Worth reading

My latest issue of Forbes has three editorials that I recommend reading:

1. A column that I cannot yet find on Forbes.com entitled, Economic Growth is Easy. Here’s a snippet:

John Stuart Mill long ago observed that we trade “products for products,” so if the desire is for increased consumption, we must stimulate the supply side of the economy. Specifically, we must remove the tax, regulatory, trade and monetary barriers to productivity. For individuals to consume, they must first produce.

Most people don’t understand that, which is one reason we keep electing fools. Consumption does not drive wealth. Investing to take a chance of realizing benefits do.

2. Another from British historian, Paul Johnson, Men Blinded by Their Brains. In it he writes how intellectuals seem to have an affinity for the powerful and evil. In the print version, this appears immediately after the subtitle, Moral Blind Spot:

Of course, intellectuals, whom I define as those who think ideas are more important than people, are notoriously bad at seeing the ordinary world and coming to moral decisions about it.

This article struck me because I’ve known such men. They could reason their way into very bad things and reason their way out of feeling any remorse or accountability for their actions.

3. Steve Forbes’ lead-off editorial, Gold and the Wicked Magicians, is top-notch and important. From his piece:

Linking the value of money to gold removes a huge source of Big Government’s power. No longer can government confiscate wealth by stealth by devaluing your money. Economists hate the gold standard because they think they’re being deprived of one of their magic wands to shape the economy.

Big Government looks after its own interests. Left to its own devices it will relentlessly expand, crushing the private sector. That’s what’s happening in Europe today. Despite all the talk of austerity, the public sector has hardly been touched, while businesses and individuals have been hit with more and more taxes.

Despite thousands of years of experience to the contrary, central bankers and countless policymakers and economists believe that money manipulation can stimulate and wisely guide an economy.

It’s a destructive delusion. The world today would be an immensely richer place were it not for these hubristic notions that a handful of people can keep an economy rolling smoothly with minimal unemployment.

Pawlenty!?!?

Some tidbits I’ve read and heard from your recent speech concern me.  Like this one (by way of  Megan McArdle’s blog):

Let’s start with a big, positive goal. Let’s grow the economy by 5%, instead of the anemic 2% currently envisioned. Such a national economic growth target will set our sights on a positive future. And inspire the actions needed to reach it.

We don’t need politicians setting national growth targets.   This part of your speech is  better:

The United States is still home to the most dynamic and entrepreneurial people in the world. They’re all around us. Ready to innovate, invest, compete and create new businesses and jobs. That will mean opportunities for everyone.

They’ve been discouraged and weighed down. By President Obama’s big government. And heavy handed regulations. They deserve a better deal. I’ll give them one. And here it is.

Though, you can buy yourself some ears if you don’t just pin big government on Obama.  He has contributed, but so did pre-08 Republicans and Congress in general, who have put politics ahead of behaving like adults.  Don’t let them off the hook.

Here’s the version of this part of the speech I would have edited for you:

The United States is still home to the most dynamic and entrepreneurial people in the world. They’re all around us. Ready to innovate, invest, compete and create new businesses and jobs. That will mean opportunities for everyone.

They’ve been discouraged and weighed down. By our big government.  And heavy handed regulations. They deserve a better deal. I’ll give them one. And here it is.

We need to get government out of the way and let innovative Americans do what they do best.  Find ways to serve their fellow citizens in ways that their fellow citizens want and value.

How many of you know what tax rate you will be paying this year?  How about in 2013?  Do you feel confident that you know what your health insurance will look like in two years?  These uncertainties help prevent new job formation.

Our government has grown its spending by 93% since 2000 while the size of our economy has grown by 42%.  We cannot grow the bureaucracy of government at more than twice the rate of our economy and expect the economy to remain healthy.

Bureaucracies do not meet the needs and wants of our fellow citizens as effectively as our fellow citizens.  Government bureaucracies are like the DMV.  We need less of that and more ingenuity and freedom.

The Great Stagnation

In this highly recommended episode of the EconTalk podast, Russ Roberts and Tyler Cowen discuss Cowen’s new $4 ebook, The Great Stagnation.

The premise of Cowen’s ebook is that the growth and progress experienced by the average family from around 1890 to about 1970 was much higher than the progress experienced since.   He believes the first period picked the low-hanging fruit like greatly reducing death to disease through antibiotics, plumbing and hygiene and reducing infant mortality through better baby delivery methods.  Since the low hanging fruit has been picked, Cowen believes improvements have been slower and tougher to make.

That thesis has received a good deal of criticism from economists on the conservative and libertarian end of political spectrum, surprisingly.   Some of the criticisms include:

  • The measures Cowen uses to make his case are flawed and don’t properly reflect technological improvements that allow so many more people to afford things that weren’t conceivable even ten or twenty years ago.
  • Cowen’s exaggerates the meaning of stagnation.
  • Tyler, himself, is courting leftist bloggers (I don’t think that one came from an economist, but I seen it in the comments on various sites discussing Tyler’s book).

As Cowen points out on EconTalk:

I’m coming along and saying the rate of growth for the typical family has declined, and oddly I’m hearing skepticism from a lot of the same economists who are criticizing current policies for lowering the rate of economic growth. That’s always fun.

Great point.

Even though many people think of the late 70s through 00s as a time of deregulation, it has been a time when government has grown larger than necessary — under both Democratic and Republican administrations — with greater interference in private markets.

Government influence on markets in contributing to the financial crisis was a good example.

The politicians’ influence on the private market showed up in policy aimed at expanding home ownership through such things as the Community Reinvestment Act, Fannie Mae and Freddie Mac and Federal Reserve monetary policy.

A specific example: Fannie and Freddie were sanctioned by the implicit (now explicit) guarantees from government (taxpayers) to buy loads of sub prime mortgages — that is, mortgages from folks who did not have a good history of repaying debt — thereby creating a market for something that really didn’t have much, if any, value.

To better understand Tyler’s point on how all this might divert resources from productive pursuits and slow real growth, consider what would happen if government signed up taxpayers to buy surpluses of the singing and dancing mounted fish that were a popular novelty item a few years ago.

You can imagine that a lot of people would make singing and dancing mounted fish and we would have more of those things than anybody would want.  Which means taxpayers would be funding the purchase of loads of those fish when they could have spent their hard earned wealth on things they found more valuable.

Which gets to another point Cowen made in the discussion.

So, when we talk about biases in measuring output and living standards, the bias I worry about the most is we’re spending a lot of money and simply writing it down as value added when it might not be.

This comment of Tyler’s inspired by post C + I, which I plan to write more about soon.