A Conversion Story

David Mamet at the premiere of Red Belt at the...

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Bari Weiss interviews David Mamet in this weekend’s Wall Street Journal Opinion about his liberal to conservative conversion.

I blogged about Mamet’s first story in the Village Voice here.  Mamet has now written a book on the subject, The Secret Knowledge: On the Dismantling of American Culture.

In the interview Mamet gives some more helpful details about his conversion.  He cites some books that helped:

He starts, naturally, with the most famous political convert in modern American history: Whittaker Chambers, whose 1952 book, “Witness,” documented his turn from Communism. “I read it. It was miraculous. Extraordinary hero-journey of this fellow that had to examine everything he believed in at the great, great cost—which is a cost I’m not subject to—of abandoning his life, his sustenance, his friends, his associations, and his past. And I said, ‘Oh my God. . . . Perhaps it might be incumbent upon me to see if I could get my thought and my actions into line too.”

There were other books. Most were given to him by his rabbi in L.A., Mordecai Finley. Mr. Mamet rattles off the works that affected him most: “White Guilt” by Shelby Steele, “Ethnic America” by Thomas Sowell, “The Instincts of the Herd in Peace and War” by Wilfred Trotter, “The Road to Serfdom” by Friedrich Hayek, “Capitalism and Freedom” by Milton Friedman, and “On Liberty” by John Stuart Mill.

I can identify with what motivated him to learn more:

 He couldn’t move on, so to speak, before he understood “what the nature of government is, just sufficient so that I as a citizen can actually vote without being a member of a herd.” Same for taxes: “I pay them, so I think I should be responsible for what actually happens to them.” As for the history of the country itself, he wanted to understand “the vision of the Founding Fathers. . . . How does holding to it keep people safe and prosperous?”

And he came to a lot of the same realizations as many of us who have made similar conversions:

Reading and reflecting got him to some basics. Real diversity is intellectual. Whatever its flaws, America is the greatest country in the history of the world. The free market always solves problems better than government. It’s the job of the state to be just, not to render social justice. And, most sobering, Mr. Mamet writes in “The Secret Knowledge,” there are no perfect solutions to inequality, only trade-offs.

“Only trade-offs”…I’d like to think Sowell inspired that.  That’s who inspired it for me.

As a liberal, I didn’t understand this.  I thought solutions should be as simple as waving a wand.  Just fix it!  It took experience and willingness to think and evaluate objectively for me to understand that waving wands have unintended consequences that blow back against the very good intentions of the wand waving.

To take one example, legislating a maximum price on gas (wand waving) to keep gas companies from gouging consumers.  This sounds good to folks who do not have a basic grasp of economics.

But it also has real blow back consequences.  Incentives matter.  Oil companies are under no obligation to produce oil.  If they can’t sell gas for a price high enough to cover their costs, they’ll stop producing and gas supply will shrink.  The result will be that folks will wait a long time for the limited supplies of gas and profits will be pushed to other margins.  Soon, folks will be bringing 12-packs of beer to the back door of the gas station to bribe the owners to ensure they get their share of gas.

Sure, there are longer term consequences as well.  With less gas supply, people may arrange their lives differently.  They may choose to live closer to work, drive smaller vehicles, take fewer vacations, group their errands, car pool and so on, but as Mamet and Sowell say, those are trade-off, not perfect solutions.  It doesn’t help to pretend the trade-offs don’t exist.

Even after explaining this to some folks,  they will attribute the blow backs to oil company greed.

It helps to personalize it.

I ask these folks to consider how they would respond if legislation were passed to limit the salary on their current job to half  their current wage because someone deemed workers for their job to be making too much money.

Would they continue to supply the same amount of labor at the lower wage as they did at the higher wage?  Chances are they will look for other alternatives.  It’s not because of greed.  It’s because incentives matter and there’s opportunity costs.

I look forward to reading Mamet’s book.

Where do jobs come from?

I recommend listening to Rebooting America’s Job Engine, a podcast from Harvard Business Review Ideacast.  The guest, Henry Nothhaft co-wrote a book entitled, Great Again: Revitalizing America’s Entrepreneurial Leadership.

I look forward to reading the book.

Nothhaft says that he and his co-author tried to take a fact-based look at the connection between innovation and job creation.

He says recessions prior to 1990 had recoveries, in terms of employment, of about four months.  Post 90s, employment recovery has been taking longer.

His answer:  Fewer business start-ups are making it out of gestation to grow and add jobs.  He cites Kaufman Foundation study and Census Bureau data that show that all new job creation comes from business startups and that government regulation is “choking off the ability for small companies to start and succeed and create jobs in the U.S.”

One regulation he points out is the Sarbanes Oxley financial regulations.  He believes the costs of the onerous one-size-fits-all approach can be absorbed by larger organizations, but not by smaller organizations.

Some folks will point out some high profile growth stories that have grown large without adding many jobs, like Facebook.  I don’t necessarily buy that hypothesis. 

I believe cases like Facebook do not counter Nothhaft’s story.  It could be that the Facebooks are the only ones with enough momentum to get past the higher regulatory hurdles.

Incentives matter

Yesterday, the local grocery store was selling ketchup bottles for $0.49 each, limit 1 per customer.

Five of us stopped by the grocery store.  Four of us bought one ketchup bottle.  One of us bought two bottles by going through the line twice.

I don’t even care for ketchup.

“I can turn this $100 bill into 100 pennies!”*

In their book From Poverty to Prosperity, Arnold Kling and Nick Schulz examine a few natural experiments of side-by-side countries with varying economic “software” or economic systems.

I think this nicely sums the results of these experiments (p. 135):

Another dramatic example of the effect of bugs in the software layer [their term for economic systems and institutions] is the difference between Communist and non-Communist countries.  In the aftermath of World War II, some countries, notably Germany and Korea, became divided along ideological lines.  North Korea and East Germany were Communist.  South Korea and West Germany were capitalist.

The results of this “natural experiment” were striking.  By 1997, North Korea’s GDP per capita was $700, while South Korea’s was $13,590, or nearly 20 times as high.

They then quote the work of Jaap Sleifer which showed that East Germany’s per capita income was 103% of West Germany’s before World War II and shrunk to 31% by 1991.

That should be sobering to anyone who holds romantic notions for a centralized economy.  The opportunity cost in living standards is enormous.

They go on:

Another telling phenomena is the immigration of workers from Latin America to the United States.  Crossing the border appears to make the productivity of a low-skilled worker ten to twenty times higher, based on the wage differential for low-skilled workers in Mexico or Central America and the United States.

These natural experiments are good to keep in mind as some folks encourage centralization of large swaths of our economy.  Years down the road it will be difficult to know how much improvement we traded away, but the outcomes of these natural experiments should give you an idea.

If you have a tough time imagining these differences in living standards in terms of numbers, then imagine it in terms of time periods.  A low-skilled worker crossing the border from Mexico to the U.S. is similar to someone from around 1900 to 1930 America being transported to around the year 2000.

If you still have a tough time imagining this, watch Back to Future III, where Marty McFly journeys back to 1880s Hill Valley.  While eating dinner with his great-great grandad, he’s shocked when he discovers that the meat he’s eating contains buckshot from the fresh kill and his water looked fresh from a mud puddle.  I liked this scene because it’s little improvements like that that we never think about and we take for granted.

*The title of the post is a quote from the television series Arrested Development.  Gob impressed the Board of Directors with this magic trick.  His brother, Michael, pointed out that the Board didn’t realize that Gob’s magic just cost them $99.  Similarly, folks who hold grand visions of centralized planning never seem to realize how much those truly cost when implemented.

More please

Let me preface that I’m always skeptical of politicians.

But, I would like it if more politicians sounded like Paul Ryan in this interview.  It aired on the ABC Evening News last night.  When asked if he’s worried that his budget plan puts his House seat at risk, he responded:

Now is not that time to be worried about political careers. Sincerely, I will be fine if I lose my House seat because you know what? I will know I did what I thought was right to save this country from fiscal ruin.

I think we were elected in this last election to take a stand on fixing this country’s fiscal problems, to go after spending, to solve this debt crisis, to stop spending money we don’t have.

Those are as close to the ideal sentences coming from an elected official that I can recall.  It reminds me of my own campaign promises.

Incentives matter

Yesterday, the Wall Street Journal reported that public schools are charging kids and parents fees to help make up for budget shortfalls.  Various school districts are charging fees for a variety of things including registration, technology, special activities like cross-country, and even graduation.

A family featured in the article paid over $4,400 to the public schools, in addition to $2,700 in property taxes that goes to fund education.

One photo caption in the article explains that a student had to choose band over choir because of the fees.  Another student chose track over cross-country because of fees.

The mother of band member lamented:

It’s high school. You’re supposed to be able to try different things and see what you like.

I understand.  That is certainly the model of public education we grew up with.  But, that’s part of the problem.

We’ve funded education through the third-party taxpayer dollars for so long that looking at the costs now makes us uneasy.  Several generations of parents have been able to send their kids to public schools and let their kids take full advantage of what is offered without having to consider the cost we incur on taxpayers.

We’re not used to making the full economic evaluation — the price/value decision — that we make for many other goods.  We have grown accustomed to getting about $11,000 per year per child per year of education for what appears to be free (I doubt many people even know the cost per pupil of their local public schools).

That’s not a tough choice to make.  Most people will accept $11,000 of “free”* stuff (*no incremental cost to the user).  Many people will even accept it if that $11,000 worth of public schools is only worth the equivalent of $4,000 of private schools.

Free is free, right?  Few people would turn down a free car (paid for by others) that cost $30,000 to build, even if a very similar car was available for $20,000 to buy.

If other people didn’t pay for the $30,000 car, the company that builds it could not  compete with the company that makes the $20,000 car.

While I sympathize with the mother’s lament because the education model appears to be changing from an open bar to more of a cash bar, I think it’s a good thing.

It might cause parents and kids accept the full economic evaluation.  Things that provide marginal value to students might go away or go into the private market.

To parse the mother’s statement, while high school became a place to try new things over the last few decades, I’m not sure that’s the proper role for it.  High school should be a place where kids learn things.  Life is where we try new things.

Beware combo fallacies

Hypocrisy is a common criticism leveled at free market advocates.

The criticism is that since free market advocates use and benefit from various forms of government programs like roads, Social Security, fire protection, Medicare, public education, libraries (I threw that one in there) and so on they are hypocrites for suggesting that such programs could be carried privately.

The implication is that unless free market advocates refuse to use these programs as a matter of principle they are not credible.

A couple examples from the last week stick out in my mind.  In one, a commenter on a local blog pointed out that Ayn Rand, libertarian heroine, relied on Medicare near the end of her life.

Below is another example from the comment section at Cafe Hayek, where a commenter charges Don Boudreaux with this hypocrisy:

I take it you (and your blog buddies) vehemently oppose support of any kind of “welfare state;” though, I’m betting you have no problem with the many and various forms of corporate welfare that abound, or the state university systems which apparently provide for your education and career, or the Internet (still regulated by the GAC) which provides a very public platform for your right-wing ideology…and I could go on, but you get my point.

Don responded: “I oppose ALL government programs, including support for higher education.”  Great.  But, I think Don’s response is unnecessary.  He took the commenter’s fallacious bait.

The hypocrisy criticism is a combo fallacy.  It combines a red herring (aka ‘changing the subject’) fallacy with an ad hominem (aka ‘name calling’).

Whether Don is a hypocrite, or not, has no bearing on whether he is correct.

The roots of this combo fallacy tactic can be traced to Kindergarten recess. It should not be so becoming for supposedly well-educated and bright folks to use as adults.

The ad hominem part of this combo fallacy is a personal attack (“hypocrite”) meant to put the accused on the defensive and respond to the red herring.

If you change the topic of conversation away the merits and demerits of free market vs. government to defend yourself against the hypocrite charge, the red herring fallacy succeeds and little productive discussion will take place about the original subject.

When faced with this combo fallacy, I think it’s best to keep to the topic at hand.  Here’s an example of a response that could do that:

Whether or not I’m a hypocrite has no bearing on the correctness of my point.  Would you like to discuss my point?