust their neighbors, regardless of the color of their skin, to withdraw even from close friends, to expect the worst from their community and its leaders, to volunteer less, give less to charity and work on community projects less often, to register to vote less, to agitate for social reform more but have less faith that they can actually make a difference, and to huddle unhappily in front of the television.”

“People living in ethnically diverse settings appear to ‘hunker down’ — that is, to pull in like a turtle,” Putnam writes….

In a recent study, [Harvard economist Edward] Glaeser and colleague Alberto Alesina demonstrated that roughly half the difference in social welfare spending between the US and Europe — Europe spends far more — can be attributed to the greater ethnic diversity of the US population. Glaeser says lower national social welfare spending in the US is a “macro” version of the decreased civic engagement Putnam found in more diverse communities within the country.

Economists Matthew Kahn of UCLA and Dora Costa of MIT reviewed 15 recent studies in a 2003 paper, all of which linked diversity with lower levels of social capital. Greater ethnic diversity was linked, for example, to lower school funding, census response rates, and trust in others. Kahn and Costa’s own research documented higher desertion rates in the Civil War among Union Army soldiers serving in companies whose soldiers varied more by age, occupation, and birthplace.

Birds of different feathers may sometimes flock together, but they are also less likely to look out for one another. “Everyone is a little self-conscious that this is not politically correct stuff,” says Kahn….

In his paper, Putnam cites the work done by Page and others, and uses it to help frame his conclusion that increasing diversity in America is not only inevitable, but ultimately valuable and enriching. As for smoothing over the divisions that hinder civic engagement, Putnam argues that Americans can help that process along through targeted efforts. He suggests expanding support for English-language instruction and investing in community centers and other places that allow for “meaningful interaction across ethnic lines.”

Some critics have found his prescriptions underwhelming. And in offering ideas for mitigating his findings, Putnam has drawn scorn for stepping out of the role of dispassionate researcher. “You’re just supposed to tell your peers what you found,” says John Leo, senior fellow at the Manhattan Institute, a conservative think tank. [Michael Jonas, “The downside of diversity,” The Boston Globe (boston.com), August 5, 2007]

What is it about academics like Reich and Putnam who can’t bear to face the very facts that they have uncovered? The magic word is “academics”. They are denizens of a milieu in which the facts of life about race, guns, sex, and many other things are in the habit of being suppressed in favor of “hope and change”, and the facts be damned.

ONE MORE BIT OF RACE-RELATED BALDERDASH

I was unaware of the Implicit Association Test (IAT) until a few years ago, when I took a test at YourMorals.Org that purported to measure my implicit racial preferences. IAT has been exposed as junk, John. J. Ray calls it:

Psychologists are well aware that people often do not say what they really think.  It is therefore something of a holy grail among them to find ways that WILL detect what people really think. A very popular example of that is the Implicit Associations test (IAT).  It supposedly measures racist thoughts whether you are aware of them or not.  It sometimes shows people who think they are anti-racist to be in fact secretly racist.

I dismissed it as a heap of junk long ago (here and here) but it has remained very popular and is widely accepted as revealing truth.  I am therefore pleased that a very long and thorough article has just appeared which comes to the same conclusion that I did.

The article in question (which has the same title as Ray’s post) is by Jesse Singal. It appeared at Science of Us on January 11, 2017. Here are some excerpts:

Perhaps no new concept from the world of academic psychology has taken hold of the public imagination more quickly and profoundly in the 21st century than implicit bias — that is, forms of bias which operate beyond the conscious awareness of individuals. That’s in large part due to the blockbuster success of the so-called implicit association test, which purports to offer a quick, easy way to measure how implicitly biased individual people are….

Since the IAT was first introduced almost 20 years ago, its architects, as well as the countless researchers and commentators who have enthusiastically embraced it, have offered it as a way to reveal to test-takers what amounts to a deep, dark secret about who they are: They may not feel racist, but in fact, the test shows that in a variety of intergroup settings, they will act racist….

[The] co-creators are Mahzarin Banaji, currently the chair of Harvard University’s psychology department, and Anthony Greenwald, a highly regarded social psychology researcher at the University of Washington. The duo introduced the test to the world at a 1998 press conference in Seattle — the accompanying press release noted that they had collected data suggesting that 90–95 percent of Americans harbored the “roots of unconscious prejudice.” The public immediately took notice: Since then, the IAT has been mostly treated as a revolutionary, revelatory piece of technology, garnering overwhelmingly positive media coverage….

Maybe the biggest driver of the IAT’s popularity and visibility, though, is the fact that anyone can take the test on the Project Implicit website, which launched shortly after the test was unveiled and which is hosted by Harvard University. The test’s architects reported that, by October 2015, more than 17 million individual test sessions had been completed on the website. As will become clear, learning one’s IAT results is, for many people, a very big deal that changes how they view themselves and their place in the world.

Given all this excitement, it might feel safe to assume that the IAT really does measure people’s propensity to commit real-world acts of implicit bias against marginalized groups, and that it does so in a dependable, clearly understood way….

Unfortunately, none of that is true. A pile of scholarly work, some of it published in top psychology journals and most of it ignored by the media, suggests that the IAT falls far short of the quality-control standards normally expected of psychological instruments. The IAT, this research suggests, is a noisy, unreliable measure that correlates far too weakly with any real-world outcomes to be used to predict individuals’ behavior — even the test’s creators have now admitted as such.

How does IAT work? Singal summarizes:

You sit down at a computer where you are shown a series of images and/or words. First, you’re instructed to hit ‘i’ when you see a “good” term like pleasant, or to hit ‘e’ when you see a “bad” one like tragedy. Then, hit ‘i’ when you see a black face, and hit ‘e’ when you see a white one. Easy enough, but soon things get slightly more complex: Hit ‘i’ when you see a good word or an image of a black person, and ‘e’ when you see a bad word or an image of a white person. Then the categories flip to black/bad and white/good. As you peck away at the keyboard, the computer measures your reaction times, which it plugs into an algorithm. That algorithm, in turn, generates your score.

If you were quicker to associate good words with white faces than good words with black faces, and/or slower to associate bad words with white faces than bad words with black ones, then the test will report that you have a slight, moderate, or strong “preference for white faces over black faces,” or some similar language. You might also find you have an anti-white bias, though that is significantly less common. By the normal scoring conventions of the test, positive scores indicate bias against the out-group, while negative ones indicate bias against the in-group.

The rough idea is that, as humans, we have an easier time connecting concepts that are already tightly linked in our brains, and a tougher time connecting concepts that aren’t. The longer it takes to connect “black” and “good” relative to “white” and “good,” the thinking goes, the more your unconscious biases favor white people over black people.

Singal continues (at great length) to pile up the mountain of evidence against IAT, and to caution against reading anything into the results it yields.

Having become aware of the the debunking of IAT, I went to the website of Project Implicit. When I reached this page, I was surprised to learn that I could not only find out whether I’m a closet racist but also whether I prefer dark or light skin tones, Asians or non-Asians, Trump or a previous president, and several other things or their opposites. I chose to discover my true feelings about Trump vs. a previous president, and was faced with a choice between Trump and Clinton.

What was the result of my several minutes of tapping “e” and “i” on the keyboard of my PC? This:

Your data suggest a moderate automatic preference for Bill Clinton over Donald Trump.

Balderdash! Though Trump is obviously not of better character than Clinton, he’s obviously not of worse character. And insofar as policy goes, the difference between Trump and Clinton is somewhat like the difference between a non-silent Calvin Coolidge and an FDR without the patriotism. (With apologies to the memory of Coolidge, my favorite president.)

What did I learn from the IAT? I must have very good reflexes. A person who processes information rapidly and then almost instantly translates it into a physical response should be able to “beat” the IAT. And that’s probably what I did in the Trump vs. Clinton test.

Perhaps the IAT for racism could be used to screen candidates for fighter-pilot training. Only “non-racists” would be admitted. Anyone who isn’t quick enough to avoid the “racist” label isn’t quick enough to win a dogfight.

OTHER “LIBERAL” DELUSIONS

There are plenty of them under the heading of balderdash. It’s also known as magical thinking, in which “ought” becomes “is” and the forces of nature and human nature can be held in abeyance by edict. The following examples revisit some ground already covered here:

  • Men are unnecessary.
  • Women can do everything that men can do, but it doesn’t work the other way … just because.
  • Mothers can work outside the home without damage to their children.
  • Race is a “social construct”; there is no such thing as intelligence; women and men are mentally and physically equal in all respects; and the under-representation of women and blacks in certain fields is therefore due to rank discrimination (but it’s all right if blacks dominate certain sports and women now far outnumber men on college campuses).
  • A minimum wage can be imposed without an increase in unemployment, a “fact” which can be “proven” only by concocting special cases of limited applicability.
  • Taxes can be raised without discouraging investment and therefore reducing the rate of economic growth.
  • Regulation doesn’t reduce the rate of economic growth and foster “crony capitalism”. There can “free lunches” all around.
  • Health insurance premiums will go down while the number of mandates is increased.
  • The economy can be stimulated through the action of the Keynesian multiplier, which is nothing but phony math.
  • “Green” programs create jobs (but only because they are inefficient).
  • Every “right” under the sun can be granted without cost (e.g., affirmative action racial-hiring quotas, which penalize blameless whites; the Social Security Ponzi scheme, which burdens today’s workers and cuts into growth-inducing saving).

There’s much more in a different vein here.

BALDERDASH AS EUPHEMISTIC THINKING

Balderdash, as I have sampled it here, isn’t just nonsense — it’s nonsense in the service of an agenda. The agenda is too often the expansion of government power. Those who favor the expansion of government power don’t like to think that it hurts people. (“We’re from the government and we’re here to help.”) This is a refusal to face facts, which is amply if not exhautively illustrated in the preceding entries.

But there’s a lot more where that comes from; for example:

  • Crippled became handicapped, which became disabled and then differently abled or something-challenged.
  • Stupid became learning disabled, which became special needs (a euphemistic category that houses more than the stupid).
  • Poor became underprivileged, which became economically disadvantaged, which became (though isn’t overtly called) entitled (as in entitled to other people’s money).
  • Colored persons became Negroes, who became blacks, then African-Americans, and now (often) persons of color.

Why do lefties — lovers of big government — persist in varnishing the truth? They are — they insist — strong supporters of science, which is (ideally) the pursuit of truth. Well, that’s because they aren’t really supporters of science (witness their devotion to the “unsettled” science of AGW, among many fabrications). Nor do they really want the truth. They simply want to portray the world as they would like it to be, or to lie about it so that they can strive to reshape it to their liking.

BALDERDASH IN THE SERVICE OF SLAVERY, MODERN STYLE

I will end with this one, which is less conclusive than what has gone before, but which further illustrates the left’s penchant for evading reality in the service of growing government.

Thomas Nagel writes:

Some would describe taxation as a form of theft and conscription as a form of slavery — in fact some would prefer to describe taxation as slavery too, or at least as forced labor. Much might be said against these descriptions, but that is beside the point. For within proper limits, such practices when engaged in by governments are acceptable, whatever they are called. If someone with an income of $2000 a year trains a gun on someone with an income of $100000 a year and makes him hand over his wallet, that is robbery. If the federal government withholds a portion of the second person’s salary (enforcing the laws against tax evasion with threats of imprisonment under armed guard) and gives some of it to the first person in the form of welfare payments, food stamps, or free health care, that is taxation. In the first case it is (in my opinion) an impermissible use of coercive means to achieve a worthwhile end. In the second case the means are legitimate, because they are impersonally imposed by an institution designed to promote certain results. Such general methods of distribution are preferable to theft as a form of private initiative and also to individual charity. This is true not only for reasons of fairness and efficiency, but also because both theft and charity are disturbances of the relations (or lack of them) between individuals and involve their individual wills in a way that an automatic, officially imposed system of taxation does not. [Mortal Questions, “Ruthlessness in Public Life,” pp. 87-88]

How many logical and epistemic errors can a supposedly brilliant philosopher make in one (long) paragraph? Too many:

  • “For within proper limits” means that Nagel is about to beg the question by shaping an answer that fits his idea of proper limits.
  • Nagel then asserts that the use by government of coercive means to achieve the same end as robbery is “legitimate, because [those means] are impersonally imposed by an institution designed to promote certain results.” Balderdash! Nagel’s vision of government as some kind of omniscient, benevolent arbiter is completely at odds with reality.  The “certain results” (redistribution of income) are achieved by functionaries, armed or backed with the force of arms, who themselves share in the spoils of coercive redistribution. Those functionaries act under the authority of bare majorities of elected representatives, who are chosen by bare majorities of voters. And those bare majorities are themselves coalitions of interested parties — hopeful beneficiaries of redistributionist policies, government employees, government contractors, and arrogant statists — who believe, without justification, that forced redistribution is a proper function of government.
  • On the last point, Nagel ignores the sordid history of the unconstitutional expansion of the powers of government. Without justification, he aligns himself with proponents of the “living Constitution.”
  • Nagel’s moral obtuseness is fully revealed when he equates coercive redistribution with “fairness and efficiency,” as if property rights and liberty were of no account.
  • The idea that coercive redistribution fosters efficiency is laughable. It does quite the opposite because it removes resources from productive uses — including job-creating investments. The poor are harmed by coercive redistribution because it drastically curtails economic growth, from which they would benefit as job-holders and (where necessary) recipients of private charity (the resources for which would be vastly greater in the absence of coercive redistribution).
  • Finally (though not exhaustively), Nagel’s characterization of private charity as a “disturbance of the relations … among individuals” is so wrong-headed that it leaves me dumbstruck. Private charity arises from real relations among individuals — from a sense of community and feelings of empathy. It is the “automatic, officially imposed system of taxation” that distorts and thwarts (“disturbs”) the social fabric.

In any event, taxation for the purpose of redistribution is slavery: the subjection of one person to others, namely, agents of the government and the recipients of the taxes extracted from the person who pays them under threat of punishment. It’s slavery without whips and chains, but slavery nevertheless.

Revisiting the Laffer Curve

Among the claims made in favor of the Tax Cuts and Jobs Act of 2017 was that the resulting tax cuts would pay for themselves. Thus the Laffer curve returned briefly to prominence, after having been deployed to support the Reagan and Bush tax cuts of 1981 and 2001.

The idea behind the Laffer curve is straightforward. Taxes inhibit economic activity, that is, the generation of output and income. Tax-rate reductions therefore encourage work, which yields higher incomes. Higher incomes mean that there is more saving from which to finance growth-producing capital investment. Lower tax rates also make investment more attractive by increasing the expected return on capital investments. Lower tax rates therefore stimulate economic output by encouraging work and investment (supply-side economics). Under the right conditions, lower tax rates may generate enough additional income to yield an increase in tax revenue.

I believe that there are conditions under which the Laffer curve works as advertised. But so what? The Laffer curve focuses attention on the wrong economic variable: tax revenue. The economic variables that really matter — or that should matter — are the real rate of growth and the income available to Americans after taxes. More (real) economic growth means higher (real) income, across the board. More government spending means lower (real) income; the Keynesian multiplier is a cruel myth.

A new Laffer curve is in order, one that focuses on the effects of taxation on economic growth, and thus on the aggregate output of products and services available to consumers.

Let us begin at the beginning, with this depiction of the Laffer curve (via Forbes):

This is an unusually sophisticated depiction of the curve, in that it shows a growth-maximizing tax rate which is lower than the revenue-maximizing rate. It also shows that the growth-maximizing rate is greater than zero, for a good reason.

With real taxes (i.e., government spending) at zero or close to it, the rule of law would break down and the economy would be a shambles. But government spending above that required to maintain the rule of law (i.e., adequate policing, administration of justice, and national defense) interferes with the efficient operation of markets, both directly (by pulling resources out of productive use) and indirectly (by burdensome regulation financed by taxes).

Thus a tax rate higher than that required to sustain the rule of law1 leads to a reduction in the rate of (real) economic growth because of disincentives to work and invest. A reduction in the rate of growth pushes GDP below its potential level. Further, the effect is cumulative. A reduction in GDP means a reduction in investment, which means a reduction in future GDP, and on and on.

I will quantify the Laffer curve in two steps. First, I will estimate the tax rate at which revenue is maximized, taking the simplistic view that changes in the tax rate do not change the rate of economic growth. I will draw on Christina D. Romer and David H. Romer’s “The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks” (American Economic Review, June 2010, pp. 763-801).

The Romers estimate the effects of exogenous changes in taxes on GDP. (“Exogenous” meaning tax cuts aimed at stimulating the economy, as opposed, for example, to tax increases triggered by economic growth.) Here is their key finding:

Figure 4 summarizes the estimates by showing the implied effect of a tax increase of one percent of GDP on the path of real GDP (in logarithms), together with the one-standard-error bands. The effect is steadily down, first slowly and then more rapidly, finally leveling off after ten quarters. The estimated maximum impact is a fall in output of 3.0 percent. This estimate is overwhelmingly significant (t = –3.5). The two-standard-error confidence interval is (–4.7%,–1.3%). In short, tax increases appear to have a very large, sustained, and highly significant negative impact on output. Since most of our exogenous tax changes are in fact reductions, the more intuitive way to express this result is that tax cuts have very large and persistent positive output effects. [pp. 781-2]

The Romers assess the effects of tax cuts over a period of only 12 quarters (3 years). Some of the resulting growth in GDP during that period takes the form of greater spending on capital investments, the payoff from which usually takes more than 3 years to realize. So a tax cut of 1 percent of GDP yields more than a 3-percent rise in GDP over the longer run. But let’s keep it simple and use the relationship obtained by the Romers: a 1-percent tax cut (as a percentage of GDP) results in a 3-percent rise in GDP.

With that number in hand, and knowing the effective tax rate (33 percent of GDP in 20172), it is then easy to compute the short-run effects of changes in the effective tax rate on GDP, after-tax GDP, and tax revenue:


Effective tax revenue represents the dollar amount extracted from the economy through government spending at the stated percentage of GDP. (Spending includes transfer payments, which take from those who produce and give to those who do not.) Effective tax rate represents the dollar amount extracted from the economy, divided by GDP at the given tax rate. (GDP is based on the Romers’ estimate of the marginal effect of a change in the tax rate.)

It is a coincidence that tax revenue is maximized at the current (2017) effective tax rate of 33 percent. The coincidence occurs because, according to the Romers, every $1 change in tax revenue (or government spending that draws resources from the real economy) yields a $3 change in GDP, at the margin. If the marginal rate of return were lower than 3:1, the revenue-maximizing rate would be greater than 33 percent. If the marginal rate of return were higher than 3:1, the revenue-maximizing rate would be less than 33 percent.

In any event, the focus on tax revenue is entirely misplaced. What really matters, given that the prosperity of Americans is (or should be) of paramount interest, is GDP and especially after-tax GDP. Both would rise markedly in response to marginal cuts in real taxes (i.e., government spending). Democrats don’t want to hear that, of course, because they want government to decide how Americans spend the money that they earn. The idea that a far richer America would need far less government — subsidies, nanny-state regulations, etc. — frightens them.

It gets better (or worse, if you’re a big-government fan) when looking at the long-run effects of lower government spending on the rate of growth. I am speaking of the Rahn curve, which I estimate here. Holding other things the same, every percentage-point reduction in the real tax rate (government spending as a fraction of GDP) means an increase of 0.35 percentage point in the rate of real GDP growth. This is a long-run relationship because it takes time to convert some of the tax reduction to investment, and then to reap the additional output generated by the additional investment. It also takes time for workers to respond to the incentive of lower taxes by adding to their skills, working harder, and working in more productive jobs.

This graph depicts the long-run effects of changes in the effective tax rate, taking into account changes in the real growth rate from a base of 2.8 percent (the year-over-year rate for the most recent fiscal quarter):

Note that the same real tax revenue would be realized at an effective tax rate of 13 percent of GDP. At that rate, GDP would rise to 2.5 times its 2017 value (instead of 1.6 times as shown in Figure 1), and after-tax GDP would rise to 3.3 times its 2017 value (instead of 2.1 times as shown in Figure 1).

The real Laffer curve — the one that people ought to pay attention to — is the Rahn curve. Holding everything else constant, here is the relationship between the real growth rate and the effective tax rate:

Laffer revisited_3

At the current effective tax rate — 33 percent of GDP — the economy is limping along at about one-third of its potential growth. That is actually good news, inasmuch as the real growth rate dipped perilously close to 1 percent several times during the Obama administration, even after the official end of the Great Recession.

But it will take many years of spending cuts (relative to GDP, at least) and deregulation to push growth back to where it was in the decades immediately after World War II. Five percent isn’t out of the question.
__________

1. Total government spending, when transfer payments were negligible, amounted to between 5 and 10 percent of GDP between the Civil War and the Great Depression (Series F216-225, “Percent Distribution of National Income or Aggregate Payments, by Industry, in Current Prices: 1869-1968,” in Chapter F, National Income and Wealth, Historical Statistics of the United States, Colonial Times to 1970: Part 1). The cost of an adequate defense is a lot higher than it was in those relatively innocent times. Defense spending now accounts for about 3.5 percent of GDP. An increase to 5 percent wouldn’t render the U.S. invulnerable, but it would do a lot to deter potential adversaries. So at 10 percent of GDP, government spending on policing, the administration of justice, and defense — and nothing else — should be more than adequate to sustain the rule of law.

2. The effective tax rate on GDP in 2017 was 33.4 percent. That number represents total government government expenditures (line 37 of BEA Table 3.1), divided GDP (line 1 of BEA Table 1.15). The nominal tax rate on GDP was 30 percent; that is, government receipts (line 34 of BEA Table 3.1) accounted for 30 percent of GDP. (The BEA tables are accessible here.) I use the effective tax rate in this analysis because it truly represents the direct costs levied on the economy by government. (The indirect cost of regulatory activity adds about $2 trillion, bringing the total effective tax to 44 percent.)

More Evidence against College for Everyone

Here’s a datum:

My eldest grandchild is 23 years old. He’s a bright, articulate lad, but far more interested in doing than in reading. He has been working since he graduated from (home) high school, but not without a purpose in mind. Last fall, he enrolled in a course to learn a trade that he has always wanted to pursue. He passed the course with flying colors, quickly got a good job as a result, and from that job moved into the kind of job that he has long sought. He is happy, and I am happy for him.

But that’s not all. His job, though technically demanding, is “blue collar”. When I was his age, freshly equipped with a B.A. and some graduate school, I moved into the world of “white collar” work as an entry-level analyst at a government-sponsored think-tank in the D.C. area. Hot stuff, right?

Well, converting my starting salary to an hourly rate and adjusting it for inflation, I was making just about what my grandson is making now. But since graduating from high school he has been earning and saving money instead of cluttering a college campus. And he owns a pickup truck. When I started at the think-tank, I might have had a few hundred dollars in a checking account. And I couldn’t afford a car until I had worked for several months.

Will my grandson eventually make as money as I was able to make by feeding at the public trough? Given his ambition and foresight there’s no reason he can’t make a lot more than I did — and by doing things that people are actually willing to pay for instead of siphoning the U.S. Treasury.

College not only isn’t for everyone, it’s for almost no one. As I said seven years ago,

[w]hen I entered college [in 1958], I was among the 28 percent of high-school graduates then attending college. It was evident to me that about half of my college classmates didn’t belong in an institution of higher learning. Despite that, the college-enrollment rate among high-school graduates has since doubled.

Which means that only about one-fourth (or less) of today’s high-school graduates are really college material. That’s not a rap against them. It’s a rap against the insane idea of college for almost everyone. That would be a huge burden on taxpayers, a shameful misdirection of talent, and a massive drain on the economic potential of the nation.


Related posts:
The Higher-Education Bubble
Is College for Everyone?
The Dumbing-Down of Public Schools
College Is for Almost No One
About Those “Underpaid” Teachers

Recommended Reading

Leftism, Political Correctness, and Other Lunacies (Dispatches from the Fifth Circle Book 1)

 

On Liberty: Impossible Dreams, Utopian Schemes (Dispatches from the Fifth Circle Book 2)

 

We the People and Other American Myths (Dispatches from the Fifth Circle Book 3)

 

Americana, Etc.: Language, Literature, Movies, Music, Sports, Nostalgia, Trivia, and a Dash of Humor (Dispatches from the Fifth Circle Book 4)

Rethinking Free Trade II

I ended “Rethinking Free Trade” with this:

To put it bluntly but correctly, the national government exists not for the benefit of the people of the whole world or any part of it outside the United States, but for the benefit of the citizens of the United States.

Yes, some Americans benefit from free trade… But not all Americans do. And it is the job of the national government to serve all of the people. A balance needs to be struck. And those who pay the price of free trade … must be compensated in some way.

How and how much? Those are questions that I will grapple with in future posts.

I must first acknowledge some rather good points that I made in “Gains from Trade“, a nine-year-old post in which I address objections to free trade made by Keith Burgess-Jackson (KBJ):

How is “free trade” a “disaster for this country” [as KBJ puts it] when, thanks to the lowering of barriers to trade, but not their abandonment (thus “free trade”), millions of Americans now own better automobiles, electronic gadgets, and other goodies than they had access to before “free trade.” Not only that, but they have been able to purchase those goodies to which they had access before “free trade” at lower real prices than in the days before “free trade.” On top of that, millions of Americans make a better living than than they did before “free trade” because of their employment in industries that became stronger or rose up because of “free trade.”…

… KBJ seems to acknowledge as much in a [later] post … , where he gives a bit more ground:

Free trade is efficient, in the sense that it increases (or even maximizes) aggregate material welfare. The key words are “aggregate” and “material.” As for the first of these words, free trade produces losers as well as gainers. The gainers could compensate the losers, but they are not made to do so. I’m concerned about the losers. In other words, I care about justice (how the pie is distributed) as well as efficiency (how big the pie is). As for the second word, there is more to life than material welfare. Free trade has bad effects on valuable nonmaterial things, such as community, culture, tradition, and family. As a conservative, I care very much about these things.

… KBJ focuses on American losers, but there are many, many American gainers from free trade, as discussed above. Are their communities, cultures, traditions, and families of no import to KBJ? It would seem so. On what basis does he prefer some Americans to others?…

… KBJ seems to ignore the fundamental fact of life that human beings try to better their lot in ways that often, and inescapably, result in change….

Perhaps (in KBJ’s view) it was a mistake for early man to have discovered fire-making, which undoubtedly led to new communal alignments, cultural totems, traditions, and even familial relationships. Methinks, in short, that KBJ has been swept away by a kind of self-indulgent romanticism for a past that was not as good as we remember it. (I’ve been there and done that, too.)…

“Free trade” works because there are gains to all participants. If that weren’t the case, Americans wouldn’t buy foreign goods and foreigners wouldn’t buy American goods. Moreover, “free trade” has been a boon to American consumers and workers (though not always the workers KBJ seems to be worried about). To the extent that “wealthy American entrepreneurs” have gained from “free trade,” it’s because they’ve risked their capital to create jobs (in the U.S. and overseas) that have helped people (in the U.S. and overseas) attain higher standards of living. The “worldwide pool of cheap labor” is, in fact, a worldwide pool of willing labor, which earns what it does in accordance with the willingness of Americans (and others) to buy its products….

If “free trade” is such a bad thing, I wonder if KBJ buys anything that’s not made in Texas, where he lives. Trade between the States, after all, is about as “free” as it gets (except when government bans something, of course). Suppose Texas were to be annexed suddenly by Mexico. Would KBJ immediately boycott everything that’s made in the remaining 49 States? Would it have suddenly become unclean?…

Putting an end to “free trade” would make Americans poorer, not richer. And I doubt that it would do anything to halt the natural evolution of “community, culture, tradition, and family” away from the forms sentimentalized by KBJ and toward entirely new but not necessarily inferior forms.

The biggest threat to “community, culture, tradition, and family” lies in the non-evolutionary imposition of new social norms by the Left. That’s where the ire of KBJ and company should be directed.

There are a few chinks in my argument.

First, there will be in the short run (and sometimes even in the long run) a downward shift in the demand for labor in some sectors of the economy due to actions taken by foreign governments. Those actions consist of direct subsidies to industries that export goods to the U.S., and indirect subsidies in the form of tariffs and quotas on goods imported from the U.S.

I have seen “libertarian” economists justify direct subsidies because they benefit American consumers. (The same economists are glaringly silent about the disbenefits to American workers whose jobs are lost because of the subsidies.) It is jarring to read justifications of that kind from “libertarians”, who are usually quick to put Americans and foreigners on the same plane; for example, by promoting and praising “open borders” despite considerable disbenefits to some Americans. (I am thinking of  those whose neighborhoods are threatened by gangs of illegals. I am also thinking of those who pay higher taxes to subsidize the education, shelter, sustenance, and schooling of illegals — but who, unlike more affluent Americans, don’t engage the services of low-priced nannies and yard workers.)

And I must point out that those foreign-government subsidies aren’t free. They’re paid for, one way or another, by the citizens of foreign countries. Why would a “libertarian” transnationalist overlook such a thing? To justify “free trade” I guess.

It’s only fair to note that the U.S. government subsidizes American industries in ways that harm foreigners, that is, through direct subsidies, tariffs on imports, and import quotas. But any gains to workers in the industries thus subsidized do not offset the harm that foreign-government subsidies do to workers in other American industries.

All in all, international trade is a real mess. (So is domestic trade, given the myriad distortions wrought by taxes and regulations.) But it’s fair to say that some American workers are harmed by what can only be called unfair practices in international trade. The harm to them isn’t offset by the gains to other Americans. Only an economist or socialist would think otherwise.

In sum, I have come around to Mr. Trump’s view of this issue. Free trade should be conducted on a level playing field. Given that that won’t happen soon — if ever — what should be done for American workers who are harmed by unfair trade? Stay tuned.

Rethinking Free Trade

I have long supported free trade as beneficial. But I have also long derided utilitarianism, which is the doctrinal basis for claiming that free trade is beneficial. And I have long opposed the idea of open borders, in part because of the utilitarian claims of its supporters. It is time for me to resolve these contradictions.

Which way should I go? Should I sustain my anti-utilitarian position and oppose free trade as well as open borders? Or should I become a consistent utilitarian and support both free trade and open borders?

A digression about utilitarianism is in order. Utilitarianism, in this context, implies a belief in an aggregate social-welfare function (SWF) — a mystical summing of the states of happiness (or unhappiness) of myriad persons over an infinite series of points in time. It is the aim of utilitarians (who are mainly leftists and economists, though the categories overlap) to push SWF upward, toward (imaginary) collective nirvana. In so doing, the utilitarian makes himself the judge of whether an increase in A’s happiness at the expense of B (e.g., income redistribution) will result in an increase or decrease in SWF. An argument for this presumption (which is familiar mainly to economists), is based on the hypothesis of diminishing marginal utility (DMU) — a hypothesis that I have refuted at length. Suffice it to say that if A gains pleasure by poking B in the eye, no one — not even a Ph.D. economist — can prove that A’s pleasure outweighs B’s pain. In fact, common sense — which is embedded in eons of tradition — tells us that the act that brings pleasure to A should be punished precisely because of the way in which that pleasure is gained.

How does all of that pertain to free trade and open borders? Like this: Economists defend free trade and open borders because, in the aggregate, such things — in the long run — lead to greater economic efficiency and thus to greater total output (measured in constant dollars). And they are right about that. I have no doubt of it. But, to paraphrase John Maynard Keynes, in the long run we are all dead, and in the meantime some of us pay for the betterment of others.

Moreover, there are economists and others who like to conjoin the economic truth about the long-run consequences of free trade and open borders with statements about liberty: People ought to be free to exchange goods and services voluntarily. People ought to be free to live where they like.

Only a jejune anarchist will take such pronouncements as absolutes. Murder for hire is almost almost universally disapproved, as are many other crimes, even in this “enlightened”age. And I am unaware of a movement among affluent leftists to open their living rooms to the homeless, nor to repeal laws against trespass.

The question is, as always, where to strike a balance between the interests of those who benefit from free trade and open borders, and the interests of those for whom such things mean loss of income or higher taxes. How do the gains that accrue to some (e.g., less-expensive Lexi and abundant, low-priced nanny services) offset the burdens borne by working-class taxpayers whose jobs move overseas and whose school taxes rise to cover the costs of educating migrant children?

I ask these questions in connection with a broader issue: the purpose of our national government. It exists precisely for the reasons stated in the Preamble to the Constitution:

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

To put it bluntly but correctly, the national government exists not for the benefit of the people of the whole world or any part of it outside the United States, but for the benefit of the citizens of the United States.

Yes, some Americans benefit from free trade, and some Americans benefit from massive immigration. But not all Americans do. And it is the job of the national government to serve all of the people. A balance needs to be struck. And those who pay the price of free trade and massive immigration must be compensated in some way.

How and how much? Those are questions that I will grapple with in future posts.


Related posts:
Liberalism and Sovereignty
Utilitarianism, “Liberalism,” and Omniscience
Gains from Trade
Utilitarianism vs. Liberty
Diminishing Marginal Utility and the Redistributive Urge
Utilitarianism vs. Liberty (II)
Not-So-Random Thoughts (XVIII) – third item
Prosperity Isn’t Everything

College for Almost No One

Bryan Caplan, with whom I often disagree, is quite right about this:

From kindergarten on, students spend thousands of hours studying subjects irrelevant to the modern labor market. Why do English classes focus on literature and poetry instead of business and technical writing? Why do advanced-math classes bother with proofs almost no student can follow? When will the typical student use history? Trigonometry? Art? Music? Physics? Latin? The class clown who snarks “What does this have to do with real life?” is onto something.

The disconnect between college curricula and the job market has a banal explanation: Educators teach what they know—and most have as little firsthand knowledge of the modern workplace as I do. Yet this merely complicates the puzzle. If schools aim to boost students’ future income by teaching job skills, why do they entrust students’ education to people so detached from the real world? Because, despite the chasm between what students learn and what workers do, academic success is a strong signal of worker productivity….

The labor market doesn’t pay you for the useless subjects you master; it pays you for the preexisting traits you signal by mastering them….

Lest I be misinterpreted, I emphatically affirm that education confers some marketable skills, namely literacy and numeracy. Nonetheless, I believe that signaling accounts for at least half of college’s financial reward, and probably more.

Most of the salary payoff for college comes from crossing the graduation finish line….

Indeed, in the average study, senior year of college brings more than twice the pay increase of freshman, sophomore, and junior years combined. Unless colleges delay job training until the very end, signaling is practically the only explanation. This in turn implies a mountain of wasted resources—time and money that would be better spent preparing students for the jobs they’re likely to do….

In 2003, the United States Department of Education gave about 18,000 Americans the National Assessment of Adult Literacy. The ignorance it revealed is mind-numbing. Fewer than a third of college graduates received a composite score of “proficient”—and about a fifth were at the “basic” or “below basic” level….

Of course, college students aren’t supposed to just download facts; they’re supposed to learn how to think in real life. How do they fare on this count? The most focused study of education’s effect on applied reasoning, conducted by Harvard’s David Perkins in the mid-1980s, assessed students’ oral responses to questions designed to measure informal reasoning, such as “Would a proposed law in Massachusetts requiring a five-cent deposit on bottles and cans significantly reduce litter?” The benefit of college seemed to be zero: Fourth-year students did no better than first-year students….

… When we look at countries around the world, a year of education appears to raise an individual’s income by 8 to 11 percent. By contrast, increasing education across a country’s population by an average of one year per person raises the national income by only 1 to 3 percent. In other words, education enriches individuals much more than it enriches nations.

How is this possible? Credential inflation: As the average level of education rises, you need more education to convince employers you’re worthy of any specific job….

As credentials proliferate, so do failed efforts to acquire them. Students can and do pay tuition, kill a year, and flunk their finals…. Simply put, the push for broader college education has steered too many students who aren’t cut out for academic success onto the college track.

The college-for-all mentality has fostered neglect of a realistic substitute: vocational education. [“The World Might Be Better Off without College for Everyone“, The Atlantic, January 2018]

Caplan has been preaching this gospel for years. But he’s not the only one.

Katherine Mangu-Ward, writing in The Atlantic almost eight years ago, observed that

the phrase “higher education bubble” is popping up everywhere in recent months. This is thanks (in small part) to President Obama, who announced in his first State of the Union address that “every American will need to get more than a high school diploma.” But Americans have been fetishizing college diplomas for a long time now — Obama just reinforced that message and brought even more cash to the table. College has become a minimum career requirement, a basic human right, and a minimum income guarantee in the eyes of the American public. [“President Obama Is Not Impressed with Your High-School Diploma. Neither Is Wal-Mart.“]

Mangu-Ward is exactly right when she says this:

If we’re going to push every 18-year-old in the country into some kind of higher education, most people will likely be better off in a programs that involves logistics and linoleum, rather than ivy and the Iliad.

Vocational training, in other words. Which has languished, even as public schools have been dumbed-down.

Don Lee, writing at about the same time as Mangu-Ward, underscores the over-education — more correctly, mis-educaton — of America’s young adults:

[G]overnment surveys indicate that the vast majority of job gains this year have gone to workers with only a high school education or less, casting some doubt on one of the nation’s most deeply held convictions: that a college education is the ticket to the American Dream.

The Bureau of Labor Statistics projects that seven of the 10 employment sectors that will see the largest gains during the next decade won’t require much more than some on-the-job training. These include home health care aides, customer service representatives, and food preparers and servers. Meanwhile, well-paying white-collar jobs, such as computer programming, have become vulnerable to outsourcing to foreign countries.

“People with bachelor’s degrees will increasingly get not very highly satisfactory jobs,” said W. Norton Grubb, a professor at the University of California at Berkeley’s School of Education. “In that sense, people are getting more schooling than jobs are available.”

He noted that in 1970, 77 percent of workers with bachelor’s degrees were employed in professional and managerial occupations. By 2000, that had fallen to 60 percent.

Of the nearly 1 million new jobs created since hiring turned up in January, about half have been temporary census jobs. Most of the rest are concentrated in industries such as retail, hospitality and temporary staffing, according to the Bureau of Labor Statistics. [“Education Loses Its Luster“, reprinted in Akron Beacon Journal, June 21, 2010]

But that’s not news, either, this is from an anonymous piece that ran in The Atlantic almost ten years ago:

America, ever-idealistic, seems wary of the vocational-education track. We are not comfortable limiting anyone’s options. Telling someone that college is not for him seems harsh and classist and British, as though we were sentencing him to a life in the coal mines. I sympathize with this stance; I subscribe to the American ideal. Unfortunately, it is with me and my red pen that that ideal crashes and burns.

Sending everyone under the sun to college is a noble initiative. Academia is all for it, naturally. Industry is all for it; some companies even help with tuition costs. Government is all for it; the truly needy have lots of opportunities for financial aid. The media applauds it—try to imagine someone speaking out against the idea. To oppose such a scheme of inclusion would be positively churlish. But one piece of the puzzle hasn’t been figured into the equation, to use the sort of phrase I encounter in the papers submitted by my English 101 students. The zeitgeist of academic possibility is a great inverted pyramid, and its rather sharp point is poking, uncomfortably, a spot just about midway between my shoulder blades.

For I, who teach these low-level, must-pass, no-multiple-choice-test classes, am the one who ultimately delivers the news to those unfit for college: that they lack the most-basic skills and have no sense of the volume of work required; that they are in some cases barely literate; that they are so bereft of schemata, so dispossessed of contexts in which to place newly acquired knowledge, that every bit of information simply raises more questions. They are not ready for high school, some of them, much less for college. [“In the Basement of the Ivory Tower”, June 2008]

In fact, when I entered college 60 years ago, I was among the 28 percent of high-school graduates then attending college. It was evident to me that about half of my college classmates didn’t belong in an institution of higher learning. Despite that, the college-enrollment rate among high-school graduates has since doubled.

It’s long past time to burst the higher-education bubble. For one thing, it would mean fewer subsidies for the academic enemies of liberty.


Related posts:
School Vouchers and Teachers’ Unions
Whining about Teachers’ Pay: Another Lesson about the Evils of Public Education
I Used to Be Too Smart to Understand This
The Higher-Education Bubble
The Public-School Swindle
Is College for Everyone?
Subsidizing the Enemies of Liberty
A Sideways Glance at Public “Education”
The Dumbing-Down of Public Schools

The Conscience of a Conservative

My heart bleeds for the people of s***hole countries, cities, and neighborhoods. God knows there are enough of the latter two in the U.S. Why is that? Certainly, there are cultural and genetic factors at work. But those have been encouraged and reinforced by governmental acts.

Government — the central government especially — has long been a silent killer of economic opportunity. Jobs are killed by regulation that hinders business formation and expansion and every government program that diverts resources from the private sector.

How bad is it? This bad:

Because of increases in the rate of government spending and the issuance of regulations, the real rate of GDP growth has been halved since the end of World War II.

If GDP had continued to grow at an annual rate of 4 percent from its 1946 level of $1.9 trillion (in chained 2009 dollars), it would have reached $30 trillion in 2016 instead of $17 trillion.

Given the relationship between employment and real GDP, the cost of government policies is huge. There could now be as many as 207 million employed Americans instead of the current number of 156 million*, were it not for the “helpful” big-government policies foisted on hapless Americans by “compassionate” leftist do-gooders (and not a few dupes in center and on the right).

My heart bleeds.


* The relationship between employment and real GDP is as follows:

E = 1204.8Y0.4991

where
E = employment in thousands
Y = real GDP in billions of chained 2009 dollars.

This estimate is based on employment and GDP values for 1948 through 2016, which are available here and here.

An increase in employment from 156 million to 207 million would raise the employment-population ratio from 60 percent to 80 percent, which is well above the post-World War II peak of 65 percent. The real limit is undoubtedly higher than 65 percent, but probably less than 80 percent. In any event, the impoverishing effect of big government is real and huge.

“Capitalism” Is a Dirty Word

Dyspepsia Generation points to a piece at reason.com, which explains that capitalism is a Marxist coinage. In fact, capitalism

is what the Dutch call a geuzennaam—a word assigned by one’s sneering enemies, such as Quaker or Tory or Whig, but later adopted proudly by the victims themselves.

I have long viewed it that way. Capitalism conjures the greedy, coupon-clipping, fat-cat of Monopoly:

Thus did a board-game that vaulted to popularity during the Great Depression signify the identification of capitalism with another “bad thing”: monopoly. And, more recently, capitalism has been conjoined with yet another “bad thing”: income inequality.

 

In fact, capitalism

is a misnomer for the system of free markets that could deliver abundant prosperity and happiness, were markets left free. Free does not mean unfettered; competition for the favor of consumers exerts strong discipline on markets. And laws against theft, deception, and fraud would serve amply to keep markets honest, the worrying classes to the contrary notwithstanding.

What the defenders of capitalism are defending — or should be — is voluntary, market-based exchange. It doesn’t roll off the tongue, but that’s no excuse for continuing to use a Marxist smear-word for the best of all possible economic systems.


Related posts:
More Commandments of Economics (#13 and #19)
Monopoly and the General Welfare
Monopoly: Private Is Better than Public
Some Inconvenient Facts about Income Inequality
Mass (Economic) Hysteria: Income Inequality and Related Themes
Income Inequality and Economic Growth
A Case for Redistribution, Not Made
McCloskey on Piketty
Nature, Nurture, and Inequality
Diminishing Marginal Utility and the Redistributive Urge
Capitalism, Competition, Prosperity, and Happiness
Economic Mobility Is Alive and Well in America
The Essence of Economics
“Rent” Is Indispensable

“Rent” Is Indispensable

Economic rent, which economists simply call “rent”, has nothing to do with the monthly fee that you might pay a landlord in exchange for the use of a dwelling owned by him. Economic rent

means the payment to a factor of production in excess of what is required to keep that factor in its present use. So, for example, if I am paid $150,000 in my current job but I would stay in that job for any salary over $130,000, I am making $20,000 in rent.

The quotation comes from David Henderson’s article on rent-seeking. Henderson continues:

What is wrong with rent seeking? Absolutely nothing. I would be rent seeking if I asked for a raise. My employer would then be free to decide if my services are worth it. Even though I am seeking rents by asking for a raise, this is not what economists mean by “rent seeking.” They use the term to describe people’s lobbying of government to give them special privileges. A much better term is “privilege seeking.”

With that crucial distinction in mind, consider the firm that makes millions of dollars in “rent” because it was the first (and still only or dominant) producer of a gee-whiz widget. The prospect of making “rent” is one of the things that causes inventors, innovators, and entrepreneurs to risk their time and money in devising and bringing to market new and improved products and processes.

The role of “rent” in economic progress has been long understood. The Framers of the Constitution clearly understood it. This is one of the enumerated powers of Congress, from Article I, Section 8, of the Constitution:

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries

The extension of the life of patents and copyrights over the years, and the misuse of patents to block competition, are examples of “privilege-seeking”. It is probably the case that patent and copyright protections have been extended well beyond what is needed to incentivize invention, innovation, and entrepreneurship.

But let us not throw out the baby with the bath water. The prospect of “rent” is a vital to economic progress. “Rent” is good; “privilege” is bad. The trick is to reduce or eliminate the latter without sacrificing the former.

Why I Am Anti-Union

Schadenfreude. That was my reaction to a recent piece by Rick Moran:

A week ago, employees at the Gothamist and DNAinfo were celebrating after a successful vote to join the Writers Guild. The Gothamist is a noted New York City website that is devoted to covering local news. They operate affiliated sites in Washington, D.C., Chicago, Los Angeles and San Francisco.

But the reporters’ celebration was shortlived. Yesterday, the publisher of the Gothamist and its parent website, DNAifno, informed all employees that he was shutting them down.

Joe Ricketts, who founded Ameritrade, made the announcement in an email….

The question isn’t whether Ricketts was justified in pulling the plug. The question is why employees thought the outcome would be any different?

Many unions in 21st century America offer a fantasy.   Simple arithmetic would show even the dumbest worker that the dream doesn’t add up and that reality wins in the end. The best example of that is the drive for a $15 an hour minimum wage. When you disconnect the cost of labor from the value of labor, the numbers don’t add up and companies end up losing money or, at best, dramatically reducing profits. In the real world, radically increasing the cost of labor means increasing the price of the products sold. In the case of fast food restaurants, that means a reduction  in traffic leading to fewer customers and less profit.

But organized labor has sold the idea that there are no consequences to raising the minimum wage to $15 an hour. We are already seeing franchises moving rapidly to automate their operations as much as possible and reduce the number of employees — leading to job losses and, just as importantly, fewer jobs created.

The Gothamist employees are shocked, shocked I say, to find out that a news website doesn’t make money and even a billionaire can tolerate losing only so much money before throwing in the towel. Unionizing also brings other headaches that are intolerable to management unless they are gluttons for punishment.

The writing was on the wall for these employees, but they were blinded by their own delusions and naivete. [“Publisher Shutters Websites after Journalists Unionize“, American Thinker, November 3, 2017]

Schadenfreude because I have been anti-union for 60 years.

It began while I was in high school. I had a part-time job bagging groceries at a supermarket. The supermarket was unionized, as was the norm in my home State of Michigan. My wage rate was set by a contract between the supermarket chain and the union, which I had to join as a condition of employment.

After I had been on the job for several months, the manager of the supermarket added shelf-stocking to my duties. According to the union contract, I should have received a raise for doing something other than bagging groceries, which was the lowest-paid job in the store. I complained to the manager about my wage rate. He fired me. The head of the local union couldn’t be bothered to defend me because he knew that I was going off to college in the fall. And so I received no benefit for paying union dues out my measly earnings.

Did I owe those measly earnings to the unionization of the store? I doubt it. I was a fast and effective bagger, unlike the baggers who work where my wife does most of her grocery shopping. I filled a grocery bag so that it wasn’t too heavy or too light; I put the heavy items on the bottom and the crushable items on top; I separated produce and frozen foods from soap and other scented items; etc. Given my superior skill as a bagger, the effect of the union contract was to penalize me and transfer some of my earnings to the less efficient baggers who worked with me.

That’s a good enough reason to be anti-union. But there are other reasons, having to do with freedom of association and freedom of contract.

I have nothing against the formation of a union, in principle. The formation of a union as a voluntary organization is an exercise of the unenumerated right of freedom of association, which is contemplated in the Ninth Amendment to the Constitution of the United States. By the same token, when labor laws force a person to join union, that person’s constitutional right to freedom of association is violated.

Moreover, such laws violate the freedom of contract guaranteed in Article I, Section 10, of the Constitution of the United States. The violation impinges on the right of the individual worker to negotiate with an employer. By the same token, the violation impinges on the right of the employer to negotiate with each of his employees, taking into account their particular skills and performance.

Further, forced unionization impinges on the employer’s unenumerated constitutional right to the lawful use of his business property.

There is also the effect of unionization on employment. If the contracted wage rate is set below the wage rate that would obtain in the absence of unionization, workers (or many of them) are underpaid. In the more typical case, where a union strives to set a wage rate higher than the market-clearing rate, employers hire fewer workers than they would absent unionization. (There’s an obvious parallel with the minimum wage.)

I am always gladdened when I read that labor-union membership in the United States has declined, not just as a percentage of the labor force, but in absolute numbers. Personal responsibility isn’t dead in the United States, despite the efforts of most of the nation’s politicians an bureaucrats.


Related posts:
Freedom of Contract and the Rise of Judicial Tyranny
The Upside-Down World of Liberalism
The Interest-Group Paradox
Law and Liberty
Negative Rights
Government Failure: An Example
The Left and Its Delusions
Corporations, Unions, and the State
Judicial Supremacy: Judicial Tyranny
Substantive Due Process, Liberty of Contract, and States’ “Police Power”
Why Liberty of Contract Matters
Whiners
Society, Polarization, and Dissent

Thaler on Discounting

This is a companion to “Richard Thaler, Nobel Laureate” and “Thaler’s Non-Revolution in Economics“. See also the long list of related posts at the end of “Richard Thaler, Nobel Laureate”.

Richard Thaler, the newly minted Noble laureate in economics, has published many papers, including one about discounting as a tool of government decision-making. The paper, “Discounting and Fiscal Constraints: Why Discounting is Always Right”, appeared in August 1979 under the imprimatur of the think-tank where Thaler was a consultant. It was also published in the October 1979 issue of the now-defunct Defense Management Journal (DMJ). Given the lead time for producing a journal, it’s almost certain that there is no substantive difference between the in-house version and the DMJ version. But only the in-house version seems to be available online, so the preceding link leads to it, and the quotations below are taken from it.

The aim of Thaler’s piece is to refute an article in the March 1978 issue of DMJ by Commander Rolf Clark, “Should Defense Managers Discount Future Costs?”. Specifically, Thaler argues against Clark’s conclusion that discounting is irrelevant in a regime of fiscal constraints.*

Clark took the position that a defense manager faced with fiscal constraints should simply choose among alternatives by picking the one with the lowest undiscounted costs. Why? Because the defense manager, unlike a business manager, can’t earn interest by deferring an expenditure and investing the money where it earns interest. To put it another way, deferring an expenditure doesn’t result in a later increase in a defense manager’s budget. Or in the budget of any government manager, for that matter.

Viewed in perspective, the dispute between Thaler and Clark is a tempest in a teaspoon  — a debate about how to arrange the deck chairs on the Titanic. Discounting is of little consequence against this backdrop:

  • uncertainty about future threats to U.S. interests (e.g., their sources, the weapons and tactics of potential enemies, and the timing of attacks)
  • uncertainty about the actual effectiveness of U.S. systems and tactics (e.g., see this)
  • uncertainty bout the costs of systems, especially those that are still in the early stages of development
  • a panoply of vested interests and institutional constraints that must be satisfied (e.g., a strong Marine Corp “lobby” on Capitol Hill, the long dominance of aviation in the Navy, the need to keep the peace within the services by avoiding drastic changes in any component’s share of the budget)
  • uncertainty about the amounts of money that Congress will actually appropriate, and the specific mandates that Congress will impose on spending (e.g., buy this system, not that one, recruit to a goal of X active-duty personnel in the Air Force, not Y).

But the issue is worth revisiting because it reveals a blind spot in Thaler’s view of decision-making.

Thaler begins his substantive presentation by explaining the purpose of discounting:

A discount rate is simply a shorthand way of defining a firm’s, organization’s, or person’s time value of money. This rate is always determined by opportunity costs. Opportunity costs, in turn, depend on circumstances. Consider the following example: An organization must choose between two projects which yield equal effectiveness (or profits in the case of a firm). Project A will cost $200 this year and nothing thereafter. Project B will cost $205 next year and nothing before or after. Notice that if project B is selected the organization will have an extra $200 to use for a year. Whether project B is preferred simply depends on whether it is worth $5 to the organization to have those $200 to use for a year. That, in turn, depends on what the organization would do with the money. If the money would just sit around for the year, its time value is zero and project A should be chosen. However, if the money were put in a 5 percent savings account, it would earn $10 in the year and thus the organization would gain $5 by selecting project B. [pp. 1-2]

In Thaler’s simplified version of reality, a government decision-maker (manager) faces a choice between two projects that (ostensibly) would be equally effective against a postulated threat, even though their costs would be incurred at different times. Specifically, the manager must choose between project A, at a cost of $200 in year 1, and project B, at a cost of $205 in year 2. Thaler claims that the manager can choose between the two projects by discounting their costs:

A [government] manager . . . cannot earn bank interest on funds withheld for a year. . . .  However, there will generally exist other ways for the manager to “invest” funds which are available. Examples include cost-saving expenditures, conservation measures, and preventive maintenance. These kinds of expenditures, if they have positive rates of return, permit a manager to invest money just as if he were putting the money in a savings account.

. . . Suppose a thorough analysis of cost-saving alternatives reveals that [in year 2] a maintenance project will be required at a cost of $215. Call this project D. Alternatively the project can be done [in year 1] (at the same level of effectiveness) for only $200. Call this project C. All of the options are displayed in table 1.

Discounting in the public sector_table 1

[pp. 3-4]

Thaler believes that his example clinches the argument for discounting because the choice of project B (an expenditure of $205 in year 2) enables the manager to undertake project C in year 1, and thereby to “save” $10 in year 2. But Thaler’s “proof” is deeply flawed:

  • If a maintenance project is undertaken in year 1, it will pay off sooner than if it is undertaken in year 2 but, by the same token, its benefits will diminish sooner than if it is undertaken in year 2.
  • More generally, different projects cannot, by definition be equally effective. Projects A and B may be about equally effective by a particular measure, but because they are different they will differ in other respects, and those differences could be crucial in choosing between A and B.
  • Specifically, projects A and B might be equally effective when compared quantitatively in the context of an abstract scenario, but A might be more effective in an non-quantifiable but crucial respect. For example, the earlier expenditure on A might be viewed by a potential enemy as a more compelling deterrent than the later expenditure on B because it would demonstrate more clearly the U.S. government’s willingness and ability to mount a strong defense against the potential enemy. Alternatively, the earlier expenditure on B might cause the enemy to accelerate his own production of weapons or mobilization of troops. These are the kinds of crucial issues that discounting is powerless to illuminate, and may even obscure.
  • For a decision to rest on the use of a particular discount rate, there must be great certainty about the future costs and effectiveness of the alternatives. But there seldom is. The practice of discounting therefore promotes an illusion of certainty — a potentially dangerous illusion, in the case of national defense.
  • Finally, the “correct” discount rate depends on the options available to a particular manager of a particular government activity. Yet Thaler insists on the application of a uniform discount rate by all government managers (p. 6). By Thaler’s own example, such a practice could lead a manager to choose the wrong option.

So even if there is certainty about everything else, there is no “correct” discount rate, and it is presumptuous of Thaler to prescribe one on the assumption that it will fit every defense manager’s particular circumstances.**

Thaler does the same thing when he counsels intervention in personal decisions because too many people — in his view — make irrational decisions.

In the context of personal decision-making — which is the focal point of Thaler’s “libertarian” paternalism — the act of discounting is rational because it serves wealth-maximization. But life isn’t just about maximizing wealth. That’s why some people choose to have a lot of children, when doing so obviously reduces the amount that they can save. That’s why some 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.

If wealth-maximization is your goal, just stop drinking, smoking, enjoying good food, paying for entertainment, subscribing to newspapers and magazines, buying books, watering your lawn, mowing the grass, driving your car (except to work if you have no feasible alternative), and on into the night. You will accumulate a lot of money — if you invest wisely (there’s the rub of uncertainty) — but you will live a miserable life, unless you are the rare person who is a true miser.
__________
* If you are unfamiliar with the background of the Clark-Thaler exchange, and the reference to fiscal constraints, here’s the story: Since 1969 the Secretary of Defense has required the military departments to propose multi-year spending programs that are constrained by an explicit ceiling on each year’s spending. Fiscal guidance, as it is called, was lacking before that. But, in reality, defense budgets have always been constrained, ultimately by Congress. Fiscal guidance represents only a rough guess as to the total amount of defense spending that Congress will approve, and a rougher guess about the distribution of that spending among the military departments.

** Thaler’s example of a cost-saving investment is also a stretch, given how government budgets are decided. I gave it a pass in order to make the point that it wouldn’t save Thaler’s argument even if it were realistic. Here’s the missing reality:

Even if the Secretary of Defense (the grand panjandrum of defense managers) makes the kinds of moves counseled by Thaler, and even if his multi-year program sails through the Office and Management and Budget without a scratch, Congress has the final say. And Congress, though it pays attention to the multi-year plans coming from the Executive Branch, still makes annual appropriations. When it does so, it essentially ignores the internal logic of the multi-year plans (assuming that the Defense plan has an internal logic after it has been subjected to Pentagon politics). Instead, Congress divides the defense budget into various spending programs (see the list for national defense, here), and adjusts each program to suit the tastes, preferences, and moods of staffers, committee members, and committee chairman. Thus it is unlikely that the services’ maintenance and procurement budgets will emerge from Congress as they entered, with cross-temporal tradeoffs intact. A more rational budgeting strategy, from the perspective of the Secretary of Defense, is to submit plans that accord with the known preferences of Congress. Such plans may not incorporate the kind of trivial fine-tuning favored by Thaler, but they will more likely serve the national interest by yielding a robust defense.