Archive for the ‘Economics’ Category

Inequality and Family Culture – A Disagreement With My Wife

March 28, 2015

images-1I recently left my wife a newspaper clipping, writing “Read” on it. She returned the favor by writing “Total Rubbish!” on it.

It was a column by Ross Douthat (a Republican and Christian). He poses the question “whether the social crisis among America’s poor and working class – the collapse of the two-parent family, the weakening of communal ties – is best understood as a problem of economics or culture.” images-2It’s the latter, Douthat says, identifying post-sixties permissiveness as the key, which he faults upper classes for promoting, as acceptable for themselves, but ignoring its effects “on the less-savvy, the less protected, the kids who don’t have helicopter parents.”

My wife dissed the piece as racist and classist, and having no real answer for the problem Douthat fingers. That latter point is fair, the others not. Recognizing that lower class Americans suffer from cultural pathologies is not to blame them; indeed, Douthat again blames the better-off. And as David Brooks has argued, it’s not that lower classes lack the right values or aspirations but, rather, face obstacles living those values in their social environment.

UnknownI have discussed Charles Murray’s 2012 book, Coming Apart, seeing America increasingly divided by class; Douthat too references Murray, and also Our Kids, a newer book by sociologist Robert Putnam (of Bowling Alone fame), similarly describing a growing divide between better-educated and less-educated families.

That is the real root of the inequality we hear so much about. And, as Douthat contends (the reason I found him worth reading), money inequality is not itself the problem, that’s a symptom of the greater fact of cultural difference. It’s not that the rich hog wealth at the expense of the rest, or there’s insufficient redistribution – it’s that too many people are kept back, by cultural dysfunction, from rising out of disadvantage.

Unknown-1Two distinct American family models are at issue. In one, well-educated people marry each other and become the affluent helicopter parents Douthat mentions, raising kids to get similarly educated and replicate the model. Putnam says they give kids protective “air bags” that aren’t usually deployed in the other type of family, which tends to feature neither marriage nor higher education nor (in consequence) affluence. Unknown-2And that too is self-perpetuating. Sure, single moms often make heroic efforts; but the fact is that, on average, for a host of understandable reasons, kids tend to do much better in two-parent families. (Especially well-educated affluent ones.) Children from such families do better on the “marshmallow test” for impulse control, which has been found powerfully predictive for future life success. Stressed single mothers just cannot provide the quantity or quality of parenting that married couples can.

That, again, is America’s great cultural divide, it’s the big reason behind the economic divide – and it’s growing larger. The wage gap keeps widening between the college-educated and others. Unknown-3And while marriage rates remain quite high among well-educated people, for the rest the bottom has fallen out, with a majority of younger mothers now being unmarried.

You cannot argue that economic difficulties are driving this. Because, for all the whining about “these economic times,” in fact – as Douthat highlights – even lower-income citizens have more money, and more safety-net support, than in earlier generations. Yet, he says, those past generations “found a way to cultivate monogamy, fidelity, sobriety and thrift to an extent they have not in our richer, higher-spending present.” And Putnam shows many key ways in which affluent and non-affluent families differ much more now, in habits and culture (like how they talk to and socialize their kids*), than a few decades ago. This inhibits social mobility. Again, married versus unmarried life is key.

Consider this. During the Great Depression, did marriage rates collapse and single parenthood explode? No, they did not, despite far more unemployment, much lower incomes, and much less generous government support. Unknown-4Even black Americans – who suffered not only those Depression era economic challenges, but also far worse discrimination than now – maintained very high marriage rates, with two-parent families predominating. Today black single parenthood is at seventy-three percent.

This is not “the economy, stupid.” This is cultural. Again, economic disadvantage is more a consequence than a cause. Hence better jobs, higher minimum wages, more government benefits, “tax the rich,” etc., can’t fix this. What will? Like Douthat (and Putnam), I don’t have all the answers (though I’ve made some suggestions in my post on the marshmallow test, and here too). But anyhow, at least properly understanding the problem is a necessary starting point.

*At the upper end of the social spectrum, the ambition is kids getting into college. At the other end, it’s kids staying out of jail.

The Criminalization of American Business

March 19, 2015

When the future Gibbon chronicles America’s decline and fall, the war on business will feature prominently.

Unknown-2Some readers will gag. That’s precisely the problem. We demonize business, imagining it controls everything; fictional bad guys are invariably doing ill for profit; “corporate” is a four-letter word, with Wall Street blamed for economic troubles, and business misfeasance seemingly confirmed by repeated multi-billion dollar penalties extracted by government watchdogs.

The left harps on the imperfections of markets; about those of government, not so much. And while in many places businesses do suck, mainly this reflects not free markets at all, but the opposite — crony capitalism and cartelization suborned by the state. Denunciations of the “evils of capitalism” often fail to see that it’s really government behavior behind them.

And here’s the bigger picture. Modernity has made us very rich, compared to past millennia, with people able to live far better lives. (Fools romanticize “the good old days.”) In the last century, worldwide average real dollar incomes multiplied five-fold. Where do you think all this wealth came from? Government? Socialism?

It came from businesses seeking profit by supplying us with desired goods and services. That’s what generates all the wealth and income to buy them with. The capitalist, market system. Hate it all you like, but you cannot live without it.*

Yet it seems we’re trying to kill this goose that lays our golden eggs.

images-2A recent issue of The Economist looked critically at the mentioned parade of payments by companies to settle charges of wrongdoing, topped by Bank of America’s $17 billion in August. You might think if BofA agreed to that, it must have done something really naughty. Not necessarily. As The Economist stressed, these settlements typically don’t make public the details of the supposed misdeeds, which remain murky. But in one major example I’ve discussed, where the true story did emerge, the case against the bank clearly made no sense.**

Why then would they settle? Because to fight the government in such cases is suicidal even if you’re guiltless.*** Accounting firm Arthur Andersen did fight, and won vindication in the Supreme Court – a pyrrhic victory since by then the firm had been destroyed. This is why The Economist bluntly called all this an “extortion racket” – “the world’s most lucrative shakedown operation.”

I’ve always said that “unfettered capitalism” is a nonsense straw-man – just as individuals are subject to laws against harmful conduct, businesses should be too. UnknownBut as The Economist pointed out, the market does a very good job of punishing truly errant companies. Competitors will make sure misdeeds are publicized; customers and investors will flee; share prices will plummet. This penalty is far greater than any exacted by government.

Meantime, corporations face extortion not only by government predators, but also lawyers in the class action litigation racket. I’ve written about this epic scandal too.

China has no rule of law because enforcement is totally at government’s arbitrary whim. Lately it’s been on a rampage against foreign-owned businesses and their personnel, with selective prosecutions for various ill-defined “offenses.” But America isn’t far behind, with metastasizing business regulations carrying criminal penalties (estimated at 300,000 in 1991; apparently no one has tried to count them since). Result: no company can fail to be guilty of something. So that prosecution is necessarily selective, which inherently corrupts it. Former Deputy Attorney General Larry Thompson said in 2011, “No matter how gold-plated your corporate compliance efforts, no matter how upstanding your workforce, no matter how hard one tries, large corporations today are walking targets for criminal liability.”

images-3But at least large ones can manage the huge costs of trying to comply with the ever-deepening thicket of regulatory and paperwork requirements, and defending themselves. Small ones cannot – a big reason why their job creation – historically the most vibrant part of our economy – has been faltering. It’s increasingly hard to start and sustain a small business in today’s overbearing regulatory environment. (Click here for an outrageous example of small business screwed over by state government.)

The Economist concluded by saying “the recent flood of actions against companies has . . . done serious harm, to America’s legal system and the rule of law.” And of course it also seriously harms our economy.

* And, much though you may curse “the corporations,” if you actually stop to ponder, you are actually quite pleased about 99% of what you buy from them.

** The Economist noted that the very first federal criminal conviction of a corporation, in 1909, a railroad, was “for the bizarre offense of cutting prices.”

*** And the payments come from the pockets of shareholders – not the executives who agree to them. The Economist also observes that it’s wrong to suppose government enforcers act disinterestedly for the public good. They have their own agendas – puffing up their egos and careers.

 

The Big Picture

December 26, 2014

imagesFor all America’s partisan divisions, we’re in remarkable agreement on one thing: the country is on the “wrong track,” the American dream is struggling, and our children will have trouble equaling, let alone surpassing, today’s living standard.

Each side blames the other. The right sees the left as buying votes with government handouts, fostering a feckless paternalistic culture, while killing businesses and jobs with over-regulation, and out-of-control spending presages financial ruin. The left sees rising inequality, with a corporate conspiracy to control government for its own greedy ends, heartless toward victims and their economic plight.

Both views reflect a generalized loss of trust in the institutions of society, which is not unique to America, but is mirrored all across the developed world – whether countries are governed by the left or right. In truth the difference is mere nuance on the edges of policy.

UnknownTake France (please). Sarkozy (on the right) was elected promising a “rupture” with past complacency. In office he could manage only minimal tweaks, but even that was too much for the French, who chucked him out for an assertively lefty Hollande – who promised they could have their cake and eat it too. Now he’s even more unpopular than Sarkozy, who is attempting a comeback.

Such serial disillusionment stokes the rise of populist third parties like France’s National Front and the United Kingdom Independence Party. This hasn’t happened in America mainly because our two-party system is more entrenched with structural roadblocks for third parties.

images-1But behind it all, what is really happening is that globalization is a hugely disruptive force, breaking down economic barriers and putting everybody in competition with everybody else. For the world as a whole, this is hugely positive, enlarging the economic pie by making stuff less costly, opening opportunities for billions more people to productively participate, and creating a burgeoning middle class in countries where there was none before. Of course there are losers as well as winners, and that’s why the political climate has become so febrile.

images-2But the remedy is not in trying to make globalization go away, demonizing businesses that strive to stay competitive via taking advantage of overseas opportunities; nor by decreeing higher wages or benefits as though the money comes from the sky (or from businesses being less “greedy”); or uselessly whining about inequality. Instead, the only thing that can actually save us is to raise our own competitive game: better products at better prices.

images-3Along similar lines, Kishore Mahbubani, a Singaporean, reminds us of the “seven pillars of wisdom” that our Asian competitors have imported from the West, in their “March to Modernity” —

  • Free market economics and capitalism (large-scale investment). Sorry, lefties: not by socialism did worldwide average real dollar incomes grow five-fold in the last century – a giant fact that makes pining for an alternative economic system simply silly.
  • Science and technology. The central human story has always been our use technology to overcome nature’s impersonal forces. (Listening to all the anti-frackers you wouldn’t know that fracking has been massively underway worldwide for decades with only minimal problems; it has revolutionized America’s energy picture and overall economic strength.)
  • Meritocracy. China actually pioneered the idea yet pervasively violates it. One facet of a profoundly corrupt social system that bodes ill for realizing China’s full economic potential.
  • Culture of Peace. Russian military adventurism is a grave threat to the world system.
  • Pragmatism.
  • Unknown-2Rule of law (including secure property rights, contract enforceability, judicial transparency, etc.) China’s regime lately has been talking “rule of law,” but that’s a mistranslation. It’s really rule by law – a tool for maintaining control. Not the same thing. Here again, China actually fails to follow Mahbubani’s program.
  • Education – empowering more people to participate more productively in the global economy.

Unknown-1Now you have the full big picture.*

*Someone will say, “climate change.” Not insignificant – but actually a lesser factor in shaping the human future.

Christmas in July: An Economic Program

December 23, 2014

UnknownIt’s fashionable to decry the commercialism and materialism of Christmas. And I recently reviewed Naomi Klein’s book saying we must cut back our consumer society, preaching asceticism as virtue. The problem is, if A doesn’t buy what B is employed to produce, B loses his job, and can’t buy what A is employed to produce, so A loses his job too. Pretty soon nobody has jobs. A fine virtuous society we’d have then.

 

imagesI thought about this, passing by a mall thronged with Christmas shoppers. Indeed, imagine where our economy would be without that. A whole lot of people are employed producing and selling all the stuff that’s gifted; absent Xmas, they’d be out of work. Sneer as you will at the crass commercialism, but without it our economy would be in deep doo-doo. If Christmas didn’t exist, we’d have to invent it (like FDR invented the WPA).

Unknown-1This got me thinking that if Christmas is such an economic boon, why not have two Christmases? We can invent a second one. Of course, they’d have to be spaced well apart, so by the time the next one rolls around folks can have recovered financially from the prior one. About mid-year would be ideal. And in fact, what luck, we wouldn’t have to create a new holiday from scratch – we can simply re-tool an old one – July 4.

So all we need do is make Independence Day into a gifting occasion. We can give it many Xmas-like accoutrements. For example, instead of Christmas trees, people can put up Liberty poles, and decorate them with little continental soldiers, drummer boys, flags, etc. images-3In place of crèches, we can have dioramas of the signing of the Declaration of Independence. Instead of carols we can sing Yankee Doodle and other stirring patriotic songs. Houses would be festooned with red, white, and blue lights. TV would endlessly re-broadcast “1776” rather than “It’s a Wonderful Life” and mawkish Peanuts cartoons. In the role of the Grinch, you’ve got your King George III. And sending another round of greeting cards would help keep the struggling Postal Service in business. Fireworks would be an added bonus for which I can’t think of a Christmas analog.

images-4Of course, to promote the all-important gifting element, we’d need a Santa-equivalent. For this I’d propose Jefferson. We can overlook that he had slaves rather than elves (I’m not sure there’s much difference, actually). He’d keep a list of which children are naughty or nice – that is, patriots versus tory sympathizers. Happily, few of the latter will be found nowadays. And, to deliver the presents, perhaps he could borrow Santa’s sleigh and reindeer; as Santa’s summer replacement, so to speak.

images-1Christmas originated to celebrate the birth of Christ. July 4 celebrates the birth of our country. At least we can be sure that really happened. Thus this would be a holiday for everyone (with no nonsense about a “War on July 4;” though we’d probably get some griping about its commercialization).

So to help our economy by turning The Fourth into another gift-giving festival, images-5please spread the word, by reblogging this, or re-tweeting it, or snapchatting or instagramming it, or whatever people do nowadays who are more tech-savvy than me. If this goes viral, the economic benefits could be huge.

HAPPY HOLIDAYS to all my blog readers!

How Not to Save the Planet – Naomi Klein’s “This Changes Everything”

November 27, 2014

imagesGlobalization. Trade. Market Economics. Capitalism. Corporations. Economic growth. Writer Naomi Klein hates it all. Her book, This Changes Everything, argues that global warming’s terrible effects require junking that “neoliberalism,” for a different and more humane economic model. What, exactly? Don’t know.

Kleinites think globalization, trade, and capitalism worsen poverty and inequality. That’s just as factually wrong as climate change denialism. UnknownIn the previous century – despite all its upheavals, the Depression, world wars, Russian and Chinese craziness – worldwide average real dollar incomes rose five-fold – 500%. The average person wound up five times better off than at the start. Poverty ranks plummeted. That didn’t happen through socialism.

Klein believes the only thing trade, capitalism, and “extractive” industries produce is profit – the only reason they exist. It’s just “greed.” There’s no recognition that industry produces stuff people want. Fossil fuel extraction is profitable because it creates energy we need and use (which Klein hates too).

images-1She demonizes free trade without understanding it. Yes, it does make some people richer – a lot of people. Trade happens only when both sides benefit. That spreads prosperity. Freer trade enables poor people in developing countries to sell their products in richer ones. Protectionism keeps them out – and poor. So does “buy local.”

Partly, Klein hates trade because of what’s traded – our “wasteful, materialist, consumerist lifestyle.” (“Consumerism” is buying something someone else disapproves.) Consumerism, extractivism, and economic growth are what cause climate change. We’ve heedlessly raped the planet, and global warming is our “comeuppance.” We’ll be cooked, and drowned by rising seas, unless we stop making electricity with fossil fuels, driving gasoline cars, flying planes, etc. Unknown-1The political right, Klein says, realizes this, and hence rejects climate change science because it blows up their ideology of market economics and unrestrained capitalism. (While Klein loves climate change because it feeds her ideology of blowing up market economics and capitalism.)

Yet science tells us that blowing them up won’t halt climate change. If tomorrow we stopped everything – cut carbon emissions to zero – global warming would continue, only slightly slower than if we do nothing. Klein acknowledges this.

So does she welcome other approaches? No. Klein sees any answer that smacks of technology as just “doubling down” on what got us into trouble in the first place –  like geo-engineering to remove carbon from the atmosphere, or cool the planet by blocking some sun radiation. images-2Replacing fossil fuel power generation with nuclear? That’s so capitalist/industrialist. And if global warming will hamper food production, how about genetic modification techniques that boost crop yields? GAAAA!

While bashing right-wing science denialism, Klein does acknowledge denialism on the left – mentioning the anti-vaccine movement – but denies the science telling us genetic modification is safe and beneficial. And nuclear energy is such an obvious no-brainer in terms of climate impact that many greens are finally embracing it. Klein is actually somewhat persuasive that geo-engineering is problematical, but urges banning further research. Who’s anti-science?

Further, if climate change will mean big trouble, wouldn’t having more money to deal with it help? But Klein hates economic growth, writing zingers like, “having more money won’t help you if your city is under water.”

Unknown-3Ha ha. Well, actually, it would. In fact, Klein bemoans that richer people can escape warming’s ill-effects. The Netherlands has already started raising buildings in anticipation of higher sea levels. Such efforts are costly, and Klein foresees trillions needed. Without economic growth, where will the money come from? Simple: guilty energy companies must pay. But she also says they should be stopped from drilling – so their trillions in future earnings won’t exist.

Klein’s hatred of economic growth (shared by climate zealot Bill McKibben) is also bizarre in light of their anguishing about inequality, poverty, and human deprivation. Growth does make the rich richer, but makes the poor richer too. How can they expect to beat poverty without a bigger economic pie? Just by redistribution? Seriously? With a billion or so people still living on less than $1 a day, I have no patience for those with cushy lives who superciliously call for ending economic growth. (And they are the ones charging capitalists with callousness.)

images-3While Klein wants to dismantle “the system,” her alternative is never clear. But it is clear that stopping the industrial market economy and consumerism would (far from her dream of ending inequality) drastically shrink the economic pie, creating mass unemployment and impoverishment. Klein fantasizes that unemployment would actually be solved with all the new clean energy jobs. How those jobs would be supported, without a consumer economy, is a mystery.

By the way, poorer people tend to have more children – and higher populations are bad for the environment and climate.

Klein faults most environmentalists for misleading people that some modest lifestyle tweaks will suffice. But, reviewing the book, science writer Elizabeth Kolbert (though generally sympathetic) says Klein peddles a similar “fable” in failing to explain just how much energy consumption and consumer spending would have to be cut. images-4Kolbert references a Swiss study predicated on a target “2000 watt society.” Americans currently use 12,000. The only hypothetical person in the study under 2,000 was a woman living in a retirement home with no TV or computer, traveling only rarely, by train.

So Klein’s program is really to give up modern life; while she vilifies politico/economic “austerity” policies, the austerity she herself advocates is far more draconian. What writers like her (and James Howard Kunstler) seem to want is everyone living on small farms, growing their own food, eschewing manufactured goods, and riding bicycles. Probably 80% of today’s Americans would literally die. Pre-industrial farm life was no bucolic paradise.

But in the end, Klein recognizes that de-growth is just not plausible, perhaps even “genocidal.” Yet still she envisions mass movement resistance overthrowing capitalism and extractivism, in favor of what she finally calls “regeneration.” Kolbert calls it “a concept so fuzzy” she “won’t even attempt to explain.” But she quotes Klein: “we become full participants in the process of maximizing life’s creativity.”

That sounds nice.

images-6We have not heedlessly or foolishly raped the planet. Extracting and using energy was necessary for lifting billions out of squalor into decent lives, and still is. There’s no free lunch. Everything has a cost; economic growth does degrade the environment and climate. We will deal with that. Economic growth will help us do so – making life better in spite of warming.

Who Gets to Sit in First Class Airline Seats?

October 25, 2014

This was a question exercising Richard Wolff, a self-styled Marxist economics professor, in a recent talk on Alternative Radio. Its programs monotonously demonize capitalism or U.S. “imperialism.” Wolff’s talk was in the former category, mocking the idea that the market is some perfect mechanism for producing ideal economic outcomes (an idea nobody actually holds).

UnknownHis airline seat conniptions were prompted by being flown First Class to some speaking gig. He liked it – in contrast to flying “steerage,” and as a card-carrying leftist was rankled by the inequality.*

What we have here, Wolff said, is a “distributional problem.” And he held forth at some length with alternative, putatively fairer ways to (re)distribute First Class seats. Anything but just selling them, to people willing to pay.

manna-from-heavenThis “distributional” fixation shows the fundamental mistake of lefty economics. Wolff sees First Class seats – and, by extension, any other good or asset – as just out there, as though created by some sort of spontaneous generation, like manna falling from the sky, the only question being how to divvy them up (with everyone, presumptively, having equal entitlements).**

Wolff recognized that if First Class seats are conferred by one of his egalitarian methods, rather than sold, airlines would make less profit. But, he said, “who cares?”

images-2This too shows the magical thinking of leftist economics. As though profit is somehow ill-gotten, illegitimate, exploitative, and all goods and services ought instead to be forthcoming, somehow, free of profit. Magically.

Now here’s reality. If airlines couldn’t profit, they wouldn’t fly. You wouldn’t have seats, First Class or Sardine class. And all the people who work for airlines wouldn’t have jobs.***images-3

Maybe you think air travel, and all other goods and services, should be provided by government, for public benefit, with no dirty profit. Some countries actually do have government-run airlines. They tend to be mismanaged white elephants that suck money from taxpayers and out of public budgets, subsidizing air travelers at the expense of everyone else.

First Class seats, that Wolff calls a “distributional problem,” are not in fact some good that’s out there waiting for an economics professor to allocate. They would not exist if they weren’t profit centers. And, while it’s true that to fetch high prices UnknownFirst Class seats have to be cushy, the takers are less beneficiaries than they are victims, albeit voluntary victims; sheep being sheared. Because in relation to “steerage,” and the amenities First Class seats entail, they are stupendously overpriced (that nice glass of wine effectively costs you hundreds). It’s really an extortion racket: pay up or suffer the indignity of mixing with the peasants.

In fact airlines get the bulk of their profits from First Class. Without that, regular seats would have to cost much more, probably pricing out most travelers, who wouldn’t fly at all, making the whole enterprise unviable. images-1First Class travelers subsidize the rest, so air travel is affordable to ordinary folks, and planes get filled, airlines can operate and make a little profit, and everyone is better off.

That, Mister Marxist Professor Wolff, is market economics, and it’s a damn good thing.

By the way, when I said “a little profit,” I wasn’t being cute. In fact, the airline industry, over its entire history, has made very little profit at all, in relation to the vast amount of investment. Unknown-4Competition has seen to that. So the public has received the colossal benefit of trillions of miles of transportation, provided essentially at cost. The meager profit garnered by airlines is surely a small price to pay for what we gain.

That again is market economics. A damn good thing.

* Though, as my wife noted, he didn’t refuse the seat, switch with some more deserving traveler, or fly economy and donate the difference to the poor.

** I’ve written about John Rawls’s famous book, A Theory of Justice, similarly treating wealth as just something out there, to be distributed, with nary a word about its creation.

*** On one flight I was treated to an ad wherein the airline’s head extolled all the numerous employees who made the flight possible, many unseen by passengers. I was indeed struck by the vast complexity of the enterprise, and how oblivious most of us are to all the cooperative efforts of the legions of people who make our civilization work.

Rationality, Optimum Crime, Individualism vs. Collectivism, and the Gambler’s Fallacy

September 24, 2014

UnknownThe Economist’s 5/10 issue* had a piece about the recently deceased Gary Becker – an economist and, really, sociologist. His work centered on the idea that “individuals maximize welfare as they conceive it.”

This “homo economicus” concept has taken a beating lately. Books like Dan Ariely’s Predictably Irrational show how our decision-making is skewed by illogical biases; and Daniel Gilbert’s Stumbling on Happiness how we’re bad at foreseeing what will make us happy. imagesThus, some trash free market economics because it supposedly assumes an economic rationality by market participants that doesn’t exist. And nanny-state policies are often premised on people not knowing their own best interests.

However, while of course we aren’t perfectly rational, nor are we perfectly irrational; we do have some idea of our own interests and desires, and the means to advance them. Hence one’s welfare is more likely enhanced by making choices to serve those interests and desires than if there is no choice. Moreover, Gary Becker importantly argued that maximizing welfare doesn’t just mean income. People understand that money isn’t everything. Health counts 10%.

images-3That was a joke. Actually, health counts a lot, and so do many other things (though money does help getting them). Again, people understand all this and live accordingly – even if not with computerlike rationality.

One sphere to which Becker applied this paradigm was crime. He doubted all crime is deviant or sociopathic, reckoning that some at least represents rational weighing of costs and benefits. While moral inhibitions do come into play, for many they’re not absolutes and can be overridden if the balance of payoff versus risk seems sufficiently favorable.

Unknown-1Becker also pondered crime’s costs. Crime, he realized, is akin to what economists call “rent seeking”—contending over the spoils of productive activity rather than creating new wealth. Conversely, rent-seekers trying to get government subsidization, to others’ cost (trade protectionism, for example) can be likened to robbers. The resources invested in all such activities (whether doing them or combating them) would be better spent on wealth producing efforts. And Becker also suggested there’s an optimal amount of crime in society – while it pays to get crime down to a low level, the cost of eradicating the last bit surely exceeds the benefit. (Certainly in the war on drugs, that excess is huge.)

Unknown-2Two pages later The Economist reported on a study suggesting why Westerners have a more individualistic psychology than collectivist-minded Asians. Led by Thomas Talhelm at the University of Virginia, it focused on whether the main crop has historically been wheat or rice. The relevant difference is that rice required about double the labor per calorie. This forced rice farmers to share labor, evolving a deeply rooted collectivist cultural ethos. And sure enough, the study found that, based on attitudinal questionnaire answers, a collectivist mentality in a locale correlates strongly with an agricultural history centered on rice as opposed to wheat.

Unknown-3The next page: gambling. Many believe in “winning streaks;” and also that bad luck is bound to reverse itself so that losses are recouped. The latter is known as the gambler’s fallacy; because statistics would instead predict reverting to the mean – i.e., “normal service resumed.” And in casinos, “normal service” means the house wins more than it loses (how else would they profit?).

Well, comes a study by Juemin Xu and Nigel Harvey finding, counter-intuitively, that winning streaks are real, while losing gamblers do even worse than reversion to the mean. That is, compared to what pure probability would predict, a win is more likely to be followed by a win, and a loss by a loss. How could that possibly be? The answer lies not in laws of probability, but in behavior. A winning better’s next bet has a tendency to be slightly more conservative and a loser’s next bet a little more reckless.

images-2This is why I read The Economist.

* I’m a little behind in posting these things, I have a backlog.

Three Exciting Candidates

September 15, 2014

UnknownI first noticed Neel Kashkari in 2008 as a remarkably young Indian-American, standing beside the Treasury Secretary and being tasked with sorting out the floundering banking system. Having accomplished that, he’s now the Republican candidate for California governor.

Jerry Brown (first elected 40 years ago! – seems like yesterday) has actually been a great governor this time around, resurrecting the state with reforms that few once thought doable. But there’s more to be done, and Kashkari is the one who gets it. In a nation whose economy is hobbled by too much business regulation, California may be the most regulation-happy state of all, virtually building a moat to keep new businesses out, and a catapult to eject existing ones.* Unknown-2No surprise that its unemployment rate is among the nation’s highest.

Kashkari wants to fix this, and also another part of the problem, education, which in California is abysmal and strangled by bureaucracy, which Kashkari pledges to slash. He sensibly favors charter schools too (not that they’re necessarily better than public ones, but because both will likely be better if in competition with each other).

Kashkari also thinks Brown is nuts to budget a gazillion dollars on a high-speed rail boondoggle when California has much more pressing needs, like a water supply crisis.

But, unusual in today’s GOP, Kashkari combines all that economic good sense with classical liberal social views. He’s marched in a gay pride parade. He wants a more humane immigration policy. He wants others to be able to follow him in achieving the American dream.

This is my kind of Republican, embodying the reasons I became one myself, in the Pleistocene, when it was not a party with its head up its rear, but stood for values good for all Americans (and would-be Americans). This kind of Kashkari Republicanism might have a future. A Republicanism of grumpy old white men who don’t believe in evolution will prove themselves wrong by going extinct.

Unknown-1Speaking of grumpy old white men, Kansas Senator Pat Roberts, 78, trying to fend off the Tea Party, turned himself into one of them stoopit Republicans. Kansas hasn’t elected a Democratic senator since 1932, and Roberts’s Democratic opponent has withdrawn, leaving him up against independent candidate Greg Orman, who’s getting much support from Republicans of the non-stoopit variety (yes, there are many of us, even in Kansas). Orman says he voted for Obama in ’08 and Romney in ’12, and, much like Kashkari, seems to make good choices in selecting from both the right and left sides of the policy menu.

Greg Orman,. cartooned in The Economist

Greg Orman, cartooned in The Economist

But Orman’s real attraction is his assertive critique of the partisan enmity that so afflicts today’s U.S. politics, with each side demonizing the other as not just wrong but evil. We need to can this, and boost up that “radical middle.”

Next, Brazil. The line goes, it’s the country of the future and always will be. What keeps Brazil from being an economic dynamo is big government. Yes, even worse than America’s; Brazil’s economy is so strangled with regulation and government meddling that businesses just throw up their hands in despair.

The current caretaker of this stultifying system is President Dilma Rousseff, a standard-issue unimaginative old lefty (sees nothing amiss in Venezuela, etc.), up for re-election. Many Brazilians are fed up and realize something must change. But, frustratingly, the best candidate, offering real change, Eduardo Campos, with a program of unshackling the economy, was running a distant third. Then in August he died in a plane crash.

Marina Silva, an ascetic black woman, risen from dire poverty (taught herself to read at 16!); former environment minister; had run third in the previous election. But trying again, she was blocked from the ballot on a technicality. So she joined Campos as his vice-presidential running mate.

Marina Silva

Marina Silva

And with Campos’s death, Silva has replaced him as their party’s presidential candidate. This seems to have electrified Brazilians. Partly it’s a personality thing – in a country plagued by repeated scandals, Silva’s backstory and perceived unimpeachable integrity are highly attractive. But she also appears to have bought into Campos’s agenda of economic liberalization. And she now looks likely to win the election. It would be a bracing breath of fresh air for Brazil.

* I’ve written about this here, and here.

Net Neutrality, and Regulation by the Unicorn State

September 3, 2014

images-4Net Neutrality” is a hot issue. It refers to equal service quality for all web-based traffic, against a fear that Internet providers (like Verizon) will allow (or effectively force) some to pay more for faster data delivery, making others second class netizens. So some advocate designating the Internet a “public utility” subject to FCC regulation to enforce net neutrality. This plea is highly seductive.

UnknownSimilar regulation by the Interstate Commerce Commission was imposed on railroads in 1887. No; “imposed” is the wrong word; actually the railroads wanted this, seeing ICC regulation as a tool to protect their market power against upstart competition.

I spent my professional career as a public utility regulator. One of my first cases targeted a small moving company breaking the rules. Its transgression? Prices too low. Were we protecting the public? Certainly not; we were protecting the established moving companies. This is the face of regulation in the real world.

Columnist L. Gordon Crovitz in the 8/18 Wall Street Journal notes that the ICC enforced a kind of “net neutrality” on the railroads: prohibiting “discriminatory” volume discounts or other market-oriented pricing schemes.* Result: a stagnating U.S. rail industry. The ICC was finally abolished in 1995, but the lingering effects of this deadening regulation leave American train service shabby compared to spiffier European or Far East rail systems.

images-1Crovitz also discusses the heavily regulated taxi industry. He quotes the New York City regulator’s website explaining that before it stepped in, the taxi business was a free-for-all with numerous competitors using “underhanded tactics” – like “drastically lowering fares to get more business.” The horror! The horror!

But today, across the globe, the taxi business is being up-ended by innovators like Uber and Lyft giving smartphone-using consumers service better tailored to their needs. And a battle royale is underway between these feisty upstarts and the old regulators (backed by the stodgy old taxi firms) struggling to hobble them. A similar war pits the old hotel industry against newcomers like Airbnb disrupting their business model by providing alternatives more attractive to consumers. This is what economist Joseph Schumpeter famously called “creative destruction” – it’s how an economy progresses – a great virtue of a truly free market.

imagesDo we really want to give the FCC regulatory power to squelch this by enforcing its ideas of service and pricing for the Internet? Or let creativity rip, with businesses free to innovate on services and pricing tailored to a swiftly changing technological landscape, responding to market forces and consumer preferences and needs?

Business-hating lefties think government must keep them on a tight regulatory leash lest abuses occur. And absent regulation they would occur. But I believe the costs and harms to consumers would be simply overwhelmed – overwhelmed – by the benefits in better products and services, lower prices, and greater overall societal wealth, if all regulation were abolished.

Think I’m nuts? Then look at China, where that’s exactly what happened. Since 1978, China’s private sector has been virtually free of regulation. And, yes, abuses have occurred. But meantime average per-capita income has grown 3000% – thirtyfold. I repeat: thirtyfold. (99-percenters take note.)

I wrote recently about an abuse by government, the unjust prosecution of innocent Muslim-Americans on phony “terrorism” charges. I marched in protest with local liberals. But they, I said, are like battered spouses who still profess undying love for their batterers – no matter how much it tramples their ideals, still liberals love government. images-2The same Wall Street Journal issue elsewhere quotes economist Michael Munger: “My friends generally dislike politicians, find democracy messy and distasteful, and object to the brutality and coercive excesses of foreign wars, the war on drugs, and the spying of the NSA. But their solution is, without exception, to expand the power of ‘the State.’ That seems literally insane to me . . . Then I realized they want a kind of unicorn, a State that has the properties, motivations, knowledge and abilities that they can imagine for it. [They] imagine a State different from the one possible in the physical world.”

I just got a call from a car repair business asking if I was “completely satisfied” with their service. I’ve never received such a call from a government agency.

* America’s first federal conviction of a corporation, in 1909, was for a railroad’s crime of cutting prices.

Why Both Left and Right Are Wrong

June 26, 2014

The Left’s calling itself “progressive,” while in some ways annoying, isn’t entirely wrong. A key element is caring about other people, including those outside the traditional ambit of human concern (our own families and tribes), and even sometimes including non-people. UnknownThis is indeed progressive; this widening of human concern, working toward a better, fairer world, with lessening conflict and violence, compared to the past, reflects very real progress. It’s ironic that another typical attribute of the “progressive” temperament is denial of such progress.

It’s because being critical and cynical flatters the Left’s intellectual vanity. Indignation is a satisfying emotion. To be an optimist, on the other hand, to believe well of others, and that we’re making progress, seems just too sappy. It isn’t hip.

The Left views market capitalism with hostility, as though it’s some kind of perverted system artificially imposed by a conspiracy of a few to enrich themselves at the expense of the rest; which could be changed if we wanted to. Not a single element of that catechism reflects reality. A market economy is merely the natural, indeed inevitable, way that any bunch of humans interacts. Yes, with friends and family, we do a lot of sharing. images-1But otherwise if you have something of value – be it an object, or your labor – you won’t give it without getting something in return, indeed the most you can get (bar fraud or cheating). That is in fact merely justice (a word the Left loves). Striving to do well for oneself isn’t wrong; mostly people do that by creating value for others who’ll pay them for it. And this is how we’ve made a better, richer world — by people putting in efforts in order to improve their own situation. Is this the “greed” we hear so much about?

And the Left’s conception of justice tends to omit what ought to be its principal component: deservingness. While they do insist no one deserves to be poor, they meantime seem to deny that anyone deserves to be rich. At least they don’t see any entitlement to keep riches one has earned.

The right is less confused about the economics, but frankly tends to be grinch-hearted. images-2Its conception of justice is flawed in mirror-image of the Left’s – believing that when people don’t succeed it’s because they didn’t deserve to. That the less successful are basically slackers and moochers (this is why Romney’s infamous “47%” comment was so resonant). The right doesn’t sufficiently acknowledge how much luck determines one’s situation. And if the Left is overly obsessed with inequality, the right is too complacent about it.

Even cave people were humane enough to take care of the sick, infirm, or injured. Today’s right no longer seems to regard this as a fundamental societal obligation. Part of the problem is that the whole issue of helping the needy is crapped up by the fact that the great bulk of “help” goes to people who aren’t needy at all (look at the farm program, for example, most of whose subsidies go to millionaires). Unknown-1This blatant milking of the government teat tends to taint all such spending.

But we are a very rich society that can easily afford to take care of those less fortunate – if only we focused on just that.


Follow

Get every new post delivered to your Inbox.

Join 3,296 other followers