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Posts Tagged ‘economics’

I love reading Paul Krugman’s NY Times columns and especially the comments that follow because they offer a fascinating glimpse of certain moral principles that are completely alien to my personal philosophy. It is like going into a country where they seem to speak the same language; yet their words mean completely different things than what you are used to.

For instance, in today’s article, PK rages against the practice of high speed trading and certain kinds of financial speculation on the ground that they are socially worthless. But at least he merely suggests higher income taxes to deal with such practices. His commenters go several levels further. They are so — oh so — outraged that some rich people are merely following Capitalism 101 rather than contributing to some “social good” that they want the guys arrested; some go further and demand a popular revolution to fundamentally steer the nation towards social democracy.

Not so long ago, Soviet Russia and countries under its influence measured not just economic activity but everything from art to films according to their social utility in furthering the principles of communism; those that did not pass the test were banned or worse. So the NY Times readers are continuing a worthy tradition.

What can I say? In my universe, freedom — freedom to invest or speculate, to be foolish or smart, to give back to society or be a rich miser — is of far, far greater importance than judging whether the exercise of freedom actually contributes to some social good. So the morality of the NY times commenters with their particular sense of justice and fairness is alien to me. Once upon a time, when faced with such morality, I would rage and scream silently inside at the grotesque sense of entitlement displayed. These days, I am merely amused; it is a bit like going to an alternate universe full of strange creatures.

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While I am not an expert on global warming, the available literature seems to indicate that when everything is considered, the damage of global warming is probably not as high as the damage of the proposed solutions to global warming. That’s of course not to discount the danger or reality of the phenomenon — global warming is undoubtedly real and very serious — but merely to say that too many proposals will achive very little at too much cost (both in terms of actual GDP and in their effect on the lives and cultures of peoples).  The existence of a serious problem does not mean we should jump and “do something”, we need to analyse whether what we do might actually make our overall lives much worse than if we did nothing.

Here’s Jim Manzi making the case against a carbon tax or similar approach to address global warming.

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  •  While GM and Chrysler are in their last throes, Ford is trudging on. Obama may have fired GM’s CEO and told Chrysler exactly what to do but he has had no such luck controlling Ford. The company has refused offers of taxpayer life support and believes it can not only survive this recession but in fact prosper. It’s CEO, Mullaly does not hide his admiration for Toyota and believes that in a few years Ford will be viewed on par with the Japanese giant. “I would love people in the future to say, ‘There’s Toyota and Honda and Ford,’ ” says Ford’s North American chief Mark Fields. “We have the goods to do it.”
  • It may be the strangest worm to ever hit the internet. The unknown creators of the Conficker worm have earned praise for their breathtaking sophistication even from the supranational security forces that are currently trying to track them down. So far the worm has done nothing except morph into more sophisticated variants but estimates for the number of infected — and thus controllable — computers range from five to fifteen million. Microsoft has announced a $250,000 bounty for information leading to the identity of the hacker who created it. Everyone only agrees on two things: it is the most complex and brilliant piece of malware written in years and no one knows what it can really do if it’s controller decides to wake it up.
  • Today, the federal excise tax on every pack of cigarettes will jump from 39 cents to $1.01, the single largest federal tobacco tax increase ever. Future plans in the works include outlawing risky sports, putting a 1000% tax on cheeseburgers, and having fines for too little exercise; eventually anything that places a ‘needless burden on society’ will be either banned or taxed to such an extent that everyone will be forced to conduct themeselves in an exemplary manner. Ok, I made up the last sentence. But you get the idea. You see, it is for the sake of the children.
  • Brooke Oberwetter has filed a lawsuit against the U.S. Parks Police officer who arrested her last year. She was arrested while — and apparently because — she was quietly dancing to her iPod during a planned celebration at the Thomas Jefferson Memorial in Washington, D.C.
  • Celebrities are getting strange fantasies involving President Obama and have no qualms about admitting it. “I’ll collect paper cups off the ground to make [Obama’s] pathway clear,” Halle Berry recently told the Philadelphia Daily News, “I’ll do whatever he says.” And in February, author Judith Warner used her New York Times blog to confess that “The other night I dreamt of Barack Obama. He was taking a shower right when I needed to get into the bathroom to shave my legs.”
  • A beautiful piece by former Seattle police chief Norm Stamper on drug legalization.

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Alex Tabarrok makes a good point:

Notice how the term nationalization confuses the issue.  First, it suggests government ownership of the banks which would indeed be a disaster.  People in favor of free markets will rightly want to avoid any such outcome but ironically it’s the current situation of “wait and see,” and “protect the banker,” which is likely to lead to an anemic recovery and eventual government ownership.  Second, it confuses people on the left who think that nationalization is a way to insure that taxpayers get something on the upside.  That idea is a joke – there is no upside.  Taxpayers are going to have to pay through the nose but the critical point is that the taxpayers must pay the depositors whom they have guaranteed not the banks.

The debate so far has been framed between a “bailout” and “nationalization.” But the public rightly sees the bailout as a way to protect bankers and thus we get pressure for government ownership, which has already happened in part through government control over banker wages.  Bankruptcy in contrast is a normal free market procedure, it emphasizes that the firm has failed and current management should be removed.  Framing the issue in this way, for example, makes it clear that only the depositors should be protected and under reorganization there should be no control over wages on future management (wages are going to have to be high to get anyone to take on the task).  Finally the idea of bankruptcy makes it clear that the goal is to get banks solvent, under new management, and back under private control as quickly as possible.

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I present below, without comment, a recent interview of Schiff (investor, Austrian economist, accurate predictor of the current crisis) where he talks about the economic crisis and the stimulus. He predicts hyper-inflation worse than anything we have ever seen if we keep going down this path.

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• Tom Daschle — big government healthcare lord with plenty of tax issues  — is out. Obama admits he screwed up. Refreshing.

• He might actually kill the terrible protectionist clause from the stimulus. I certainly did not expect this. 

• He has selected an excellent nominee for the secretary of commerce post, it’s a Republican who once voted to abolish the position!

These are early days yet. However, so far, from a libertarian viewpoint, Obama has proved to be excellent in the areas Democrats are supposed to be good at (due process, civil rights of detainees) and if his appointments and attitudes are any indication, significantly better than Bush in the areas the Democrats are supposed to be bad at (economics). I would be interested in seeing what stance he takes though if the Dems start pressing more contentious legislation (card check, fairness doctrine).

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An interesting post from Robin Hanson on the stimulus bill. Here’s an excerpt (emphasis mine):

Wise taxpayers who get stimuli tax rebate checks should mostly save them, realizing that future taxes must rise to pay for those checks.  For similar reasons, wise taxpayers should also spend less upon hearing about government spending increases.  So with wise taxpayers it is not obvious that tax rebates or government spending increases would help much with the downturn. 

The consensus among macro-economists seems to be that people can in fact be fooled by such stimuli, but as Tyler indicates, it is not clear which policies most fool us.  In particular, the more public attention we give to the stimuli, the less they might work.  We might make people realize that they need to compensate via saving, and the more we scare folks into thinking we need huge stimuli, the more we might scare them away from normal economic activity levels.

So should we stop explaining macro-economics during this crisis, and stop saying how desperately we need stimuli?

Read the whole thing. Also, if you are really into it, head over to Marginal Revolution to follow the ongoing Cowen-Krugman argument on stimulus and spending.

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I was at a birthday party today when some of my friends started talking about the economic crisis and the stimulus. This is, more or less, how the conversation went.

Person A : Well, once the stimulus is passed there should be more grants because the NSF is getting so much money.

Person B : Yes, and it seems they have to spend it immediately, so basically any proposal that was a borderline reject will pass this time.

Person C : But there is a lot of extra nonsense in this bill. They are spending a billion dollars to prevent STD’s. How will that help the economy?

Person B : But that is the basic idea — the whole point is to create jobs.

Person C : So how does this help create jobs? How many people are employed to fight these STD’s?

Person B : More than you have any idea.

There’s a bit of back and forth about the STD prevention industry and its capacity.

Person C : But some say the bill should be more streamlined. Build more infrastructure. Spending on STD prevention is not the answer. They are just printing money.

Person B: No, you have to understand. The point is to put money into everything. That’s the basis of the trickle-down effect. The more areas you spend it in, the more the economy gets stimulated. It trickles down. Now if you believe this theory, it makes sense to spend. That’s what they are doing.

Person A : Actually I heard Jon Stewart talking about the ‘trickle up’ effect too. Give the money to us and let’s all save and it will trickle up.

Everyone laughs.

I was quiet during the entire discussion of course. But it felt a bit like being in a parallel universe.

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[Post edited]

From his latest column:

[W]rite off anyone who asserts that it’s always better to cut taxes than to increase government spending because taxpayers, not bureaucrats, are the best judges of how to spend their money.

Here’s how to think about this argument: it implies that we should shut down the air traffic control system. After all, that system is paid for with fees on air tickets — and surely it would be better to let the flying public keep its money rather than hand it over to government bureaucrats. If that would mean lots of midair collisions, hey, stuff happens.

I cannot make any sense of this purported analogy. Even ignoring the ridiculous comparison that glosses over distinctions between regulating commons and regulating private property, it seems that Krugman believes that if the government did not provide something, then it simply would not exist.

Here’s Nick Gillespie’s post on Krugman’s stimulus arguments.

Krugman is right about one thing though; there are both good and bad faith arguments going on about the economic crisis. I will let the reader decide which category Krugman’s column falls in.

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Tyler Cowen writes:

Yes, 40 percent of the Obama stimulus package will be a tax cut.  It’s already a talking point that “the Democrats have lost their nerve” but the reality is not so devious.  Obama wishes to deliver on his pledge to cut taxes (always electorally popular) and upon close inspection the economic team probably hasn’t found a lot of first-year stimulus spending it likes.  That leads to this obvious policy conclusion and of course it is very good news.  No, I do not think these tax cuts will drive recovery but a) less money will be wasted, and b) it shows that the Obama team is willing to flinch and be realistic, not just as a final compromise but indeed as an opening gambit.

I agree.

So far, all of Obama’s actions — from his excellent economic appointees to the current package — show that he is more a pragmatist than a far-left idealogue. Of course this does not mean his policies, economic or otherwise, will be great; merely that they will be less bad than some had feared. 

By the way, the Obama’s stimulus package is giving Paul Krugman “post-partisan depression”. Now that is definitely a great thing.

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I missed this post by Andrew Sullivan from a while back.

One reason I’m a conservative is the British National Health Service. Until you have lived under socialism, it sounds like a great idea. It isn’t misery – although watching my parents go through the system lately has been nerve-wracking – but there is a basic assumption. The government collective decides everything. You, the individual patient, and you, the individual doctor, are the least of their concerns. I prefer freedom and the market to rationalism and the collective. That’s why I live here.

Andrew, of course, is a British citizen, who was born and raised there but has been living in the US for a long time now, so his perspective is certainly worthwhile.

Now I’ll be the first to admit that this is mere anecdotal evidence which does not prove anything. Andrew Sullivan’s healthcare experience has been better in the US; there are obviously British citizens who prefer their system. However as long as we keep the anecdotal nature of this statistic in mind, there is nothing to lose by considering it. Indeed, I get the idea that a lot of dyed-in-the-wool liberals who have lived in the US all their life automatically assume that everyone who has lived in single payer prefers it. Quotes like these may at least help them open their minds to the truth.

For the truth is much deeper than that little quote by a popular blogger. Yes, the US healthcare system sucks in many ways. However any system of government mandated healthcare has fundamental drawbacks. Excessive regulation adversely affects medical research and the quality of healthcare provided. It encourages the passage of nanny-state laws designed to compel people to stay healthy. Even the claimed reduction in costs does not necessarily happen in all cases; see this article on the Massachusetts mandate. Above all there is a moral issue — a government mandate involves coercive takings and elimination of choice.

My personal preference leans towards “freedom and the market”, as Sullivan puts it. If the government has to be involved it should do so in the following ways:

1) Change the nature of regulation to light, smart ones designed to reduce costs (those associated with litigation, inefficient record keeping, bureaucratization, compliance with unnecessary rules), increase transparency/information disclosure and foster competition.

2) Replace Medicare etc. with a system of vouchers that can be spent on any health provider.

3) Retain one catastrophic government run health insurance system with a high deductible that would cover everyone in case of emergencies and other catastrophes and deal with the free-rider problem in those situations; eliminate all other government insurance schemes.

These measures are influenced by Milton Friedman’s views, espoused among other places in this article.

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Arianna Huffington’s latest article condemning laissez-faire as a failed philosophy hits all the right lefty notes. Parts of it almost seem lifted from Obama’s election rhetoric. Not wholly unexpected from a woman who once proclaimed that she only texts three people: her two teenage children and Barack Obama.

Actually, Huffington’s piece is so bad that it almost reads like a self-parody. From her depiction of Bush — a man who oversaw the biggest regulatory expansion since Nixon — as the ultimate free market champion to her refusal to even attempt any kind of analysis,  Huffington reveals herself, like so many others, as a person blinded by her love for the echo chamber she lives in. Naomi Klein’s terrible book which conveniently lumped together all her enemies into an undefinable mass that she could pummel still made a basic, incontrovertible point — times of crisis give those in power an opportunity to extend their sway. Even the Times article Huffington so approvingly links to contains some redeeming features — interesting quotes, lots of relevant history, a (correct) indictment of Bush’s disastrous home-ownership-at-all-costs policy — that make it a good read. Articles by Krugman and Stiglitz, despite their obvious bias often bordering on intellectual dishonesty, usually contain one or two nuggets of truth. Huffington’s piece, full of huffy moralizing and utter lack of intellectual depth, makes you wonder why you just gave up two minutes of your life.

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My position on the auto bailout is simple. The big three should be allowed to go bankrupt. This is true even if one ignores the moral hazard and other intrinsic costs of bailing out private firms.

Bankruptcy now is, quite simply, the best course of action not just for the taxpayer and the rest of the economy but also for the auto companies themselves. For a short but excellent analysis, read this post by Prof. Becker.

Here’s hoping that the Democrats and the Republicans, in all their partisan politicking and in-fighting, end up doing the right thing.

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Set aside 30 minutes today to watch this wonderful presentation by Bjorn Lomborg on global warming.

Lomborg is no libertarian — he is a liberal who favours a welfare state and strong redistribution through taxation — and  indeed, there is no mention of any intrinsic value of freedom and property rights in his presentation. His arguments are basically value-neutral and only rely on maximising efficiency. However, including an assignment of intrinsic value to liberty into our analysis (one corollary of that is, if the outcomes of two actions are similar, we should favor the less-coercive one) only strengthens Lomborg’s conclusions about a sane, scientific and non-reactionary approach to the problem of global warming.

It’s a great video and I am not saying that just because I agree with almost everything he says. And thanks Reason, for hosting this event and producing this video. I am glad I donate to you folks.

[Edit: Looking around the web, I find some who accuse Lomborg of cherry-picking, or at least under-stating facts to suit his views. I am a mathematician, not an expert on global warming, but I did go through those objections in detail and followed through to many of the cited papers. My opinion stated above about the essential correctness of Lomborg’s position is unchanged.]

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So far, Obama has proved to be a pragmatic centrist as far as economic policy is concerned. His decision to give quiet burial to the ridiculous windfall profits tax idea is further evidence that he didn’t mean much of the shrill left-wing rhetoric he used during the campaign season. That’s heartening.

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