Thursday, December 24, 2009

Seasonal Myths

Each year around Christmas time, the Dickens story of Scrooge makes the rounds. Poor Scrooge, making lots of money, paying market prices for labor, is visited by ghosts (quite scary ones to most kids), who make him see the light. He turns generous, giving funds away, cutting working hours, and so on. It is too bad that we don't celebrate the good that Scrooge did or does by creating jobs, offering work, providing opportunities for people to make better of themselves. The story is just building on the age old myth that making money and creating jobs is worse than giving the money away. Provide a man a fish and you feed him once. Teach him how to fish and you feed him forever. This is not to say that old Scrooge can not get a lot of enjoyment out of providing Tiny Tim a turkey. Gift giving can be beneficial to the giver.

Speaking of gift giving, the other myth that is being created by some economists is that the gift giving tradition of Christmas is wrong. People maximize utility by having cash, and spending on what they want, not getting a specific item from someone else -- who decides what will make you most happy. But, if so, why is this voluntary action so popular? Why has it existed for so long? I am not a utilitarian, but if I were, I would say that the utility maximization problem is leaving out an important variable -- the joy of giving and of receiving. The utility of receiving a gift from a friend or loved one exceeds the cash that was used to purchase the gift. And, the expenditure of the cash for some friend or loved one generates more utility than giving the cash to the friend or loved one.

If something exists and works voluntarily, then it must be efficient. If gift giving and receiving was not of higher value to the participants than not giving and receiving gifts, the gift giving would not exist.

Wednesday, December 23, 2009

scale creep and scope creep

This excellent post over on The Austrian Economics evokes Arnold Kling's excellent phrase to describe the ratchet effect in government evolution in the US.

Sunday, December 20, 2009

Incentives, individualism and the state

Over the past week Boyes reinforces the Higgs ratchet effect as the US government expands in scale and scope. His December 12 post - How Big is Government describes the emergence and evolution of the state in society - both in its welfare manifestation and in its war guise. I could not help but think of Melville's The Confidence Man in reflecting on Boyes' description of the expansion of the state and his next two posts that provide an excellent example of the process of state power.

The imposition of state power results in uncertainty which inevitably leads to loss of liberty as state power expands to counter this uncertainty. Thus, all policy action is a confidence game, and as Melville reminds us:

The sly "bedraggled" boy [at the end of the Confidence Man] provides a "Counterfeit Detector," whose interpretation of a money-text only suggests confusion and uncertainty about all interpretive vision: "I don't see right," declares the old man in the last chapter, "--or else-- dear, dear me--I don't know what else to think" (389).

This is precisely the challenge confronting society - uncertainty and the reaction to not knowing. To the extent that agents in society are self confident and have a sense of expectation that the Hayekean evolution will emerge allowing for some exercise of liberty within the context of known property rights then a check on state expansion will remain. See previous post HT: Peter Boettke

To the extent that agents in society are fear governed and lack confidence in their own ability to react to an uncertain world, the welfare state expands.

Earlier I referenced the Heritage Economic Freedom rankings and the decline of this measure over time in our country. In discussing this issue with my brother, he correctly observed - I would much rather live in a developed country with declining economic freedom than a developed country with increasing economic freedom.

This is both true and illustrative of the acceptance of the state in our lives - whether in the guise of the welfare state or the war state the power is a MASQUERADE.

Saturday, December 19, 2009

Health Care

It seems the democrats have enough votes, 60, to pass their health bill without the problem of a filibuster. Ben Nelson from Nebraska was purchased. While about 20 million people who are currently uninsured will be forced into the Medicaid program, only Nebraska will be exempt from the costs of this unfunded mandate. In fact, Nebraska will be exempt forever. All other states will have to pay more. Of course, all this occurs while states are in serious budgetary problems.

Regime Uncertainty Revisited

Robert Higgs has been arguing that the reason the recession of 1929 turned into the Great Depression was regime uncertainty. While FDR was attacking business, he was increasing taxes, and moving the economy toward a socialist system. Any of that sound familiar? A week ago Barak Obama referred to private bankers as "fat cats".

This along with suggested taxes on transactions, on estates, on income, all add to uncertainty. Why invest if you do not know whether you will be allowed to retain your profits?

Friday, December 18, 2009

The Reclamation of Responsibility

Peter Boettke writes:

Richard Cornuelle is one of the most insightful men I have ever had the good fortune to interact with in my career. The author of Reclaiming the American Dream (1965), De-managing America (1975), and Healing America.

. . . led him to declare that politics is never the solution, that if the people were to be empowered they would have to do it themselves. It is the voluntary sector, not the political sector, that will bring hope and change.

Three examples that Cornuelle uses to demonstrate the power of the people to address social problems far better than rule by experts from government agencies are:

(1) Home schooling;

(2) Alternative mail service;

(3) Private neighborhood associations.

Thursday, December 17, 2009

Heritage Economic Freedom Rankings

Boyes describes the growth of government in US society. This growth is further documented by the Heritage Economic Freedom rankings.

The US continues a slide in economic freedom:

Weaknesses remain in fiscal freedom and government size. Total government spending equals more than a third of GDP. Corporate and personal taxes are high and increasingly uncompetitive. In 2008, the sub-prime mortgage crisis had far-reaching effects, and the government's unprecedented interventionist measures could severely undermine economic freedom in the future.

Saturday, December 12, 2009

How Big is Our Government?

A few years ago I began examining the percent of the economy that was owned or controlled or influenced by the government. It turns out this is a very difficult statistic to derive. Much of government activity is off budget and effects are like Bastiat’s broken window – the true effects are unseen. Nevertheless, there were some rough estimates that could be made. Everything seems to point to somewhere between 30 and 40 percent being run or controlled by the government with about 100 percent influenced by the government. Here are some data collected from academic studies, think tanks, and government agencies.

All told, industries and sectors representing more than a third of the U.S. economy are being reshaped by government (

General measures such as government spending as a percent of GDP, tax revenues as a percent of GDP and Government Debt as a percent of GDP lie between 30 and 40%. Right now all US governments together are spending about 45% of GDP. As recently as 1948 – shortly after WWII – total government spending in the US amounted to about 23% of GDP. Since 1970, federal spending has risen 7 times faster than median income.

Government employment as a percent of total employment is about 21%. Yet, a recent study by the Heritage Foundation estimates that around a quarter of a million new federal government workers will be needed just to spend the massive new budget.

While state and local governments employ over 20 million people already, the federal government has become the largest single employer in the country with almost three million employees (not including contractors and military personnel). For comparison, after the New Deal from 1933 to 1939 there were about 700,000.

The Bureau of Labor Statistics reports that in 2008 there were over 150,000 jobs added in government at all levels, while the private sector lost close to four million. Almost 100,000 people were hired by the federal government in fiscal year 2007, according to the Office of Personnel Management.

Several other fields dominated by government are forecasted to expand, even in the midst of an economic downturn. Expect companies like that deal in carbon credits and related fields to expand even more. While not directly employed by the government, many of these “environmental” workers depend on government regulations for business. Moreover, the $787 billion American Recovery and Reinvestment Act provides billions of dollars for “green” projects, as well as for other sectors of the economy such as education.

The total staffing of regulatory agencies went up nearly as much, from 172,000 employees to over 244,000— a 41 percent increase.

The federal government alone enforces thousands of pages of regulations that impose a burden of some $1.1 trillion—an amount that is comparable to total federal income tax receipts. Since 2001, the federal government has imposed almost $30 billion in new regulatory costs on Americans. About $11 billion was imposed in fiscal year (FY) 2007 alone.
Over 50 agencies ranging from the Animal and Plant Health Inspection Service to the Bureau of Customs and Border Protection have a hand in federal regulatory policy.

Appropriations for federal regulatory agencies have increased from $27 billion in FY 2001 to $44.9 billion in FY 2007—a 44 percent increase in inflation-adjusted dollars.[12] The total staffing of regulatory agencies went up nearly as much, from 172,000 employees to over 244,000— a 41 percent increase.

Estimates by several researchers on the total cost to the private sector of federal regulation of the private sector found it to be about $850 billion in 2000 . The federal government’s Small Business Administration found that complying with federal regulations costs companies $1.1 trillion a year. That’s about 10 percent of the whole U.S. economy.

For large firms, the regulatory burden comes to about $5,300 per employee. But for small businesses with fewer than 20 workers, the cost is closer to $7,600 per employee – just about equal to the cost of providing a family with health coverage.

The federal government owns or runs several businesses. These GSEs and other organizations include:
· Ginnie Mae
· National Mortgage Association and the Freddie Mac.
· The Federal Home Loan Banks
· Agricultural Credit Bank
· Farm Credit Banks
· Federal Agricultural Mortgage Corporation,
· National Flood Insurance Program (NFIP)
· Postal Services.
· Air Traffic Control.
In addition, the government owns nearly all Highways, Airports and

The federal government owns almost 700 million acres of land - roughly a million square miles. That's four times the area of California and New York combined, and one-third of the entire country. This federal footprint is heavily concentrated in the West. Uncle Sam owns 85 percent of Nevada, 70 percent of Alaska and nearly half of California.

Tuesday, December 8, 2009

From Greg Mankiw

Greg Mankiw writes today of his freshman seminar at Harvard:

I took a poll of the students' favorite readings. The winners were

1. Capitalism and Freedom by Milton Friedman
2. Nudge by Richard Thaler and Cass Sunstein
3. The Worldly Philosophers by Robert Heilbroner.

This reflects on the discussion that Boyes and I have presented dealing with the emergence of an ideology of state welfare on this blog.

While the first title engenders a sense of hope, the second two suggest that the high achieving students at the elite schools are open to the siren song of socialism.

Click over to Mankiw for more disturbing news from Cambridge.

Monday, December 7, 2009

Four Problems with Spontaneous Order

This is the December 2009 discussion over on the CATO blog and is provocative. Well worth a read.

It's Over!

Let's see if I have this right. The unemployment rate showed a small downward blip -- from 10.2% to 10% last month and officials declare that it is proof the stimulus is working. We are told that the Fed will now be able to unwind from its zero interest rate, super expansionary policies and redo its balance sheet. If this is what is going on, it is simply not logical. First, the environment is not conducive to investment and real growth. There is too much regime uncertainty -- businesses don't know what the EPA will do if it labels CO2 a danger, they don't know what taxes are coming, they don't know how or if the government will intervene in their activities, and they aren't assured enough of future growth to invest or hire new people. Moreover, the unfunded liabilities of medicare and social security sit on the horizon as a huge black hole.

Au contrair, we are told. The Fed has been infusing money into the system and with all this money around, spending has to go up. And if consumer spending goes up, GDP naturally will because consumption is about 70% of GDP.

The problem with this viewpoint is that banks decided not to lend and now sit on a massive amount of cash. So far in November, banks' excess cash reserves stand at $1,046 billion. This would seem to place the economy on a knife edge. If the economy did grow and the uncertainty was reduced, this amount of liquidity would mean rapid inflation. If the economy is to move upward without inflation, the liquidity will have to have been drawn out of the system, and this means higher interest rates and less lending in the future.

I remain pessimistic about the progress of the economy over the next couple of years.

Friday, December 4, 2009

Edmund Phelps on Capitalism

Don Boudreaux references an important view of capitalism that may shed some insight into the current "ambivalence" toward liberty and freedom. The trade off between liberty and security is a stark one, demanding some level of personal confidence as well as personal responsibility. To the extend that self confidence and acceptance of responsibility are virtues, then this trade off suggests something profound about morality and ethics.

Boudreaux writes:

True, capitalism creates disruption and uncertainty. But we should not lose sight of the other side of that coin. Capitalism is unique in stimulating entrepreneurs to dream up new commercial ideas and develop them for the market, and generating excitement for consumers in discovering the new.

The events in life are uncertain and it is this risk that informs the liberty v security trade off. Like Boyes, I wonder to what extent age influences this trade off? On this blog we have examined the role of the institutions of society, individuality and the evolution of the two.

I see some level of distrust of government in my daily interactions, but no real articulation of the virtues of liberty nor a commitment to freedom. The question that comes to mind - is this a new development or has there been a complacent view of liberty over time?

Tuesday, December 1, 2009

Youth and Libertarians

Pratt's recent post regarding the potential demise of libertarians as we older folks pass on suggests there may be a relationship between the importance of liberty to one and one's age. "Freedom is nothing left to lose" the song goes. Is that true? Those supporting status quo surely don't want the freedom of libertariansim. It should be those on the lowest rung of the totem pole that most support freedom. So have government programs destroyed this -- are the youth losing any interest in freedom as they believe in larger and larger entitlements? Some research on this topic might be of interest; all I have is anectdotal evidence that there are few young or old who understand what liberty is.

Sunday, November 29, 2009

Realizing Freedom: Libertarian Theory, History, and Practice | Cato Institute: Book Forum

Tuesday, December 1, 2009

This forum can be viewed live or in archive form.

Featuring the author, Tom G. Palmer, General Director, Atlas Global Initiative for Free Trade, Peace, and Prosperity, and Senior Fellow, Cato Institute; with comments by Tyler Cowen, Professor of Economics, George Mason University, and General Director, Mercatus Center.

Realizing Freedom: Libertarian Theory, History, and Practice | Cato Institute: Book Forum

Saturday, November 28, 2009

no people, no problem

The recent ASET book club discussion and Boyes posting on the challenge of engaging in civil discourse with statists continues to nag at me.

Jonathan J. Bean's post over on Liberty and Power and the recent posting at Mises confirm the importance of both civil discourse and the continuing frustration that advocates of liberty encounter - both in and out of the academy.

Higher education, as Daniel Klein and others have pointed out, is characterized by a lack of intellectual diversity - the overwhelming majority of those who teach hold statist ideology, what Sowell calls the unconstrained vision.

Bean's comments might lead one to conclude that once the current generation of liberty advocates pass on, that the conversation dies. I am not that pessimistic, I work with a few younger faculty and have encountered younger colleagues at Liberty Fund colloquia who are persuasive advocates of liberty.

That said, the current popular and scholarly debate certainly seems framed in such a manner as to generate loud and abrasive attack rather than civil discourse. I wonder to what extent the economic climate has influenced this climate. I am thinking of Benjamin Friedman's thesis in The Moral Consequences of Economic Growth that tolerance, openness and engagement are cyclical qualities.

Thursday, November 26, 2009

Where conservatives have it wrong - The Boston Globe

On the whole, illegal immigrants are just the sort of newcomers Americans should embrace: self-motivated risk-takers, strivers determined to improve themselves, hard-working men and women willing to take the meanest jobs if it will give them a shot at building their own American dream.

Where conservatives have it wrong - The Boston Globe


President Obama's radio address today addressed the economy, the so-called stimulus, and a need for another stimulus. Somehow Obama claims that his administration has cut taxes for nearly every working man and woman.

According to the Tax Foundation: IRS data shows that the share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined. The top 1 percent is comprised of just 1.4 million taxpayers and they pay a larger share of the income tax burden now than the bottom 134 million taxpayers combined.

Some in Washington say the tax system is still not progressive enough. However, the recent IRS data bolsters the findings of an OECD study released last year showing that the U.S.—not France or Sweden—has the most progressive income tax system among OECD nations. The U.S. relies more heavily on the top 10 percent of taxpayers than does any nation and our poor people have the lowest tax burden of those in any nation.

What is coming in recent years? Business income may be in for a significant tax hike in 2011. The Ways and Means Committee has approved a new 5.4 percent surtax on income over $1 million and two smaller surtaxes on other high-income people. These may become law at the same time as the current top tax rate on wages (35%) reverts to 39.6% (end of 2010).The Bush tax cuts are extended, and some new cuts added for lower income Americans. However the federal income tax on individuals over $200,000 will rise from 35% to 39.6%.

The Tax Foundation says that 44% of all tax filers will have no tax liability and most of those will get a check from the government, especially from the Earned Income Tax Credit (EITC) and credits for college tuition and child care. Obama's plan calls this tax cuts where, "Once upon a time we called this 'welfare'" (according to the Wall Street Journal).

The Congressional Budget Office (CBO) estimates the Obama plans will raise the national debt far more than Obama says. The CBO says the Obama plan will cause total deficits over the next ten years of $9.3 trillion, compared to Obama's estimate of "only" 7 trillion. That is in addition to the current national debt of $11.2 trillion and rising.

Obama has proposed a carbon cap and trade system that will raise energy prices for families and businesses. It will result in higher prices.

The health care bill proposed major tax hikes on high income and elderly citizens.

What, therefore, does the President mean when he says we should be thankful for his Administration's tax cuts???

Tuesday, November 24, 2009

Summary Austrian Economics

Mario Rizzo writes of Austrian economics.

The highly interrelated themes I listed are:

(1) the subjective, yet socially embedded, quality of human decision making;

(2) the individual’s perception of the passage of time (‘real time’);

(3) the radical uncertainty of expectations;

(4) the decentralization of explicit and tacit knowledge in society;

(5) the dynamic market processes generated by individual action, especially entrepreneurship;

(6) the function of the price system in transmitting knowledge;

(7) the supplementary role of cultural norms and other cultural products (‘institutions’) in conveying knowledge;

(8) the spontaneous – that is, not centrally directed – evolution of social institutions.

Monday, November 23, 2009

The Theory of Moral Sentiments - EconTalk Podcast series

This posting and the subsequent ones dealing with the EconTalk podcast of TMS is to prepare for a Liberty Fund colloqia in July on Adam Smith.

This posting deals with the introduction to TMS and the first podcast.

Introduction to Raphael edition of TMS - pages 1 -52

1. Influence of Stoic philosophy

2. 3 virtues of prudence, beneficence and self command

3. Self command permeates all virtue (great precept of nature)

4. Stoicism permeated range of ethics and social science

5. View nature as a cosmic harmony - informs metaphor of invisible hand - the Stoic idea of harmonious system

6. Impartial (indifferent) spectator - as related to conscience

7. Natural harmony and natural liberty

8. Role of prudence and how prudence works with self command to reinforce moral/ethical behavior

9. Sympathy or fellow feeling

10. Judge the agent's motive not the action

11. Ethics - criterion for determining right action - impartial spectator (preferred by Smith) and utility

12. TMS and WN compliment each other - TMS - argument to understand sympathy's role in moral judgment. WN deals with motives for action - which include self love.

From the first podcast:

"Theory of Moral Sentiments (TMS) first published in 1759, revised, final edition 1790; spanned publication of Wealth of Nations, which was published in 1776. Impression of TMS: richer version of Wealth of Nations. Caricature of Adam Smith is focus on greed and self-interest. By contrast, TMS focuses on a richer set of motivations: fame, glory, guilt, reputation, self-esteem. Is that a good characterization? Moral dimensions of our conduct. Sometimes people feel that there is a tension between the two books. Smith trying to explore moral considerations and understandings, but also engaging in a project to advance them, improve them. Not just social psychology or moral psychology; agenda driven, part of enlightenment movement, sees developments of all kinds around him. Smith sees that he needs to explore natural jurisprudence, includes political economy--what the laws ought to be, proper law, desirable law as opposed to the positive law of each nation. Larger project: exploring the moral sentiments, wisdom, virtue."

Economics and the Ordinary Person: Re-reading Adam Smith

"In his Theory of Moral Sentiments (TMS), he criticizes several philosophical theories of morality for not attending properly to the way moral sentiments are actually experienced. And in both TMS and WN he condemns those entranced by "the love of system," those who want to impose their own vision of how the human world should work on the people who actually live in that world. Smith's account of moral and political cognition is strikingly egalitarian: experts know less than they claim to know, and ordinary people know more than they seem to know, about what will best promote the human good.

This egalitarian view of human cognition provides the essential premise for Smith's arguments against government interference with the economy. Smith's teacher Hutcheson, Smith's rival James Steuart, and many other political economists, did not share Smith's confidence in ordinary people's judgment, and therefore looked to a government where the wise would guide investment, and control the labor- and consumption-choices of the poor. For Smith, by contrast, the decisions made by individuals in their own local situations—all individuals, even the poor and uneducated people regarded with so much disdain by Smith's contemporaries—will almost always more effectively promote the public good than any plan aimed directly at that good. And the decisions individuals make about their own moral problems will also normally be at least as wise as any they would come to if they were guided, morally, by their political leaders.

First, if Smith believes that good philosophical and scientific work should be rooted in common sense, then we should not expect him to approve of an economic science, like the one we have today, carried on in a highly abstract and technical jargon. Nor is his own work written that way. WN was admired in its day for its great clarity, and for its avoidance of detailed calculations in favor of historical narrative.

Second, a moral philosophy rooted in common sense is unlikely to endorse a counter-intuitive view of human nature, and Smith in fact combats the counter-intuitive views of his predecessors and colleagues. This is one reason why he rejects the notion that human beings are thoroughly selfish, put about by Hobbes and Mandeville. But for the same reason he rejects the idea that human beings ever were or ever will be capable of the passionate altruism or patriotism on which utopian thinkers pinned their hopes (Thomas More before Smith; Rousseauvians in his time; Marxists later on).

Third, and perhaps most importantly, Smith's distrust of the ability of "systems"—whether philosophical, religious, or political—to improve human beings goes with a belief that what really provides us with moral education are the humble institutions of everyday social interaction, including the market. The foundation of all virtue for Smith is "self-command," the ability to control our feelings, to restrain our passion for our own interests and to enhance our feelings for others. But we achieve self-command only after the disapproval of others has led us to develop a habit of dampening our self-love. The first great "school of self-command," says Smith, is the company of our playfellows, who refuse to indulge us the way our parents do; when we are adult, the major arena in which we need constantly to attend to the interests of others, and restrain our self-absorption, is the market."

Sunday, November 22, 2009

Adam Smith: Moral Philosopher

This 2000 piece by James R. Otteson is worth a read.

Otteson observes about The Theory of Moral Sentiments:

Smith’s analysis of the way in which people and communities come to have common moral standards is intriguing—and, indeed, may in large part be true. This alone would recommend it for serious consideration. But Smith’s examination of human morality reveals a model for explaining the development and maintenance of large-scale human institutions generally—which would mean that the book’s import is yet greater than initially thought. I call Smith’s model a “marketplace model.” Let me sketch it briefly, drawing on the discussion so far.

First, Smith argues that moral judgments, along with the rules by which we render them, develop in the way I have described, without an overall, pre-arranged plan. They arise and grow into a shared, common system of morality—a general consensus regarding the nature of virtue, or what Smith calls propriety and merit—on the basis of countless individual judgments made in countless particular situations.

Second, Smith argues that as we grow from infants to children to adults we develop increasingly sophisticated principles of action and judgment, which enable us to assess and judge an increasingly diverse range of actions and motivations.

Third, what seem when we are children to be isolated and haphazard interactions with others lead as we grow older to habits of behavior; as adults the habits solidify into principles that guide what we call our “conscience.”

Fourth, people’s interests, experiences, and environments change slowly enough to allow long-standing associations and institutions to arise, which give a firm foundation to the rules, standards, and protocols that both set the parameters for the initial creation of these associations and in turn are supported by them. (These “associations” would today include everything from Elks clubs, YMCAs, and Boy Scouts, to the American Medical Association, the National Academy of Sciences, and even the Catholic Church.)

Smith next argues that the development of personal moral standards, of a conscience and the impartial spectator procedure, and of the accepted moral standards of a community all depend on the regular associations people make with one another.

Friday, November 20, 2009

Obama to Taxpayers: America Needs More Picnic Tables

Boyes describes a disconnect between self perception of preference (those who think they believe in a free market) and the response to the government.

A part of this disconnect can be explained by lack of knowledge - a finance professional is a technician, one who is versed in the use of systems. It seems clear that work in this environment might dull the appreciation for freedom and increase the appreciation of system.

But more than this, the disconnect reflects a lack of understanding of liberty, property and coercion. Like most, this finance professional has a profound misunderstanding of taxation. Like mandates, this intrusion into the private preference function of the individual, is the most glaring example of violation of individual liberty.

Obama to Taxpayers: America Needs More Picnic Tables

Exclusive Book Excerpt: Fannie and Freddie’s Starring Role in the Housing Debacle

Exclusive Book Excerpt: Fannie and Freddie’s Starring Role in the Housing Debacle


During the last ASET book discussion there was some debate surrounding Browning's view of the impact of immigration. This discussion does a nice job of presenting the point that I inadequately articulated at that discussion.

Thursday, November 19, 2009

Krugman to the Rescue

Krugman to the Rescue

I enjoy paying taxes

Last night I participated on a panel for Alph Kappa Psi, the business fraternity, along with a sales executive from Vanguard and a professor of finance. In discussing the economy, the recession, and the future, we had some, what seem to be very typical, skirmishes. Both the others blamed capitalism and a lack of regulation for the 2008 debacle. Both called for increased regulation of financial institutions and the separation of banking and investment banking, the power to break apart large firms and to regulate hedge funds. Why is it so difficult for people to accept that it was government regulation that caused the problem in the first place. The Community Reinvestment Act followed up with Congressional pressure to lower lending requirements and provide more affordable housing loans led to the initial problem. It was not a lack of regulation that led to the mortgage backed securities or derivites or other financial instruments based on the implicit government guarantee of mortgages. Congress had oversight of Fannie and Freddie, the SEC regulated these entities, and the Fed Reserve and FDIC regulated Banks. It was this oversight/regulation that led to the problem of subprime loans. And following the initialproblem it was government that said some institutions are "too big to fail".

The debate was fascinating -- both other panelists said something to the effect "I am a free market person, but in this case...." One even said that he was able to succeed and now be in the highest tax bracket because of government. The government provided him public education and provided his parents health care. He thinks it terrible that there are 30 million medically uninsured and he states glibly that children go hungry in this country. "I am happy to be able to pay taxes." Amazing -- I think he has been reading the New York Times too much. Let's look at the facts. There are 30 million without insurance but most of those choose not to purchase insurance because they are young and healthy or they can't buy it because they are illegal immigrants. If you subtract these people f4rom 30 million, you are left with perhaps 7 million who don't have insurance because they can't afford it. They have health care because they have access to emergency room care; they just don't have insurance. Do children go hungry in America -- not unless they are getting their mouth washed out with soap. Studies have shown that living in America at even the lowest income levels, is better than living almost anywhere else. Hunger is what goes on in Zimbabwe, Ethiopa, and other countries steeped in dire poverty.

People do not understand how the market works. To claim to be a free market supporter except in one case or another case is not to be a free market supporter. It is a slippery slope -- once you argue government should do this or do that, you are on the slippery slide. There is no other system that serves the individual, that enables people to flourish, that provides standards of living that are unprecedented in history. When professionals and academics don't see that, I wonder where the country is headed.

Wednesday, November 18, 2009

He Spoke Out For Capitalism

Peter Boettke, a professor of political economy at George Mason University in Virginia, likens capitalism's success to a horse race.

One horse, named Schumpeter, represents innovation. The second horse, called Smith, stands for free trade. The third is government "and its stupid decisions," Boettke said.

"As long as the first two horses stay ahead of the stupid horse, the economy's cycles are manageable," he told IBD. "The trouble happens when the stupid horse's nose gets in front by (creating) policies that restrict trade or are anti-technology."

Tuesday, November 17, 2009

The health-care debate is part of a larger moral struggle over the free-enterprise system.

Arthur Brooks writes about the current reaction to health care changes

Rather, public resistance stems from the sense that the proposed reforms do violence to three core values of America's free enterprise culture: individual choice, personal accountability, and rewards for ambition.

Sunday, November 15, 2009

Pew Foundation Survey - Global Attitudes toward Free Markets

The results below are surprising, on a number of levels.
Views of the Free Market
Are people better off in a free market economy?

Custom Group: Percent responding Agree, all years measured

United States7270-76

Full question wording: Please tell me whether you completely agree, mostly agree, mostly disagree or completely disagree with the following statements: Most people are better off in a free market economy, even though some people are rich and some are poor.

Notes: Agree combines "completely agree" and "mostly agree" responses. Disagree combines "mostly disagree" and "completely disagree."

Friday, November 13, 2009

Shaping attitudes toward liberty, choice and responsibility

Boyes speculates on the underlying causes for what appears to be a shift in the general attitude toward capitalism and freedom.

In part, he wonders what influence the institution of higher education plays in shaping the underlying belief system of the general population. Dan Klein has analysis that plays into this discussion - He concludes that instructors in the social sciences at the college level are overwhelmingly consist in their selection of government driven policies over market driven policies.

Klein in other work, describes the process by which ideologies govern hiring decisions in colleges, that is faculty who serve on hiring committees tend to select colleagues from institutions similar those attended by the incumbent faculty. This would imply that the newly hired faculty have shared beliefs.

This begs the question of the level of impact or influence that college faculty exert over undergraduates. That is, do the beliefs and attitudes of faculty (who in social sciences at least) appear to be heavily weighted toward pro government/interventionist policies and hostile to market policies driven by liberty and freedom have an impact upon undergraduates? This is an important question and the data that Boyes cites suggests that there is in fact a relationship at work that extends the incumbent ideology to students.

So, to the extent that this relationship exists, a part of the explanation may lie with higher education.

I wonder to what extent the institution of the media plays a role in the pro interventionist ideology that seems to be evolving in the US today? That is, can the various channels of the media be seen to have a predominant ideology in regard to freedom, liberty and choice and, if so, is that ideology pro or anti free market?

The current trend of increasing college enrollment may accelerate the breadth and scope of the attitude toward capitalism.

Another institution that would seem to play a part in the evolution of attitude is religion. Economic freedom and the resulting growth and expansion of choice and standard of living have been limited to a very few countries. The recent discussion over on CATO regarding modernity points out the central role played by institutions and the apparent change in America in attitude toward capitalism naturally raises the question has there been a change in the institution of religion that may have simulated or supported this change?

The intersection of the two above institutions can be seen here:

Boyes motivates us to consider what factors that have lead to an important change in the informal belief systems in the US that directly and indirectly impact liberty and freedom.

Attitudes toward Capitalism

I received the results of a survey carried out by the BBC involving about 27,000 people. The questions asked included:
1.Are there limits to growth in this country?
2.Should people in this country learn to live with less?
3.We can or cannot solve the problems in this country?
4.Government regulation of business is necessary to protect the public interest.
5.Government regulation of business usually does more harm than good.
6.Do business corporations make too much profit?
7.Do large businesses have too much power in this country?
8.How well is free market capitalism working?
9.Should governments distribute wealth more equally?

The results are interesting. More people now than a few years ago belive there are limits to growth, that people SHOULD learn to live with less, and cannot solve the problems in the country. The results that I find most interesting however, is the breakdown of the attitude toward government regulation.

On the question of whether government regulation of business is necessary to protect the public interest, the amount of education one had significantly affected the response one gave. Of the college grades, 65% thought it necessary while 28% thought it harmful. Of those with some college 50% thought it necessary while 38% thought it harmful. Of those with a high school degree, 41% thought it necessary while 45% thought it harmful.

So, college education makes one more likely to support government intervention in the economy. What is it that is being taught in college?

Almost a quarter - 23% of those who responded - feel capitalism is fatally flawed. And there is very strong support around the world for governments to distribute wealth more evenly. That is backed by majorities in 22 of the 27 countries.

If there is one issue where a global consensus seems to emerge from the survey it is this: there are majorities almost everywhere wanting government to be more active in regulating business.

Monday, November 9, 2009

Platitude or truth?

"Nothing in the world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan, 'Press on,' has solved and always will solve the problems of the human race." —Calvin Coolidge

Sobel's biography

Greenburg's biography

Coolidge and persistence - Jack Barry's great book - Rising Tide: The Great Mississippi Flood of 1927 and how it changed America

Thursday, November 5, 2009

Why Don't We Like the Free Market

According to public opinion polls, the public’s attitude toward the government's role in the economy has become, if not quite favorable, at least much more benign. In 1982, a Roper poll showed that 80 percent of Americans were described as hating deficits. By the end of that decade, similar polls showed a decline in this percentage and an increase in the number of people who believed that the primary responsibility for social issues rested with the federal government. The General Social Survey carried out by the University of Chicago since 1975 has included questions asking whether government should do more to solve our country’s problems, more to solve poverty problems, and whether responsibility for medical bills is the responsibility of the government in Washington. In 1975, 49 percent of all respondents agreed with the statement that help with medical bills was a responsibility of the federal government, 40 percent believed it a federal responsibility to help all poor Americans, and 38 percent felt that the federal government should do more to solve the country's problems. Support for the government’s involvement declined during the early 1980s, but has risen since. The Center for the Study of Policy Attitudes, found, in 1994, that 80 percent of Americans believe the government has the responsibility "to do away with poverty in this country." That is a ten percent growth since 1964. A Washington Post - ABC News poll in 1995 shows that 70 percent of Americans supported government involvement in all aspects of the economy. (Pittsburgh Post-Gazette, May 18, 1995, p.A8.)

The Pew Research found that in the United States the responses to the statement:

“ Most people are better off in a free market economy, even though some people are rich and some are poor.”

Spring 2007 Completely agree 25
Mostly agree 45
Mostly disagree 19
Completely disagree 5
Summer 2002 Completely agree 28
Mostly agree 44
Mostly disagree 14
Completely disagree 7

You can see that in the U.S. people in Spring 2007 were more in disagreement with the market system than was the case in 2007. But in both cases, notice how small the percentage of those who completely agree with the statement is. Just more than a quarter of the sample was complete in agreement.
And it is clearly not just the U.S. where these anti free market opinions exist. Even among those with new found freedom, the attitude toward the market economy has decreased since they first realized their freedoms. The Wall Street Journal November 3, 2009, posted a report on attitudes toward the economy by the former Soviet Union countries; it asked two times, once in 1991 just after the Berlin Wall fell, and again in 2009, what was the attitude toward the movement from centrally planned economy to market economy. The results in all formerly communist countries was that a larger percentage in the Fall of 2009 disapproved of the transition than had been the case in the Spring of 1991.

Why are attitudes toward the free market so negative? Economic theory has long shown that nothing works as well as the free market to allocate resources to their highest valued uses, to ensure that people get what they want and are able to purchase at the lowest possible prices, and that nothing matches the resulting growth in standards of living and opportunity.

Wednesday, November 4, 2009

Disincentives from Health Reform

Greg Mankiw writes:

Consider the following question, which is not about healthcare per se: Would you favor a substantial increase in marginal tax rates for millions of middle and upper income Americans to provide more resources for those toward the bottom of the economic ladder?

Your answer to this question cannot be determined by positive economics without adding in some normative judgments. But your answer should strongly influence your view of the health reform bill. The bill moves us closer to much of Western Europe by favoring equality and paying the price of reduced efficiency from much higher marginal tax rates.

Tuesday, November 3, 2009

The Goal Is Freedom: The Welfare State Corrupts Absolutely What's wrong with healthcare reform.

Over at Freeman, Sheldon Richman makes an important link between the current policy debate over health and liberty. His blog post reflects on the discussion ASET book club recently engaged in over Stealing from Each Other and a posting by Boyes and Pratt on the challenges of civil discourse.

Richman captures the consequence of statist ideology that I have been attempting to articulate and his analysis provides some insight into Boyes' concern and frustration with an seeming inability of statists to engage with empirical or data driven arguments.

Richman writes:

This irresponsible mindset, which is similar to a not very inquisitive child’s, is what at least two generations of government intervention in health care — and the welfare state in general — have produced in the American people. Thus the welfare state retards moral and intellectual development. We expect the State — our surrogate parent — to make it all right. The demagogues we call politicians are happy to feed this attitude because it provides occasions for the expansion and exercise of raw power while seeming, like Santa Claus, to give away free goods. Of such things long political careers are made.

So the Welfare State, in addition to motivating stealing acts to retard our moral development. I really think Richman does a fine job of outlining this argument.

How the Modern World got Modern

One of the instrumental values of liberty is embedded in the opportunity, progress and set of choices that liberty promotes. In this regard, the relationship between liberty and economic change growth) seems important, particularly in an environment in which a vocal group in our developed society express reservations about liberty.

This post is well worth reading - a sample

To put it another way, there are a series of explanations given for the distinctive features of modernity, each identifying one factor as being the critical one and then going on to claim that this factor either first appeared in Europe or was present there to a greater degree than elsewhere. A non-exhaustive list of such models and the scholars associated with them would include increased capital accumulation (Robert Solow); legal pluralism and a distinctive notion of law (Harold Berman); economic institutions, especially property rights (Douglass North, Nathan Rozenberg); geography (Eric Jones, Jared Diamond); accessible fossil fuels (Kenneth Pomeranz); a different way of thinking about knowledge and technical innovation (Lynn White, Joel Mokyr); greater intellectual openness (Jack Goldstone); a particular kind of consciousness, associated with certain religions (Max Weber, Werner Sombart); divided and constrained political power (Eric Jones, several others); a distinctive family system (Deepak Lal, many demographers); population growth past a critical level (Julian Simon); a higher social status and cultural valuation of trade and enterprise (Deirdre McCloskey); trade and the benefits of specialization (Adam Smith and many others); the role of entrepreneurs (Joseph Schumpeter, William Baumol); some combination of these (David Landes).

Monday, November 2, 2009


The introduction describes incentives and unintended consequences in the most accessible way I have seen.

Sunday, November 1, 2009

Student For Liberty Challenges Michael Moore

George Mason student shows there is hope.

On Monday, Sept 28, Michael Moore spoke at George Washington University about his new film, Capitalism: A Love Story. One of the leaders of the GWU Liberty Society, Chad Swarthout (who is an active member of Students For Liberty, formerly a leader in the London School of Economics Hayek Society while studying abroad, leader in the DC Forum for Freedom, and all around great guy), managed to get up and question Michael Moore. Focusing on the fact that most of the problems with the current US economic system being a result of government intervention and excessive influences of personal preferences in government regulation, Chad got Michael Moore to admit that the U.S. is not a free market, and point out that if the government doesn’t represent the people, maybe we just shouldn’t give the government so much power.

Friday, October 30, 2009

Health care, liberty and choice

This month Boyes and I have emphasized the current debate over health care reform from the perspective of liberty, choice and responsibility.

Clearly health care is an example of the complexity of society that Hayek confronted in The Use of Knowledge in Society. The dispersed knowledge relevant to health, the care of health and the approaches to funding health exemplify the knowledge problem. A reading of Hayek is useful in examining the underlying assumptions of any expansion of the state into this market (as it would be prior to any state expansion).

There have been two excellent posts in the blog world this past week dealing with this topic.

Over on EconTalk, Mike Munger directs his attention to the debate in a podcast well worth the 1 hour you will spend.

Mike Munger of Duke University talks with EconTalk host Russ Roberts about the limits of prices and markets, especially in the area of health. They talk about vaccines, organ transplants, the ethics of triage and what role price should play in allocating. The discussion concludes with a discussion of how markets respond to price controls

Our colleague Tim Schilling directs us to the contra view on his blog.

Steven Landsburg on Health Care

The answer is less insurance, not more, and private insurance, not public. In the long run, those health savings accounts are probably the best solution. In the interim, the single most effective way to cut health care costs in a hurry would be to eliminate the tax deduction for employer supplied health insurance. That deduction leads to immense overuse of health care resources, especially by rich people. That’s one good reason to eliminate the deduction, and here’s another: People would start shopping for insurance on their own instead of taking whatever their employers offer, which would make the insurance companies more responsive to consumer demands.

It saddens me that support for universal coverage and a public option has become, in many circles, a sort of litmus test for compassion and caring about the poor. It particularly saddens me to hear the president say that “What we face is a moral issue; at stake are not just the details of policy, but fundamental principles.” It’s the details of policy that change people’s lives. The moral imperative is to get them right.

Sunday, October 25, 2009

Civil society and civil discourse

Boyes points out a major obstacle to engaged and civil discourse in this Oct. 22 post.

Samuel Gregg does a nice job of highlighting the urgency in a civil discourse in his book The Commercial Society.

He concludes:
" . . . intellectuals who recognize the benefits of commercial society bear a tremendous responsibility, not the least because of the damage facilitated by other scholars in either prescribing yet another set of collectivist or corporatist solutions to economic problems or who persist in defending economic orders that are indefensible in terms of their limited effects on poverty, their undue inhibitions of human liberty, and their steady de facto encouragement of soft despotism." (158)

I would broaden Gregg's injunction to all of us, as the erosion of personal liberty is facilitated not only by scholars but by the media, special interest groups and, most worrisome, those who are acting out of ignorance or misplaced belief.

The avenues we have to include those who are unaware of the threats to liberty may seem limited, but to the extent we can engage in a civil, yet directed engagement we fulfill the responsibility passed down to us.

Greg Mankiw - access to health care

Greg Mankiw writes in Why Health Care Will Never Be Equal

The push for universal coverage is based on the appealing premise that everyone should have access to the best health care possible whenever they need it. That soft-hearted aspiration, however, runs into the hardheaded reality that state-of-the-art health care is increasingly expensive. At some point, someone in the system has to say there are some things we will not pay for. The big question is, who? The government? Insurance companies? Or consumers themselves? And should the answer necessarily be the same for everyone?

Inequality in economic resources is a natural but not altogether attractive feature of a free society. As health care becomes an ever larger share of the economy, we will have no choice but to struggle with the questions of how far we should allow such inequality to extend and what restrictions on our liberty we should endure in the name of fairness.

Thursday, October 22, 2009

Communication with Statists?

Radio talk show host Dennis Prager had a revealing interview with leading liberal Michael Tomasky. Prager maintained that liberals live in a bubble, reading only what other liberals say, listening only to liberal media, etc. Tomasky responded that the same goes with conservatives. But the facts support Prager rather than Tomasky.

Anita Dunn is the communication director of the President of the United States. In the interview Prager asked what Tomasky thought of the Anita Dunn remark that her two favorite philosphers were Mao Tse Tung and Mother Teresa. Prager queried how a mass murderer of over 75 million people could be the most important guiding light of the communication director of the President? What do you think about this? Tomasky had to say, "You have me there, I have not heard about this. " In fact coverage has not occurred outside of Fox and Glen Beck.

What does this say about the discussion between libertarians, conservatives, and statists? It says that someone needs to provide facts. And perhaps, facts about the success of nations, success of individuals, and the factors leading to success won't even solve the communication issue. If people believe, as Tomasky does, that people are better off for having government involved in their lives, then facts might mean nothing. Beliefs are difficult to debate.

The ASET book discussion group Wednesday, October 21, 2009

ASET book club Stealing from Each Other How the Welfare State Robs Americans of Money and Spirit
ASET Book Club Event - Wednesday October 21, 2009 5:45 p.m. - 7:15 p.m.

discussed Browning's "Stealing From Each Other". After examining many elements in the book, the question arose as to how a conversation between free market thinkers and statists could take place. Does it depend on how statists arrive at their opinions: Are statists paternalistic in thinking that they know better than the individual what is good for the individual? Are statists evil and just want power? Are statists stupid and simply not understand the issues and implications?

Prager's interview seems to suggest that the conversation will be difficult to join because the groups live in different worlds.

Understanding Liberty and Choice: Property Rights and Economic Development

Understanding Liberty and Choice: Property Rights and Economic Development

This excellent colloquium sponsored by the Liberty Fund and the Foundation for Teaching Economics brought together teaching professionals to discuss the role that property rights play in economic development. The readings discussed over the 3 day conference can be found on the link above and are well worth a read.

Monday, October 19, 2009

ASET book club Stealing from Each Other How the Welfare State Robs Americans of Money and Spirit

ASET Book Club Event - Wednesday October 21, 2009 5:45 p.m. - 7:15 p.m.

Stealing from Each Other How the Welfare State Robs Americans of Money and Spirit

The rise of equalitarian ideology has driven Americans to steal from one another. Browning explains that certain kinds of equality have been a cherished value in America. Equality under the law and, within reason, equality of opportunity is consistent with a free society. Equality of results is an anathema to a free society and within it lie the seeds of tyranny.

For a contrasting perspective on Browning's view on immigration

Julian Simon - Economic Consequences of Immigration

Is the Welfare State Justified?

Monday, October 29, 2007
12:00 PM

Restriction or Legalization? Measuring the Economic Benefits of Immigration Reform

Saturday, October 17, 2009

The Health Care Debate

Wednesday evening I was one of three speakers, myself, Byron Schlomach, PhD, of the Goldwater Institute and Richard Dolinar, MD, of The Heartland Institute, in a panel discussion of a free market approach to the health care issue. All three of us agreed with what the problem in health care is and essentially, how to solve it. The problem with the U.S. healthcare system today involves the malincentives created by the third party payer system and the intervention of government in so many aspects. The third party system exists because the consumer does not purchase the medical care; that is what the employer provided insurance does. So, the doctors, hospitals, etc. provide care to patients but are reimbursed by another party -- Medicare, Medicaid, or private insurance. The patients get the services but have no idea how much they cost and does not, therefore, have to allocate a scarce budget among competing medical treatments. Medicare and Medicaid constitute about 45 percent of spending on health care, so the government is obviously a big player. The government distorts incentives by providing services to the elderly or poor who have no idea what the medical care they receive costs. In addition, the programs sete price ceilings on the services that get reiumbursed. And since so many of the reimbursements are specifically for procedures not outcomes, the incentive is to provide more procedures.

The simple way to resolve the problem is to change the system to a consumer purchased system. Healthcare expenditures in the U.S. constitute approximately 16% of GDP or around $2.24 trillion. Since there are around 300 million people in the U.S., that is a per person expenditure of around $7,300 per person per year. Suppose then that each individual was given a voucher worth $7000. They could do anything they wanted with the money as long as it pertained to health care. Any funds they did not spend would be carried over to the next year and would add on to the $7000 obtained in the following year. With the money, people could purchase insurance, in most cases, catastrophic insurance. Catastrophic insurance premiums would fall and be very low as competitors attempted to obtain customers (and companies must be able to compete across state boundaries). With people in charge of their own health care expenditures, people would select services that provided them the care they prefer; they would not buy unnecessary tests or unimportant office visits. Costs would fall significantly. Perhaps more importantly, there would be no government programs involved in the health care arena. It has been estimated that in the current system, see here http://
that about 20 % of all costs are administrative. Thus, the health care expenditures would decline almost 20 percent from eliminating government agencies. Why is the Obama - Baucus - et al., plan so much more complicated and so much more expensive?

Thursday, October 15, 2009

Progressive Claptrap

Vintage Robert Higgs, important to examine his point in the day of Michael Moore.

Thinking about Boyes' post of Oct. 13th I would recommend a read of Bob Higgs posting over on HNN. Higgs is really getting at the importance of rhetoric in the "discourse" about the role of liberty and freedom in society. Samuel Gregg argues that civil discourse is a natural outcome of a commercial society, while Higgs implies that as the state expands in scope and scale in society civility is a casualty.

Both of these complimentary views are key to an appreciation of the importance of the media in the economic change of society. This change, to paraphrase North, is gradual and incremental and both formal and informal institutions shape this change. The institution of information diffusion is a key one as it shapes informal norms and beliefs and is shaped by these informal norms and beliefs.

I am thinking of a conversation with my brother, who considers himself a believer in liberty. I had given him Higg's classic - Crisis and Leviathan, my brother read the book and said that Higgs was a nut job. I had a similar conversation with a brother in law during the last election - he said that Ron Paul was a nut job.

Why does this happen? I think part of the answer might be in rhetorical choices by advocates of liberty. Higgs and, to a lesser extent Paul, seem to be to be reasonable, civil and accurate in their articulation of the importance of liberty and the consequences of its loss. However, an audience that is not convinced of these two issues (in my limited sample) finds them to be extremists. Oddly enough, one of these relatives applauds Michael Moore's latest film while the other condemns it.

In a previous post, I mentioned my reading of Samuel Gregg's The Commercial Society in which he models civil discourse. Perhaps advocates of liberty would benefit from a consideration of Gregg's rhetoric.

Contextualizing past presidents

Doug Casey writes about George Bush in the context of the presidency:

"As disastrous as he was, I rather hate to put him in competition for “worst president” in the company of Lincoln, McKinley, Wilson, the two Roosevelts, Truman, Johnson, and Nixon. He is simply too small a character — psychologically aberrant, ignorant, unintelligent, shallow, duplicitous, small-minded — to merit inclusion in any list.

On second thought, looking over that list of his personal characteristics, he’s probably most like FDR, except he lacked FDR’s polish and rhetorical skills. I suspect he’ll just fade away as a non-entity, recognized as an embarrassment."

Alternatively, Austrian Economists, in an interesting post listed the 6 free market presidents

The order is from the most laissez-fairist to the least (dates of presidency in brackets):

Grover Cleveland (1885-1889 and 1893-1897)
Martin Van Buren (1837-1841)
Andrew Jackson (1829-1837)
Thomas Jefferson (1801-1809)
Calvin Coolidge (1923-1929)
Ronald Reagan (1981-1989)

Tuesday, October 13, 2009

Michael Moore's Documentary

I assigned my students to see Michael Moore's new movie "Capitalism: A Love Story", so I also had to see it. I also purchased and viewed "Broke" a movie that was supposed to counter Moore's. It is hard to even describe how misinformed Moore is. He even says capitalism should be replaced by democracy. Since when is capitalism a form of fovernment or democracy a description of an economic system? But oh well, there are just too many errors and misconceptions in the movie to describe. There are anecdotal sob stories that are never connected to capitalism or to anything. They are just sad stories. There is one funny point, where Moore is trying to have someone describe derivatives to him. He is totally bewildered -- of course he is in general but this is funny. There is one good point, when Moore skewers Chris Dodd for his favoratism as a Friend of Anthony.

So I rushed home to wash out my mind by watching "Broke". Unfortunately, it was boring and not much of a counter to Moore. It did fairly represent the fact that we make decisions often to go along with the herd, and this often leads to bubbles. So, perhaps the message is personal responsibility. I like that message, but it is not stirring or hard hitting enough.

I found it quite scary that the audience to Moore's move applauded when the movie was over. Perhaps they were just happy the long boring diatribe was done, but somehow I think not.

I am curious what my students thought of Moore's movie. I will relay that in a later post.

Monday, October 12, 2009


After the so-called peace prize and last year's economics prize I was ready to write off the Nobel awards completely. However this year the economics award is terrific. Oliver Williamson and Elinor Ostrom. Both have examined institutions and their role in growth, development, and just about everything else. Ostrom provided empirical research showing that the commons problem was not one that necessarily required state action. Individuals are able to devise methods dealing with common ownership in a variety of settings. I use this work to support my own view that problems like the prisoner's dilemma, commons, public goods, asymmetric information, lock in, etc., are not market failures. People will devise solutions to such problems in most cases.

Dollar Reserve Status -- Who Cares?

Dollar Reserve Status – Who Cares?
The U.S. dollar has been the world’s reserve currency since the end of World War II. With the dollar's 45 percent decline against the euro during the past six years and its 37 percent drop on a trade-weighted basis, there is a growing concern that the greenback's six-decade reign as the world's most important currency may be ending.
Why care? The standard argument is that reserve currency status allows the U.S. government to borrow in its own currency and helps the government and American companies to fund themselves at low interest rates. It makes it easier for U.S. companies to do business and increases the international demand for U.S. assets. Perhaps most importantly, the reserve currency status provides interest-free loans to America from the hundreds of billions of dollars held overseas and hoarded. In other words, the reserve status has enabled the U.S. to live well beyond its means.

The US dollar is currently the world's reserve currency, but that status is being threatened by China, America's biggest creditor, which is becoming "concerned" about the safety of the $1trn in US government debt it holds. American national debt, including social security obligations, has grown to more than $11trn, above 80% of GDP and will rise in the coming years. That's likely to see US Treasury yields forced higher to attract investors willing to fund this soaring deficit, which will hit bond prices, hurting the value of China's existing holdings. On top of this, the Federal Reserve has expanded the money supply tremendously over the last two years. Between January 2007 and January 2008, the base money expanded by about 750%. Ultimately, many more greenbacks in circulation means the price, that is, the exchange rate, will fall. That's bad news for anyone outside the US who is holding on to dollar assets.

Right now China’s currency – the yuan, also known as the renminbi – is tightly controlled and not freely tradeable in international markets. But China is starting to use the yuan to settle trade accounts between some of its provinces and neighbouring states, starting with Hong Kong. Chinese officials recently moved to promote the yuan’s influence overseas. China has signed deals with six countries, including South Korea, Malaysia and Argentina, for currency swaps that would inject Chinese money into foreign banking systems, and allow foreign firms to pay for goods they import from China in yuan.

Is the declining status of the dollar a serious worry? Perhaps it is actually a blessing. Ordinarily, a country’s central bank faces sharp limits to a policy of monetary expansion since if a country expands its currency, other countries will not want to hold that money. Its currency is devalued against less expansionist monetary systems. But when a country’s currency is dominant, the situation is different. Because other countries find it convenient to hold this currency, they are reluctant to rid themselves of it, despite inflation. The dominant country thus has much more leeway to conduct an expansionary policy. Surely, though, far from being an advantage, the ability to expand the money supply more than other countries is a liability. Although the fiat money system is the true problem, anything that limits discretionary expansion has to be seen as constructive.

Sunday, October 11, 2009

The Libertarian Nobel Peace-Prize Winner

"And my belief grows yearly stronger that, but for these principles [classical liberalism], the societies of the present would be without wealth, peace, material greatness, or moral dignity." Frederic Passy

It is this final outcome of morality that makes liberty an ultimate as well as instrumental virtue.

The Libertarian Nobel Peace-Prize Winner | Foundation for Economic Education

There Shouldn’t Be A Nobel Prize in Economics — F. A. Hayek’s Nobel Banquet Speech

Saturday, October 10, 2009

I work for the government

My colleague Don Boudreaux responds to this point in the current Freeman.

Friday, October 9, 2009

Education - off the rails

Boyes' directs us to the State of NY for an illustration of the "process" by which the state achieves goals. This example is valuable for many reasons - perhaps the most important is Boyes' conclusion - that Bastiat still is central to understanding much of what happens in a coercive society and that these perverse outcomes are entirely predictable. This example is also illustrative of Browning's argument in Stealing from Each Other - the Oct. 2009 ASET book for discussion. Browning makes clear the moral foundation of the arguments surrounding the use of coercive state power to limit or eliminate individual liberties. Much of the early part of his book focuses on the role that egalitarianism plays in both the rhetoric and argumentation. Examining the statist view, Browning correctly sees that interventionists see equality of outcome as morally just, that is there must be equal outcome for a society to be just. One of the many methods used by the state to achieve this goal is public education - which Browning also correctly classifies as a welfare or redistributive program of the state.

Two contrasting views of education prompt me to think about Douglass North's analysis of the role of learning in economic change. The two posts deal with education - the process, while North is thinking of both the process and the outcome. The role of learning in economic growth is one that deserves serious reflection - while it is unclear what that relationship may be, the impact of learning seems significant. Moreover, the formal and informal institutional context of learning (and by implication education) serves as the constrain that limits the impact of learning.

With all that said, the 2008 Nobel winner in economics sees command systems as the mode to optimize education. It is not clear the Krugman believes that education and learning are closely related, but he is clear that education cannot take place without the state.

Paul Krugman: The Uneducated American

The Uneducated American, by Paul Krugman, Commentary, NY Times: If you had to explain America’s economic success with one word, that word would be “education.” In the 19th century, America led the way in universal basic education. Then, as other nations followed suit, the “high school revolution” of the early 20th century took us to a whole new level. And in the years after World War II, America established a commanding position in higher education.

But that was then. The rise of American education was, overwhelmingly, the rise of public education — and for the past 30 years our political scene has been dominated by the view that any and all government spending is a waste of taxpayer dollars. Education, as one of the largest components of public spending, has inevitably suffered.

My reading is that Krugman has this partially correct - if education in the 17-19th centuries in the US was "successful" it is in large part due to the emergent path that education was allowed to follow. And, while the state dictated "universal" (a misnomer of course) education - the responsibility for learning rested with the institutions of the family and church.

I also agree with Krugman that the crisis in education is a pressing one - a result of the altogether predictable consequences of the perverse incentives of the institution of public education. The second post which is well worth a read is by a parent who writes of a public school teacher in a highly rated school who lacked knowledge of the emergent concepts in the field (computer science). The post is titled - Beware Book Learning and the parent writes:

"This example supports the claim that it is mostly the students not the teachers who makes good schools good, and that even in computer science signaling takes precedence over learning."

Krugman and this parent have unintentionally opened a dialogue - they both work from the premise that education in the US is in crisis. As a public school teacher I would agree, and the crisis is deepening. The two offer drastically differing perspectives on the course of action to take. Krugman is confident that the state can resolve the problem - it is merely a matter of resources. In a post earlier this month I referenced Ken Rogoff's public response to the "confidence" (arrogance?) of one of Krugman's Nobel winning colleagues. More money, spent correctly will rectify the problem. Our parent, on the other hand, with direct knowledge of education on his child offers a more penetrating critique by pointing out the result of the institutional constraints of a state owned and directed enterprise. He observes of this public school teacher:

"Yes it makes sense for this teacher to ignore modularity if the AP exam ignores it. And perhaps it even makes sense for the exam to ignore it since modularity tests might take lots longer than other tests. But for someone with five years experience teaching computing at the nation’s best public high school to not even know that modularity goes way beyond objects – that seems a sad example of off-the-rails book learning."

Off the rails . . . I can't help but think of Bastiat's railroad and the recent discussion in the press of Bentham v Hume. The David Brooks article generated a great deal of discussion, and this posting (planners v doers) does a nice job of contextualizing the planner v searcher dichotomy. Planners like Krugman are confident that they have the answer, searchers such as the parent in Virginia engage in a process that can evolve in emergent responses - but only in the context of liberty.

So, the debate in education is a great way to view the debate over liberty - on one hand those who wish take away choice and liberty and coerce a solution or plan to be part of the expansive state and on the other hand those of us who stand for liberty and fear that it is leaving the station.

Stimulus and Welfare

Economic theory tells us that we increase an individual's utility by giving him cash rather than dedicated expenditures such as food stamps or direct subsidies such as the food itself. So, I guess this justified the State of New York handing out $140 million in federal “stimulus” money with no strings attached to people on welfare. They said it was for back-to-school needs.
What did the welfare recipients do with the extra cash? They purchased flat screen TV's, iPods and video gaming systems," The welfare recipients were also free to withdraw the money as cash. That led to an unexpected run on ATM's across the state. Wilson Farms stores had their ATMs wiped empty. In addition, there were reported increases in sales of beer, lotto and cigarettes.

New York state officials defended the program by saying that “no matter what welfare recipients purchased with the taxpayer funds, it served to stimulate the economy.” These officials clearly do not understand Bastiat's broken window.

Government-controlled health care destroyed human dignity.

Wanna cut some med costs 30+% without sacrificing quality? Just have patients rely more on CVS, Walmart, etc. for care. From the Post:

Thursday, October 8, 2009

Government employee pay and benefit

Boyes invites consideration of the allocation impact of government spending on compensation. In thinking about this post and the reading for the October 2009 ASET book club - Stealing from Each Other there is a great deal to reflect upon.

Using an allocation scheme other than a decentralized market approach has both incentive and outcome consequences that are predictable.

Elaborating on Boyes's post:

Government employees have radically better benefits and pensions than private sector workers. “When wages and benefits are combined, federal civilian workers averaged $119,982 in 2008, twice the amount of $59,909 which workers in the private sector averaged for wages/benefits. The value of benefits for federal civilian workers averaged $40,000/year, four times the value of benefits that the average private sector employee receives. Only 12% of retirees from the private sector have defined benefit pensions to supplement Social Security. ( )

An interesting example/comparison of public v private sector compensation and employment suggests the extent of resource mal-allocation.

USPS - average pay - $83,000 - employees - 656,000

UPS - average pay - $70,000 - employees - 425,000

FedEx - average pay - $74,000 - employees - 240,000

USPS is bankrupt and dependent upon subsidy for existence, while UPS and FedEx earn a profit and work toward efficient outcomes.

Here we have an illustration of Browning's thesis - predatory results as one segment of society (government employees) engage in rent seeking (stealing) from another group. There is a moral dimension to this process that Browning explores and that we all might reflect upon.

A dimension of the increasing scale and scope of the government is the steady increase in government employment. The 10 year growth rate in government employment in my home state of Arizona for example presents a clear and present danger to those who understand the incentives and consequences of command systems of allocation upon future growth and liberty.

This growth has resulted in direct employment by the government in Arizona over 20 per cent. ( However, in addition to direct government employment, the level of military contractors, health providers and assorted other activity dependent upon the government would certainly increase total employment related to government.

The expansive presence of the government in labor markets and that impact on liberty needs little elaboration, nor does the impact on future growth. Tom Rex, in a dated analysis that bears reading concludes:

"The public sector is not too large - the private sector is too small. (I disagree with the first portion of this observation, but Rex's error here does not negate his conclusion)

Outside the Phoenix metropolitan area, most of Arizona suffers from too little economic activity other than of a governmental nature. A great need exists for private sector economic activity . . . to enhance living conditions for the existing populace."

Government Employment Growth, 1997-2007

10-year rank
10-year growth
3-year rank
3-year growth
1-year rank
1-year growth
Total 2007
employment (000s)
1 Nevada 47.2% 1 13.1% 1 4.4% 156.8
2 Arizona 28.8% 6 5.8% 2 3.5% 422.7
3 North Carolina 20.6% 2 6.6% 5 2.3% 695
4 Utah 19.9% 17 3.9% 29 1.0% 206.6
5 Florida 19.4% 7 5.5% 6 2.3% 1124.4
6 New Hampshire 18.8% 18 3.8% 16 1.5% 93.6
7 Colorado 18.8% 12 4.5% 7 2.1% 374.8
8 Vermont 18.2% 20 3.3% 34 0.6% 54
9 Idaho 17.5% 21 2.9% 25 1.2% 117.5
10 Georgia 17.1% 4 6.1% 10 1.9% 675.9
11 California 16.7% 14 4.2% 11 1.8% 2497.4
12 Texas 16.5% 13 4.4% 23 1.2% 1727.8
13 Washington 16.4% 30 1.8% 35 0.5% 532.8
14 Oklahoma 16.2% 3 6.3% 36 0.4% 320.9
15 Wyoming 15.5% 16 3.9% 4 2.4% 67
16 Delaware 15.3% 5 6.1% 30 1.0% 61.2
17 Virginia 15.0% 8 5.4% 15 1.7% 686.1
18 Arkansas 14.7% 9 4.9% 20 1.3% 210.3
19 New Jersey 13.7% 28 2.4% 41 0.2% 648.3
20 Maryland 13.3% 19 3.5% 13 1.7% 479
21 South Carolina 13.0% 15 4.0% 8 2.1% 337.7
22 Maine 12.2% 44 -0.4% 43 -0.1% 104.3
23 Kentucky 11.6% 11 4.7% 9 2.0% 324.6
24 Alaska 11.6% 42 0.5% 38 0.4% 81.7
25 Indiana 11.5% 32 1.5% 18 1.3% 431.8
26 Oregon 11.5% 22 2.7% 17 1.4% 290
27 Mississippi 11.3% 40 0.7% 12 1.8% 243.7
28 Tennessee 10.8% 33 1.5% 27 1.1% 421.3
29 Connecticut 10.3% 24 2.6% 22 1.3% 249
30 New Mexico 10.1% 47 -1.8% 50 -1.5% 194.8
31 South Dakota 9.9% 38 0.8% 37 0.4% 75.6
32 Kansas 9.4% 25 2.5% 24 1.2% 257.6
33 Hawaii 9.2% 31 1.6% 33 0.6% 122
34 Alabama 8.7% 10 4.7% 14 1.7% 376.4
35 North Dakota 7.8% 35 1.3% 42 0.1% 75.6
36 Nebraska 7.8% 26 2.5% 28 1.0% 164.1
37 Wisconsin 7.6% 37 0.9% 40 0.2% 416.1
38 Montana 7.0% 48 -2.0% 48 -0.5% 85.1
39 NEW YORK 7.0% 34 1.4% 21 1.3% 1504.3
40 Minnesota 6.7% 41 0.6% 45 -0.3% 414.7
41 Iowa 6.5% 29 2.2% 26 1.1% 249.9
42 Missouri 6.5% 27 2.4% 19 1.3% 439.6
43 Ohio 5.3% 45 -0.5% 46 -0.3% 797.6
44 Illinois 5.2% 39 0.7% 32 0.6% 850.6
45 Massachusetts 4.4% 23 2.6% 31 0.8% 432.6
46 West Virginia 4.3% 36 1.3% 39 0.3% 145.1
47 Pennsylvania 4.2% 43 0.0% 44 -0.2% 744.4
48 Rhode Island 2.2% 46 -1.4% 47 -0.5% 64.6
49 Michigan 1.5% 49 -3.3% 49 -1.2% 657.2
50 Louisiana -1.5% 50 -6.1% 3 3.1% 358.8
U.S. total/average* 12.3%
Source: Public Policy Institute analysis of Bureau of Labor Statistics data (not seasonally adjusted)
*Calculated by the PPI

The Public Policy Institute of NYS, Inc. • 152 Washington Avenue • Albany, NY 12210•
518-465-7511 •

For an in-depth analysis of the effect of the widespread unionization of government employees, see the new Cato Institute Policy Analysis,Vallejo Con Dios: Why Public Sector Unionism Is a Bad Deal for Taxpayers and Representative Government,