Archive for the ‘Economics’ Category

Presidential Politics

April 24, 2015
"Season 2"

“Season 2″

After two decades of Clinton wars, Bush wars, and Obama wars, will we really elect Hillary Clinton and extend this baneful syndrome of half the country hysterically hating the president? We may get it in any case, but wouldn’t this be just asking for it?

She herself once spoke of a “vast right-wing conspiracy” against the Clintons. Sure, there was opposition; but that was exactly the kind of hyperbolic language feeding the syndrome.

Emailgate does too, going to the heart of why so many people distrust Hillary. She says the e-mails not made public were personal, but we have only her word for that, with no independent review.

"I did not have inappropriate email with that server."

“I did not have inappropriate email with that server.”

What could she be hiding? Plenty — like conflicts of interest between her public duties and contributions to her foundation, some from influence peddlers and sleazy foreign governments. This spits in her detractors’ faces. Gad, what would her presidency be like?

Better than Obama’s at least. There’s hope of ameliorating the calamitous global unraveling for which he can partly be blamed. I’d rather have Hillary in the White House when Putin makes his move on the Baltics. One might also dream that a pragmatic Clinton, loath to leave a legacy of economic disaster, might force her own party to face fiscal reality.

Which brings me to Chris Christie’s recent call to raise eligibility ages for Social Security and Medicare (and cut off Social Security for high earners like me). “Through its unwillingness to address our biggest challenges in an honest way,” Christie said, “the Obama administration has put us on a perilous course for both our short-term and our long-term futures.” He added that politicians “don’t believe that the American people have the appetite for hard truths. Once again, they underestimate the people that they serve. Americans not only deserve fairness, they deserve the honesty of their leaders.”

Unknown-1Christie must have read some of my past blog posts. He’s being incredibly gutsy. We know the kind of attacks Democrats will lob (remember the ads showing Paul Ryan dumping granny over a cliff). Let voters choose between such demagogy and a forthright reality-based set of proposals like Christie’s.

There’s also much to like in Marco Rubio’s candidacy.

Rubio

Rubio

Republicans too often needlessly invite the granny-over-the-cliff trope, appearing as though uncaring toward less affluent citizens. Rubio does not, and is a poster boy for how sensible conservative policies can benefit the whole country, including the disadvantaged. One line in his 2012 convention speech really impressed me: calling out the fallacy that every dollar in a rich person’s wallet is taken from a poor one’s, a notion which underlies much economic quackery. Rubio’s insightfulness is refreshing.

Don’t Believe Everything You Think

April 20, 2015

UnknownDaniel Kahneman’s book, Thinking Fast and Slow says there are two distinct systems operating inside your skull. “System 1” gives quick, intuitive answers to questions confronting us, utilizing thought algorithms rooted deeply in our evolutionary past. “System 2” is slower and more analytical, used when we actually (have to) think, as opposed to just reacting.

imagesBecause you utilize System 2 consciously, whereas System 1 works unconsciously, you tend to see yourself embodied in System 2. We do like to believe we do our own thinking, rather than having some black box, to which we have no access, just handing us answers. But the latter is closer to the truth, most of the time. In fact, as Kahneman stresses, System 2 is lazy, hence often glad to just accept System 1’s answers, not even realizing it.

This comports with Jonathan Haidt’s metaphor in The Righteous Mind: System 2 is a rider on the back of an elephant that is System 1. images-1We imagine the rider is in charge. But mostly the rider is really working for the elephant, rationalizing the elephant’s choices.

All this would be fine if System 1 were totally rational, but of course it’s not, and books like Kahneman’s have been taken as debunking the very idea of our being rational creatures. Unknown-1Kahneman uses the term “Econs” (perhaps short for homo economicus) for the hypothetical people who behave as economic theory says. As opposed to – well – “humans,” who do not.

One key example of how System 1’s decisional algorithms are irrationally biased is undue loss aversion, weighting potential losses more heavily than equal potential gains. Unknown-2If offered a coin flip bet paying $10 for heads but costing $6 for tails, most people will refuse; the 50% chance of winning $10 is not enough to compensate for the fear of the pain of losing $6! Lab experiments consistently confirm many permutations of this irrational bias.

We don’t often encounter coin flip bets, but this bias infects many aspects of human behavior – like investment decisions – as well as public policy. Case in point: GM food. Europeans in particular are so averse to potential risks (an extreme “precautionary principle”) that the truly small (indeed, mostly imaginary) risks of GM foods blind them to the truly large benefits.

Meanwhile, the idea that humans aren’t rational has entered political debate, as an argument against market economics, which supposedly is premised on rational economic behavior (homo economicus again).

Here’s what I (System 2) think. Obviously, we don’t behave with perfect rationality. But rationality isn’t either/or, it’s a spectrum, and on the continuum between perfect rationality and perfect irrationality, we’re far toward the rational end. Our entire civilization, with all its complex institutions and arrangements, is a supreme monument to rationality. Unknown-3And as individuals we behave rationally most of the time – overwhelmingly. If you want toast, you put bread in the toaster. That’s rational – as distinguished from, say, praying to a toast god. (And we’re getting ever better about this.) Furthermore, your preference for toast over cereal is a rational choice, based on your long experience of what is most likely to please you. You even know how toasted you like it.

And even when we default to System 1, that is not irrational. Let’s not forget that System 1 evolved over many eons not to lead us astray but, instead, to help us cope with life’s challenges (thus to survive and reproduce; for instance, a loss aversion bias made a lot of sense in an environment where “loss” could well translate as death). So – for all its biases and quirks, extensively explicated by Kahneman – System 1 also has a lot of virtues. In fact we simply could not function without it. If we had only System 2, forcing us to stop and consciously analyze every little thing in daily life, we’d be paralyzed. Thus, utilizing our System 1 – faults and all – is highly rational.

The same answer refutes the critique of market economics. We are far more rational than not, in our marketplace choices and decisions concerning goods and services. Market actors are fundamentally engaged in serving their desires, needs, and preferences, in as rational a manner as could reasonably be expected, even if imperfect. (See my review of Tim Harford’s The Undercover Economist.) Allowing that to play out, as much as possible, is more likely to serve people’s true interests than overriding their choices in favor of some different (perforce more arbitrary) process.

Kahneman was informative about a topic of perennial interest – how people form and maintain beliefs.* Here again, while we fancy this is a System 2 function, System 1 is really calling the shots; and again is reactive rather than analytical. System 1 jumps to conclusions based on whatever limited information it has. Kahneman uses a clumsy acronym, WYSIATI – System 1 works as if “what you see is all there is” – i.e., there’s no additional information available – or needed. System 1 is “radically insensitive to both the quality and quantity of the information that gives rise to impressions and intuitions.”

Unknown-4What’s most important to System 1 is that the story it creates be coherent; it’s averse to the discomfort of cognitive dissonance, and hence hostile to any new information that doesn’t jibe with the story it has already created. Indeed, it is paradoxically easier to construct a coherent story the less you know – fewer pieces to fit into the puzzle. Experiments have shown that subjects exposed to only one-sided information – and who know that that’s so – nevertheless show greater confidence in their resulting judgments than do subjects getting both sides. We have a great ability to ignore our ignorance!

At the risk of sounding smug, I have always sort of recognized this and consciously try to avoid it, by adhering to what I call my ideology of reality. That is, I try to let my perceptions of reality dictate my beliefs, rather than letting my beliefs dictate my perceptions of reality. I am not a perfect “econ,” but I think I am one of the more econ-like humans around.

* An aside: humans are pre-programmed for belief. Is that a lion lurking? The believer loses nothing if he’s wrong. The skeptic, if he’s wrong, may be lunch. Thus belief is the preferred stance, and people readily believe in UFOs, homeopathy, and God.

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.


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