We can’t discourse

While driving around last night to pick up some New Year’s Eve supplies, I heard a snippet of a Hannity radio show that reminded me of our advanced society’s weakness in handling discourse.

It went something like this:

Hannity: Your guy has spent a lot of money.

Lady Caller: Well, he inherited all that spending from Bush.

Hannity: Bush added $4 trillion to debt in 8 years. Obama added $6 trillion in 4 years. That wasn’t all inherited from Bush.

Lady Caller: Well, I’m a small business owner. I know you have to spend money to make money. [Inconsistency]

Hannity: Well, he’s going to keep spending it for the next 10 years.

Lady Caller: You don’t know if that’s true. He hasn’t yet. Well, if the Republicans get in power, we won’t have any workers rights. [Red herring]

Hannity: Workers’ rights?  etc.

I don’t listen to a lot of talk radio, but I would expect better discourse control from Hannity. He’s been at this for years. For this lady, you don’t even have to make any of your own points. Just steer her back into her own fallacies and watch her crash and burn on her own words.

He should have stopped the conversation at her inconsistency, exposed her ludicrous ‘spend money to make money’ reasoning and not even addressed her red herring of workers rights until she adequately explained the previous two problems in her dialogue.

The conversation should have gone a little like this:

Hannity: Your guy has spent a lot of money.

Lady Caller: Well, he inherited all that spending from Bush.

Hannity: Bush added $4 trillion to debt in 8 years. Obama added $6 trillion in 4 years. That wasn’t all inherited from Bush.

Lady Caller: Well, I’m a small business owner. I know you have to spend money to make money.

Fantasy Hannity: Stop. First, you blamed Obama’s spending on Bush. Then you supported Obama’s spending by saying you have to spend money to make money. Is spending money good or bad?

Fantasy Lady Caller: Well,I didn’t like how Bush spent it. Obama has been spending it to get the economy going.

Fantasy Hannity: Okay.You think Obama is a better investor than Bush. That’s rational. It may not be true, and so far does not seem to have proven out since it’s not apparent whether the big increases in government spending has helped or hurt, but it’s rational.

Now, you said you have to spend money to make money. In your business, is there any restriction on how much money you spend? How long would you stay in business if you planned to spend 30% more money than you brought in for the foreseeable future.

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Teaching someone to fish vs. Giving them a fish — Foreign Aid Style

Mark Perry (another economist is not pathetic, and not only because he bought me a beer)    posted on his blog, Carpe Diem, a Kenyan economist who points to foreign aid as part of the problem in Africa, rather than the solution.

Here’s a snippet of what James Shikwati had to say:

Huge bureaucracies are financed (with the aid money), corruption and complacency are promoted, Africans are taught to be beggars and not to be independent. In addition, development aid weakens the local markets everywhere and dampens the spirit of entrepreneurship that we so desperately need. As absurd as it may sound: Development aid is one of the reasons for Africa’s problems. If the West were to cancel these payments, normal Africans wouldn’t even notice. Only the functionaries would be hard hit. Which is why they maintain that the world would stop turning without this development aid.

Even pop singer Bono seems to be coming around on this point.

One part of the fiscal cliff

One part of the fiscal cliff is the US Government is again running up against its debt ceiling. That is, it is getting near the limit Congress has set for how much debt the government can issue to fund its overspending.

The debt ceiling was raised just last year.

In case you didn’t know, Obama’s gigantic flip-flop on this issue is well-documented, but not well-reported.

Then Senator Barack Obama voted against raising the debt ceiling in 2006 and spoke against it. Here’s the text from his speech (source):

The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that “the buck stops here.” Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.

Strong words. I agree with some of them. Especially the part about shifting the burden of bad choices (i.e. uncontrolled spending) onto the backs of our children and grandchildren.

President Barack Obama now calls his 2006 position a mistake (source). As his press secretary explained:

He realizes now that raising the debt ceiling is so important to the health of this economy and the global economy that it is not a vote that, even when you are protesting an administration’s policies, you can play around with, and you need to take very seriously the need to raise the debt limit so that the full faith and credit of the United States government is maintained around the globe.

Did you know about this? Imagine if a Republican had the same flip-flop. Do you think you would know about that?

Some economists aren’t pathetic

While I agree with Nassim Taleb that economists are generally pathetic, not all are. Count Don Boudreaux, David Rose and David Henderson as economists who are not.

While there are many instances where Boudreaux proves his worth, this recent post of his on Cafe Hayek is ample evidence.

First, Boudreaux reprints a letter from economist David Rose that was published in the Wall Street Journal. Rose’s letter proves his worth. I’ve reprinted it below. It’s a must read.

Second, Boudreaux reminds us of a most excellent point made by David Henderson that proves his worth. Henderson pointed out that using the term wealth redistribution incorrectly implies in market economies that there was wealth distribution to begin with. There wasn’t. There was wealth creation from risk-taking and value discovery.

Here’s Rose’s letter:

In his Dec. 20 op-ed “America’s Dangerous Powerball Economy,” Arthur Brooks quite correctly points out that earned income, indeed earned success generally, affects our happiness very differently than unearned income or success.

I would like to extend his point further with something I’ve told my college students for years.

In general, the creation of wealth is edifying. When only voluntary transactions are permitted, the creation of wealth requires cooperation, and this brings out the best in us.

Piles of wealth, however, tend to be corrupting. The fixed nature of a pile is all about apportionment, not cooperation, and this zero-sum game tends to bring out the worst in us.

It follows directly that no matter how noble the ends, government redistribution (which is hardly voluntary) tends to bring out the worst in us. Rising government redistribution over the past 75 years has produced ample evidence of this point.

We are in this mess because we have allowed our culture to be dominated by those who are bent on spreading the false and self-serving narrative that our economy is a giant zero-sum game.

As such, we might as well have the government do the dividing.

Small wonder why our politics have become increasingly about who you are for rather than what you are for.

David C. Rose

Department of Economics

University of Missouri-St. Louis

St. Louis, Mo.

Consequences

In the Further Thought of this post, I advocated making it clear to folks what their share of government costs and how much of their share is paid by others.

In this post, I suggested that Republicans get out-of-the-way of Democrats and let them push through their fiscal cliff fixes, but make it clear that they are only doing so because that appears to be what the American people want based on the election results. If the American people want a different result, they need to vote for different people.

Mario Rizzo appears to agree with my sentiments, as he writes on his blog in this post why he supports increasing taxes on the middle class:

Because the only way to curb spending in the long run is to make as large a number of Americans as possible truly feel the consequences of the expenditures they appear to desire.

What is profit?

I’m looking forward to listening to the latest EconTalk podcast, where an organic farmer talks about profit and how she finds her teenage workers not quite ready to earn their keep. Her theory, similar to mine, is that kids have led a life up to the point of getting their first job where things are done for their benefit, rather than them having to make themselves useful to others.

EconTalk host, Russ Roberts, posted her interesting comments about this here. It’s worth repeating:

we hire some high school kids. And they are lovely people. But usually it’s one of their first jobs, like maybe they’ve mowed the lawn for their neighbor or maybe they did some babysitting. But by and large we’re their first job. So, everything else that’s happened in their life has happened for their benefit. They’ve gone to summer camp–that was for their benefit. They’ve gone to school–that was for their benefit. We as parents certainly do everything we can to benefit our children. And then they come to me and–yeah, there are a lot of programs that go on in the summer. And that’s not what this is. This is: You are going to work, and at the end of the week I’m going to give you money; and I expect that because you are here, I will make more money. And that’s a concept that I’ve had to explain to them. And it comes in really hard. And I have to say: Why would I have you here if I wasn’t going to end up with more money? Why on earth would I have you show up every day? And they kind of start to get that this should be a mutually beneficial arrangement, not just that I shouldn’t come out even because I think of–capitalism as me making money for the aggravation of having you here. And then we get the college kids; they’ve kind of gotten that kind of concept a little better. But then I’ll say: What do you want to do when you are done with college? And they’ll say: Oh, I want to work for a non-profit. And that one makes me angry. First, it’s like, well, non-profit, that could be a hospital, that could be a–like you haven’t thought about this any more–that could be a land trust, it could be anything. ‘Non-profit’ is huge. You don’t have any more direction than that you want to work for a non-profit? But also, they are telling me that profit is bad. So, I say: Well, look around at all this stuff you see, the tractors, the greenhouses, the walk-in cooler–like all this stuff. Ralph and I could have taken that money and even if we put it in the bank in a savings account we’d have earned like a percent or something, even now. But we’ve done this, and we’re risking that–it may not work out; we may not make any money from this; we may not get back the money we put in. Don’t we deserve a little more than what we could get in a bank by doing something safe? And they say: Oh, well yeah, of course you do. And I say: Well, that’s profit. And that’s all that profit is. And: Ohhhh. And then the light dawns. But they come with no idea about how capitalism works, even though capitalism is the economic system of our country.

I’d go a step further on profit.

I think it is unfortunate that we tend to only think of profit as a financial term. This causes us to see differently the actions undertaken by profit-seeking companies from the actions we undertake ourselves to conduct our daily lives. Those evil companies seek profit. How noble I am to give my time to charity.

But, a more general definition of profit is to derive benefit. What percent of your actions do you take to derive benefit?

Why did you show up to work? Probably for the same reason companies distribute their products, to earn money.

Why don’t you devote all of your time to charity? Probably because you need to have a shelter, you need food and clothes and you want quite a few other things. Companies, too, do not give all of their output to charity because they would soon have nothing left to give.

Why did you build the patio and fire-place in your backyard, instead of giving that money to charity? You did this for the same reason companies build lounges for workers and sell their products in pleasant surroundings.

Why did you replace your aging vehicle, instead of giving that money to charity? For the same reason companies replace their aging equipment.

How are the actions you take to derive benefit different from the actions companies take to derive benefit?

There are only two key differences that I see. First, companies more carefully record the money unit benefits of their actions because they have folks who hold them accountable, the owners. Second, they are trying to accrue those benefits for someone else, the owners instead of themselves, unless they happen work for an employee-owned company.

Profit is nothing more than a derived benefit. We profit a great deal from others, that’s why we are willing to pay them. Without that profit, we’d be living the short and lean lifestyle of a hunter-gatherer.

A couple thoughts from Thomas Sowell

From Thomas Sowell’s latest Random Thoughts:

Everybody is talking about how we are going to pay for the huge national debt, but nobody seems to be talking about the runaway spending which created that record-breaking debt. In other words, the big spenders get political benefits from handing out goodies, while those who resist giving them more money to spend will be blamed for sending the country off the “fiscal cliff.”

I, too, am amazed at how spending gets a pass, even from folks like Warren Buffett who should know better.

Would Mr. Buffett give such a pass to a manager of one of his businesses who habitually spent 20% to 30% more than he took in and planned to do so as long as possible? In this case, would Mr. Buffett be so eager in volunteering his own income to continue to support such a manager so that manager could carry out his indefinite plan of spending beyond his means?

Here’s another good Thomas Sowell thought:

The more I study the history of intellectuals, the more they seem like a wrecking crew, dismantling civilization bit by bit — replacing what works with what sounds good.

I’ve seen the same with managers of successful businesses. New managers often ignore the actual success of the business they’ve been entrusted to run — what works — and change that business with their own ideas — what sounds good.

The typical outcome of that can be seen with JC Penney of the past year, where the new manager of JC Penney has made major changes to the business that sounded good, but have reduced the stock price by more than 50% against the S&P 500.

Intellectuals often have the same effect on society. For example, they may wish to ‘wage war on poverty’, but they ignore the best anti-poverty mechanism ever — innovationism (what works) — and instead seek to replace it with systems that sound good, but actually encourage poverty.

“Innovationism”

In a post about styrofoam, Don Boudreaux points out Diedre McCloskey’s better name for capitalism, innovationism. I couldn’t agree more. The word capitalism sterilizes what’s really happening. Innovationism captures it much better.

“…generally pathetic”

In The Chronicle of Higher Education,Tom Bartlett writes about his meeting with Nassim Taleb, the author of The Black Swan, Fooled by Randomness and his latest book, Antifragile: Things That Gain From Disorder.

Taleb is known for his gruffness. That turns off a lot of folks. Not me. I’ve always had a penchant for substance over style and I think Taleb offers substantive observations on how the world works.

I believe a key observation from his latest book is to avoid having a single point of failure. Why? Because things fail and they fail more often than not. What thing have you seen that never fails? A single point of failure is dumb.

Engineers design their electrical and mechanical systems with redundancies to try to avoid single points of failure. Electric utility companies, for example, usually have more than one way to get power to your service drop. If one path fails, they can switch to the backup path while they’re fixing the main path. That’s one reason most folks usually don’t experience more than a few hours of electrical outages in a given year.

However, for your home, your service drop is a single point of failure. If it fails, you will be out of service until you get an electrician to fix it. Unless, of course, you’ve invested in a backup generator.

But, we rarely consider single points of failure in our social systems. Central planning is a single point of failure, yet many folks tend to support moving things in that direction whether the topic is health care, education or charity.

For example, I often hear folks advocate a single, national K-12 education standard. What if that standard fails? The answer they give is easier said than done, fix it. How do we fix something that has no competing models to learn from?

Below are a couple of my favorite passages from Bartlett’s piece on Taleb.

It would be for the greater good if more of us shared Taleb’s view on economists. Bartlett describes it as such:

He saves his iciest hate for economists. Taleb has no use for the “charlatanic” field, comparing economic research to medieval medicine. Economists are, in his estimation, weak, ignorant, fearful, and generally pathetic.

This is a good observation. Entrepreneurs and innovators have generated the wealth that’s made our standard of living so much better than our ancestors, not economists.

Here’s another interesting passage:

Taleb is a professor of risk engineering at the Polytechnic Institute of New York University. Despite his wall of degrees (he has an M.B.A. from the University of Pennsylvania’s Wharton School and a doctorate from the University of Paris), he believes that universities propagate “touristification,” another term he coined, a phenomenon that occurs when what should be an exciting exploration turns into a programmatic exercise. It’s better to be an adventurer than a tourist. Education isn’t the only result of this modern sin; gym machines and “the electronic calendar” fall short as well.

Failed Experiment

I picked this up from the swissmiss blog.

In my previous post, I mentioned that some bands experimented with sounds that people didn’t like. The video is a good example of an experiment someone tried that didn’t catch on.

But, I love the guy’s confidence. Don’t go to bars. Skip. You’ll meet enough people in one day to last you a month.

Let me know how that works out for you.