Tuesday, November 30, 2010

Postrel on Shiny Futures

A must read - this informs the discussion on our blog over the past month on the knowledge problem and the distinct differences in values that lead to individual v collective approaches to knowledge.

Postrel on Shiny Futures

Monday, November 29, 2010

Complex regulation - is there simple?

A very interesting application of the economic way of thinking to regulation. I suggest a reading of this article after listening to the Robert Frank podcast over on EconTalk.

Bad Complex Regulation

Sunday, November 28, 2010

Barry Eichengreen

This list of books dealing with the EURO include 2 that should be on our reading lists. The question is which 2?

Barry Eichengreen

Friday, November 26, 2010

Robert Frank on Inequality | EconTalk | Library of Economics and Liberty

This podcast is well worth a lesson for any and all of the following reasons:

1. A civil and critical discourse modeled by two social scientists.

2. A timely application of the economic way of thinking to important issues.

3. An examination of the role of ethics, values and morality in social science.

4. A discussion about the use and limitation of empiricism.

5. The types of knowledge - tacit v scientific

In a previous post I referenced Frank's book - The Economic Naturalist - esssentially a collection of student assignments from his introductory classes over the past 15+ years. For those of us who teach economics this is, to my way of thinking, an amazing activity to allow students to see the power of economic thinking.

Robert Frank on Inequality | EconTalk | Library of Economics and Liberty

Wednesday, November 24, 2010

Stimulus Waste Panel Cancels Ritz-Carlton Meeting.

Boyes warns of confidence in central planning. It is indeed a paradox that as individuals we engage in planning throughout our lives. This planning is constantly evaluated and adjusted, at least to the extent that individuals experience the consequences of these plans. Thus, planning at the individual level can reflect liberty and responsibility.

Contrast this individual planning with the central planning in China that Boyes uses to illustrate his analysis of potential consequences of central planning. This central planning generates alternative incentives for participants in a centrally planned society. These incentives often lead away from feedback loops and often obfuscate the consequences of central planning. And, as students of Tullock and Buchanann might anticipate, the process of central planning can lead to concentrated benefits or costs and diffused costs or benefits. This clearly can led to actions by the planner and a centrally planned economy that are short and long term negative sum.

In discussing factor mobility in my class yesterday the students seemed to arrive at an a ha moment on this topic. The concentration of perceived benefits from limiting factor mobility in the short run might well lead to significant costs in terms of foregone opportunities for future generations. Thus, what might seem to be a zero or positive sum game might well be negative sum game. This type of discussion/analysis is exemplified in the current debate over proposed central plans to address climate change.

This was an amusing local story - a cautionary tale that seems to evoke for me the work of Harold Jacobson:

A panel advising the independent agency charged with rooting out waste, fraud and abuse in the stimulus plan announced Friday night that it had pulled the plug on a public meeting which was to have taken place at the Ritz-Carlton in Phoenix, Arizona.

This example does not illustrate stupidity or vice or criminal behavior - rather this is the inevitable outcome of an institutional arrangement that incentivizes top down action. Reading the story also evokes Hayek's Road to Serfdom.


Tuesday, November 23, 2010

China: Should we Copy It?

So many commentators these days are comparing our "capitalism" to China's "state capitalism" or "capitalism with Chinese characteristics and saying we should emulate theirs or that theirs is the model of the future. In the 1970s the same comments were being made about Japan's system. Japan has now been in a no growth period for two decades. China has grown significantly, doubling its GDP every decade for three decades or so. This while the U.S. has slugged along at 2.5% or thereabouts.

What people seem to ignore is that the central planner can not better the invisible hand. In turn, China's malinvestments will come home to roost. The government controls where resources are allocated and thus misallocates and is inefficient. An example is the stark ghost city, Kangbashi, in Inner Mongolia. The government built Kangbashi in just five years. It was designed to be the showcase urban center of Ordos City, a relatively wealthy coal-mining hub that's home to 1.5 million people. A public-works project worthy of Kubla Khan, Kangbashi is filled with office towers, administrative centers, government buildings, museums, theaters and sports fields and acre on acre of subdivisions overflowing with middle-class duplexes and bungalows. The only problem is that no one lives there. The district was originally designed to house, support and entertain 1 million people. Now, only a handful of cars drive down Kangbashi's multilane highways, a few government offices are open during the day and an occasional pedestrian can be seen trudging down a sidewalk. It looks like a Will Smith movie lot.

Government inefficiency is sure to come home to roost in China.

Why Did 17 Million Students Go to College?

Excellent article by Richard Vedder

I think the American people understand, albeit dimly, the logic outlined by the author in this piece.. Increasingly, state governments are cutting back higher-education funding, thinking it is an activity that largely confers private benefits. The pleas of university leaders and governmental officials for more and more college attendance appear to be increasingly costly and unproductive forms of special pleading by a sector that abhors transparency and performance measures.

Higher education is on the brink of big change, like it or not.

Monday, November 22, 2010

Naked Classism

Hubris - the confidence of an elite that assumes knowledge and wishes to impose that assumed superiority on society. This may be a greater threat to liberty than the overt actions of Leviathan.Naked Classism

Sunday, November 21, 2010

The Theory of Moral Sentiments - Part 6

Douglas Irwin - Against the Tide: An Intellectual History of Free Trade, Free Trade Under Fire

Both books are excellent, the first provides an historical overview of the pre and post Adam Smith debate about the foundations for mercantilism (protectionism) and free trade. Irwin traces much of the thought back to classical works of philosophy.

David Landes The The Unbound Prometheus: Technical Change and Industrial Development in Western Europe from 1750 to Present

Wealth and the Poverty of Nations was an outstanding read (must for economic historians). This book is tougher going but worth it as Landes goes into significant detail. If time is an issue, I would recommend Mokyr.

Joel Mokyr The Levers of Riches

I loved reading this book - Mokyr does a wonderful job, well let me quote from this Amazon review:

"Mokyr has demonstrated, yet again, that he is one the best economic historians around. His book is a treasure trove of facts and insights about technological progress often overlooked in other accounts. Further, his argument that economics might do well to adopt the methodology of evolutionary biology instead of the standard application of Newtonian physics is cogent and convincing."--Howard Bodenhorn, St. Lawrence Univ.

"Joel Mokyr is a first-rate scholar who has read a wide body of literature. The book is very well written, lively and engaging. It is closely reasoned and well executed"--Nathan Rosenberg, Stanford University

"Joel Mokyr likes telling his story and he tells it well; his book makes for good reading and rereading, and this in itself sets him apart from many of his fellow economic historians."--The New York Times Book Review

According to Joel Mokyr, economic growth is the result of four distinct processes: Investment (increases in the capital stock), Commercial Expansion, Scale or Size Effects, and Increase in the Stock of Human Knowledge (which includes technological progress proper as well as changes in institutions). Throughout his brilliant book, he correlates technological creativity with economic progress throughout classical antiquity, the Middle Ages, the Renaissance, the Industrial Revolution, and then into the later 19th century.

Eric Rauchway Blessed Among Nations

Thomas Sowell A Conflict of Visions

Sowell at his best. This analysis of the constrained and unconstrained visions is clear and direct. He relies heavily on Adam Smith and William Godwin for illustration.

Adam Smith: Theory of Moral Sentiments, Lectures on Rhetoric and Belles Lettres, Lectures on Jurisprudence, Wealth of Nations, Essays on Philosophical Subjects

This reading is a delight. I was invited to a Liberty Fund colloquia on Smith in July, 2009.

Laird Bergad - The Comparative Histories of Slavery in Brazil, Cuba, and the United States

Michael Gruber Tropic of Night

Gruber's first novel. I really enjoyed The Book of Air and Shadows, this one not so much. I will try his newest book The Forgery of Venus.

David Liss A Conspiracy of Paper

I am pleasantly surprised - I could not finish The Coffee Trader and his latest The Whiskey Rebel received negative reviews, but this is wonderful. I have the sequel - A Spectacle of Corruption on order.

John Sanford - Rules of Prey

Sanford's first Lucas Davenport and I am so glad I got to read the beginning.

Daniel Simmons Drood

Wow, talk about an unreliable narrator. A very intense exploration of . . . addiction, obsession, jealousy and . . . Charles Dickens. Excellent historical fiction - made me realize how little I know about this period, Dickens and Dicken's fiction. Very long, but worth it. I have - The Terror, on my reading list.

Saturday, November 20, 2010

California's Budget Blues Get Deeper

California faces a $25.4-billion deficit -- far larger than state officials were projecting only days ago -- the state's chief budget analyst said...[because of] billions of dollars in phantom savings approved by Gov. Arnold Schwarzenegger and legislators last month, more budget restrictions passed by voters last week and predictions of a "painfully slow economic recovery," ...

In addition, more than $8 billion in temporary sales, car and income taxes are set to expire in the coming year, and the federal stimulus program that has helped prop up schools, healthcare for the poor and other state programs also will soon disappear.....

The predicted $25.4-billion deficit is the equivalent of about 29% of this year's general fund budget....

And guess what? Republicans respond by promising no taxes, and Dems ferociously defend spending.
California's Budget Blues Get Deeper

Thursday, November 18, 2010

Responsibility, liberty and how big to think

Boyes reflections on the pace and scope of change is provocative and challenges the institutional school of North. This work argues that the process of change is evolutionary and emergent. As I think of this view I wonder to what extent change is path dependent, marginal and slow.

I suspect that Smith, Hayek and classical liberals would describe the emergent or spontaneous order as one that is of human action and not design. To the extent that spontaneous order thinking is useful it seems to me that human design, whether micro in design - tax systems, regulatory regimes, or other legislative regimes, or macro economic - pacing, scale and scope - run contrary to a liberal society based upon notions of justice. That is, justice as Smith and Hayek outline in emergent rules as opposed to the potential tyranny embedded in the legislative process.

Boyes has a well grounded concern that seems both valid and perplexing - the expanding scale and scope of the state in the form of government regulation (one small example, the California prohibition of toys in fast food meals) that results in a nanny state, the evolution of the welfare state in our country (from military pensions after the Civil War to the wide "safety net" of today, and the emergence and growth of the warfare state.

That said, these developments have been beyond the control of humans, that is they seem to be the result of human action not human design. Had FDR not been elected, would Herbert Hoover have governed a New Deal? Had the momentum established by Wilson set in motion a path dependence that, at the margin, could be shaped but not significantly redirected?

These are important questions that lead me back to Dan Klein's question - what is the responsibility of the economist who believes in liberty? Klein argues we should try to educate the everyman.

Interesting, and as a long time educator, the barriers to open minded, civil consideration of the free exchange of ideas seems to be at the heart of a teaching and learning process that might allow for a meaningful consideration of the costs and benefits of alternative decision making regimes.

Can these barriers be altered, reduced, or eliminated in a sweeping action? Or will change be Northian?

Government and Markets Toward A New Theory of Regulation

Government and Markets Toward A New Theory of Regulation

The blurbs and table of contents for this book suggests it might be appropriate for a reading list or discussion

"The heritage of James Tobin is well represented by this outstanding volume. The authors analyze the relations of government and the market from many different angles, showing the fallacies of simple critiques on the basis of deep scholarship." - Kenneth J. Arrow, Stanford University

Table of Contents
Part I. Beyond Market Failure:

1. Government failure vs. market failure: principles of regulation Joseph E. Stiglitz

2. Effective regulation through credible cost-benefit analysis: the opportunity costs of superfund Michael Greenstone

3. From 'state interference' to the 'return to the market': the rhetoric of economic regulation from the old Gilded Age to the new Mary O. Furner

4. Lessons from Europe: some reflections on the European Union and the regulation of business Neil Fligstein

5. Confidence games: how does regulation constitute markets? Daniel Carpenter

Part II. Beyond the Economic Theory of Politics:

6. The end of special interests theory and the beginning of a more positive view of democratic politics Donald Wittman

7. Public choice: a critical reassessment Jessica Leight

8. The paranoid style in the study of American politics David A. Moss and Mary Oey

9. Law, policy, and cooperation Yochai Benkler

Part III. Beyond Command and Control:

10. What opportunity is knocking? Regulating corporate governance in the United States Mary A. O'Sullivan

11. Taxation as a regulatory tool: lessons from environmental taxes in Europe Monica Prasad

12. Redesigning regulation: a case study from the consumer credit market Elizabeth Warren

13. Origins and regulatory consequences of the subprime crisis Barry Eichengreen

14. Prospects for economic 'self-regulation' in the United States: an historian's view from the early twenty-first century Edward J. Balleisen

15. Deregulation theories in a litigious society: American antitrust and tort Tony Freyer

16. Markets in the shadow of the state: an appraisal of deregulation and implications for future research Marc Allen Eisner

After two generations of emphasis on governmental inefficiency and the need for deregulation, we now see growing interest in the possibility of constructive governance, alongside public calls for new, smarter regulation. Yet there is a real danger that regulatory reforms will be rooted in outdated ideas. As the financial crisis has shown, neither traditional market failure models nor public choice theory, by themselves, sufficiently inform or explain our current regulatory challenges. Regulatory studies, long neglected in an atmosphere focused on deregulatory work, is in critical need of new models and theories that can guide effective policy-making. This interdisciplinary volume points the way toward the modernization of regulatory theory. Its essays by leading scholars move past predominant approaches, integrating the latest research about the interplay between human behavior, societal needs, and regulatory institutions. The book concludes by setting out a potential research agenda for the social sciences.

Marginal -- How big is it?

Pratt makes the important point about the "ratchet effect" and the importance of marginal versus large scale changes in response to my comment that marginal reductions in government size will do nothing but lead to increasing size in the future. Histor of government and liberty as presented in two brief books, The Road to Tyranny, by Michael E. Newton, and The Future of Freedom, by Fareed Zakaria, suggest that there is no stopping of government growth and the erosion of liberty. While Zakaria makes this point throughout he ends with some gobbly gook about the road to increased liberty.

Simply look at the policy proposals suggested so far by the debt commission and others. Look at the suggestions by a commissoin of CEOs, leaders, and the Economic Development leaders for the State of Arizona. They are so limited, so marginal, that they will at best slow, temporarily, the growth of the state. Machiavelli said in making policy give the bad news all at once and spread the good news out. We must seriously reduce the role of government, not marginally change it. In Arizona, the corporate tax should be eliminated, the personal tax reduced to a small flat consumption tax, and no tax imposed on income. There should be NO special incentives for businesses to locate in Arizona. If policies are correct, all businesses will have an incentive to locate in Arizona. It is not the government's role to pick and choose which businesses to recruit and bring to the state. Similarly at the Federal level, taxes on corporations should be cut to the lowest level of all OECD nations, the personal income tax eliminated and a flat consumption tax be imposed. Government spending should be reduced by privatizing as much as possible. At the Federal level this means that Social Security and Medicare must begin transitioning to private pension and health programs and away from government programs. At the State level public pensions have to be converted to defined contribution programs and state employees, and departments cut.

Big Ideas, Big Policies, not Marginal changes are necessary to retard the reduction in liberty.

Wednesday, November 17, 2010

The Theory of Moral Sentiments - Part 5

Podcast 5

Two great articles on the invisible hand.
"In Adam Smith's Invisible Hands: Comment on Gavin Kennedy", by Daniel B. Klein. Econ Journal Watch, vol. 6, no. 2, pp 264-279. May 2009.

"Adam Smith and the Invisible Hand: From Metaphor to Myth"
, by Gavin Kennedy. Econ Journal Watch, vol. 6, no. 2, pp 239-263. May 2009.

Tuesday, November 16, 2010

Democracy, Liberty and Freedom

Boyes makes an interesting and significant point when he writes:

"Unless very bold steps are considered, marginal steps will not be undertaken. We have to recognize that history is not favorable toward reducing size of government and the welfare state."

This is an assertion worth examining - first are bold steps a condition for marginal action. Stated differently, are stimuli for major action - crisis for example - a necessary condition for marginal steps or actions. This idea would seem to be supported by the work of Robert Higgs - I am thinking here of the ratchett effect he uses to describe the growth of the state. On the other hand, this assertion seems opposed to the emergent and evolutionary development of spontaneous orders. Smith, Hayek and North seem to argue that it is the force of culture and belief that evolve over long periods of time that shape the institutions reflect our beliefs and values. That is, the informal norms that are more important than the formal ones are in fact a result of subjective marginalism and not of large sweeping change.

This is an intriquing question - if a Liberty Fund representative is reading this blog I would think that this would make a great conference topic.

This question was raised at a conference honoring Douglass North at Washington University and treated thoughtfully in a number of papers presented by students of North.

The Moykr paper, in particular, argues for a marginal rather than sweeping process in shaping culture, beliefs and values. All of these papers are accessible and well worth a read.

Click here to access all the papers
The Rules of the Game: What Rules? Which Game?
Kenneth Shepsle, Harvard University

Culture, Institutions, and Modern Growth

Joel Mokyr, Northwestern University

The New Institutionalism

Robert Bates, Harvard University

Endogenous Institutions: Law as a Coordinating Device

Gillian K. Hadfield, University of Southern California Law and Economics Department and

Barry R. Weingast, Hoover Institution and Departmetn of Political Science, Stanford University

Persistence and Change in Institutions: the Evolution of Douglass C. North

John Joseph Wallis, University of Maryland

Monday, November 15, 2010

Democracy, Liberty and Big Government

The Republicans won a big victory on November 2nd. Will they be able to do anything constructive in reducing the growth (or more particularly the size) of government? I don't think so. Already, the establishment is reluctant to cut out earmarks. Sen Inhof from Oklahoma has some distorted argument about Congress doing the spending rather than the President, but it is more likely that Inhof is a big earmark spender. Although total earmarks are not large relative to government spending, they are extremely important on the margin -- their symbolic role is large.

The debt commission came out with some good proposals -- moving in the direction of privatiing social security and medicare (although they suggested moving far too slowly), reducing corporate taxes (although the decrease from 35% to 26%, the middle of industrial nations is too high still), reducing home mortgage deductions (for mortgages greater than $500,000 (too high, all such deductions need to be eliminated), reducing subsidies particuarly agricultural subsidies(this is absolutely necessary but will be very difficult to implement). What they should also have proposed was to eliminate several departments and return the U.S. to pre-Great Depression structures. Wliminate departments of education, energy, etc.

Unless very bold steps are considered, marginal steps will not be undertaken. We have to recognize that history is not favorable toward reducing size of government and the welfare state. In "The Future of Freedom" Fareed Zakaria points out that lobbies have existed for most of American history. Their explosion since the early 1960s is a result of the government becoming much bigger. "For conservatives it [more lobbyists] means that the goal of reducing federal spending has become a hopeless case." p. 175. In eight years Reagan was able to close only four government programs of any note. In 1994 Newt Gringrich and his freshman horde came to power on a contract with America to changing the way Washington worked and reducing subsidies. Four years later, the Republican revolution was in shambles, Gingrich had resigned, and Washington was not changed.

As Zakaria notes, the Republicans began in 1995 with a budget proposal that would have eliminated about 300 programs, mostly corporate welfare, saving more than $15 billion. Then the lobbying began...." p. 176 The budget that was finally passed had total reductions of $1.5 billion. Thus, start huge and end with significant marginal cuts.

Task of economics

Several comments in the blogsphere recently reflect an ongoing dialogue (which is always below the surface) centering on Hayek's assertion of the goal of economics:

Russ Roberts

So let’s have a contest for the best poster design that uses the Hayek quote with an illustration that you create or use with permission.


Robert Schiller

He writes of current financial law making. This process and Schiller's view evokes the dichotomy Hayek encourages us to consider between law (the process/result of human action) and legislation (the process of human design)


CATO Unbound - Nov. discussion

Regulations on how, when, and by whom money can be spent are perennially popular, but just as often they encounter legal obstacles stemming from the First Amendment’s protections on speech and the right of petition. Money also shows a frustrating tendency to flow around regulations, frustrating their enactors’ intent.

A key problem is how to balance several conflicting goals: holding a clean, and clean appearing election; allowing all citizens to participate in campaigns as they think best; allowing citizens to know who supports or opposes various candidates and proposals; and guaranteeing the personal safety of those who choose to participate in the process.

This month, lead essayist Bruce Cain makes the case for semi-disclosure of campaign-related spending. Under semi-disclosure, the public would have access to aggregate spending data for groups, as well as data about individual donors, albeit stripped of personal identification data. Semi-disclosure might work a lot like the census, in which data is made available, but privacy is still protected.

Will Cain’s proposed compromise work? Will it satisfy all sides in the debate?


Sunday, November 14, 2010

Victory of Reason

Tyler Cowen is the reader who never sleeps.

That said, Boyes' recommendation of Rodney Stark's book reminds me to move this title up on my reading list.

In previous conversations and postings, Boyes has recommended this book, so I ordered it this afternoon which should force me to begin reading.

From Amazon:

"The Victory of Reason" is the third in a series of books studying the influence of Christianity on Western Civilization, the first two being "For the Glory of God" and "One True God." Each of these books looks at different aspects of Western Civilization to determine how they were influenced by Christian theology. How were they influenced? Profoundly!

"The Victory of Reason" looks at the concepts of freedom and capitalism, and how they were natural outgrowths of both Christian theology and favorable economic conditions. Along they way, Stark makes some iconoclastic statements and backs them up with sound argument. e.g. The fall of the Roman Empire was a good thing. The Dark Ages were more progressive and enlightened than the Classical World.

Taken together, "The Victory of Reason," "For the Glory of God," and "One True God" make a very strong case for the proposition that were it not for Christianity (particularly the Catholic Church), we'd probably still be living in a pre-industrial, pre-scientific world dependent in large measure on slave labor.

Odds and Ends

On Friday a headline in the Arizona Republic said "Stimulus Saves 50 SRP Jobs" and goes on to tell us how the money was used to employ 50 people that would have been laid off otherwise. I don't know the amount of money spent per job saved, but that actually misses the point. Bastiat's broken window fallacy applies here: how many jobs that would have occurred in other sectors of the economy were destroyed due to the government taxes needed to send stimulus money to SRP? And, these jobs would have been preferred to the SRP jobs. How do I know that -- because if people had been allowed to keep their tax money, they would not have spent it on the SRP jobs, most likely.

As I stated earlier, this is a great time for Arizona to create policies that will attract businesses from California. Already, multi-billion dollar facilities that would have been built in California by a private firm are being constructed in Oregon and North Carolina. I sent an open letter to Jan Brewer via the Arizona Republic on this issue but the Republic disagreedd with what I was saying and did not run it. I will send a direct letter to both Governor Brewer and Russ Pearce. According to today's Republic, the state faces more than 1.5 billion dollars in unfunded liabilities. Not only must the defined benefit programs be turned into defined contribution programs, but all prograqms must be decreased. But, most importantly, Arizona must create an environment in which people want to invest and do business here.

No, Really – Nobody Cares About the Deficit

Interesting - I wonder if the apathy about the federal deficit is in any way related to the current state of economic education in the US? Or, on the positive side, perhaps the populace has internalized a Hayekian view that the emergence through human action and not design will result in an unintended order?


Thursday, November 11, 2010

Immigration and liberty

One of the areas of legitimate discussion amoung libertarians (and all groups, I suppose) is the attitude toward immigration. There are any number of formal an informal institutions that develop that shape immigration - Benjamin Friedman in The Moral Consequences of Growth presents an interesting thesis that the short term attitude toward immigration and immigrants is shaped by both the level and health of economic activity and the perception of agents within the society regarding their relative position in the economy.

Voluntary exchange and processes are generally positive sum while contraints on the ability to use ones' own knowledge for ones' own aims in the absence of coercion generate perverse are negative sum and lead to unintended consequences and, due to the path dependent nature of change, long term threats to liberty and freedom, expansion of the state (the enforcement mechanism for limits on freedom) and reinforce the intolerance that undermines a civil society.

Tyler Cowen writes persuasively about this issue (Oct. 31 NY Times):

How Immigrants Create More JobsBy TYLER COWEN
Published: October 30, 2010

The campaign season now drawing to a close, immigration and globalization have often been described as economic threats. The truth, however, is more complex.

Over all, it turns out that the continuing arrival of immigrants to American shores is encouraging business activity here, thereby producing more jobs, according to a new study. Its authors argue that the easier it is to find cheap immigrant labor at home, the less likely that production will relocate offshore.

The study, “Immigration, Offshoring and American Jobs,” was written by two economics professors — Gianmarco I. P. Ottaviano of Bocconi University in Italy and Giovanni Peri of the University of California, Davis — along with Greg C. Wright, a Ph.D. candidate at Davis.

The study notes that when companies move production offshore, they pull away not only low-wage jobs but also many related jobs, which can include high-skilled managers, tech repairmen and others. But hiring immigrants even for low-wage jobs helps keep many kinds of jobs in the United States, the authors say. In fact, when immigration is rising as a share of employment in an economic sector, offshoring tends to be falling, and vice versa, the study found.

In other words, immigrants may be competing more with offshored workers than with other laborers in America.

The study referred to above:


Immigration, Offshoring and American Jobs
Gianmarco I.P. Ottaviano, Giovanni Peri, Greg C. Wright
NBER Working Paper No. 16439
Issued in October 2010
NBER Program(s): ITI LS

How many "American jobs" have U.S.-born workers lost due to immigration and offshoring? Or, alternatively, is it possible that immigration and offshoring, by promoting cost-savings and enhanced efficiency in firms, have spurred the creation of jobs for U.S. natives? We consider a multi-sector version of the Grossman and Rossi-Hansberg (2008) model with a continuum of tasks in each sector and we augment it to include immigrants with heterogeneous productivity in tasks. We use this model to jointly analyze the impact of a reduction in the costs of offshoring and of the costs of immigrating to the U.S. The model predicts that while cheaper offshoring reduces the share of natives among less skilled workers, cheaper immigration does not, but rather reduces the share of offshored jobs instead. Moreover, since both phenomena have a positive "cost-savings" effect they may leave unaffected, or even increase, total native employment of less skilled workers. Our model also predicts that offshoring will push natives toward jobs that are more intensive in communication-interactive skills and away from those that are manual and routine intensive. We test the predictions of the model on data for 58 U.S. manufacturing industries over the period 2000-2007 and find evidence in favor of a positive productivity effect such that immigration has a positive net effect on native employment while offshoring has no effect on it. We also find some evidence that offshoring has pushed natives toward more communication-intensive tasks while it has pushed immigrants away from them.

Survey of knowledge

Like Boyes I begin my classes with a simple survey - I ask the following:

1. Who is the "father" of communisim?

2. Who is considered the "father" of capitalism?

In the 15+ years of surveying introductory students of economics (freshmen or sophomores) well over 50 per cent can answer Marx to the first question. Under 5 per cent answer Smith to the second and over two thirds cannot even venture a guess.

This tends to support Boyes, very, very few of our students have exposure or retention to the big ideas that shape the discourse of freedom, liberty and responsibility.

Wednesday, November 10, 2010


Watching the Obama Press Conference following the election a reporter asks "What can the government do to create jobs?"

If you have not done so go to youtube and find Linda McMahon asking Richard Blumenthal how you create a job. Amazing and to think Blumenthal won.

At the beginning of every MBA course (and often other courses) I teach, I have them fill out a survey. The survey is noted below:
Part 1
The following asks for your opinion. A scenario describing a problem is presented and four possible ways to solve the problem are provided. For each of the possible solutions to the problem listed under each scenario, choose which of the following five options best represents your attitude.
a. Completely agree
b. Agree with slight reservations
c. Neither agree nor disagree
d. Disagree with slight reservations
e. Completely disagree

At a sight-seeing point, reachable only on foot, a stand selling bottled water has been established. The bottled water is sold to thirsty hikers. The price is one dollar per bottle. Early each morning 100 bottles are carried up the hill. On a particularly hot day 200 hikers want a bottle of water. How do you evaluate the following means to distribute the water among the hikers.
Raising the price on the water until the number of hikers willing and able to purchase the water equals the water available.
Allocating the water on a first come first serve basis at $1 per bottle.
The government decides who gets the water.
Having the hikers enter a lottery to see who gets the water.

The normal number of consumers purchasing gas at the Mobil station is 1000 per day. The station could handle no more than 1200 per day. The day following a news report of possible gas shortages, 3000 cars show up to purchase gas. Using one of the five listed choices above, please indicate how you feel about the following ways to allocate the gas.
.An increase in the price until the number of people willing and able to purchase the gas equals the amount offered for sale.
Selling the gas at the same price on a first-come-first-served basis.
The government buys the gas and distributes ration coupons according to its own judgment.
Selling the gas following a random procedure such as a lottery to determine who receives the opportunity to purchase the gas.

Hot dog vendors at the local baseball stadium have limited ability to cook hot dogs and they keep running out of hot dogs before the 7th inning. Using one of the five listed choices above, please indicate how you feel about the following means to solve the hot dog shortage at ballgames.

Increase the selling price of hot dogs until sales drop enough so that the vendors stop running out of hot dogs before the end of the game.
Pass out just the same number of coupons as there are hot dogs to fans when they enter the stadium and require a coupon to purchase a hot dog.
Have the vendors start selling later in the game, that is, prohibit the vendors from selling hot dogs until the 5th inning.
Limit the number of vendors who are walking through the stands selling hot dogs.

A huge snowstorm in upstate New York causes the demand for snow blowers to increase dramatically. So many people want snow blowers that stores begin to run out and many people who say they really need this equipment are having trouble obtaining it. This problem should be solved by:
Allowing the price to rise so those who are willing and able to pay the highest prices get the limited number of snow blowers.
Require that snow blowers be sold only to those people who have snow blower coupons issued by the local government.
Require that stores selling snow blowers not raise prices and use a lotter to decide who gets to buy one.
Require that stores not raise prices and use a first come first serve rule until sold out of snow blowers.

A doctor is able to handle 30 patients per day on a normal day. One day the flu has sent more than 60 patients to the doctor. Evaluate the following ways to decide who gets to see the doctor.
the doctor raises the price until the number the doctor can see equals the number willing and able to pay the price.
the first patients to show up at the office get to see the doctor – later arrivals don’t get to see the doctor
the government decides who is to see the doctor.
a lottery takes place and the winners get to see the doctor.

There are many more kidney patients needing new kidneys than there are kidney donors. Using one of the listed five choices above, please indicate how you feel about the following means to distribute the kidneys among the patients.
Allow the patients to pay donors a price sufficient to equalize the number of kidneys needed or demanded and the number provided.
Allocate the organs on a first-come-first-served basis.
The government pays for the operations and provides the organs according to its own allocation system.
Provide the organs according to a random procedure such as a lottery to see who receives the organs.

The internet is becoming so popular worldwide that access is congested; many people are unable to sign on when they want. How would you evaluate each of the following solutions to the congestion problem?
Allow internet users to pay a fee to obtain access to the internet. The fee would rise or fall as the number of users rose or declined.
The government decides who gets access to the internet.
Each person simply attempts to get access – those attempting to obtain access first would get access while those attempting later might be denied.
A lottery is held and the winners receive access for a given period of time.

Part 2
Who is John Locke?

Who is Adam Smith?

Who is John Keynes?

Who is Milton Friedman?

What are natural rights?

What are rights? List as many as you can.

Try it and see what your outcome is. Out of 85 students none chose the market in every scenario and only 6 chose it when dealing with health care. Only 3 students got the second part correct.

No wonder a reporter asks "How does the government create jobs?"

The Theory of Moral Sentiments - Part 4

Podcast 4

This is a fascinating portion of the book and Klein's discussion is illuminating as he uses the twin concepts of: spectatorial and organon to understand Smith's cosmology. I really can't do justice to Klein's analysis - I recommend a listen of this podcast.

Tuesday, November 9, 2010

The Quiet Coup - Magazine - The Atlantic

This interesting article is referenced a an excellent blog post.

I follow this Russian blog and recommend it, like the Economist or the Financial Times, an outside persepective of the US is often insightful. This blog - Sublime Oblivion writes:

Introducing the Karlin Corruption Index (KCI)the scale is 10 (least corrupt) to 1 (Most Corrupt - interestingly North Korea is a 2 with 4 areas in the 1 spot.) and the blogger describes the US as an 8 trending to a 7

You might also click over to his Democracy ratings to see if you agree that on his 6 level scale the US is slipping rapidly toward illiberal democracy. (he says about the US - ■USA – highest prison population; corporatist surveillance state; runs transnational Gulag; increasingly arbitrary power structures, institutional groundwork being laid for Caesarism? (1, 2); but strong freedom of speech traditions relatively unmarred by PC & libel laws; strongly trending to Illiberal Democracy. ↓↓)

Writing about corruption:

These are countries where corruption begins to acquire big dimensions amongst the elites, but remains small at the lower rungs. The United States (↓) is here because privileged corporations enjoy extensive government largess, often at the expense of ordinary citizens (especially in the defense, oil, and financial services sectors). For the skeptics, The Quiet Coup by Simon Johnson is required reading.

The trends are negative. Corporate influence (disguised under Tea Party populism) is growing under the “socialist” (LOL) Obama administration: the overturning of corporate funding limits on political campaigns, BP’s requisitioning of Louisiana police to suppress freedom of speech, and the uncontrolled growth of the privatized anti-terrorism sector are just three examples that come to mind. Though these might not make it into the considerations of the experts and businesspeople gauging US “transparency”, I don’t think that makes it any less corrupt for all that.

Though the elites feed off the public trough, corruption is much less prevalent at lower levels. In countries like Russia or Mexico, corruption in institutions like the traffic police is the rule; in the US it isn’t even an exception – it’s practically unheard of. That’s because in rich, socially cohesive nations, corruption is simply too expensive for simple people. For this reason, I think the US is still above a 6 at the very least, and probably above a 7. But as the popular saying goes, the fish rots from the head. If the economy stagnates and corrupt elites continue misleading the public with “spontaneous” Astroturf organizations, then who knows, by 2020 you could be driving down Route 101 when a policeman pulls you ever and asks if you want to “reach an understanding”.

Other countries in this category include the UK (↓), France (↓), Japan and Israel (↓), where things are ostensibly all prim and proper but the elites live by different rules from the rest in the darker corners. US states like Texas, New York, California and Ohio are probably in this category.

Simon writes in the Atlantic:

The oligarchy and the government policies that aided it did not alone cause the financial crisis that exploded last year. Many other factors contributed, including excessive borrowing by households and lax lending standards out on the fringes of the financial world. But major commercial and investment banks—and the hedge funds that ran alongside them—were the big beneficiaries of the twin housing and equity-market bubbles of this decade, their profits fed by an ever-increasing volume of transactions founded on a relatively small base of actual physical assets. Each time a loan was sold, packaged, securitized, and resold, banks took their transaction fees, and the hedge funds buying those securities reaped ever-larger fees as their holdings grew.

Because everyone was getting richer, and the health of the national economy depended so heavily on growth in real estate and finance, no one in Washington had any incentive to question what was going on.
The Quiet Coup - Magazine - The Atlantic

Monday, November 8, 2010

The Newfoundland lesson: during the 1930s, long before the IMF, the British Empire coped with a debt crisis in a small country. - Entrepreneur.com

As the frequency of developing country debt crises will testify, there is often a contradiction in the modern era between democracy and debt. Voters elect governments that pursue populist policies which lead to debt crises. The countries then turn to the International Monetary for help. The IMF attempts to impose conditions that set the stage for economic slumps. The governments became highly unpopular and sometimes suffer counterrevolutions. The recent histories of Indonesia and Argentina are case studies in such a process. But there are other less dramatic examples in Latin America, Africa, and Asia of tension between democracy and IMF-driven austerity.

The Newfoundland lesson: during the 1930s, long before the IMF, the British Empire coped with a debt crisis in a small country. - Entrepreneur.com

Sunday, November 7, 2010

Acne Cream? Tax-Sheltered. Breast Pump? No.

No surprises here . . . after one stops laughing one might reflect on the unintended consequences of an expanding state sector coupled with an amazingly complex tax code.

From Oct. 26 NY Times

Denture wearers will get a tax break on the cost of adhesives to keep their false teeth in place. So will acne sufferers who buy pimple creams.

People whose children have severe allergies might even be allowed the break for replacing grass with artificial turf since it could be considered a medical expense.

But nursing mothers will not be allowed to use their tax-sheltered health care accounts to pay for breast pumps and other supplies.

That is because the Internal Revenue Service has ruled that breast-feeding does not have enough health benefits to qualify as a form of medical care.

Saturday, November 6, 2010

The Theory of Moral Sentiments - Part 3

This is another in a series of posts anticipating the July 2009 Liberty Fund colloquia dealing with Adam Smith

Part 3 - Duty

Chapter 1 - Self examination

What is required of the individual - that is our own duty. How do we judge ourselves? This section is the most intense application of the impartial spectator.

"The principle by which we naturally either approve or disapprove of our own conduct, seems to be altogether the same with that by which we exercise the like judgments concerning the conduct of other people. We either approve or disapprove of the conduct of another man according as we feel that, when we bring his case home to ourselves, we either can or cannot entirely sympathize with the sentiments and motives which directed it. And, in the same manner, we either approve or disapprove of our own conduct, according as we feel that, when we place ourselves in the situation of another man, and view it, as it were, with his eyes and from his station, we either can or cannot entirely enter into and sympathize with the sentiments and motives which influenced it."

1. View our conduct as we image the impartial spectator would. (This is the only looking glass by which we can, in some measure . . . scrutinize the propriety of our won conduct." III.1.5

2. Praise virtue and condemn (punish) vice.

Chapter 2 - Praise v blame

1. Must deserve the praise or blame by motive and action.

2. Behavior should conform to measure of conduct we know to exist (these are the emergent and evolutionary informal norms and conventions as well as formal institutions)

3. Smith argues we are endowed with a desire to please others and a desire to be pleasing in character.

4. Golden median or place between pleasure and pain. And pain a greater motivator than pleasure.

5. Poets v mathematicians

6. Judgments from society (external) and conscience (internal) - how are these a part of the impartial spectator?

Chapter 3 - Conscience

1. Natural eye of the mind (eye of the impartial spectator)

2. Impartial spectator

3. China example hundred million dead v my pinky - self love countered by reason, principle, conscience

4. Famous perspective (Stoic) act and regard ourselves "as a citizen of the world, a member of the vast commonwealth of nature" III.3.10

5. How to get self command? - page 145 "sentiments of the real or supposed spectator of our conduct."

6. 2 philosophies - whining and melancholy v Stoics

7. Back to a pinky (147) fortitude in the face of scratched finger not the same as lost leg

8. Happiness = tranquillity and enjoyment

9. Misery = discord

10. Man of perfect virtue - page 152

Chapter 4 - Self deceit and general rules

Challenge to self judgment - self deceit

Response - general rules from experience

1. Rules emergent and evolutionary

2. Come from moral faculties, natural sense of merit and propriety

3. Also called general rules of conduct - Hayek

Chapter 5 - Influence and authority of the rules of morality

1. Key point - page 102-3 - course clay can reach a minimum standard, not perfection

2. Is God the ultimate enforcer of these rules of conduct/morality - 165?

3. Basis for moral faculties - reason and/or moral sense

4. WN anticipated on pages 166 - incentive of "success in every sort of business" and 168

Chapter 6 - role of Duty

1. Self interest in "common, little and ordinary cases" - follow the general rules

2. Self interest in extraordinary and important objects"(173) - subject to passion called ambition - this can be very positive.

3. Rules of conduct - grammar v aesthetics that is p175 precise, accurate and indispensable (commutative justice) v loose, vague and indeterminant (distributive justice).

Podcast 4

"Thinking of yourself as being observed, not comfortable place to be. Thinking about it unconsciously all the time. Allows for independence, but founded on dependence of internal spectator which itself is derived from society."

Podcast 1 - Introduction

Dan Klein anticipates the discussion of justice and the famous differences between commutative and distributive justice and the rules that govern each:


Smith is explicit about that remaining "loose, vague, and indeterminate." Rules like grammar, that are precise and accurate, versus the rules of aesthetics, what critics lay down for what is sublime and elegant in writing.

Everything in TMS except for Smith's demand for commutative justice which he says is precise and accurate and indispensable like grammar--the punishment fitting the crime and that you shouldn't commit crimes that violate property or contract, which are black and white; also adds reputation, shouldn't do something to injure someone's reputation (p. 84 doesn't mention reputation but other times does). Apart from that justice--reserves that justice as justice, means this commutative justice--everything else for Smith is in the category of "vague, loose and indeterminate."

Friday, November 5, 2010

The Theory of Moral Sentiments - Part 2

Part 2 - Merit and Demerit

1. Two types of sympathy - direct (with the actor) and indirect (with the object)

2. Role of government in justice

3. Interesting analysis of resentment and punishment - sentinel example.


Podcast 3

"What is Part II about? Merit and demerit: consequences and effects of actions as well as the motives. Gratitude and resentment, compounded sentiments: the action one is grateful for.

Justice and beneficence, discussed in first podcast: Justice can be enforced with force, whereas beneficence has to be voluntary and free--among equals. Justice like grammar is precise; justice is of a negative nature. You don't praise for getting grammar or justice right; satisfying grammar or justice is not cause for praise or approbation. Beneficence, like aesthetics, is both positive and negative.

P. 82-84, "sacred laws of justice"--some of best writing so far. You think more about yourself than other people do. "Though every man may, according to the proverb, be the whole world to himself, to the rest of mankind he is a most insignificant part of it...". "In the race for wealth, and honours, and preferments, he may run as hard as he can, and strain every nerve and every muscle, in order to outstrip all his competitors. But if he should justle, or throw down any of them, the indulgence of the spectators is entirely at an end. It is a violation of fair play, which they cannot admit of...". "To be deprived of that which we are possessed of, is a greater evil than to be disappointed of what we have only the expectation," discussed last time. P. 87 and following: utility not our primary source of sentiment, but notions of justice are.

I think the sources for Smith's or for Hayek's thinking about spontaneous order would be diffuse. For Smith, I think Mandeville must have been big, as well as his teacher Hutcheson, and probably Hume's economics and other evolutionary tendencies. Ferguson was Smith's contemporary (in fact, it seems they were born nearly the same week), and I wouldn't say Ferguson was particularly influential on Smith. As for Hayek, again, I don't think you can point to a specific source. Surely Menger and Mises would figure prominently in his years up to age 30. I think Hayek first uses spontaneous order in The Constitution of Liberty (1960, 160), and credits Michael Polanyi's The Logic of Liberty (1951) for it. But Hayek addresses the general idea, and refers to Hume and Smith, as early as his 1933 lecture "The Trend of Economic Thinking." Someone, btw, who I think was much more influential up to that time than shows in the citations is Herbert Spencer. I think that a lot people, perhaps Hayek, were influenced greatly by him but didn't cite him because doing so would be politically/academically incorrect."

Thursday, November 4, 2010

Post election - Arizona's challenge

The challenges facing Arizona over the immediate and short term are daunting. Robert Robb's column today and blog present these challenges, the legacy of 20 years of bipartisan responsibility in our state.

Robb points out:

State spending for this year is $9.5 billion. State revenues for next year are estimated to be $8.2 billion. There is no way to reconcile those figures that will not be hugely politically unpopular. And Republicans will have no place to hide.

Boyes is aware, as am I, that the cuts coming in higher ed are reflective of the spending cuts that are required. But given the size of the problem, I wonder, can spending cuts provide the sole source of reduction?

Beyond that, as Benjamin Friedman argues in The Moral Consequences of Growth, I see a challenge stemming from the sense or feeling of being left behind and a fear of the unknown in broad parts of our society. This fear is understandable and yet, the resulting intolerance, discord and anger pose a threat as large as leviathan.

Robb points our a lesson we need to never forget - just like the movie Face Off - Republicans are merely Democrats when it comes to leviathan.

"Economists can debate all day long about countercyclical fiscal policy. The American people aren't buying it. They didn't like bailing out the banks and car companies. They didn't like combating the recession with a big increase in federal spending. And they didn't like enacting a new big entitlement, Obamacare, when the federal government is broke.

Voters wanted an end to it. Democrats seemed to want even more, so voters turned to Republicans to put a stop to it, even though it was Republicans who started the bailouts and stimulus."

Without civil discourse and a recognition of the shared responsibility I anticipate further deterioration in the fiscal condition of our state and country which will be reflected in a moral degeneration that is seen in zenephobia, anti or opposition based rhetoric and a climate of distrust and outright hostility.

The Theory of Moral Sentiments - Part 1

This posting and the postings over the next week reflect the preparation for the Liberty Fund colloqia dealing with Adam Smith that I completed back in 2009.

For anyone interested in a discussion of the impartial spectator what James Otteson calls the moral procedure of THS - I can recommend his book - Adam Smith's Marketplace of Life. Otteson is a philosophier who, amoung other things in this book reflects on the Adam Smith problem and the nature of Smith's philosophy and rhetorical project.

Part 1 - Propriety

Section 1

Chapter 1 - sympathy

1. Imagination key to setting up process of impartial spectator

2. Need to place ourselves in position of person to determine propriety

3. Dread of death (pain a great incentive)

Chapter 2 - Pleasure in mutual sympathy

1. Moral context that of community/society and therefore part of body politic

2. Pain > pleasure

Chapters 3 and 4 - judge propriety/impropriety of others

1. Golden Mean (page 17) - not moderate but appropriate response

2. Actions judged by cause and effect

3. Key point - page 20 - we judge as proper those things first that we see as true and real, then that have utility, but utility is secondary.

Chapter 5 - amiable v respectable virtues

1. Soft v awful virtues

2. Soft - humanity

3. Awful - self denial (self command?)and self government

4. Perfection of human nature cannot be attained - perfect self command - 25

5. Virtue > propriety (25) - huge distance between admired/celebrated and "merely" approved

Section 2 Passions that have propriety

Chapter 1 - Passions from the body

1. Examples - hunger, sex - need virtue of temperance

2. Passions can come from imagination - love, etc. ..

Chapter 2 - Passions from the imagination

1. Love (33)

2. Great line - page 34 - use reserve when discussing friends, studies, profession

Chapter 3 - Unsocial Passions

1. Hatred, anger and resentment must be brought down to an appropriate level

2. 37 - hatred and anger the greatest poison to happiness

Chapter 4 - Social Passions

1. Amiable passions - love, benevolent affection

Chapter 5 - Selfish Passions - joy and grief

Section 3 - Impact of Prosperity and Adversity on propriety

Chapter 1 - sympathy and joy

"What can be added to the happiness of the man who is in health, who is out of debt and has a clear conscience?" - 45

So, most people, according to Smith are in the above state so there is no real additional prosperity prospect, only potential adversity.

Chapter 2 - ambition "the great purpose of life is to bettering our condition"(50)

Chapter 3 - corruption of moral sentiments

Distinction between getting respect via wisdom and virtue or wealth and greatness (62) and the "great mob of mankind" are motivated and corrupted by the former.

Podcast 2

"Daniel Klein writes:
Pietro, yes, I see great parallel between Hayek and Smith, though Hayek never did any moral analysis like TMS, and scarcely refers to TMS (in fact, hardly any of the epic classical liberals of the renaissance period, say 1947-1990, seem to have much grasp of TMS). You suggest that in TMS Smith is trying to do a 'supply and demand' of sympathy. I'd caution against drawing too strong a parallel between the moral dynamics and market dynamics. Yes there are some important parallels, and exit and innovation play key roles in both, and arguably in both a presumption-of-liberty punchline stems from knowledge's richness and particularism, but, as you note, the moral ecology is without money and prices -- or at least goes much farther beyond money and prices. The "culture market" -- from the arts to the most deep-seated, existential sources of meaning and identity -- really is a lot different from the toothpaste market.

Adam, yes, I think propriety has to do with fit with community norms, customs, rules, while (becoming) virtue with going one better. These, however, are frames of analysis. When we go one better we identify or imagine a higher community, and it is propriety to that higher community that makes for (supposedly) praiseworthy becoming virtue in the frame of the lower community. See for example the "exalted propriety" on p. 192.

Adam, yes, I think Smith has a vision (a hope?) of a moral ecology wherein people are prompted to take an ever more impartial view of matters, and in this way continually approach a better sense of moral aesthetics, perhaps like an infinite sequence that converges toward a limit. Arguable, Smith's impartial spectator is that limit, a being of universalist wisdom. I understand that Kant somewhere says that Smith was his favorite among the British moralists. Remember, "the man in the breast," the conscience, is not the impartial spectator, but rather the supposed impartial spectator, the representative of the impartial spectator, etc.

But we never get close to the limit. Moreover, one might argue that as we go along the limit in fact changes. James Otteson's book Adam Smith's Marketplace of Life (Cambridge 2002) interprets Smith's moral ecology as an invisible hand process.

Eric H., I like your sentence, "Basically Smith is saying that society is protected by imagination." I find that your comment is getting at the notion that the impartial spectator -- in the sense of a being universally emanating universalist wisdom (though with mixed success) -- corresponds somehow to the being whose hand is invisible.

I now better see, John Strong, your point. Yes, when we disagree significantly with someone over deeper beauties (4th source), we typically moderate in the situation, we temper, we show courtesy, maybe showing more respect for him than we would in other situations. We do this partly out of regard for proprieties at the 1, 2, and 3 sources.

Incidentally, I feel that Smith is somewhat partial toward such bargainers, as opposed to challengers. The challenger is respectful to the opponent, but not deferent. The challenger -- think Thomas Paine, Jeremy Bentham, Frederic Bastiat (often), Lysander Spooner, Ludwig von Mises, Murray Rothbard, Thomas Szasz, Robert Higgs -- challenges the opponent's fundamental judgment -- deeper root judgment (hence "radical") -- and doing so challenges the opponent's claim to eminence, and hence challenges the cultural system that confers eminence on the opponent. I find that, at least from our contemporary viewpoint, Smith gives short shrift to challengers.

Adam, regarding the invisible hand of the moral ecology, you write: "communities that approve of destructive behavior will not last long and those that don't will persist." I'm not sure how widely you mean "communities." Say we distinguish between communities within Britain and Britain as but one community within humanity. Within Britain, yes, by and large, to what you say, so long as we confine such communities to voluntary means; the king or civil magistrate, on the other had, might, by other means, do destructive things and prosper by it. At the level of Britain as a "community" among humanity: This very broad "survival of fittest" type mechanism is perhaps more relevant to WN where Smith writes of the stages of society and the emergence of "our present sense of the word Freedom" (WN p. 400). But in TMS, it seems to me that he focuses more on mechanisms internal to a single moral ecology, and ascribes melioristic tendencies to its internal workings. There is very little in TMS that speaks to a successful nation exporting its culture and norms, or morally colonizing its neighbors. And there is little about the global selection of national communities on the basis of the success of their moral ecology -- in fact, at the moment, I can't think of anything along such lines in TMS -- please correct me if I am overlooking anything.

A very important question, in my mind, is the kind of setting TMS is assuming for the moral ecology. Perhaps in some settings the meliorism, the set of moral/cultural invisible-hand mechanisms, is overmatched by counter mechanisms?

Do the invisible-hand mechanisms have the upper hand in the moral ecology of America 2009?"

Wednesday, November 3, 2010

Post Election in Arizona

Arizona Governor Jan Brewer
November 3, 2010

Governor, congratulations on your victory. Now it is time to get moving in enhancing Arizona’s economic development. Arizona has been given a gift by the voters of California. The elections of Jerry Brown and Barbara Boxer ensure that California will continue to penalize entrepreneurs and businesses. Floods of companies and entrepreneurs and those fed up with the welfare state of California will soon be looking for a new residence. It could be Arizona. What must occur is:
1) Cut taxes – all taxes.
2) Cut regulations. Ensure that establishing and starting a business in Arizona is easier than in any other state.
3) Enhance efforts to privatize services now provided by governments.
4) Enhance education – do that by enhancing the charter school system and implement a full voucher system. Enlist people like Michele Rhee (former Superintendent of Instruction in Washington D.C.) to eliminate regulations and impediments to educational reform.
5) Cut government spending. Eliminate departments. Privatize services.
6) Privatize, privatize, privatize. Do not create new departments to recruit for Arizona or attempt to help new businesses. The only way to attract new business is to make it easy for them to do business and invest earnings into expansion and employment.

William J. Boyes
Professor of Economics
Arizona State University

Using Evolutionary Theory to Predict Economic Recovery.

Interesting idea that is gaining traction in economics - Matt Ridley has 2 excellent books (he is a biologist writing about economics and emergent systems).

The authors of this study argue:

“By treating the world trade network as an evolving system, theory predicts the trade network is more sensitive to evolutionary shocks and recovers more slowly from them now than it did 40 years ago, due to structural changes in the world trade network induced by globalization,” the authors state.The concept of modularity, which in biology refers to a structure that is part of a larger system but can function on its own, is key to their findings. In evolutionary theory increased modularity leads to more complexity, and a greater ability to withstand shocks. But globalization has decreased modularity in world trade and led to a more homogeneous structure, leading to deeper recessions and longer recoveries."

Tuesday, November 2, 2010

Coffee Party Manifesto

I love Bill Easterly's use of humor . . . this is a very clever approach to encouraging a thoughtful consideration of liberty, civil society and toleration.


Monday, November 1, 2010

Thoery of Moral Sentiments and Liberty Fund

Last year I was very, very fortunate to be invited to the Liberty Fund Colloquia “Liberty and Responsibility in Adam Smith” which ran July 6-12, 2009. This event exceeded in impact any other experience and has lead me on a course to examine the foundations of a free society. Below find the reading list that included a survey of the body of work which was discussed at what is affectionally called Smith camp.

This event is designed for "young" scholars, but the invitation of a post 50 year old teacher reflects the elastic conception of the term used by Liberty Fund. I would encourage anyone interested in Adam Smith, a system of natural liberty and the contemporary application of morality to economics to reflect on these readings and to express your interest to the Liberty Fund. Perhaps you too might have the opportunity to attend Smith Camp.

Liberty Fund - http://libertyfund.org/

An amazing resource for anyone interested in Adam Smith and his seminal work - The Theory of Moral Sentiments is the EconTalk book club that examined the book over 6 podcasts. Russ Roberts and Dan Klein do an amazing job of introducing and discussing this important book.

EconTalk Book Club - http://www.econtalk.org/bookclub.html

I am currently reading James Otteson's Adam Smith's Marketplace of Life a wonderfully clear argument that Smith's system of morality and ethics is emergent. I have found that reading Otteson and rereading TMS clarifies for me the impartial spectator process and, more importantly, helps me to understand the emergent process by which the 4 elements that Smith advances in TMS - justice, benevolence, prudence and self command emerge and interact to advance a system of natural liberty founded in virtue.


Session I: Theory of Moral Sentiments, Parts 1 and 2 (99 pages).

Session II: Theory of Moral Sentiments, Parts 3 and 4 (84 pages).

Session III: Theory of Moral Sentiments, Parts 5 and 6 (70 pages).

Session IV: Theory of Moral Sentiments, Part 7 (78 pages).

Session V: “Considerations Concerning the First Formation of Languages,” Hume’s letter to Smith dated 28 July 1759 (letter #36 in Correspondence, pages 42–44); and Smith’s letter to Gilbert Elliot dated 10 October 1759 (letter #40 in Correspondence, pages 48–57) (33 pages).

Session VI: Lectures on Rhetoric and Belles Lettres, Lectures 2, 3, 6, 8, 11, 21–25, and 28 (72 pages).

Session VII: Lectures on Jurisprudence, B (Report dated 1766), pages 397–462, 471–515, 521–522, 528–535, and 538–544 (144 pages).

Session VIII: Wealth of Nations, “Introduction;” and Book 1, Chapters 1–5 and 6–8, pages 10–56 and 65–104 (86 pages).

Session IX: Wealth of Nations, Book 2, “Introduction,” and Chapters 1, 2, and 3, pages 276–285, 320–329, and 330–349; and Book 3, Chapters 1 and 4, pages 376–380 and 411–412 (70 pages).

Session X: Wealth of Nations, Book 4, “Introduction” and Chapters 2, 7, and 9, pages 452–472, 556–566, 572–577, 586–587, 610–618, 622–627, and 687–688; and Book 5, Chapter 1, and Parts II and III, pages 689–701, 708–716, and 723–729 (85 pages).

Session XI: Wealth of Nations, Book 5, Chapter 1, Article II, pages 758–797 (39 pages).

Session XII: Essays on Philosophical Subjects, “The History of Astronomy,” “The History of Ancient Physics,” and “The History of Ancient Logics and Metaphysics” (pages 33–129) (96 pages).

Session XIII: Essays on Philosophical Subjects, “Of the External Senses” and “Of the Imitative Arts” (pages 135–213) and “Letter to the Edinburgh Review” (pages 242-254) (78 pages).