Important Words

Don Boudreaux posts an important Quotation of the Day from Deirdre McCloskey (see Don’s post for full cite):

Unlike stealing or taxing or highhandedly appropriating, exchange is a positive – not a zero- or negative-sum game.  If Sir Botany must tempt the peasants with offers of educational services or consultation on interior decorating in order to get the barley, both he and the peasants are better off.  If he just grabs it, only he is better off and they are worse off.  If I buy low and sell high, I am doing both of the people with whom I deal a favor.  That’s three favors done – to the seller, the buyer, and me in the middle and no one hurt except by envy’s sting.  The seller and buyer didn’t have to enter the deal, and by their willingness they show they are made better off.  One can say it stronger.  Only such deals are just.

I was exposed to the idea of that voluntary trade is a win-win much too late in life. This is the foundation upon which we can credit our superb standard of living, but we all too often are taught to despise rather than celebrate it. We should despise, or at the very least, be more cautious of the unjust transactions.

Middle class is okay

One sign of lackluster American education is that politicians who use the shrinking middle class prop get votes instead of laughs.

Post title from Carpe Diem: “Today’s new homes are 1,000 square feet larger than in 1973, and the living space per person has doubled over last 40 years”

Weathermen are smart enough to look out the window to make sure that what they see with their own two eyes matches with their models and instrument.

If you believe the shrinking middle class myth, I suggest spending more time looking out your window and paying attention. Not only have house sizes grown, but middle class homes also include many more amenities than even 15 years ago such a bathroom (or at least bathroom sink) for everyone, walk-in closets, jetted tubs, three car garages, finished basements and the new trend, outdoor living spaces, to name a few.

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If you want to help the poor, you should read this

I agree with Mark Perry (an economist who has bought me a beer), of Carpe Diem, that the reduction in the world poverty rate is the most remarkable achievement in human history.

The percentage of the world population living on $1 per day or less has dropped since 1970 from around 26% to just over 5%.

It’s hard to argue with those results. They are inflation-adjusted.

I can think of a couple things that might be easier to argue about regarding those results.

1. I can imagine some folks would say that 5% isn’t good enough.

2. I can imagine that some folks would argue about the cause of those results. I agree with Perry’s explanation as provided by Arthur Brooks: “globalization, free trade and international entrepreneurship.”

I can imagine that some folks would say it was the growth in government and aid. But, for them, I’d ask, what if you’re wrong? As Brooks says:

…if you love the poor, if you are a good Samaritan, you must stand for the free enterprise system, and you must defend it, not just for ourselves but for people around the world. It is the best anti-poverty measure ever invented.

I agree. I could be wrong and I think — for the benefit of the poor — I should keep that in mind and stay open to evidence to the contrary, because whether I’m right or wrong doesn’t amount to a hill of beans.

What is important it what really helps them.

I also think us supporters of free markets often forget this. The opposition paints us as the defenders of the rich, the “1%” and king-like CEOs, while we’re really advocating for the benefit of everyone, including the poor. 

We win with markets

Paul Rubin made a great point in his Wall Street Journal op-ed (thanks to Don Boudreaux, Cafe Hayek, for pointing to it).

Economists should point out that what makes markets thrive is cooperation, while competition plays a supporting role. This might help the perception of markets. As an example:

…we might say that a poor person has been outcompeted in the market. Or we might say that a poor person cannot successfully cooperate with others because he lacks valuable skills and has little to sell.

Again, the words matter because viewing the circumstance in terms of competition could lead to penalizing those who are viewed as outcompeting him, even though they did nothing wrong. It might even lead to banning certain terms in transactions—with minimum-wage laws, for instance—that make it even more difficult for the poor person to cooperate. The cooperative metaphor, by contrast, would suggest that the solution is increasing the skills of the poor person, giving him something to sell on the market.

Unfortunately, Rubin would still need to convince many other economists that minimum wage laws make it more difficult for the poor person to cooperate.

Employers should be thanked, not punished II

In this post, Steve Landsburg agrees with my sentiment that employers should be thanked, rather than punished. He writes:

Some people voluntarily go out on Sundays and pick up trash in the park. If we collectively decide that we need more trash pickup, do we turn to the people who have been doing this by choice and demand that they do more? Or do we decide that maybe the rest of us should pitch in as well (either by getting out there ourselves or paying others to)?

Exactly. We should be thanking the people who do it by choice, rather than demanding they do more.

Unfortunately, I think some do believe demanding that people doing it by choice is the best route to go, especially if it means that they appear to want a good thing, like clean parks, without actually having to do anything, except talk about it.

Let’s add this to the curriculum

(HT: The Last Embassy)

I wish this video of the Tommy Lee Jones look-alike would have been part of the curriculum when I was in high school.

The Will of the People does not exist

As you get older, you learn things aren’t always what they seem. A magician isn’t magical, he’s just highly practiced at misdirection and concealing what’s really happening, for example.

The idea of the Will of the People is similar. We take for granted that majority rule is a fair way to decide things. If the majority wants it, it’s the will of the people and it’s fair. Rarely do we question that.

But, in this week’s EconTalk podcast, Rodden on the Geography of Voting, this idea is put to the test. Near the end, I found the conversation on majority rule and the will of the people very interesting (emphasis added):

[Host] Russ [Roberts]: I think a lot of people have a romance about majority rule. Certainly one way that small groups of people settle disputes is they say: Well, let’s take a vote. And whatever gets the most votes wins. And I think to a lot of people that’s obviously the fairest, best way to decide stuff. And so all of these things that we’ve been talking about that mitigate that–whether it’s the Electoral College, winner take all districts–a lot of people say that’s just not the right way to do things. Everything should be decided by a majority vote. And yet, as we know from work by Kenneth Arrow and others, majority vote in the normative sense, meaning leading to outcomes we like, isn’t so strong as it seems. On the surface, nothing could be fairer than majority rule. And yet when you look a little closer you start to see that majority rule’s got some very deep flaws in it.

Guest [Rodden]: Yeah. This is one of the things that when I teach courses to undergraduates on institutions, we do this in the first or second week. It’s a very easy thing you can do to have the students give their rank ordering of their preferences for what type of pizza that they would like; you have each student rank three and then you put them together. And it’s very easy to find groups of students who have what in the social choice literature is called cycling majorities, where you can show that there is no such thing as the majority will. If I set up the institutions in such a way that there’s first a round robin tournament of pepperoni versus vegetarian and then the winner of that is paired off against sausage, I can get a different outcome than if I do the initial pairings in another way. And so I can show that whoever controls the agenda controls what kind of pizza the students are having. It’s kind of something that we’ve known since Condorcet and Arrow, the classics of social choice theory: it’s simply nonsensical to say that the majority has some kind of will that we will then translate into policy. And so the students are always sort of surprised by this. We like to believe that there is such a thing as the collective will. And I think one of the basic lessons of politics and institutions is, unfortunately, it’s possible to aggregate those preferences in very different ways in different institutions and get different outcomes. So we should[n’t] attribute so much importance to something that we believe was the outcome of some kind of majority choice. Often the truth is much more complicated. Agenda control and political power are often used in getting us to the outcomes we see. It leads us to think in a different way about how we interpret the decisions that are made by legislatures and what they actually mean.

Russ: The other problem I have with “will of the people” is majority election. Whether it’s 55-45, or 90-10, the loser obviously felt differently. So it’s not the will of the people. It’s will of those who won that election, whether it’s a majority or whether it’s proportional or whether it’s this weird system we have in the United States. We don’t have referenda on every item. It’s this weird thing called the Legislature, Congress, Senate; we have committees; all this baggage, this incredible superstructure and infrastructure around the way political outcomes are coming out of our preferences. It’s not just a majority rule referendum. But the most important thing to me is that we all have different preferences. And so once you put it into a political process you are basically saying: We are going to get one outcome, and you are stuck with it–because it was the result of a vote. And I don’t see that as necessarily fair at all.

Walter Williams wrote about this, from a different perspective, in his classic Conflict or Cooperation column.

Thomas Sowell also has some excellent thoughts on the topic here .

I like how Russ Roberts finishes the thought in the podcast:

Because political decisions will struggle to reflect anything remotely like the will of the people, I want as few decisions as possible put into that sandbox. I’d rather have the competition of free association and free choice make those decisions and allow for the diversity of outcomes that private markets and private decisions have rather than political decisions, which are inevitably coercive.

Update: Here’s another post relating to the topic: Politics is a group of people making a decision for you.

The iPad Tax

This Marginal Revolution blog post, linking to another post by Miles Kimball, who suggested we thank the top 100 tax payers, reminds me of this post of mine from 2010 where I — less eloquently than Miles — suggested that we thank the rich for the taxes they pay, rather than demonize them.

I thought the comment discussion to that Marginal Revolution post was lively. I was intrigued by a couple of comments. MPS wrote:

The richer you are, the more you benefit from government. It’s obvious from the standpoint of if you were born out in the jungle, you wouldn’t be so rich. In more proximate terms, your wealth derives from things like intellectual property protections and other safeguards of capital that allow people to extract large sums with little physical labor. This is all very well and good as part of a system of government intrusions designed to incentive behavior that increases overall wealth, but when you become wealthy it is through a channel created by government to reward your wealth-enhancing behavior, and not because you exerted so much physical labor to earn it at true competitive market rates.

Too many people share some sort of version of MPS’s sentiment on government, which explains why it has grown well beyond the too-much-of-a-good-thing level. These people vote for politicians who use government to solve any problem, instead of electing politicians willing to make tough and responsible choices like balancing the budget and cutting programs that should be outside the scope of government.

I have few responses for MPS.

1. As I wrote in this post, government is overhead.

Our ancestors didn’t create government and then get wealthy. We got wealthy enough to afford government. How? Our hunter-gatherer ancestors weren’t wealthy enough for government. They spent most of their time scrounging up food. They didn’t have enough time to send folks off to govern. As they got better and applied innovations like cooking, preserving food and farming, they created wealth (i.e. some slack time). Eventually, they freed up enough of their calorie producing activity to go vote on bills and hob-knob with lobbyists. Government emerged from wealth.

2. As Sowell and  Boudreaux point out, rich folks already pay for whatever benefits MPS imagines they get more of. Why should they have to pay again?

3. As Boudreaux also pointed out, there are, or have been, private solutions for much of the infrastructure that MPS believes only government can provide.

4. But, for me, the most important point is that rich people who earned their success didn’t get rich by government incentive channels as MPS describes. They got rich by providing something that made the rest of us better off. They benefited because we benefited.

Those that earned their success took risks that would turn MPS’s stomach. They tried and failed at several things, shook it off and tried again, when most of us would’ve been afraid to try, and if we got up the courage to give it a go, would have stopped after our first failure.

We use to want to encourage these people because we knew it resulted in good things for us. We wanted folks to get wealthy, because we recognized that they owned their effort and ideas and its only fair that they get rewarded, but more importantly, we wanted more good things for us. We use to not be too stingy about sharing bridges with them. 

MPS doesn’t realize his belief that we got those good things from the incentives and channels that government laid out, followed to its conclusion, only ensures he will get fewer of those good things.

Folks like MPS love the iPad. I wonder if he would be willing to give it up. When he uses “the rich benefit more” reasoning to support higher taxes on them, he is paying that tax by forgoing opportunities to buy future innovations, like future iPads.

What ‘earned success’ means

What ‘earned success’ means to a…

…libertarian: You take risks and with quite a bit of luck, persistence and hard work you discover something that creates value by improving other folks standard of living so much that they willingly trade some of the value they have created (or been given) for it. Folks earn their success by providing for the needs and wants of others.

…conservative: Smart people take risks and with persistence, laser-like focus, the right connections and hard work build an empire. Conservatives tend to gloss over parts about luck and providing for the needs and wants of others.

…moderate: You work hard and become successful.

…liberal: You win prestigious awards, you are viewed as humanitarian or anything else deemed praise-worthy, like designing a really cool phone or giving a heart-felt portrayal of a monster of history on the big screen.

…progressive: Being picked as a winner by a progressive government. If you do what the that government deems as worthy, you’ve earned it. If government is not controlled by progressives at the moment, look to the next most progressive government to see what they deem as worthy.