Archive for April, 2010

Just about everything Paul Krugman writes nowadays is in some way related to rationalizing the Obama deficits. Now, Krugman’s a smarter man than I, but I think it’s pretty clear that his partisanship drives his economic analysis these days, rather than the other way around.

Yesterday Krugman turned a case against the euro into a mind-boggling attempt to justify Greece’s fiscal shenanigans over the past few years:

Right now everyone is focused on public debt, which can make it seem as if this is a simple story of governments that couldn’t control their spending. But that’s only part of the story for Greece, much less for Portugal, and not at all the story for Spain.The fact is that three years ago none of the countries now in or near crisis seemed to be in deep fiscal trouble. Even Greece’s 2007 budget deficit was no higher, as a share of G.D.P., than the deficits the United States ran in the mid-1980s (morning in America!), while Spain actually ran a surplus.

So because the U.S. ran a budget deficit of about 5% of GDP when existing public debt was about 50% of GDP, that makes it OK for Greece to run a deficit of just under 5% of GDP when existing public debt was about 100% of GDP? As for Spain and Portugal, the rigidity of their labor markets contributes to unemployment – and in Spain the popping of an enormous housing bubble has intensified the effect. He continues:

The problem is that deflation — falling wages and prices — is always and everywhere a deeply painful process. It invariably involves a prolonged slump with high unemployment.

Oh really? Tell that to economists who study the classical gold standard. From about 1880 to 1914, prices dropped on average 2% per year, even as the Second Industrial Revolution motored on. And here comes the inevitable payoff:

The deficit hawks are already trying to appropriate the European crisis, presenting it as an object lesson in the evils of government red ink. What the crisis really demonstrates, however, is the dangers of putting yourself in a policy straitjacket. When they joined the euro, the governments of Greece, Portugal and Spain denied themselves the ability to do some bad things, like printing too much money; but they also denied themselves the ability to respond flexibly to events.

Because everything has to relate back to defending the U.S. government’s unconscionable fiscal excesses. If Krugman really thought monetary pump-priming is always necessary to get a local economy back on track, he would favor abolishing the dollar and breaking the U.S. up into optimal currency areas.

More to the point, Krugman’s (lack of) concern about budget deficits is strangely selective. Back in 2004, he castigated the Bush Administration for “enormous” budget deficits and “irresponsible” tax cuts. So much for the objectivity of the scholar.

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Megan McArdle has a new post on the auto bailout that is 95% dead-on.  In short, she is less than impressed with its impact and notes that “We could have given each of the autoworkers $100,000 to go start over somewhere else, and still saved money on the deal.”  Of course, this is besides the point for the architects of the bailout since it wasn’t rational policymaking for the general interest that motivated the deal in the first place but politics pure and simple (involving what McArdle argues was “a pretty blatant handout to a powerful Democratic interest group.”)   

But the 5% in her post that is a bit off is her strange argument about the proper role of the state.  Namely, McArdle argues that “The role of the state is to prevent human suffering.”  Really?  There are a lot of different arguments a libertarian or conservative or anyone else could make for the state, but this seems like an odd one.  Even utilitarianism (the frequently hidden ethical structure behind the policy prescriptions of “objective” economists) doesn’t give this role to the state since it aims to maximize general welfare (which could imply some very serious suffering as long as it is outweighed by utility gains). 

And if “preventing human suffering” is the proper purview of the state, McArdle’s state would be quite expansive, especially since she didn’t say “minimize” suffering but “prevent” it.  Actually, I’m not sure a state could actually do that no matter its size given the less than ideal world we live in (in that sense, she would be trying, to use Voegelin’s phrase, “to immanentize the eschaton”) and the fact that governments would still be faced with trading-off the suffering of some to prevent the suffering of others.

Update: I should also mention that suffering itself might not be something we want to prevent entirely.  Don’t tell Virginia Postrel this, however.  She has argued: “Contrary to what you may have heard, the only sort of character suffering builds is the ability to suffer–a useful ability in a world where suffering is the routine nature of life but not a virtue that makes the world a better place.”

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Arizona Update

Kudos to the NY Times for publishing an op-ed defending the Arizona immigration law.  I say this not because I agree with the law or the piece, but I like it when the Times publishes pieces it clearly disagrees with (see their own editorial opposing the law).

The main point raised by Kris Kobach is that what SB 1070 principally does is give the state law enforcement authorities power to enforce federal laws.

We went through a long civil rights struggle in this country, and the federal courts were and remain very active in forcing states to enforce federal laws.  Now we have a case where a state wants to enforce laws that the federal government is lax in enforcing, and people who are usually mad at the states for ignoring federal laws are very upset.

I don’t like anti-immigration laws for several reasons I’ve already mentioned, not the least of which is that I worry about police abusing their powers, but I am intrigued about this notion that the states have to do the fed’s job for them.

Are there other areas of law where we have seen or are likely to see the same trend?

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Back when I was a callow youth (and Reagan supporter), I wrote a high school English paper arguing for the repeal of the 22nd Amendment.  Fortunately, I’ve grown up and now see the 22nd Amendment as a potentially helpful constraint on the accumulation and maintenance of power. 

But it was this piece of news that led me to thank our Founders for restricting the Presidency to natural born citizens.  My goodness – what a train wreck it would be to have Arnold Schwarzenegger, “The People’s Governor,” as the Republican nominee for President or as the President himself.  Worse than Ike over Taft!  We’d be back to Bush II’s big government conservatism – something that ought to be an oxymoron.

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One of the last all-male enclaves in the military will now be letting in women, according to an announcement by the Navy on Thursday.  I have mixed initial reactions to this.

Certainly, women make valuable contributions to the military, and I’d like women to have the same opportunities in the work force as men do (though I’ll save the topic of anti-discrimination law for another day).  Furthermore, there are definite benefits from moving to gender-mixed work forces.  There may be increased sexual tension, but my experience is that men tend to behave better in mixed company than when they are by themselves.

Maybe this really is a non-story.  The Navy would like us to think so.  One sub commander says,

We’re going to look back on this four or five years from now, shrug our shoulders and say, ‘What was everybody worrying about?'” said Bruner, the top sub commander at Kings Bay Naval Submarine Base in coastal Georgia, where the announcement was made.

On the other hand,

There were some protests, particularly from wives of sub sailors, after the military began formulating a plan last fall.

Supposedly, the protesting wives were concerned more about women taking jobs and advancement opportunities from their husbands, but one has to wonder if that was the real reason (since women are serving all over the military without organized protests by military wives).

One also has to wonder that if this is really no big deal, why the Navy has no immediate plans to put female enlisted personnel on subs.  Officers have considerably more privacy on subs than enlisted crew members do.  Mixing the sexes amongst enlisted sailors seems fairly problematic.

Maybe this is just the march of progress, but I have a couple of points I worry about:

  1. I think there are a whole host of gender-related issues that the military prefers not to talk about because they get a lot of pressure to be politically correct.  Certainly there is an ugly history (Tailhook, etc.) of sexual harassment in the military and in the Academies.  And in conversations with military people, I have heard reports that, in many cases, the physical performance standards for certain tasks are altered for women.  I doubt that these are significant  (and probably not relevant to being an officer in a sub), but I don’t think we know the full story.
  2. The worries of wives who have husbands on submarines shouldn’t be ignored.  And the families of the women put on subs also might have some legitimate concerns.   Military service can be very hard on families.  This move might make things even harder.

Lastly, this is odd:

The Navy declined several requests by The Associated Press to interview female sailors and cadets at U.S. bases about the policy change.

Hmmmmm.  Probably nothing to worry about.

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1.  Jonathan Adler on the new Arizona immigration law (and one of its authors)

2.  Satellite imagery of the Gulf of Mexico oil spill (and by the way, this accident could not have come at a worse time for those of us who favor expanded drilling)

3.  On Slippery Slopes and the New Paternalism

4.  Another silly government poster.  HT: Armchair Generalist.

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National ID Card

A national ID card should be resisted by the states and by us as individuals. 

Democratic leaders have proposed requiring every worker in the nation to carry a national identification card with biometric information, such as a fingerprint, within the next six years, according to a draft of the measure.

Fortunately, groups like the ACLU have already blasted the idea:

“Creating a biometric national ID will not only be astronomically expensive, it will usher government into the very center of our lives. Every worker in America will need a government permission slip in order to work. And all of this will come with a new federal bureaucracy — one that combines the worst elements of the DMV and the TSA,” said Christopher Calabrese, ACLU legislative counsel.

Unfortunately, I have a hard time believing a national ID card is not inevitable.  Moreover, the ACLU is wrong about one thing – we already need a government permission slip in order to work – it is called the Department of Homeland Security Form I-9.  And note what it requires.

HT: Jesse Walker

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The transatlantic political class has taken up the cudgels on behalf of a Greek bailout. Even the Economist has joined the parade, warning of “contagion” to other European economies if a rescue package is not approved. Megan McArdle, while skeptical of a bailout, also resorts to the contagion meme and compares Greece’s current difficulties to the origins of the Great Depression.

The problem with the contagion forecast is that it implicitly assumes greater rationality and forethought among economic commentators than among international investors risking their own money. If contagion could be predicted, it wouldn’t happen.

The risk here isn’t contagion, but an entirely rational market response to poor fundamentals in highly indebted countries. Let’s take the three options available to the EU: allowing Greece to default, allowing Greece to leave the euro and default through inflation, and giving Greece a massive bailout. All of these options entail depreciation in the euro and a rise in the cost of sovereign borrowing for Eurozone governments. The putative advantage of bailout is that it redistributes these costs from the PIIGS governments teetering on the brink to relatively healthy states like Germany and France. The putative disadvantage is a long-term rise in moral hazard. Granted that the efficient-market hypothesis is wrong, we still cannot know whether any of these options might foreshadow or forestall widespread financial panic, but each has its costs and benefits.

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Spirit of Subsidy Award?

I’ve frequently corrected my progressive/liberal friends who claim that folks like me are pro-business with all of the negative things that might imply.  I’m not.  I’m pro-markets.  And those are two very different things.  Although I really appreciate much of what businesses and entrepreneurs provide for me and the rest of society at some risk, when they engage in rent-seeking behavior, I jump off the bandwagon. 

David Boaz has an interesting post on the Chamber of Commerce that makes a similar point in reference to its “Spirit of Subsidy Awards” “Spirit of Enterprise Awards”!

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My New Jersey Senator Robert Menendez is angry that “legal citizens and permanent residents of the U.S.” will be detained and asked for their “papers” in Arizona. In a CNN interview yesterday, the Senator says that “Arizona has become a ‘show me your papers’ state,” and he declares that, if asked, “the only papers [he] would show is the Constitution.”

Has Senator Menendez been to an airport recently? Every time I fly I have to produce papers, even though I am a native-born legal citizen and a permanent resident of the United States. I am routinely treated like a criminal—I have to partially disrobe, my bags are routinely opened and their contents searched and examined, I am patted down—even though I have committed no crime, I am not accused of committing any crime, and I am not even suspected of committing any crime. And, of course, I am not the only one.

As I wrote many years ago, before 9/11 I used to refuse permission to airport security personnel to inspect my bags. Since 9/11, however, I no longer have that choice. Either I submit to whatever the security personnel want, or I am indefinitely detained. Of course, I also have the option not to fly, which seems an awfully high price to pay.

If Senator Menendez believes that legal citizens of the United States should not be subject to random detaining and should not be required to provide proof of their identities and of their citizenship, why is he not organizing protests at our airports?

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Matt Yglesias, the very partisan but frequently interesting blogger at the socialist progressive Think Progress, argues that welfare state capitalism is the alternative to regular old capitalism.  His bottom line is that this alternative allows people to be liberated from wage slavery and to focus on non-commercial labors that can have a “meaningful impact on the world.”   

According to Matt, some folks just don’t appreciate how great such a world can be and so they contest this model:

And you can see that the basic architecture of this trend is fiercely and passionately contested. When I was in Finland, where they have quite a mild right-wing, the thing that the conservative politician I spoke to seemed really upset about was the idea that Finnish kids are spending too much time in university. Too many students in college! Too many of them getting master’s degrees! Sometimes people would even take time off from their studies to travel! Here in the United States a huge swathe of the pundit class seems to deem it outrageous that the Social Security retirement age hasn’t increased as rapidly as average life expectancy. Don’t people know that they were put on this planet to work! How dare we, as a society, take some of our increased productivity in the form of an increased measure of liberation from our employers rather than more material possessions? (emphasis added)

Well, Matt is being too cute by half.  Of course, there is no problem with individuals deciding to choose greater leisure or more time on education (which is often capital investment) over more labor.  And we’ve certainly seen the rise of people deciding to pursue “post-materialist values” as they get richer.  Such choices are fine, even laudable, as long as they are freely chosen and paid for by those who freely choose to do so. 

But Matt’s world is one in which the threat or use of force – namely the coercive power of the state – is used to artificially free up some to do what they want at the great expense of others.  In particular, redistributive policies like Social Security, government subsidized health care, and state-supported education help the very young and retirees (who are older but have a lot of productive living left as life-expectancy increases) escape work on the backs of others (or even on the figurative backs of those not yet born, in cases where deficit spending is used to fund such programs). 

His alternative vision just doesn’t look as good when it is framed in the following terms:  the state taxes or regulates Peter so that the just-turned 65 Paul or the 28-year-old never-ending graduate student can travel the world, take up classes at the local university, or start a non-profit to compete on an uneven playing field with a for-profit (which, in turn, is forced to subsidize the competition via the long list of government programs Matt favors!).  Because there is no such thing as a free lunch.  These things are going to have to be paid for by someone.  And Matt’s world is one in which it isn’t Paul who pays the full cost of his activities but the rest of us – or else!

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It is quite clear by now that President Obama has a very, very expansive view of what the U.S. government can and should do.  Indeed, he thinks that the Constitution authorizes the government to force people to engage in economic activity (see law professor Randy Barnett on why the president is wrong). 

But according to NBC, the administration has denied individual aid to those in Connecticut harmed by recent storms.  I’m not sure upon what  basis this heartless decision was made given everything President Obama thinks the government should do.  It does, though, bring to mind the words of my namesake – who had a better understanding of the proper role of the U.S. Federal Government in dealing with our individual problems:

In 1887, President Grover Cleveland vetoed a bill aimed at providing financial assistance to Texas farmers hurt by a severe drought.  President Cleveland argued:

I can find no warrant for such an appropriation in the Constitution; and I do not believe that the power and duty of the General Government ought to be extended to the relief of individual suffering which is in no manner properly related to the public service or benefit. A prevalent tendency to disregard the limited mission of this power and duty should, I think, be steadily resisted, to the end that the lesson should be constantly enforced that, though the people support the Government, the Government should not support the people.

Of course, Cleveland was not unconcerned by the plight of the farmers.  He just thought that the Constitution did not give the Federal Government the authority to dole out money for individual relief.  Instead, he thought that “The friendliness and charity of our fellow countrymen can always be relied on to relieve their fellow citizens in misfortune.”  And as Thomas Reed of the Mackinac Center has noted, “Americans proved him right. Those Texas farmers eventually received in private aid more than 10 times what the vetoed bill would have provided.”  For more, see Bob Higgs on the Texas Seed Bill.

Wouldn’t it be nice if President Obama thought likewise?  Unfortunately, as H.L. Mencken wrote about Cleveland: “It is not likely that we shall see his like again, at least in the present age. The Presidency is now closed to the kind of character that he had so abundantly.”

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For my sins I was recently re-reading Ronald Dworkin’s Taking Rights Seriously (1978), in particular its chapter 9,  “Reverse Discrimination.” The book has not aged well, and this chapter in particular today sounds even more like a dated period piece than the construction of a philosophical argument than it did when I first read it in 1994.

In any case, in a book that invites us to ‘take rights seriously,’ one may be surprised to find this sentence: “An individual’s right to be treated as an equal means that his potential loss must be treated as a matter of concern, but that loss may nevertheless be outweighed by the gain to the community as a whole” (p. 227).

Thus infringing an individual’s “rights” is indeed “a matter of concern,” but if the utilitarian calculus indicates that that infringement leads to greater overall utility, then we might not only be justly allowed to proceed with the infringement, but we may even be morally required to do so. The issue at stake in this chapter is the claim of some whites that the fact that they were being held to different and higher standards for admission to things like law and medical schools than were members of other races was an instance of unequal—and therefore possibly unconstitutional or otherwise illegal—treatment. Dworkin argues that no Constitutional right is violated by this “reverse discrimination,” and he goes on to argue that no moral right is violated either. The alleged moral right is the right all individuals have to be treated equally, for which Dworkin argues elsewhere in the book (see esp. chap. 6, “Justice and Rights”). In the case of reverse discrimination, however, Dworkin argues, as he states in the sentence above, that that right may be infringed when the public good requires it.

All this is quite surprising, given that Dworkin claims in the book’s “Introduction” that the whole point of his book is to argue that “Individual rights are political trumps held by individuals,” and that “a collective goal is not a sufficient justification for denying [individuals] what they wish, as individuals, to have or to do” and “not a sufficient justification for imposing some loss or injury upon them” (p. xi). Indeed, the book’s chapter “Justice and Rights,” argues, as Dworkin explains, “that our intuitions about justice presuppose not only that people have rights but that one right among these is fundamental and even axiomatic. This most fundamental of rights is a distinct conception of the right to equality, which I [Dworkin] call the right to equal concern and respect” (p. xii; italics supplied).  Dworkin specifically and repeatedly argues that his conception of individual rights is incompatible with “the theory of utilitarianism” (p. vii and passim).

It is difficult to reconcile Dworkin’s position on rights and utility, on the one hand, with his position on reverse discrimination, on the other. But perhaps that goes to show only that it is not ultimately possible to subscribe both to a robust theory of individual rights and to utlitarianism. The two will inevitably conflict, at which point one will have to choose which wins. One might wish to have both, but one’s moral and political position can serve, finally, only one master.

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The NYT has this story on how manufacturers, auto dealers, and the Chamber of Commerce are lobbying against the proposed derivatives exchanges and new consumer financial protection agency in the financial reform bill. It seems to me that they’re right to be concerned. Industrial firms, apart – apparently – from U.S.-owned automakers, are not treated as being “too big to fail” and do not face moral hazard incentives to invest in risky financial instruments. They’re simply trying to hedge against risk of price rises in their inputs. Cracking down on derivatives generally thus doesn’t make much sense. A properly tailored financial regulation bill would regulate banks and perhaps insurance companies specifically – the companies backed up by Federal Reserve lending, the Treasury’s implicit too big to fail guarantee, and deposit insurance.

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I’m interested in people’s opinions on the new Arizona anti-immigration law.  I have a hard time coming to a consensus in my own mind about the immigration issue and laws like the one Arizona passed.

My civil libertarian mind hates the police state and harassment of anyone—citizen or otherwise.

My rule-of-law mind hates that we mostly look the other way when our immigration laws are flouted—not just by the immigrants crossing the border, but by businesses who hire them and by local governments who provide them sanctuary from the law.

My utilitarian economist mind realizes how essential low-wage immigrant labor is to our economy.  A sudden extraction of illegal immigrants (not that that is possible) would be disastrous, economically speaking.

My selfish elitist mind realizes that I am part of the socioeconomic class that benefits most from this immigrant labor, since I don’t face much wage competition from them (though American academics do face a lot of pressure from educated immigrants in both obtaining jobs and getting into graduate schools).

My partisan political mind understands the importance of the Latino vote in the future.  Even a small-brained Republican like George W. realized this and tried to avoid alienating Hispanics.  Of course even smaller-brained Republican Congressmen have succeeded in sticking a racist knife into the party’s future.  Democrats (who, ironically, rely much more on electoral support from the unskilled laborers who are the principal losers from illegal immigration) just get to sit back and laugh as the Republicans do themselves in.

My cosmopolitan egalitarian mind hates that ugly racism underlying the anti-immigration view and sees open immigration as lifting at least some people around the world out of poverty.

My Christian mind is cognizant that many of these illegal immigrants are surely among “the least of these” that Christ talked about when he said, “For I was an hungered and ye gave me meat: I was thirsty, and ye gave me drink: I was a stranger and ye took me in.” (Matt. 25:35)  I generally don’t like to use religious arguments as policy justifications, since the things that determine private morality often cannot justify public policy,  but I have to say these biblical verses definitely come to mind.

So what is a civil-liberatarian-rule-of-law-utilitarian-economist-selfish-elitest-Republican-cosmopolitan-egalitarian-Christian to do?

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The Prisoner’s Dilemma is a concept used to model a strategic interaction in which actors choosing their behaviors rationally according to their own self-interest make everyone worse off than they could have been otherwise. This particular “game” is used both to understand failures of cooperation such as arms races and ethnic warfare and to prescribe particular solutions designed to elicit cooperation. The key feature of the game is that, when the game is played only once, no matter what another player does (cooperating with me or trying to exploit me), I am better off trying to exploit the other player – so in the end, every player exploits rather than cooperates, and they are all worse off than they would have been could someone have “forced” them to cooperate. What has been less often analyzed, to my knowledge, is the ethics of the Prisoner’s Dilemma game.

Whether one has a duty to cooperate with others in Prisoner’s Dilemma-like situations is an important question both for policy and for daily life. Take the question of one’s duties toward the environment. The environment is in many aspects a public good subject to Prisoner’s Dilemma problems. Clean air, clean water, and biodiversity are benefits that we all enjoy, and from which non-contributors cannot feasibly be excluded. Therefore, people have an incentive to take less care of the environment than they would could the environment be privatized. Whether other people “do their part” or not, I’m better off not trying to contribute.

So let’s take some examples of things one could do for the benefit of the environment: eating less meat; polluting less by, e.g., driving less; propagating native species and destroying invasive species; reducing, reusing, and recycling; not littering; not spraying pesticides. Assume for the sake of argument that we will all benefit if everyone did these things. Do we then have a duty to do them? Would it be wrong not to do them?

I’ll derive my view from a very simple starting point: One has a duty not to exploit others, but one does not have a duty to allow oneself to be exploited. In the simple Prisoner’s Dilemma game, each player has only two options: cooperate (and be exploited) or defect (and exploit). In real life, however, there are different gradations of action, from, e.g., walking or riding a bicycle everywhere to driving a Hummer. Moreover, cooperation isn’t actually zero, and therefore cooperation doesn’t always entail being exploited. These considerations imply that some degree of cooperation in Prisoner’s Dilemma situations might actually be morally mandatory, but that devoting your life to providing public goods for others would not be.

Now, the latter part of the starting point could be made even stronger. Let’s say that not only does one not have a duty to allow oneself to be exploited, but one does not have a general duty to sacrifice one’s own interests for the benefit of others. Then, the benefits of the existing scheme of mutual cooperation, including your own, must be greater to you, individually, than the costs of your individual contribution, for that contribution to be morally mandatory. To see this, suppose it were otherwise. Suppose that your efforts on behalf of the environment, say, actually made you worse off than you would be if no one did what you did, including yourself. If that were the case, then you would be making yourself worse off for the benefit of others. That would count as a praiseworthy and supererogatory sacrifice, but not a moral requirement.

So here are my tentative conclusions. If your efforts, combined with the really existing efforts of everyone else, make you better off (taking opportunity costs into account) relative to a situation in which no one undertakes effort, then you have a moral duty to make those efforts. To do otherwise would be to free-ride on the efforts of others and thus to exploit them, which is wrong. If this condition is not satisfied, however, you do not have a duty to contribute – but it would still be praiseworthy to do so, unless the effort is clearly hopeless, in which case the impartial observer is more likely to have pity on your madness than praise for it. I actually think this is a rather strong conclusion and implies that we have a duty to undertake some (but not extraordinary) positive action on behalf of the environment, for instance. What remains interesting and unusual about the Prisoner’s Dilemma is that it models a set of cases for which the rightness of one person’s actions apparently depends on what others are doing.

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Update: This (see below left) is something the South Korean government does not want to disrupt with a war:

The LA Times has an article in yesterday’s paper discussing the possibility North Korea used a submersible suicide bomber. 

Five day mourning period begins for South Korean sailors.

China says it was an “unfortunate incident.”  But what role will it play

Meanwhile, the U.S. – in my view – should still be slowly extricating itself militarily from the peninsula, especially if incidents like this one threaten to get the US involved in fighting there that is not in our national interests narrowly-defined.   An editorial from the Korea Times related to this issue.  Doug Bandow of the Cato Institute in Forbes on the US and South Korea

And a couple of thoughts from our comments section:

I’ve been reading a bunch of English language Korean websites and a Korean friend has read some in Korean for me. They all have editorials that basically end: If it can conclusively be shown that NK was responsible a strong response (whatever that may be; they don’t ever say) is required. Anything less will harm the government badly.”

Andy Jackson’s important bleg: “One issue I’d like to see more discussion of is the frequency of NK undersea incursions below the Northern Limit Line.”

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I’m referring here to Paul Krugman’s column today.  The ratings system in the financial sector has been a complete pile of crock.  As Krugman noted, 93% of AAA-rated subprime-rated mortgage securities are now junk. How often should a AAA-security end up as junk?  Clearly there has been huge systemic failure in this area.

I’m a very cautious regulator.   One of the potential justifications for government regulation occurs if quantities and/or prices are not transparent.  Mortgage-backed securities seem to be a clear case of non-transparency.   And this non-transparency was aggravated by the corruption of the ratings’ process.

I don’t know what the best fix is, but I think the good news is that ratings should be an area where government’s role need not be huge or even terribly intrusive, even though it might end up being crucial.  Indeed, a little intervention in the ratings game might have gone a long way to avoiding the systemic failure of this part of the industry.

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We have been working on Pinewood Derby cars for Cub Scouts.  My own Cub Scout has been bugging me about every 5 minutes for the past month to work on his car.  It is, fortunately, mostly done now.  My son can be very intense.

Tears are a possibility.

A few years ago another son was in the Pinewood Derby.  There is no heritage of Pinewood Derby excellence in my family.  However, that year I think we actually had the fastest car in the Pack.  I say “I think” because the powers that be decided it would be better if they didn’t actually designate a winner; instead every boy got some kind of award.  Since no one in my family ever wins these kind of things , I was a little frustrated, as was my son.  But we were good sports and went along.

I am of two minds about this Everyone is a Winner approach.  On one hand, I want to shield my children as long as possible from the “agony of defeat,” which is relatively inevitable when their father has the car-building skills that I do.  Childhood is something precious that should be protected vigilantly.  They will have plenty of time to learn about the disappointments and ugliness of the adult world.

My other mind wonders that maybe kids need to have defeat along with encouragement, rather than being always told how special they are.  Some people think the sooner they get tough and recognize that the world rewards winners, the sooner they will understand the importance of doing their best and learning to deal with setbacks and disappointment.

I also wonder about the social implications of Everyone is a Winner approach.  The American work ethic has been essential to economic prosperity in the United States and elsewhere.  We work far more hours per year than our counterparts in Europe, for instance.   When kids grow up playing games where everyone wins, are we breeding this essential capitalistic spirit?  (T-ball games where the referees don’t even call outs on the rare occasions that kids are actually able to generate one are another example.)

I read a lot in the press about the current generation of young adults who want interesting, satisfying careers without “putting in their dues.”  Most careers have traditionally required grunt work, which lets young workers show their commitment and work ethic to elder superiors who then reward that ethic with more responsibility.  Sure, everyone would like an intellectually stimulating career from the outset, but the fact remains that most of the essential work that drives our economy is not that interesting—even in the jobs that require college degrees.  Are young people able to work patiently their way up the totem pole and do the hard things that are poorly rewarded in the short run but pay off in the long run? Are they willing to spend some time on the bottom, or do they want to “win” right off the bat, like the always did growing up?

On the other hand, people are much less likely than in decades past to work for the same company, or even in the same career, for long periods of time.  Putting in the grunt work is no guarantee the economy won’t leave you behind as technology changes.  What does accommodating a changing economic climate require?  It seems to me that experience in losing and moving on to the next challenge would be beneficial.

Several years ago I read Weber’s The Protestant Ethic and the Spirit of Capitalism.  At the time I thought it was one of the silliest things I’d ever read.  A colleague told me that was usual—economists hate Weber, but sociologists love him.  I’d have to look at that text again to see if I’ve changed my mind, but I have become convinced that there are powerful cultural underpinnings to the capitalistic spirit, and I wonder how our society is doing keeping that spirit alive.  This short essay has been full of clichés (and there have been more that I mercifully deleted), but I think that those clichés might be some of the most important drivers of our economic engine.  I hope they are still alive in the minds of our kids and young adults.

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Ross Douthat doesn’t usually do much for me, but this is worth reading.  The last sentence is a bit too alarmist, though.  Here is the key portion:

Our culture has few taboos that can’t be violated, and our establishment has largely given up on setting standards in the first place. Except where Islam is concerned. There, the standards are established under threat of violence, and accepted out of a mix of self-preservation and self-loathing. This is what decadence looks like: a frantic coarseness that “bravely” trashes its own values and traditions, and then knuckles under swiftly to totalitarianism and brute force.  Happily, today’s would-be totalitarians are probably too marginal to take full advantage. This isn’t Weimar Germany, and Islam’s radical fringe is still a fringe, rather than an existential enemy.  For that, we should be grateful. Because if a violent fringe is capable of inspiring so much cowardice and self-censorship, it suggests that there’s enough rot in our institutions that a stronger foe might be able to bring them crashing down.

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Interesting post on this – plus pictures of the raised Cheonan.  HT: Information Dissemination.

What is interesting is that the ship was split in half! 

South Korea has now publicly announced that the Cheonan was likely hit by a torpedo: see this NY Times article.

As Rob has noted, “War is simply not in South Korea’s interests.”  So, I’d like to see some public opinion polling to see if the government will be pressured to take a more bellicose stance.  War of Jenkins’ Ear anyone (a case in which, according to some, public opinion pushed the government further than it may have wanted to go)?  I doubt it.

Update: Will the new rallying cry for the South Korean Navy be: “Remember the Cheonan”?

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Guido Fawkes makes the libertarian case for a Tory-Lib Dem coalition.

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In case you miss it in the comments, Rob Farley at LGM responds to my post and adds more thoughts on North Korea and the Cheonan Incident.

In case you are wondering, Rob is not one of my senior colleagues on my P and T committee.  He’s just an interesting guy, hence all the links!

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So the United Kingdom is having an election on May 6 and recently held its first two “party leader debates” in history. British voters, not having been exposed to this kind of political set-piece before, apparently don’t know that the polling effects of these things are supposed to fade rapidly in the days afterward. Liberal Democrat leader Nick Clegg was widely judged to have won the first debate, and his party – perennial also-rans in British elections – are running either first or second in the polls, overtaking the previously favored Conservatives and distancing themselves from Labour by quite a margin.

It’s tough to tell what a Lib Dem “popular vote” victory would mean, in terms of either seat shares or government possibilities. It’s possible that the first-place party will still end up with a small minority of seats, while the third-place party will obtain the plurality.

A good site for following the extraordinarily volatile polls and betting markets in the days leading up to the election is politicalbetting.com.

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North Korea distributes rice from military storage facilities.  So, is this related in any way to the Cheonan incident?

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Mike Munger provides yet another example of how markets increase our welfare. 

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In his recent column, Michael Medved raises the interesting question of whether America’s increasing rotundity implies, given the ethic that our political leaders should “look like us,” that more of them should be obese. Indeed, Medved suggests the amusing implication that in that case some 30 senators would have to be obese, and most of the rest would have to be visibly overweight.

But Medved also broaches the touchier issue of whether obesity is a mere harmless preference, and thus properly within any individual’s range of free choice, or whether it is an effect of immoral choices, and thus properly the object of moral condemnation. Some will argue that as state governments and the federal government assume responsibility for more of their citizens’ health care, bad health care choices on the part of citizens therefore become the business of the government; being obese would then be an imposition on the state as well as an imposition on one’s fellow citizens. Hence being eating cheeseburgers would be both unpatriotic and possibly criminal.

The easy and obvious way to deal with that problem is for the state to stop assuming responsibility for its citizens’ health care, to let people assume responsibility for it themselves and thus themselves bear the costs and enjoy the benefits of their choices as the case may be. But that ship has sailed. So I understand that that is coming–the “food police” are most certainly on their way, just as the “green police” are.

But the growing sense that obesity is immoral suggests the interesting phenomenon of what Steven Pinker has called “moralization.” The idea is that we have a range of moral sensibilities that can switch on and off, in a process of “moralization” and “amoralization,” so that what at one time was considered a matter of moral weight becomes considered a mere preference, and vice-versa. In his book The Blank Slate, Pinker gives several examples of behaviors that were once in America considered immoral but no longer are, including “divorce, illegitimacy, working motherhood, marijuana use, homosexuality, masturbation, sodomy, oral sex, atheism, and any practice of a non-Western culture” (p. 275). In contrast to those newly “amoralized” behaviors, we have also recently “moralized” a whole range of things that were once a matter of indifferent preference, including everything from disposable baby diapers to Barbie dolls to fur to IQ tests to spanking to . . . fast food (p. 276).

Pinker argues that whether these things affect others is not the issue; everything affects someone else somehow or other. Whether they have bad consequences is similarly irrelevant; many or most of them might. The question, rather, is whether they are best understood as moral issues, instead of matters of good or bad taste, of reasonable or unreasonable risk, of cost vs. benefit, and so on.

I think these examples show how surprisingly sensitive our moral sensibilities are to our local culture, and how changes in our peers’ assessments can so quickly and so deeply change our own assessments. This might, on the one hand, cause us to reconsider the origin of our moral sentiments. Perhaps instead of deductions from first principles or intuitions of the Divine will, many of them are the result of interactive negotiations with those around us about what we like or don’t like, giving rise, unintentionally, to a larger, emergent orders or patterns of moral sensibilities. (Maybe Adam Smith was right about that.)

In addition, however, I think this should also cause us to reconsider our rush to enact current sensibilities into laws and regulations. “Live and let live” is not just an attractively humble motto: It might also constitute a recognition that many of our own moral intuitions and sensibilities are far more subject to fashion and peer pressure than we might like to suppose, and that they may well change over time.

To return, then, to the issue of obesity, my recommendation would be to resist the urge to ‘moralize’ it. People’s dietary choices may be imprudent (for them), they may be costly (to them), and they may not be what you or I would choose. In a free society, however, we should allow people to make choices about things like that even when their choices are not what you or I would make.

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As the New York Times reported:

Esther Duflo, a development economist at M.I.T., has been awarded the John Bates Clark Medal. The award is given to “that American economist under the age of 40 who is judged to have made the most significant contribution to economic thought and knowledge.”  Professor Duflo, 37, helped found the Abdul Latif Jameel Poverty Action Lab, whose affiliates do randomized experiments in poor countries to help determine what types of aid and anti-poverty programs actually work.

Wouldn’t it be great if we could experiment by allowing different states to engage in different policies, unmolested by the Federal Government, and then see how things work out?  These wouldn’t be randomized, but they would be consistent with the Constitution’s federalist plan.  And, of course, we sometimes do.  Unfortunately, we are often stuck with “one size fits all” plans imposed by Washington that, if they fail, fail big and fail for all of us. 

A smart argument I heard during the Obamacare debate (can’t remember where) applied this experimentation point to health care.  Wouldn’t it have been nice to see how similar health care plans fared in some places before adopting it on such a grand scale?  But maybe then we’d have seen how bad things are likely to turn out with Romneycare in Massachusetts and balked at repeating something like it at the federal level.

In the future, let’s remember that federalism has a number of advantages*, and we lose something when the Federal Government sucks more and more power and authority into Washington.

* Note: It should be noted that a due respect for federalism is different than thinking that states and localities are the saviors of our liberties.  States and localities have all too often been violators of our basic individual rights (see Jim Crow and other examples of “grassroots tyranny“).

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Update: I’m not responding per se to what Sven wrote – but to so much talk in our society about left, right, and center that does not make sense to me.  And Sven gave me a chance to rant since people may have that spectrum in their head when thinking about Brooks’ alleged centrism.

I’ll take Sven’s bait. 

The left-right spectrum does not have a lot of utility, especially once you start doing cross-national comparisons.  So, Hitler is on the right and so is Adam Smith?  Stalin on the left with the ACLU?  So let’s stop talking about left, right, and center (even though I, bowing to the language we are currently afflicted with, do reference it on occassion).  Instead, we should use something like the Nolan Chart (though even this, unfortunately, uses left and right as well) or just plain words like progressive, socialist, social democrat, classical liberal, Burkean conservative, American conservative, neoconservative, libertarian, etc. 

Here is a variant of the Nolan Chart created by Marshall Fritz:

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Most conservatives/libertarians I know are not fans of David Brooks.  I must admit that I am a big fan, though I disagree often.  In a recent post I classified him as a centrist.  In his column today, he says he is a centrist.

My question is this:  Are  he and I are right?  Is it useful to think of him at the center of American politics?  The MSM thinks of him as a conservative, which reveals more about the MSM that it does about Brooks.

More generally, many people don’t find common political labels very informative.  They can, however, be useful heuristics in the public debate, and they certainly are not going away.

One of my political philosopher colleagues likes to argue that in terms of ideology, there aren’t really any American conservatives; we are just different types of liberals.  He is right, in a sense, but not very helpful (unfortunately, this is often true of philosophers–and I apologize in advance for maligning philosophers yet again!).

I call myself a libertarian, but the  label I prefer is “true liberal.”  And I refuse to use the “progressive” or “liberal” labels to describe the political left.  “Welfare State Authoritarians” is a better term.

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A shocking revelation: healthcare reform will cost more than originally anticipated.  HHS also questions whether the Medicare cuts are realistic. It also questions some of the underlying behavioral assumptions. Report here at Politico.

The revolution will be televised (Friday addition): The Treasury has released a new $100 bill designed to thwart counterfeiters and anyone who has any aesthetic values. Thankfully, the Treasury has celebrated this fact with a video posted at newmoney.gov. I am growing weary of the current fascination for video and websites with names like newmoney.gov. I am not convinced that, under current circumstances, it is the best use of taxpayer money funds borrowed from the Chinese.

Megan McArdle questions the justification for what “is now the official ugly stepchild of our currency family.” Linda Stern (at moneywatch) has some fun facts on the Benjamin. My favorite: “Roughly 2 of every 3 existing $100 bills circulate abroad, where they have been used as a basis for black market exchange.” However, this might be a thing of the past: “gunrunners, smugglers, drug dealers, and pirates have recently started using the 100 euro note instead, since it became worth more than the dollar.” Perhaps the new design will make the Benjamin more appealing, allowing it to recapture its market share.

More of the financial debacle: Financial reform continues to draw the attention of the nation. According to NYT, Lehman Examiner to Testify That S.E.C. Sat on Its Hands (the S.E.C.’s Inspector General has evidence to the contrary, as I noted in a previous post). Anton R. Valukas, the court-appointed examiner, claimed that he found no evidence that the SEC “asked even the most fundamental questions” to uncover the accounting maneuvers that Lehman employed to move $50 billion off its balance sheet for the two quarters before it collapsed.

All of this should be of great concern given that the S.E.C. has historically placed a great emphasis on information disclosure as a regulatory tool. If the S.E.C.’s own staff—on site at Lehman—can’t be bothered to ask the kinds of questions to make sense of the firm’s balance sheet, it is nothing more than a failed regulator that provides the appearance of accountability without substance.

Perhaps the S.E.C. needs to develop a video on “effective financial regulation” and post it online where at least some of its senior staff will trip over it as they explore the fringes of the world wide web.

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I have three improbable book recommendations for weekend reading, and one book I recommend passing on.

The three “ups” I received as gifts, and I must admit I was not hopeful given their rather unpromising titles. I am happy to report I was pleasantly surprised. (A disclaimer: as with every book recommendation I make, I do not claim to agree with everything–or, indeed, with anything–in them, but that is not the point; I recommend them instead because they are provocative, stimulating, and, in my judgment at least, worth the opportunity cost.)

So, here are my three recommendations, in no particular order:

1. John Derbyshire,  We Are Doomed: Reclaiming Conservative Pessimism (Crown Forum, 2009). A sober, and indeed sobering, analysis of the extent to which our contemporary American politics–including in particular educational policy, immigration policy, foreign policy, and fiscal policy–are informed by a naive, even childish optimism. There is a real world out there, and it is fraught with difficulties and dangers that cannot be overcome by the “vaporous happy talk” that pervades our public discussions. Derbyshire argues that the real world requires the judgment of serious adults who realize that human failings and vices cannot be eradicated but only managed, and he makes the case that this mature seriousness is, or should be, the hallmark of a proper “conservative pessimism.”

2. James Delingpole, Welcome to Obamaland: I Have Seen Your Future and It Doesn’t Work (Regnery, 2009). Delingpole is a British columnist and journalist for the Telegraph of London, and has been one of the leaders exploring the ramifications of “Climategate” (a term I believe he coined). The thesis of this book is that the ascendance of Barack Obama in the United States is an eerily similar replay of the earlier ascendance of Tony Blair in the the U.K. Since, as Delingpole argues, Tony Blair’s effect was baleful, he warns of similar baleful consequences in America under Obama. It is a provocative and intriguing thesis. Delingpole writes, moreover, with an uncommon wit, and with a verve and confidence that somehow manages to avoid being off-putting. (This last is quite surprising for a book with chapter titles like “Barbecue the Polar Bears” and with another chapter arguing on behalf of traditional English fox hunting in seductive, even erotic, terms.)

3. Harry Stein, “I Can’t Believe I’m Sitting Next to a Republican”: A Survival Guide for Conservatives Marooned Among the Angry, Smug, and Terminally Self-Righteous (Encounter, 2009). Stein is a conservative journalist and writer who has lived and worked in and around New York City for decades, and he has suffered his share of lost friends when they discovered his politics. The book recounts story after story, both in his own life and in others’, of discrimination, bigotry, social ostracism, character assassination, and even downright nastiness at the hands of the left-of-center majority in this part of the world. As its title suggests, the book is written with humor and many of the stories told are downright comical. Yet as someone who has experienced his own share of unpleasantness because of his politics–as a non-left-wing humanities academic who lives near and works in New York City, I face a double-whammy–I found myself alternately nodding and shaking my head as I read Stein’s book.

The book I cannot recommend is Cass Sunstein’s recent Going to Extremes: How Like Minds Unite and Divide (Oxford, 2009). This is an eminently silly book, evidence, perhaps, that if you write as much as Sunstein does, some of it is bound to be below the mean. The book’s thesis, which is reasonable enough, is that when people of like minds spend their time talking only to one another, they tend to reinforce each other’s beliefs, hardening them and rendering them less willing to engage in charitable consideration of alternative positions. As I say, reasonable enough; but Sunstein’s book is replete with problems. They include: (1) that thesis is not exactly novel (the notion of groupthink has been around quite a while now); (2) he apparently has a hard time finding much groupthink in politics other than in the Bush Administration (a prime target, I admit; but there are many, many others); and (3) the social science studies he cites, which include some polling and “experiments” he himself helped construct, do not approach any dispositive rigor.

Perhaps the most astonishing thing about Sunstein’s book, however, is that he somehow, incredibly, fails to discuss one of the most talked-about and studied examples of (alleged) groupthink in America today: academia. Sunstein is himself an academic, after all (even if he is now President Obama’s “regulation czar“), so surely he must be aware of the studies showing the political one-sidedness of the professoriate. It is no secret that Republicans, conservatives, and libertarians constitute in many departments in many top colleges and universities only 10% or less of the faculty. (See Dan Klein’s work, for example.) Given those lopsided numbers, this would seem a capital instance to apply and test Sunstein’s hypothesis. Now, perhaps Sunstein thinks the complaints or worries from right-of-center critics and academics are overblown, exaggerated, inconsequential, etc. Fair enough, but then he needs to show that–or at least bring it up! But a book that is ostensibly on the very topic, written by a person in that profession, that nevertheless pretends that the issue does not even exist simply cannot, in my judgment, be taken seriously. Indeed, one might be inclined to suspect that Sunstein’s blindness is a result of exactly the problem his book proposes to address.

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For those who are searching for the roots of regulatory failure, the recent revelations of heavy porn surfing at SEC during the greatest financial collapse since the Great Depression might prove entertaining and pathetic.

Ah, the hedonic calculus at work.

One wonders whether there is some connection between this regulatory quest for full disclosure and the recent fascination of regulators with videos (as noted in an earlier post).

One also wonders whether this will have any implications for the modeling of principal-agent relations or the assumption (a bit shopworn by now) that bureaucrats engage in budget maximizing behavior.

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Or this guy?

Or this guy?

Should we trust this guy?

Should we trust this guy?

Rob Farley at LGM cites research finding that “men with beards were deemed more credible than those who were clean-shaven.”  Tongue in cheek, he then confirms the research by pointing to Paul Krugman (bearded and trustworthy) and Bill Kristol (clean shaven and untrustworthy). 

If this is true, contemporary politicians are really losing an opportunity to fool signal constituents of their trustworthiness.  Or as the authors of the study put it: “the presence of a beard on the face of candidates could boost their charisma, reliability, and above all their expertise as perceived by voters, with positive effects on voting intention.” 

The last Presidential candidate with a beard was Republican Charles Evans Hughes in 1916.  Many people think that the last President with a beard was Benjamin Harrison (who lost the Presidency to my namesake in 1892).  However, according to Kenneth Crispell and Carlos Gomez’s book on presidential illnesses, Woodrow Wilson grew a beard after his stroke (pg 70 and HT: Modeled Behavior).  And ironically, given the research Farley cites, Wilson did so to hide his facial paralysis!  So it might not make sense to trust bearded folks – except for Rob that is! 

My guess is that this new research is either wrong period (which is unlikely given that there was an era in US history when esteemed figures wore beards) or is temporally/culturally dependent and thus wrong in some times/places, including the US over the last century plus (more likely).  I’ll trust the behavior of those who have a real stake in winning over the public – CEO’s, pitchmen, campaign advisors, and politicians just to name a few – over one study (of course, the evidence on pitchmen is mixed given Billy Mays, Norm Abram, and Bob Villa).  Thus the politicians who have shunned facial hair are probably not making a mistake, as the research Rob cites suggests they are.  As one news story noted:      

“People don’t trust candidates with facial hair and it comes down to the simple fact that people think they are hiding,” said Jeffrey Adler, a political consultant in Long Beach, Calif., who has run campaigns for 20 years. “It’s the old body-language paradigm, that they are hiding behind the facial hair. There have been numerous studies. Again and again, voters tend to the photos without facial hair. We always advise clients to lose the facial hair.”

I did a quick perusal of JSTOR and nothing popped – but I bet someone has done research on the question. 

Given my culture/time argument, it seems that someone is losing an opportunity to help sell themselves to the populace — the US soldiers in Afghanistan who are forbidden from wearing beards amidst a culture that greatly reveres them.  Indeed, allowing soldiers to grow beards would seem to be most consistent with our current COIN doctrine.  But as with many things involving the wars in Iraq and Afghanistan, what the military preaches and what they allow are sometimes (frequently?) two different things.  See here for a story about some soldiers who agree with me.  (BTW, there are some US soldiers who are allowed to wear beards; however, it is not the norm even amongst soldiers in the field).

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Arnold Kling at EconLog echoes my skepticism a few days ago about predatory lending.  This is from his post on the proposed financial reform legislation:

Finally–and this will get me in big trouble–I have to rant about the notion of a consumer financial protection agency. I know that it’s axiomatic that poor people are helpless victims. But in the case of these mortgages, that is a really hard sell. The banks did not take from poor people. They gave to poor people. If you were lucky enough to get one of these exotic mortgages when house prices were still going up, then you got to reap a nice profit on your house. If you were not so lucky, you lost…close to nothing. I’m sorry, but if you borrowed up to 100 percent of the value of the house or more, then all you really lost were your moving expenses.

What about predatory lending? As I understand it, the idea of predatory lending is to saddle the borrower with an expensive mortgage so that you can foreclose on the property and sell it at a profit. How many times did that happen? Have you read of a single instance in the past three years where the bank made a profit on a foreclosure?

I am always ready to feel sorry for poor people because of their poverty. But I cannot feel sorry for somebody who was given a basically free option on a house and the option didn’t happen to come into the money.

Very nicely said.

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Moderately left-of-center economist Brad DeLong has a provocative article up entitled, “Global Warming Panic Attack,” in which he argues for nationalization of the U.S. energy industry. What’s interesting about the argument is that he fully concedes the gross inefficiencies that would result from government ownership and management of the industry. The reason he favors nationalization is that would, he says, stop the energy industry from lobbying the U.S. government for perverse policies that harm everyone, such as resistance to higher gasoline or carbon taxes.

In principle, this logic could apply to anything. Classical liberals – and, really, everyone of minimal economic understanding and human compassion – oppose agricultural subsidies. But farm interests keep Congress on a short leash. So – is there a classical liberal case for nationalizing the farms? Would our politics improve as a result?

I have to give DeLong a B+ for effort, as the argument sounds niftily counterintuitive enough to be interesting. But a moment’s reflection reveals its absurdity. Education in the U.S. is essentially “nationalized” (at the state and local level). Does that mean teachers’ unions are impotent? Hardly! In Mexico, petroleum and natural gas extraction and refining is a public monopoly (Pemex). Does this mean Mexico’s energy policies are uniquely rational? Hardly! Not only does Mexico not tax gasoline, it subsidizes it! If your goal is to reduce energy consumption through public policy, nationalization of the energy industry is probably the worst first step you could make.

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The environmental movement has brought some good things.  In particular, policymakers are much more prone (in some cases forced to) think about environmental costs.  Market failures with respect to pollution have been profound in the past and continue to be so.  There is a clear role for government to play in protecting the environment.

My wish for this Earth Day is for one thing: balance.  If I had been asked 50 years ago what the greatest need was with respect to the environment, I would have said (had I been alive) that we need mechanisms to internalize environmental costs.  A lot of those mechanisms are in now in place, though we need a much greater reliance on market-based approaches grounded in property rights, and we are not anywhere near an optimum, I think.

But today, the greatest threat is radicalism among environmentalists.  The radicals are, principally, not those who love the earth, but those who hate capitalism.  They are discredited Marxists taking cover amongst true environmentalists because there is nowhere else for them to go.

So if I were a candle-lighter, I would light a candle for those who are actually trying to advance the cause of humanity (much of which is still—because of lack of economic growth— in a dreadful  state) by promoting the balanced, sustainable development of the earth for all its peoples.

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President Obama gave a rousing speech today on the proposed financial reforms.

We know that financial regulations can bring far greater stability to the economy. Even Milton Friedman and Anna Jacobson were forced to acknowledge that the FDIC “succeeded in achieving what had been a major objective of banking reform for at least a century, namely, the prevention of banking panics.”

My concerns focus on what was not addressed by the president by seems every bit as important as regulatory reform.  The asset bubble that burst in 2007/08 was itself a product of public policy decisions.  To be more specific:

  • Ongoing regulatory pressure for relaxed underwriting standards as a means of promoting social goals (e.g., higher levels of home ownership, and under Bush, the “ownership society”)
  • The Federal Housing Enterprises Financial Safety and Soundness Act of 1992, which  mandated that HUD set quantitative targets for GSE purchases of mortgages serving a low and moderate-income clientele (the target would ultimately reach 55 percent).
  • The Taxpayer Relief Act of 1997 that exempted the first $500,000 in gains from any home sale (for couples, $250,000 for single filers)
  • Persistent trade deficits that provided funds for reinvestment in mortgage-backed securities combined with Greenspan’s pursuit of historically low interest rates

Voters who can use homes they can’t afford as ATMs to purchase goods they could not otherwise justify may be quite content, even if the policies that make this all possible simultaneously create the preconditions for an asset bubble.

The president, in focusing exclusively on regulatory reform, seems content with changes that will reduce the extent to which, when the next bubble bursts, the collateral damage will not be as great.  It feels like mandating that all cars have better airbags before liquoring up a teenage boy and handing him the car keys. Without the liquor, the need for better airbags might not be as great.

What would be necessary to assure that future elected officials won’t pursue social policy goals (e.g., creating an “ownership society”) that have the unintended consequences witnessed in the past few years?

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The UK Times suggests that the apparent North Korean attack on the South Korean naval ship on March 26 may have been an attempt to provoke war with South Korea.  Specifically:

In some ways, a limited war might be exactly what the North Korean leader, Kim Jong Il, is hoping for. After decades of economic decline and famine in the 1990s, which killed as many as a few million people, his economy is in chronic decline. A military adventure, against the routinely demonised “imperialist” US and its South Korean “lackeys” could serve as a welcome and unifying distraction.

This is what political scientists call a diversionary or scapegoat war.   Such a war enables a leader facing domestic troubles to provoke a rally around the flag effect and raise flagging (pun intended) support. 

Now assuming that the incident was the product of centralized decision making rather than an unintended one ordered lower down the food chain (something I discussed earlier here), Kim Jong Il may simply be engaging in a tit-for-tat retaliatory strike for an earlier skirmish, something the Times itself suggests.  And while such a diversionary war would likely distract at home and provide some temporary relief from any internal pressure, is the “Supreme Leader” really so risk acceptant as to start something that could spiral into a bigger war that could see his downfall?

My guess is that the incident was not intended to start a diversionary war but was either retaliation or another in a long history of provocative displays of force by the North Koreans.  Then again, Kim Jong Il may be assuming – perhaps correctly given South Korea’s current lack of desire for a major war on the peninsula – that any South Korean response is likely to be quite limited and can provide some helpful distraction.  Of course, this is all premised on the notion that we are talking about a substantively (or even procedurally) rational, unitary actor – something that might be a stretch in this case.

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1.  Mike Munger on the wise urban planners in Toronto.

2.  General James Mattis, risk, and counterinsurgency (COIN)

3.  Mark Bauerlein on education conservatives

4.  Elena Kagan – perhaps the best we can hope for from President Obama?

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