John Papola’s attempt at a productive discussion

This may be the beginning of a good discussion on economic worldviews (HT: Pretense of Knowledge) and is definitely worth a read.

Here’s a snippet of him responding to his opponent:

Mr. Livingston kicks off his rebuttal with a politically-charged round of ridicule complete with a barrage of buzzwords like “austerity,” “trickle-down” and “Reaganomics” whose sole purpose is to rile partisan fervor in the reader. My argument was thus hand-waved away as mere “faith” in classical economics with the assertion that “no amount of evidence” can shake me of my baseless dogma.

Challenge accepted

I found the following comment from Gunteh on the Idiot’s Collective blog post about Michael Sandel that I linked to here (square brackets are Gunteh’s):

I recently came across a particular individual on Youtube who makes a living by debating libertarians in spontaneous and live radio format.
[He is a self-proclaimed leftist, believes that libertarians are idealistic albeit aloof, and argues on the following argument pattern]:
-There has “never” been historical context for a purely free-market system, both economically/morally.
-There are rules/interventions that are mandatory in order for society to run (laws, subsidies)
-There are always winners and losers, and whether or not government has a responsibility to that, we ourselves pick and “subsidize” businesses/moral opinions relatively. Therefore, there is no reason for government not to do that as well if human beings innately make choices.

I’m not sure who this individual is and I’m not sure I’d be willing to debate him on his home turf. I don’t have much experience with live radio. But, I would be willing to discuss his views on a blog post.

To the specific argument pattern that Gunteh lays out, I would likely respond as follows:

“There has ‘never’ been historical context for a purely free-market system, both economically/morally.”

First, I don’t think there are many libertarians who don’t think there is a role for limited government. Though, there might be some.  But, I think this person paints with too broad of stroke.

Second, and more important, there doesn’t have to be a historical context for a purely free-market system since we have plenty of historical contexts, and current contexts, for “systems” (that is, groups of people) with vibrant free markets and systems without.

Even within these “systems” there are subsystems that we can look at. Within the U.S., for example, there are other organizations of people. Cities, businesses, chess clubs, Home Owners Associations, families, charities, hospitals, states, churches, AA, AAA, crime syndicates, lobbies and so forth.

So, if we are interested, we can look at countries and subgroups and see which ones seem to do better and why. Not doing so, lacks imagination. This has been something that has interested me from an early age. For example, I wondered how two neighboring public school districts could be so different as to prompt my parents to undertake the cost of moving from one district to the other.

In my view, the case is strong that systems that allow people to make the choices that are right for them, within their set of constraints and consequences, produce better results over time.

Granted, it is hard to untangle that and we often confuse cause and effect. Folks often look at the success story of the U.S. and assume that all that government has done has been a cause for the success, rather than a result of the wealth created in the free market.

I think it’s more productive to discuss the features of these groups and subgroups and what makes them different, rather than discuss whether a pure free market system has ever existed or is desirable.

To use an old and tired quip, there was nary a historical context against slavery before that was largely abolished, either, as slavery existed in some shape or form just about every in the world up to that point. That, in itself, did not prove that abolishing slavery wouldn’t be good.

“There are rules/interventions that are mandatory in order for society to run (laws, subsidies)”

The question I would have this radio host to consider is where these rules come from. Did they evolve from emerging practice or were they conjured up by a small group of people?

I’d be looking for more specific examples here, though, before I engage beyond this.

‘There are always winners and losers, and whether or not government has a responsibility to that, we ourselves pick and “subsidize” businesses/moral opinions relatively. Therefore, there is no reason for government not to do that as well if human beings innately make choices.’

I’d argue that government is a poor mechanism for picking winners and losers because its feedback loops are less effective, and sometimes backwards, from market feedback loops.

My post, Profits and Ballot Boxes, summarizes a few key reasons why government feedback loops are bad.

There are more reasons, like the knowledge problem, that Steven Landsburg explains well. And, it’s important to understand the only four ways to spend money. The way government spends money (spending other people’s money on other people) ends up being the least careful way to spend it.

It’s also good to remember that government tends to reward failure. Finally, when we discuss private vs. public, it seems we often assume politicians are saints, not subject to the same incentives as other people, which is a rotten assumption.

 

Russ Roberts on the minimum wage

Russ Roberts had some good recent posts about the minimum wage on Cafe Hayek. The paragraphs below are from his post about his follow-up thoughts to a debate he participated in to abolish the minimum wage:

Everyone, on the left and the right, agree that employers are eager to save costs and will substitute machines for workers or outsource production if those changes are profitable. Why will artificially higher wages created by minimum wage legislation not lead to similar substitutions?

No joke. But, of course, proponents of minimum wage will cite ‘empirical evidence’ that shows that raising the minimum wage has no effect on jobs or employment. And, of course, they never consider that these studies may not tell the whole story or have limitations.

They also seem to forget basic econ where we are taught that if a price floor is well below the going-market rate, it won’t have much affect on supply. In other words, if the minimum wage is well below the going market labor rate, then it won’t have much effect on jobs. For example, if I set a minimum wage at $0.50/hour, most people would intuitively know that’s so low, it doesn’t  effect anyone — employees or employers.

So, while minimum wage studies are often heralded as empirical support for raising the minimum wage, they are much more likely to be empirical support for that basic econ understanding of a price floor.

Next (emphasis mine):

The weird part of the debate over the magnitude of the employment effects, is that when someone uses the reductio ad absurdum of a minimum wage increase to say $50 or $100 an hour, everyone understands that won’t work because it would destroy the labor market. So where do those disemployment effects kick in? If the minimum wage is small enough so that it doesn’t cause job losses, then it can’t be having much of an effect boosting wages.

Yes. Where do the disemployment effects kick in? Great question and I never hear anybody ask it or answer. It’s similar to the ‘rich must pay their fair share’ tax debate where the answer is always ‘more’.

It occurred to me after reading this paragraph that the same people who cite empirical evidence that changes in the minimum wage don’t affect jobs (that price floors below the going market rate don’t change supply), don’t seem interested in asking about empirical evidence that raising the minimum wage actually increases wages.

I suppose they assume that if it doesn’t change the number of a jobs and a few people are marking more now, then wages must go up.  But, that assumes a lot. For example, it assumes other things don’t change — like the number of hours worked and the value of fringe benefits like employee discounts — to name a couple.

Know your audience

Arthur Brooks made a great point in his Wall Street Journal opinion piece yesterday, Republicans and Their Faulty Moral Arithmetic.

Raging against government debt and tax rates that most Americans don’t pay gets conservatives nowhere, and it will always be an exercise in futility to compete with liberals on government spending and transfers.

Instead, the answer is to make improving the lives of vulnerable people the primary focus of authentically conservative policies. For example, the core problem with out-of-control entitlements is not that they are costly—it is that the impending insolvency of Social Security and Medicare imperils the social safety net for the neediest citizens. Education innovation and school choice are not needed to fight rapacious unions and bureaucrats—too often the most prominent focus of conservative education concerns—but because poor children and their parents deserve better schools.

That reminds me. I have made headway with liberal friends on the subject of school choice by doing exactly what Brooks suggests, making it about the kids and the parents who need the most help.

I pointed out that middle-income and wealthy folks already have school choice because they can afford to live in an area with a good public school district or pay to send their kids to private school. That may contribute to why these schools are successful.

I then asked why low-income parents shouldn’t be given more choice, too.

Several told me that changed their mind about school choice and they became supporters of it.

Proposal for new requirements for econ majors

1. Demonstrate that as an economist, you know your limits. As Russ Roberts writes:

Economics isn’t rocket science; it’s a lot harder. We should admit as much and when asked to measure things we cannot measure, we should admit our ignorance.

As an economist, you should be the biggest and best critic of your work.

Even when your work seems airtight, you should caution that you may be missing something.

You should invite criticism of your own work.

When somebody wants to use your work to justify policy positions, you should be warning them, rather than encouraging them.

You should be able to properly identify your own biases and tendencies.

Economists should take an oath similar to the Hippocratic Oath taken by physicians: First, do no harm.

2. Discussion requirements: You should be able to carry out discussions and debates without fallacy.

The persistent use of fallacy in discussion (rather than the occasional and willing-to-admit-it-when-pointed-out use) should be taken as a signal that you place a higher priority on what you believe is true than what is true.

Oh yeah…liberty

Since President Obama mentioned hiking the minimum wage in his State of the Union address, it has been a hot topic on the econ blogs. Does it reduce jobs? Does it help the poor? Does it hurt them?

Credit to Grant Davies for kindly pointing out in the comments of my post about the minimum wage that the best argument against it is liberty

As I’ve read the plethora of blog posts about the minimum wage over the past few days from liberty-minded economists and bloggers, who have greatly influenced my thinking, Grant’s comment kept echoing in my mind.

The best (and only argument that should be required) against the minimum wage is liberty. Grant wrote:

As a human being, I have an absolute right to make arrangements between myself and another so long as it does not infringe on the rights of others.

Why should someone be able to prevent me from accepting a wage, if I so choose? If it is agreeable to me and agreeable to person willing to pay it, who cares?

Grant’s comment echoed in my mind as I read those blogs because so rarely was the case for liberty mentioned. They’ve taken the bait. Nearly all of the blog posts I read try to disprove the ‘greater good’ argument, rather than state the case for liberty.

Also, credit to The Pretense of Knowledge blog for including with other ‘minimum wage’ blog links, a link to a post about Dr. Higgs’ essay on the moral case for liberty. I commented on that essay here.

Besides there are also really good reasons to be skeptical about ‘greater-good’ arguments. They usually are wrong or, at best, inconclusive. Why violate liberty for that?

Even more on the minimum wage

When talk of minimum wage comes around, I think of a conversation I had with a friend once. I wrote about it in 2011 in a post titled “I support it, but it doesn’t apply to me.” My friend supported the minimum wage and used all the stock arguments for it. He also happened to own a small business and had found a way around paying minimum wage to his workers. Well, they weren’t workers. They were “independent contractors”.

More on the minimum wage

Mark Perry, on his blog, Carpe Diem has a couple of posts on the minimum wage worth reading:

1. An New York Times editorial to get rid of the minimum wage?!? It’s from 1987. Amazing how much of shift there has been since then.

2. Perry also points to these wise words from Henry Hazlitt, author of the highly recommended Economics in One Lesson (and available for free .pdf download for any of your reading devices):

Thinking has become so emotional and so politically biased on the subject of wages that in most discussions of them the plainest principles are ignored. People who would be among the first to deny that prosperity could be brought about by artificially boosting prices, people who would be among the first to point out that minimum price laws might be most harmful to the very industries they were designed to help, will nevertheless advocate minimum wage laws, and denounce opponents of them, without misgivings.

The first thing that happens, for example, when a law is passed that no one shall be paid less than $9.00 per hour [updated) is that no one who is not worth $9 per hour to an employer will be employed at all. You cannot make a man worth a given amount by making it illegal for anyone to offer him anything less. You merely deprive him of the right to earn the amount that his abilities and situation would permit him to earn, while you deprive the community even of the moderate services that he is capable of rendering. In brief, for a low wage you substitute unemployment. You do harm all around, with no comparable compensation.

 

Profits and Ballot Boxes

In the comments of this post, commenter Wally and I discuss the business feedback of profit and government feedback of votes.

W. E. Heasley, of The Last Embassy blog, recently posted an excellent short video from Learn Liberty that helps explain why voting isn’t a very effective feedback mechanism:

 

Most of us make purchasing and voting decisions. Sometimes they are a little of both, like when you vote with your family on what’s for dinner.

The following are links to and excerpts from previous posts I’ve made quoting economists Thomas Sowell and Walter Williams, who do an excellent job of explaining why purchase decisions are a more effective feedback mechanism than voting.

1. From this post in 2010, I quoted from Thomas Sowell’s book, Intellectuals and Society.  He explains the difference in these feedbacks well:

The fundamental difference between decision-makers in the market and decision-makers in government is that the former are subject to continuous and consequential feedback which can force them to adjust to what others prefer and are willing to pay for, while those who make decisions in the political arena face no such inescapable feedback to force them to adjust to the reality of other people’s desires and preferences.

A business with red ink on the bottom line knows that this cannot continue indefinitely, and that they have no choice but to change whatever they are doing that produces that red ink, for which there is little tolerance even in the short run, and which will be fatal to the whole enterprise in the long run.  In short, financial losses are not merely informational feedback but consequential feedback which cannot be ignored, dismissed or spun rhetorically through verbal virtuosity.

In the political arena, however, only the most immediate and most attention-getting disasters — so obvious and unmistakable to the voting public that there is no problem of “connecting the dots” — are comparably consequential for the political decision-makers.  But laws and policies whose consequences take time to unfold are by no means as consequential for those who created those laws and policies, especially if the consequences emerge after the next election.  Moreover, there are few things in politics as unmistakable in its implications as red ink on the bottom line is in business.  In politics, no matter how disastrous a policy may turn out to be, if the causes of the disaster are not understood by the voting public, those officials responsible for the disaster may escape accountability, and of course, they have every incentive to deny having made mistakes, since admitting mistakes can jeopardize a whole career.

2. In three paragraphs that I quoted from Thomas Sowell’s book, Applied Economics, he explains the differences in our buying and voting decisions. Here are those three paragraphs:

Politics and the markets are both ways of getting people to respond to other people’s desires.  Consumers deciding which goods to spend their money on have often been analogized to voters deciding which candidates to elect to public office.  However the two processes are profoundly different.  Not only do individuals invest very different amounts of time and thought in making economic vs. political decisions, those are inherently different in themselves.  Voters decide whether to vote for one candidate or another but they decide how much of what kinds of food, clothing, shelter, etc. to purchase.  In short, political decisions tend to be categorical, while economic decisions tend to be incremental.

Incremental decisions can be more fine-tuned than deciding which candidate’s whole package of principles and practices comes closest to meeting your own desires.  Incremental decision-making also means that not every increment of even very desirable things is likewise necessarily desirable, given that there are other things that the money could be spent on after having acquired a given amount of a particular good or service. For example, although it might be worthwhile spending considerable money to live in a nice home, buying a second home in the country may or may not be worth spending money that could be used for sending a child to college or for recreational travel overseas.  One consequence of incremental decision-making is that increments of many desirable things remain unpurchased because they are almost–but not quite–worth the sacrifices required to get them.

From a political standpoint, this means that there are always numerous desirable things that government officials can offer to provide to voters who want them–either free of charge or at reduced, government-subsidized prices–even when the voters do not want these increments enough to sacrifice their own money to pay for them.  The real winners in this process are politicians whose apparent generosity and compassion gain them political support.

3. In his classic column, Conflict or Cooperation, which I linked to in this post, Walter Williams explains how to pit beer drinkers against wine drinkers. Here’s a taste:

Different Americans have different and often intense preferences for all kinds of goods and services. Some of us have strong preferences for beer and distaste for wine while others have the opposite preference — strong preferences for wine and distaste for beer. Some of us hate three-piece suits and love blue jeans while others love three-piece suits and hate blue jeans. When’s the last time you heard of beer drinkers in conflict with wine drinkers, or three-piece suit lovers in conflict with lovers of blue jeans? It seldom if ever happens because beer and blue jean lovers get what they want. Wine and three-piece suit lovers get what they want and they all can live in peace with one another.

It would be easy to create conflict among these people. Instead of free choice and private decision-making, clothing and beverage decisions could be made in the political arena. In other words, have a democratic majority-rule process to decide what drinks and clothing that would be allowed. Then we would see wine lovers organized against beer lovers, and blue jean lovers organized against three-piece suit lovers. Conflict would emerge solely because the decision was made in the political arena. Why? The prime feature of political decision-making is that it’s a zero-sum game. One person’s gain is of necessity another person’s loss. That is if wine lovers won, beer lovers lose.

The differences in political and private decisions has spawned a branch of economics study called public choice economics. Here’s more.

 

State your case

In response to this post about rent-seeking, Z A employs a few rant tactics that I think are common barriers to productive discussions. He (assuming Z A is a he) starts with a straw man fallacy.

Economics being the dismal science that it is, I still do not ascribe to the notion that all points are valid and that any moron on the street that tries to form a thought or opinion about the macro-economy has a valid or sound point.

No one, but Z A, has made this argument.

However, if ‘any moron on the street’ expresses an unsound thought or opinion about the macro-economy (or anything), I think it is more productive and compelling to explain why their point is unsound rather than discounting it because of who they are.

As my Mom would say, if you can’t say anything nice, it’s best not to say anything at all. That’s a good rule. I’ll modify to promote productive discussion. If you can’t or are unwilling to show why a point is unsound, don’t say anything at all.

Z A then moved on to explain why he values credentials:

Knowing what someones credentials are in most any case does help in knowing how much they have actually studied that subject.

However, it does determine whether their reasoning is sound or not.

I’ve been in my share of discussions that degraded to a battle of finding credentialed folks who agree with your position, then onto the crediting and discrediting of those credentials. That’s simply not productive.

I agree with what commenter, Grant Davies wrote in response to Z A:

I have always found it more important to weigh the value and the validity of what is presented…

An argument from authority or appeal to authority is a common fallacy (something where the conclusion does not necessarily follow from the premises).

The key form of this fallacy is assuming something is right because an expert says so, but the expert isn’t really an expert in that field.

A second form of this fallacy is assuming something is right because an expert says so, but the topic is something where there is not a great deal of consensus. This is where you get into the ‘battle of experts’ on issues that have experts on all sides.

I believe there is a third form of this fallacy, as well. Experts can be wrong. Experts, after all, are people, so they are subject to the same biases, preferences, simplifications and groupthink as the rest of us.

Experts may well be right about something. I don’t discount what they say just because they are experts. However, I have enough experience with experts being wrong that I have learned that skepticism is useful.

If something is true, I want to know why it’s true, not who believes it’s true or what credentials they have. What’s wrong with that?

Later, Z A wrote:

I could write for hours about the incorrect assumptions and arguments on here but what good would it do if the people I am writing to do not have clue one about real economic theory and thought or the history of those things?

Z A chose to write nine similar paragraphs on my blog about this subject. How did it advance the discussion on the topic?

Why not simply choose just one of these incorrect assumptions, state his case on why he thinks it’s incorrect and perhaps teach us a few things. Or, perhaps, maybe someone would respond to his points and he could learn something. My guess is that the latter is what Z A fears the most.