The competition to see who can best cooperate with consumers

That’s a great way to view competition between businesses.

Credit David Henderson’s post on EconLog, where he is justifiably annoyed at the use of battle terms in a Wall Street Journal article to describe competition between two airlines for consumers flying to and from Seattle. Henderson thinks the author, and many like her, neglect the benefits to consumers when framing business competition as a battle.

Also, credit a commenter on his post, Julien Couvreur, for pointing to and summarizing a Don Boudreaux post about the same thing. Couvreur writes:

…economists tend to talk a lot about competition, but it is competition for cooperation (who can cooperate best with consumers). This is hardly war.

 

Two more good ones from Bryan Caplan

Bryan Caplan thinks it’s inconsistent for the left to believe the poor shouldn’t be blamed for their predicament, but Republicans can be blamed for a host of things like not helping the less fortunate or ignoring evidence of global warming.

He also points out that the predatory pricing practiced by public schools yields only a 90% market share after decades, not a monopoly as folks believe.

 

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David Henderson Has Balls

On EconLog, David Henderson answers my question, why he reads Paul Krugman. I am the Seth he refers to in that post.

I thank David for taking the time to answer. His answer was better than I expected. More on that later.

There are several reasons I don’t pay much attention to Krugman.

Mark Twain sums up the main reason:

Never argue with stupid people, they will drag you down to their level and then beat you with experience.

Also, it’s unproductive.

I know. Who am I? I must be crazy to think that a Nobel Prize winner and successful New York Times columnist is stupid. But, I do. And, maybe I am crazy. I’m open to that argument. But, for the few times I’ve tried to read Paul Krugman, I’ve found it difficult to get past his first logical fallacy, which usually comes in the form of a straw man or ad hominem. Logical fallacies are markers of poor arguments.

I expect more of a Nobel winner. If he can’t be careful enough to state his opponent’s position accurately, I’m done. I have much better uses for my time.

His apologists stretch to overlook these transgressions to productive dialogue. For example, they point out that ‘technically’ some whacko holds the view that Krugman constructed, but we all know that doesn’t address the real issues or the actual disagreements, so it’s not productive. Waste of breathe.

Which brings me to another reason I don’t pay attention to Krugman. Henderson laid it out well in the post that started this topic, Krugman Kontradiction:

 …when he [Krugman] appears to contradict himself, without ever admitting it, which he often does appear to do, he can usually get out of it because when you go and read him carefully, you find that he didn’t really contradict himself but, instead, misled his audience into thinking that he said something that he didn’t quite say.

Or, it’s like 9-year-olds arguing. You said that. No, I didn’t. Yes you did. No I didn’t. Again, not productive. I don’t have much time for people who express thoughts just so. It’s adolescent. I coach a youth sports team. I get enough of that level of discussion at practices.

In his book, Antifragile: Things That Gain From Disorder, Nassim Taleb expresses another reason I don’t pay attention to Krugman (which this post clearly violates): There’s no such thing as bad publicity. Taleb explains that the success of Ayn Rand’s books is owed, in no small part, to her intense critics. I don’t wish to be responsible for Krugman getting any more attention.

Another reason I don’t pay attention to Krugman is that he’s never wrong, or at least he doesn’t seem to think so. I have enough know-it-alls in my life who squirm their way out of being wrong by using their clever intellects. In my view, these people have lived their whole lives with others telling them how smart they are. Their ego depends on it. When they are wrong, they kick their smarts into high gear and go into ego-protection mode.

The last reason (that I’ll mention) why I don’t pay much attention to Paul Krugman is that his job is easy. It doesn’t take a lot of balls to convince people that elites and government can solve their problems. That seems to be what they want to believe anyway. So, if a Nobel Laureate is telling you what you want to hear, it seems, there’s really no reason to check him or think about it too deeply.

It’s much more challenging to convince people that they can and should solve their own problems and that they will be better off if they do so.

Now, why was Henderson’s answer better than I expected? Because Henderson didn’t bow at the altar of Krugman. Henderson said because Krugman is one of the most important economics bloggers, which I take to mean that he is widely followed, not that he is the most talented or even deserving of being followed. Just that he is widely followed.

I am interested in economics. But, I prefer to learn from economists like David Henderson — not because I like Henderson’s biases (which I do), but because he has the balls to take on the fundamental disagreements directly, rather than construct straw men. He admits when he’s wrong, and doesn’t get blinded by his own ego and desire to be right. He encourages his students to think deeply and challenge him, rather than depend on him as the tea-leave-reading expert.

Economists like Henderson don’t expect you to take their word for it. They want to move the dialogue forward, not distort it.

Liberty is the Golden Rule

Why I’m Libertarian is a new Tumblr blog (via Pretense of Knowledge and EconLog blogs) where folks declare why they are libertarian. Great idea.

Here’s why I’m libertarian: Because I believe in The Golden Rule. I believe that’s the true source of liberty.

Do unto others as you would have done unto yourself.

The day we talked about The Golden Rule in church when I was a kid was a clarifying moment. I remember thinking, man, that makes a lot of sense. What a fabulously easy way to test your actions. Would I want others to do that to me? If the answer is no, or even a maybe not, don’t do it.

Lots of libertarians say they are libertarian because of things like ‘limited government’, ‘individual rights’, ‘don’t believe in war’…and so forth.

But, for me the Golden Rule is why all of those things are important.

Update: In another coincidence on this blog, in this week’s episode of EconTalk, Russ Roberts interviews Nassim Taleb about an essay he wrote called, Skin the Game. He also discusses the source of the Golden Rule.

I personally believe that the Golden Rule is a social norm that is responsible for the advances in the standards of living humans have experienced over the last several hundred years. I haven’t finished listening to the EconTalk podcast yet, but I’m hoping Taleb will agree with me.

 

Links

Mark Perry links to three examples of how the market is the best regulator and our best friend (though, admittedly, the kind of friend many people like to dump on).

Chris Berg explains why Capitalism is Awesome (HT: EconLog‘s Alberto Mingardi). Worth a read. It’s not the necessarily the Facebooks and the Apples, but the guys trying to make a better shelf.

A short video of Jim Buchanan on the illusion of the public interest (HT: Cafe Hayek‘s Don Boudreaux):

 

Unintended consequence of Obamacare?

I yawned when I read this. Did you?

 

 

Making a difference isn’t always romantic

Art Carden says well in his recent EconLog blog entry, You’re Not Pushing Paper Across a Desk. You are saving the world, what I tried to say in these two blog posts here and here.

Here’s Carden’s opener:

In my profession as an economics professor and through churches I have attended, I’ve been around a lot of people who want to “make a difference.” They almost inevitably equate “making a difference” with “working for a government or a non-profit organization like a church that is dedicated, at least in part, to helping poor people.” Rarely do I hear anyone say “I want to work in accounts receivable for a company that makes faucets–or worse, a company that just sells faucets and other sundries.”

But here’s the irony: I suspect that you will probably make a bigger, albeit harder to see, difference in the lives of many by working in accounts receivable for Amalgamated Faucets than you will on your two-week summer mission trip or in your career as a relief worker.

Carden goes on to explain:

Cleanliness, while not necessarily next to Godliness, is at least a few more steps removed from filth and the associated disease transmission. One quick and easy way to improve the lives of the people around you is to make sure you wash your hands carefully after using the restroom. By helping the faucet company run a leaner operation, you can help them expand and improve their faucet offerings. This in turn helps people wash their hands carefully. This in turn reduces disease transmission. Reduced disease transmission means less tragedy and higher productivity. It might not seem like much, but congratulations: by helping Amalgamated Faucet produce more, better, and cheaper faucets, you’re reducing the probability that someone, somewhere gets sick.

So few people recognize these benefits. Carden explains:

Is it romantic? No. Will people write books about you and give you humanitarian achievement awards? No. Will you be recognized in church? Sadly, almost certainly not.

Sadly, yes. Perhaps churches and other organizations should start recognizing these unseen and under appreciated deeds. That may be a new idea for a thread on this blog — how people make a difference by doing something that appears to be boring and regular.

I’m reminded of the story Mitch Albom told in his book, The Five People You Meet in Heaven. I don’t want to give too much away, but one of the people Eddie meets explains to him that his seemingly boring and unromantic job as an amusement park maintenance worker was valuable because he kept untold numbers of kids safe for all those years and he paid particular attention to that safety because of what happened between Eddie and this person.

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?

English: Cut Green Beans Español: Habichuelas ...

"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.

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