Steven Landsburg on Trade Deficits

On page 205 of his book More Sex is Safer Sex, Steven Landsburg offers and excellent explanation on why we shouldn’t be concerned about trade deficits:

Here’s the final thing to keep in mind when you read about the nation’s overall trade deficit: the nation is nothing but the sum of individual households.  But there are limits to how much you ought to care about what goes on in other people’s households.  Even if you are convinced that the average American spends too much, or earns too little, or spends too little, or earns too much, it’s not entirely clear why it’s any of your business.  As long as you have your own household in order, fretting about your neighbor’s spending habits is a lot like fretting about the color of his living-room rug.  Maybe lime green was a big mistake, but it’s his mistake to live with.

“Delight in Losing Arguments”

In his book The Big Questions, Steven Landsburg offers valuable advice (p. 235):

Argue passionately for your beliefs; listen intently to your adversaries, and root for yourself to lose.  When you lose, you’ve learned something.

Rooting for yourself to lose runs counter to your instincts.  I consider it a sign of wisdom.

If you find yourself saying things like, “I know I’m right” or “I just know that’s the way it works because I feel it,” stop and ask yourself what’s so bad if it happens that you’re wrong?  Consider that you might be wrong.

When I did that, I started learning.

Yes. I’m human and not always wise.  I occasionally get caught up in being right.  But, it’s awfully disarming to a volatile discussion to say, “You know what.  I could be wrong.  Help me see what I’m missing.

Remember ALL part of Landsburg’s advice:

  1. Argue passionately.
  2. Listen intently (which we forget to do).
  3. Learn.

Even if you don’t learn that you are wrong, you may learn why it is that you are not agreeing and find a more productive way of reaching agreement.

Stagnant Wages! Really?

A commenter on Cafe Hayek this week lamented about stagnant wages.  While it’s unclear whether the comment was based on fact or the commenter’s gut feel, it did remind me of this passage from Steven Landsburg’s book More Sex is Safer Sex (p. 29).

In the 1930s, we had a Great Depression, when income levels fell back to where they’d been about twenty years earlier.  For a few years, people had to live the way their parents had always lived–and they considered it almost intolerable.  The underlying expectation–that the present is supposed to be better than the past–is a new phenomenon in history.  No eighteenth-century politician would have dreamed of asking “Are you better off than you were four years ago?” because it never would have occurred to anyone that they ought to be better off than they were four years ago.

Rising income is only part of the story.  Not only are we richer than ever before, we also work less and have better-quality products.  One hundred years ago, the average American workweek was over sixty hours, today it’s thirty-five.  One hundred years ago, only 6 percent of manufacturing workers took vacation; today it’s 90 percent.  One hundred years ago, men entered the full-time labor-force in the early teens; today labor-force participation by young teenagers is essentially zero.  One hundred years ago, only 26 percent of male workers retire by age 65; today over 80 percent of 65-year-old males have retired.  One hundred years ago, the average housekeeper spent twelve hours a day on laundry, cooking, cleaning, and sewing; today it’s about three hours.

If wages are stagnant for a little bit, so what?

Don’t get me wrong, I like standard of living improvements as much as the next guy, but I also recognize and am thankful for how good we have it.  Now that we’ve set the bar high for improvements because they have come so consistently during our lifetimes, we’re disappointed when those high expectations are not met.

Oh no! Stagnant wages!  That means we have to live approximately like we lived last year, which happens to be the best standard of living that humans have ever experienced?

Landsburg continues by giving us more specifics about the daily life a hundred years ago.

Here’s a typical laundry day for a housewife in 1900: First she ports the water to the stove, and heats it by burning wood or coal. Then she cleans the clothes by hand, rinses them, wrings them out (either by hand or with a mechanical wringer), then hangs them out to dry and moves on to the oppressive task of ironing, using heavy flatirons that are heated continuously on the stove. The whole process takes about eight-and-a-half hours and she walks over a mile in the process.  We know all of this because the United State government use to hire researchers to follow housewives and record every step they took.

Very well written.  For some reason, I imagine Louis CK’s voice as I read that.

Landsburg didn’t mention that this process wasn’t done very frequently since it was laborious, expensive and there was much other laborious work to get done.  The idea of wearing clothes once and washing would seem insane to those living around 1900.  So now, since it’s much easier and cheaper to wash clothes, we do it more often and that improves our lives by spreading fewer germs and being less smelly.  Such mundane, yet exponential, leaps in quality of our lives are nearly invisible to us.

Update: Another thought occurred to me.  I imagined the folks who recognized how laborious doing laundry was and invented ways to make it easier.  That’s innovation.  With less innovation our standard of living doesn’t advance as quickly.  I wonder if the commenter complaining about stagnant wages realizes that the cause of that, if true, could be stagnant innovation.

Here’s the new thing I learned today

On this blog, The Big Questions, Steven Landsburg explains how we incorrectly view taxes on capital gains and interest in today’s post, Getting it Right.

We normally view income from capital gains and interest the same as income from wages.  But, it’s not the same.  We forget that we already paid taxes on the capital when we initially earned it as income.

He explains it much better than I.  Read his post.

Margins

Small margins fascinate me. They’re all around.

It amazes me that we live in an environment that is really made up of only a small marginal sliver of inhabitable environment when compared with all the space around us.  Move a few thousand feet up or down and we would have a much tougher time surviving.

I attended a local fall festival last weekend.  The festival draws a lot festival goers, but small margins matter.  On the main strips throngs of people roll through and purchase hot dogs, funnel cakes, leather goods, you name it.  But the booths just a few feet off the beaten path might as well have not been there.  That small marginal space was enough to keep the throngs away.

The standard of living we enjoy has only been available for a small marginal sliver of time and it’s truly only available in relatively small marginal spaces.  It’s good that we have folks like comedian Louis CK to remind us of this as he did in his appearance on the Conan O’Brien show where he explained that everything is amazing and nobody’s happy.

I found another healthy dose of a reminder in Steven Landsburg’s book, More Sex Is Safer Sex: The Unconventional Wisdom of Economics (p.27):

Modern humans first appeared about one hundred thousand years ago.  For the next 99,800 years or so, pretty much everyone lived just above the subsistence level–on the modern U.S. equivalent of $400 to $600 per year.  In a few fortunate times and places it was a bit more than that, but almost never more than twice as much.  There were usually tiny nobilities who lived far better indeed, but numerically those nobilities were quite insignificant.  If you’d been born any time before the late eighteenth century, it’s astronomically probable that you’d have lived on the equivalent of under $1,000 a year–just like your parents and your grandparents, and just like your children and your grandchildren.

Then in the late eighteenth century–just a couple hundred years ago, maybe ten generations–something happened.  People started getting richer. And richer and richer still.  Per capita income, at least in the West, began to grow at the unprecedented rate of about three quarters of a percent per year.  A couple of decades later the same thing was happening around the world. Continue reading

Central Planning

Lack of central planning isn’t the same as lack of planning.  I thought I had this original thought recently.  Then I opened Sowell’s Intellectuals and Society to the pages I had marked for quoting on this blog and this was the first one I came to (p. 53):

Despite the often expressed dichotomy between chaos and planning, what is called “planning” is the forcible suppression of millions of people’s plans by a government-imposed plan.  What is considered to be chaos are systemic interactions whose nature, logic and consequences are seldom examined by those who simply assume that “planning” by surrogate decision-makers must be better.

It turns out, I had read it some weeks back and it must have just registered in my long-term memory.

Sowell’s point works well with this insight from Steven Landsburg, that believers in central planning have been led Continue reading

Straw Man – Krugman Style

This is one excellent description of how Paul Krugman argues.  It also describes how many others avoid arguing the legitimate points and counterpoints of an issue.

It’s from Steven Landsburg’s blog at the The Big Questions:

Let me summarize my complaint in a paragraph: Krugman has some policies he’d like to see enacted. Some people oppose those policies for silly reasons and others oppose them for sensible reasons. Krugman habitually ridicules the silly reasons and pretends that he has therefore dispensed with the sensible reasons.

I would add to Landsburg’ paragraph that those who oppose Krugman’s policies for silly reasons are usually very few in number, while those who oppose for sensible reasons are much greater.

Because the reasons Krugman chooses to debate are silly, and few, if any, people truly believe those reasons, Krugman utilizes nothing more than a very common, but accepted, fallacy – the straw man.

An example that Landsburg provided in an earlier post refers to a column where Krugman debunks the position of a “deficit hawk”.  Personally, I don’t know many pure “deficit hawks”, that is , I don’t know many (or know of many economists) who believe that the most important thing is controlling the deficit.

Do I think deficits are necessary?  Not really.  Do I think they represent in many cases the inability of politicians to make tough choices?  Yes.  But, do I think that’s the only thing that matters?  Nope.

UPDATE: In this post, Landsburg claims that politicians do often claim that deficits are all that matters.  Perhaps they do.  Maybe I don’t hear them or I filter them out because I know they’re politicians and they’re saying something they think will be consumable by the people watching Lindsay Lohan coverage.  Either way, if they do say that, I agree with Landsburg.  That’s silly.

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.

Continue reading

Landsburg on Free Trade

Here’s another great passage from Landsburg’s The Big Questions.   Here he discusses the moral implications of a common hot button issue, foreign trade:

Princeton Professor Alan Blinder has recently estimated that 30 to 40 million Americans face the prospect of losing their jobs to lower-paid foreign competitors.  Or in other words, all Americans face the prospect of lower prices for the output of 30 to 40 million workers. That’s good, though of course 60 to 80 million would be better.

The italicized sentence made me smile.  That’s an excellent way to frame it.  We never think of it that way.  We  disassociate jobs from output or what we buy at the stores.  Or we assume that somehow the costs of the good, high paying jobs are magically absorbed by shareholders of a company rather than paid by customers.

It gets better:

Let’s start by observing that there is almost surely no such thing as a net loser from free trade.  (I owe this observation to George Mason University professor Don Boudreaux.) I doubt there’s a human being on earth who hasn’t benefited Continue reading

Steven Landsburg on a Decentralized Economy

In his book, The Big Questions, Steven Landsburg does a wonderful job of explaining why people have a hard time visualizing why a centrally planned economy doesn’t work well.

It’s impossible to imagine a billion of anything, so sometimes we settle for imagining a hundred.  But a hundred can be a poor proxy for a billion.  That, I think, is why so many people recoil from the headache problem of pages 161 and 162, where we sacrifice one life to cure a billion headaches.  They imagine something like a hundred headaches instead, and overlook just how much suffering a billion headaches can add up to.

Likewise, if you find it difficult to imagine that a decentralized economy can allocate resources better than any central planner, it’s probably because you’ve been led astray by irrelevant visions.  You imagine organizing a birthday party or a small business and conclude that someone’s got to be in charge.  But the economy is complex in ways that a party or a business is not.

When I organize a party, I tell people how they can be most helpful.  If you asked me to organize the economy, I’d be paralyzed.  The economy is too big and too complex — and your talents are too varied and too unobservable — for me to have any idea how you can be most helpful.  I need you to figure that out for yourself.  For that, you’ve got to know which goods are in high demand.  And for that, you need prices.

Amazingly, that’s all you need.  Goods are efficiently produced and delivered through interaction among billions of individual decisions coordinated by prices, just as mental experiences arise from interaction among billions of neurons.

That’s exactly right.  We have such a difficult time imagining billions of voluntary, mutually beneficial interactions made by self-interested (not necessarily greedy) individuals, that we reduce it down to something we can understand like organizing a birthday party.

But, even then we should be in awe of the decentralized economy.  Where would we be in our party planning if we didn’t have the decentralized economy to back us up?  Who would you direct to build the shelter, or make the flour for the cake and sugar for the icing or make the candles to blow out or matches to light them with?  Thankfully, the decentralized economy has made all this stuff readily available to you through the price system so organizing a party can be greatly simplified and is much more joyous.

For those curious about the headache Continue reading