Beware combo fallacies

Hypocrisy is a common criticism leveled at free market advocates.

The criticism is that since free market advocates use and benefit from various forms of government programs like roads, Social Security, fire protection, Medicare, public education, libraries (I threw that one in there) and so on they are hypocrites for suggesting that such programs could be carried privately.

The implication is that unless free market advocates refuse to use these programs as a matter of principle they are not credible.

A couple examples from the last week stick out in my mind.  In one, a commenter on a local blog pointed out that Ayn Rand, libertarian heroine, relied on Medicare near the end of her life.

Below is another example from the comment section at Cafe Hayek, where a commenter charges Don Boudreaux with this hypocrisy:

I take it you (and your blog buddies) vehemently oppose support of any kind of “welfare state;” though, I’m betting you have no problem with the many and various forms of corporate welfare that abound, or the state university systems which apparently provide for your education and career, or the Internet (still regulated by the GAC) which provides a very public platform for your right-wing ideology…and I could go on, but you get my point.

Don responded: “I oppose ALL government programs, including support for higher education.”  Great.  But, I think Don’s response is unnecessary.  He took the commenter’s fallacious bait.

The hypocrisy criticism is a combo fallacy.  It combines a red herring (aka ‘changing the subject’) fallacy with an ad hominem (aka ‘name calling’).

Whether Don is a hypocrite, or not, has no bearing on whether he is correct.

The roots of this combo fallacy tactic can be traced to Kindergarten recess. It should not be so becoming for supposedly well-educated and bright folks to use as adults.

The ad hominem part of this combo fallacy is a personal attack (“hypocrite”) meant to put the accused on the defensive and respond to the red herring.

If you change the topic of conversation away the merits and demerits of free market vs. government to defend yourself against the hypocrite charge, the red herring fallacy succeeds and little productive discussion will take place about the original subject.

When faced with this combo fallacy, I think it’s best to keep to the topic at hand.  Here’s an example of a response that could do that:

Whether or not I’m a hypocrite has no bearing on the correctness of my point.  Would you like to discuss my point?

If they can send a man to the moon…

I started the draft for this post before reading Steven Landsburg’s The Big Questions.  Only now, as I get back to completing it do I realize that he provided the perfect words to back up this point, and I’ve already posted those words.

The fact that “we (I certainly didn’t have anything to do with it) sent a man to the moon” has been used in many debates over what the government is capable of achieving.  Maybe you’ve heard it.  It usually goes something like this:

“If we can send a man to the moon, then we can…

…end poverty

…make sure everyone has health care

…ensure everyone has a good standard of living

…give everyone a vacation?” (This one surfaced recently in the UK.  While they didn’t send a man to the moon, this shows where this logic can lead.)

Sending men to the moon was hard, no doubt.

But, the fallacy is generalizing what it takes to send a man to the moon is similar to what it takes to end poverty or give everyone health care.

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The market in action

One of the disadvantages the “market” has is that few people understand what it is and how it works.

What: A market is nothing more than the interactions that take place between people.

How: Contained in the those interactions are signals and feedback that help us respond better to each other.

Yesterday a colleague and I were responsible for providing birthday treats for our work group. We went to the grocery store across the street from the office.  I decided I was going to buy Hostess cupcakes.  My colleague wanted to buy Ding-Dongs.  We happened to come across the Hostess vendor as he was restocking his shelf.

I picked up the box that contained nine cupcakes for $2.99.  My colleague asked the vendor for the big box of Ding-Dongs.  The vendor replied that he only stocks the snack size of Ding-Dongs on this rack, because the bigger size just doesn’t sell well enough here.

There it is.  The market in action.  The people who frequented that grocery store, for whatever reason, didn’t buy very many big boxes of Ding-Dongs.  Not buying was a signal from the customers telling the vendor that they didn’t prefer the big box of Ding-Dongs.  He had tried it out. The response was poor.  His employer encourages him to maximize sales, which means he would be stocking the mix of products and sizes that customers are most willing to buy.  The vendor uses the feedback he receives from what sells and what doesn’t to try different things out and to make his customers and his employers as happy as possible.  That’s a win-win situation and that’s a great example of how the market works.

Obviously, it’s not perfect.  My colleague didn’t get his big box of Ding-Dongs (though he could have bought 6 snack sizes), but he chose an acceptable substitute – Twinkies.

What’s the Comparison?

In the latest Econtalk podcast, Don Boudreaux on Public Choice , Boudreaux of Cafe Hayek and George Mason University points out a common error by critics of free markets.  The error is in comparing the functioning of the free market to an idealized perfection:

…compared to what? It’s not the merits of the market compared to some ideally-performing government, or ideally-performing dictator–it’s compared to government as it is likely to perform as the alternative to the market.  Also wrong to hypothesize a perfectly working market and assume that’s what’s happening in reality.

I hear this all too often.  The reasoning usually goes something like, if a market does not work exactly how I want, then we must rely on government instead — as if the government is perfect or can someday be.

Markets are not perfect, but neither is government.  Government has proven to be much less perfect because of the feedback loops and incentives.  Markets are self-healing, governments keep pumping in blood without attending to the wounds.

The next time someone suggests government as a means to achieve perfection, ask them which government program is the model on which such perfection should be based.

Good Reading

Here’s a roundup of some good reading.

Walter Williams: Who Poses a Greater Threat If you’ve ever feared power consolidated in the hands of wealthy, you should read this column.

Bill Gates is the world’s richest person, but what kind of power does he have over you? Can he force your kid to go to a school you do not want him to attend? Can he deny you the right to braid hair in your home for a living? It turns out that a local politician, who might deny us the right to earn a living and dictates which school our kid attends, has far greater power over our lives than any rich person.

Thomas Sowell: Alice in Health Care Warren Buffett should read Thomas Sowell to get a better understanding of why health care costs are high.

One of the biggest reasons for higher medical costs is that somebody else is paying those costs, whether an insurance company or the government. What is the politicians’ answer? To have more costs paid by insurance companies and the government.

Mark Steyn: Our Own Greek Tragedy (HT: Cafe Hayek).  Steyn has a way with words.

While President Obama was making his latest pitch for a brand new, even more unsustainable entitlement at the health care “summit,” thousands of Greeks took to the streets to riot. An enterprising cable network might have shown the two scenes on a continuous split screen – because they’re part of the same story. It’s just that Greece is a little further along in the plot: They’re at the point where the canoe is about to plunge over the falls. America is further upstream and can still pull for shore, but has decided instead that what it needs to do is catch up with the Greek canoe. Chapter One (the introduction of unsustainable entitlements) leads eventually to Chapter 20 (total societal collapse): The Greeks are at Chapter 17 or 18.

We hard-hearted, small-government guys are often damned as selfish types who care nothing for the general welfare. But, as the Greek protests make plain, nothing makes an individual more selfish than the socially equitable communitarianism of big government. Once a chap’s enjoying the fruits of government health care, government-paid vacation, government-funded early retirement, and all the rest, he couldn’t give a hoot about the general societal interest. He’s got his, and to hell with everyone else. People’s sense of entitlement endures long after the entitlement has ceased to make sense.

Haiti and Chile Earthquakes

Don Boudreaux of George Mason University and blog Cafe Hayek sums up well the difference in safety between the recent earthquakes in Haiti and Chile in his letter to the Washington Post.  Here’s a snippet:

With a market-oriented economy, per-capita income in Chile is more than ten times higher than is per-capita income in Haiti.  One result is that Chileans demand and can afford better-constructed buildings – buildings designed by more-skilled architects, made of stronger materials, and erected (and maintained) by better-trained and more highly specialized workers.

Chile has – and enforces – tough building codes because it can afford them.  Building codes of equal stringency in Haiti would be dead letters because Haitians simply cannot afford the level of safety that Chileans now enjoy.

Well put.  Many people I speak with understand that Haiti is poor.  They don’t seem to consider why.

How Government Grows

Government is stuck in a positive reinforcing loop, which means that just about anything is used to justify more government.

Consider the attempted terrorist attack on the Detroit flight.  We will likely be told that we need to fix it so that won’t happen again and that will mean more government.

Or, think about the mortgage crisis, which occurred due to large part to government intervention (though most people don’t recognize this).  The crisis is incorrectly considered a market failure that must be mitigated with more government.

How about health care?  As with mortgage crisis, the market for health care has been heavily damaged from government intervention.  Again, this damage is incorrectly attributed to a market failure.  Naturally, we need more government to fix it.

In all three cases above, the pattern is the same.  Something bad happens, be it viewed as a government or market failure and more government is proposed to fix it.

Global warming was sold as a problem, even though it doesn’t appear that the certainty of mankind’s influence on it is as clear cut as the believers have stated.  Either way, more government is sold as the answer.   Even if it’s not clear, “we don’t want to take any chances.”

It doesn’t just happen with bad things.  Even in good times government grows.  There’s always some perceived inequity that someone thinks needs fixing through government. Plus, if everybody’s doing well, who notices if the government has gotten a little bigger?

Consider US government spending from 1994 – 2000, arguably a pretty good time.  Federal government spending increased by 26% while inflation increased by 16%.  During this time, we also reduced military spending and entitlement spending.  Without these reductions, government would have even grown faster.

Or how about 2001 – 2006,  another time frame with good times.  Federal government spending increased by 44% while inflation increased by 14%.

Intuitively, I don’t buy that government is a good way to solve our problems.  The problem is that government activities are judged based on their intentions, not their results.

This Econtalk podcast, Wrinston on Market Failure Government Failure, supports my intuition.  Clifford Wrinston, of the Brookings Institution, took a look at a wide body of research on government in his book, Market Failure versus Government Failure (available for free online).  I highly recommend the podcast.  I will be reading the book over the coming weeks.

Make no mistake.  I know there are failures in the market too.  Neither the government or market is perfect.   However, failures in the market are like cancers that have their blood supply choked off – they die off.  Failures in government work the opposite.  Those cancer cells attract more blood supply and keep growing.

Steve Forbes on the Crisis

In his December 10, 2009 Fact and Comment column, In-Credit-Able, in Forbes Magazine, Steve Forbes clearly communicated several points worth capturing.  Here’s on on the mortgage crisis:

Government-sponsored enterprises Fannie Mae ( FNM news people ) and Freddie Mac ( FRE news people), with their implicit government guarantees, were able to totally dominate the mortgage market. They could borrow cheaply and leverage up on a scale no private company could. When they went bingeing on subprime mortgages, they ended up twisting and then destroying the housing market. The private sector was quite capable of generating players that could have performed Fannie’s and Freddie’s roles. And because they wouldn’t have had Uncle Sam’s moral-hazard safety net, they would have been infinitely more cautious, even with the Fed creating floods of liquidity and the credit rating agencies forgetting their raison d’être. Yet Congress is determined to keep these beasts alive and under government sway. Washington is also taking over the student loan market.

This is not a well understood point.  Having the implicit guarantee of the government short-circuited the prudence that would take place in a free market.  All the bright bulbs that condemn free markets for causing the crisis, don’t seem very bright to me because they not only miss the true cause of the crisis, but they blame the very thing that could have prevented it.  Removing prudence from a free market through a government action will always end badly.

Here’s some clear thinking from Steve on health care:

The prospective government de facto takeover of health care will extend Washington’s reach into the credit markets. Health insurers will be reduced to federal vassals by being forced to offer policies at prices and terms dictated by Washington. As a reward they will have first call on the credit markets, with the same sort of implicit guarantees that once so benefited Fannie and Freddie.

It’s easy to forget, businesses like insurance companies are in business to make a profit for their shareholders.  If they don’t make a profit, there’s nothing forcing them to stay in business.