Annoying quotes

From David Henderson’s post, Quotations from Alice Rivlin, on EconLog, Rivlin said:

If we didn’t raise the debt ceiling and we actually defaulted, we’d have a hell of a crisis. If the Tea Party is strengthened in the next election, we might have a default.

This is like the old joke, “I have a drinking problem. I don’ have a drink.”

If you don’t get it, Rivlin is concerned about a default occurring because Tea Partiers may get in the way of letting government spending run rampant. In Rivlin’s view, we need to let government spending run rampant to avoid a crisis. That’s like staying drunk to avoid becoming sober.

Here’s a great comment from that post from Ken B:

If the Tea Party had been ‘strengthened’ in elections going back a couple decades I doubt we’d have the crisis she worries about.

Fix This Problem, Not That One

I recommend Bryan Caplan’s EconLog post, Arbitrary Intervention. Here’s a snippet:

Imagine writing a list of everything wrong with the world.  There’s hunger.  Broken hearts.  Unemployment.  Screaming at your kids after a bad day at work.  Cheating on your girlfriend.  Pollution.  Heretics.  Burning of heretics.  Promiscuity on TV.

He went on naming quite a few more problems.  Then:

Now ask yourself, “How many of these problems does government even claim to try to alleviate?”  No matter how statist your society is, there are probably ten problems the government ignores for every problem it tries to address.

And he concludes:

Why then do people support the interventions they do, while apathetically ignoring countless other forms of human suffering and degradation?  For the most part, people support the interventions they have because they have them.  It’s not about the severity or treatability of the problems.  It’s about conforming to our secular religion.  Our society says that poverty among American seniors would be a terrible problem.  So we have massive social programs to prevent it.  How do we know this “disaster” is especially pressing in a world so full of suffering?  We don’t.  We don’t even try to do a fair accounting.  Instead, we make stuff up, and shame anyone who subsequently furrows his brow.  Simple as that.

Things fail

Here’s an interesting post from Arnold Kling on EconLog. 

In it, he discusses federalism and cartel federalism. Few people consciously view government in these terms, but should.

Federalism is the idea that governments compete for citizens, much like how companies compete for customers. When people are free to move, they tend to move to areas that offer governments they find more attractive.

As a small example, when I was ten years old, my parents moved seven miles to exit a poorly performing school district to a better school district.

Cartel federalism is when political elites, driven by similar motivations as business people, try to reduce competition between governments by colluding to offer similar types of government.

Bastiat reminds us to “treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race.”

For the same reason, we should treat all political questions from the viewpoint of the citizen.

When I studied engineering, they taught us to avoid designing systems that have a single point of failure. Why? Because things fail.

No matter how durable and reliable we believe something to be, we don’t possibly know enough to know with certainty it will not fail.

We forget that when it comes to governments. Enron failed and hurt a small portion of the economy. The Soviet Union failed and took down the whole economy. That’s a single point of failure.

Even with governments, it’s good to have choice and competition. Why? Because things fail.

Do you need another can of green beans in your pantry?

"Creating" Demand

I enjoyed Arnold Kling’s column (econblogger at EconLog), Government Cannot Create Sustainable Jobs, published in the European edition of The Wall Street Journal.

I think the following two paragraphs contain the most concise and understandable contrast of two competing visions on how the economy works (emphasis mine):

For Keynesians, job creation is simple. Entrepreneurs have knowledge of how and what to produce. All that is required is more demand, in order to induce them to undertake more hiring.

n contrast, in our [Adam] Smith-Ricardo story, the knowledge of how and what to produce has to be discovered. Entrepreneurs have to figure out ways to utilize resources that satisfy wants in an efficient way. The market mechanism first must undertake trial and error to create production processes that exploit comparative advantage. Until these new patterns of sustainable specialization and trade are discovered, there are no job slots.

I bolded the key phrases.  Do you believe that progress comes from stimulating evermore demand or from trial and error experimentation?

I believe the latter.  Progress, wealth, improvements in the standard of living, GDP per capita growth — whatever you call it — comes from experimentation and trial and error and a process that allows the valued to survive and multiply and the least valued to die off (i.e. evolution).  This trial-and-error market process is driven by the ultimate democracy of individuals voting with their own value store on the the things they value and vote against those things they don’t value.

The problem for me with the former explanation, creating more demand, is where this new demand comes from.

The theory says that more government spending will put more money into some folks pockets, which they then spend.  So, then the businesses that benefit from that extra spending will spend more too.  And so on.  This is a chained spending effect.  By the time the that extra dollar of government spending has worked its way through the economy, it’s spawned more than a dollar of economic activity.

This seems reasonable on the surface.  But pry deeper.  Where did that extra dollar of government spending come in from in the first place?  It either came from current or future spending.

If it came from current spending, then all we’ve done is take a dollar from someone to get the spending chain started.  That someone may have started their own chain by spending it themselves.

Defenders of this theory will say, yes, but that someone wasn’t going to spend it any time soon so it’s best for everyone that the government took it and spent it.

I believe the miss in this line of thinking is that someone was waiting to discover something of value to spend it on, while spending it now does not help him find that value.

What’s really happened is that demand was pulled forward from the future and we’ve spent it on something that doesn’t add value.

Companies see this when they run ineffective limited time promotion.  The sale will produce a sales spike during the offer period and a lull afterwards.  The sale encouraged people who were going to buy the product anyway to buy it sooner, and buy less later.

But, in the case of the government pulling forward demand, it makes things worse.

That someone with the original dollar was waiting to spend that dollar on something he valued — maybe a new pill that will reduce his sick days and make him more productive.

Instead, the government takes it and spends it on another can of green beans.  So, instead of having four cans of green beans in the pantry (that he’s never going to eat), he has five now — something that doesn’t bring as much value as that new pill.  But, hey, the green bean growers and canners are better off.  Except, we find that since there’s a glut of canned green beans now, green bean makers will sell fewer cans in the coming months.

So, creating demand through government spending is a myth.  There is no creation.  Just moving demand from one place to another or from the future to now — and in either case, we replace careful spending with careless.

Related articles

• The value of a college education (ourdinnertable.wordpress.com)
• Grandpa’s Lament (ourdinnertable.wordpress.com)

Justice Roberts makes a poor question subustitution

Here’s a great follow-up from David Henderson at EconLog to his previous post, my post on the government subsidy fallacy, and Bryan Caplan’s post on Kahneman’s new book.

In it, Henderson criticizes Justice John Roberts comment regarding government decency standards:

All we are asking for, what the government is asking for, is a few channels where … they are not going to hear the S-word, the F-word, they are not going to see nudity.

As Henderson correctly points out, the question isn’t whether “we” want cuss words and nudity on TV, but whether the government has the authority to tell us that we can’t.

Most people might think, but if most people agree, then I’m okay with the Federal government doing that.   However, the government was not designed to acquire powers simply through what I think sounds good or a public opinion poll.

It was designed to have its power modified via Article V of the Constitution: Amendment.

Redistribution

In this Econlog post, Bryan Caplan provides nine typical responses that might be given against a bill requiring us to give 20% of income to any sibling making below poverty.  He then asks:

If any of these are good arguments against being legally required to financially help your siblings, why aren’t they equally good arguments against being legally required to financially help total strangers?

libertarians are made, not born

Of the very limited sample size of libertarians that I know, it seems all held some other form of ideology in the past and came to a libertarian position by way of reason.

If reason is the primary path to libertarianism, that might explain its relative obscurity (not meant to be funny).

For example, other ideologies seem to be passed down from generation to generation as effectively as religion and are intimately linked with other human associations and affinities like religion, movie stardom, status signaling (“I’m for the poor” as if others aren’t), unions and such.

I think other political ideologies are similar to religions because many that hold those ideologies seem to accept whatever it is their ideology stands for without questioning whether it actually works or not.

Libertarians have none of that going for them.

Perhaps this is what Bryan Caplan meant in this blog post on EconLog, where he ranks libertarian economists as the most productive folks to have conversations with.  Libertarian non-economists ranked third.

I think there’s a reason for this.  Of all the folks I have discussions with, libertarians are the most likely to consider that they might be wrong and are open exploring the rationale of the opposing argument for its merits or demerits.  Discussions with these types of folks can be extremely productive.

I’ve also noticed libertarians aren’t as married to their biases.  They don’t always stop when they find the answer they’re looking for.  They seem to be good at continuing to pick at something until they uncover the root-cause.

Of course, I could be wrong.

Make Someone Else’s Life Better

Econ Professor David Henderson gives a hat-tip to Bob Murphy for this wisdom from Will Smith:

Henderson likes Will’s wisdom at the 3:30 and 7 minute marks.  Me too.

I also liked what he had to say between 4 minutes and 4:35, especially this:

If you are not making someone else’s life better, then you’re wasting your time. Your life will become better, you know, by making others’ lives better.

As I commented on Henderson’s post, I believe most people will understand this wisdom to mean giving in a charitable way.  However, I also think it captures the meaning of this Adam Smith quote:

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chuses to depend chiefly upon the benevolence of his fellow-citizens. Even a beggar does not depend upon it entirely.

Perhaps Adam and Will are related.

In this quote, the long-dead Smith explains the positive sum universe of capitalism: voluntary, mutually beneficial exchange. Simply put, we choose to trade with others because we value what we give up in the trade less than what we gain.  Likewise for those trading with us.

Even simpler: capitalism is win-win, not win-lose.

I’m certain Will Smith had a charitable note in his wisdom.  I’m also believe he included family and community responsibility.

But, given that Will has been quite successful in the capitalist realm, I imagine he understands and included Adam Smith’s secret potion that benefits so many people on a daily basis with so few of those people seeming to grasp it.  It’s why I get to eat king crab just about whenever I want.

We Can Now Afford Gardens

This EconLog Everything’s Amazing, Nobody’s Happy post today from Arnold Kling ended with Kling observing:

Today, we take specialization and trade for granted. We get ticked off when the government “fails to create jobs.” Yet the unemployed do not revert to growing their own food, sewing their own clothes, and dipping their old candles.

That reminded me of recent Ellen show (yes, I’m a fan) where she showed off her new garden and expressed her delight in its bountiful, fresh produce.

While watching, it occurred to me that just how wealthy we really are.

We use to grow our own food out of necessity.  Then, through trade and specialization we became better off and didn’t have to grow our own food anymore.   Really what happened was that the opportunity cost of growing our own food became so great that we didn’t do it.  We could get more food by doing what we did best, whatever that may be.

Now, we are so well off that we can grow our own food again.  There’s nothing better for Ellen to do than to pay* someone to plant and tend a garden so she can enjoy fresh produce.  What use to be a necessity that was tended by our own hard labor is now a luxury item, like having a pool or hot tub.

It would actually be a sign that we are becoming less well off if people stopped tending (or have others tend to) to their gardens.

Come to think of it, Arnold Kling would make an interesting guest for Ellen Degeneres.

*I use the word pay loosely here.  The segment showed other people building her garden for her.  She may not have paid them directly with money (or she might have), but she did pay them with something – air time perhaps.

Media Bias

Here’s an interesting real story of media bias from David Henderson of EconLog.  Thanks to Megan McArdle for the link.

The issue:  Mainstream media typically attaches ideological labels to conservative sources, but not to liberal sources.

David Henderson wrote about when this happened to him in the L.A. Times and how he confronted the reporter.  Not only did the reporter ascribe an incorrect ideology to Henderson, he didn’t subscribe an ideology to the liberal sources in the same article.

I persisted and asked him why he didn’t ascribe an ideology to the other economists quoted, who clearly had ideologies. He explained that I was the only one quoted who was critical of the Obama team.
“Did you hear what you just said?” I asked. “Only those who are critical are given ideologies.”

We can talk about media bias, but it’s always good to have specific things to point to.  This is one. There’s no reason not to be fair and consistent and ideological labeling.  Either label everyone or don’t.

I think we all tend to do that in our own minds as well.  Those who agree with us get no labels.  Those who disagree are labeled to explain away the disagreement.  Much easier to do that than to actually think about the disagreement.