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Archive for December, 2010

The Copenhagen Consensus Center is devoted to trying to funnel government and private monies for development into their most cost-effective uses. They do this by bringing experts together to hash out priorities.

The idea is simple, yet often neglected; when financial resources are limited, it is necessary to prioritize the effort. Every day, policymakers and business leaders at all levels prioritize by investing in one project instead of another. However, instead of  being based on facts, science, and calculations, many vital decisions are based on political motives or even the possibility of media coverage.

What if there were a similar idea for promoting libertarian ideas?  Libertarians have not only limited financial resources but also limited political resources (and they often pursue agendas which further undermine their political effectiveness).  How could those resources be most effectively used?  Given constraints, what should be the priorities of the movement?

Libertarians spend a lot of energy arguing for policies that 1) are seen by non-libertarians as beyond the fringe and 2) are not that central to the daily lives of most people.  For instance, does it make sense to talk about decriminalizing hard drugs, when the FDA on a daily basis requires people to obtain permission from doctors to use any number of health promoting drugs?  If I want a drug to treat air sickness, or acid reflux, or sleep problems, for instance, I have to incur significant costs to do so well beyond the market cost of the drug–which is offensive not only from a libertarian standpoint, but also makes no sense for a society trying to control health care costs.  If we spent less time defending the sale of crack, pornography or prostitution, and more time on things like the tyranny of the FDA, perhaps we would be more effective.

Libertarians are not inclined by nature to pursue consensus, compromise and efficient trade-offs.  These are not the methods that appeal to people driven by an ideology of being left alone.  That is what the Big Government People do.  But suppose the brightest minds in the movement got together, formulated a list of Priorities for Increasing Freedom driven by the cost-effective use of economic and political resources, and then worked in concert on that agenda.  Would it matter?  Are libertarians so hopelessly irrelevant that they can’t accomplish anything other than making the case for an ideal world that will never be?

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Source: BBC.  BTW, in my snark, I’m taking it for granted that harm has been accurately measured.

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China and Porn

Although I respectfully disagree with Sven’s take on the internet and porn*, his opt-in porn policy is certainly better than China’s draconian attempt to “clean up the internet” by shutting down pornographic websites and opening over two thousand criminal investigations.  (Good luck, China!  And when you are finished, I’m sure you’ll move on to easily and successfully end the scourge of drug use). 

What is more disturbing to me is the technique used to get the “bad guys” – paying people to become informants on those trafficking in porn.  According to CNN, 534 people received “rewards totaling 544,000 yuan (U.S. $81,964) for providing information.”  This technique is destructive of human sociability and friendship in the service of a contestable end and of a mission that is very, very unlikely to make a dent in the use of pornography.  Moreover, it doesn’t take a rocket scientist (or public choice theorist) to see how the use of informants can be abused and lead to all kinds of problematic consequences.  You would think that a place that went through the Cultural Revolution would think twice about such things, especially for this type of “crime.”       

So, chalk up this campaign and its tactics as more reasons to hate the Chinese regime (sorry Tom Friedman) – even if you don’t approve of the consumption of pornography.   

* I just don’t like giving the state the broad power to decide what is and what isn’t “pornographic” or “obscene.”  Let’s not forget that even our government has a sketchy history doing so, including the arrest of “eccentric” presidential candidate George Francis Train for publishing some of the more colorful passages of the Bible!  I also agree with what “A leap at the wheel” said in the comments section for Sven’s post: “I would also be concerned with giving the government (or a private agent that can be brought to heel with a subpoena or threat from a senator) a big list of people who consume unpopular speech.”

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Kant and public policy

I’ve been having a philosophical debate on another thread with Mark LeBar.  Since he is way smarter than I, it hasn’t been much of a debate, but it has been fun for me.  It also comes at a time when I’m finishing off my syllabus for next semester for an undergraduate class called “Theories of Public Policy.”  I use quite a few philosophical readings for that class, even though they are mostly way above my pay grade, as the President would say.  I thought my last comment on that thread would make a nice stand-alone post, so here it is:

———

I once had an old philosopher ask me (like most, he had been trained since his baby philosopher days to hate economists), “Deep down, you surely believe that Kant is right, don’t you?”

To the extent I understand it (which isn’t great), I see some appeal of the deontological approach, though it can lead to conclusions as morally absurd as those used to critique the utilitarians. I think you can use a deontological line of reasoning to conceive of a certain kind of pure libertarian state. The problem is that state is so far past Never Never Land, that it does us little good. Furthermore, that pure libertarian state in my mind is not the morally optimal state, since it gives insufficient weight to other moral ends. I don’t think that I (or people smarter than me), could theorize their way to the optimal state, which is why I don’t subscribe to any known moral philosophy.

To the extent that textbooks on public policy pay attention to political philosophy at all, they usually ignore Kant, except for maybe when talking about civil rights. This reflects, probably more than anything, the fact that Kant gives no direction about how to make trade-offs, and making policy is all about making trade-offs. If your ideology is built around categorical imperatives (or categorial anything, for that matter), you have little to say about how to set a speed limit or decide how much teachers should be paid or determine how to limit carbon emissions, or pretty much anything else.

I haven’t come across deontological writers who paint a clear pathway from where we are to the pure libertarian state they envision, or, more important, to provide a moral ranking of different kind of states (this is probably due mostly to my not being very well read). When you are dealing with categorical imperatives, moral rankings don’t make much intellectual sense, do they? To say simply that the entire foundation of most of what modern democratic states do is immoral doesn’t tell us whether option A is more moral than option B.

I have a belief that most people have strong moral intuition of the importance of human freedoms, and they also have strong moral intuitions that specific freedoms are not absolute and that living in the social world requires placing boundaries on those freedoms so that other moral ends can be accomplished–protecting children (and some dependent adults) from harm and providing them opportunities to learn how to flourish as adults, economic prosperity, providing for the common defense, etc. I think we pragmatic libertarians reason with people from those intuitions to argue that the our modern, authoritarian welfare states have drastically over-reached and have significantly undermined our core freedoms. And we argue that moving to a freer world with more limited government would be a movement to a far more moral position than the status quo.

In my obviously naive view, philosophy goes astray because it forces people to pick between public values that are all important–between liberty, utility, equality, community–and then build a moral system founded upon their chosen value. I say no to this choice. I am going to pick all of them. The most ethical state is the one that adheres most closely to the ideal mix of these values–which appears to be a tautological statement to those lacking my clear vision!

Having said all that, I’m still going to force my undergrads in public policy theory next semester to read some Kant — for which they will hate me, assuming they don’t already hate me for forcing them to read Aristotle, Locke, Mill, and Rawls!

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Free Favre!

What, exactly, has Brett Favre done wrong? I don’t mean playing exceptionally poorly this year; I mean whatever it is that has led to the many-months-long investigation and has finally culminated in a $50,000 fine from the NFL Commissioner Roger Goodell.

Favre was accused of sending “objectionable photographs” and “inappropriate messages” to Jenn Sterger in 2008 while both he and Sterger were employees of the New York Jets. According to the statement released yesterday by the NFL, however, Commissioner Goodell was unable to determine whether Favre had violated any league policies, and he was unable to determine whether in fact Favre had sent any of the allegedly objectionable or inappropriate material.

There was apparently a “forensic analysis” conducted of the photographs and messages, and this analysis could not determine whether the relevant material came from Favre. It has been rumored that the sent materials included, as ESPN put it, “below-the-belt photos”; one might therefore infer that the inconclusive forensic analysis included rather intimate comparisons of Favre’s below-the-belt reality with the photos’ below-the-belt representations.

All very tawdry stuff. But if (1) it could not be determined whether the alleged photos were in fact of (any part of) Favre, (2) it could not be determined whether the alleged text messages came from Favre, (3) it could not be proved that Favre used any Jets or NFL equipment to send any alleged photos or messages, and (4) Favre apparently did not admit to any wrongdoing—all of which Goodell conceded in his statement—then shouldn’t he be deemed . . . innocent?

So what was the $50k fine for? From the Commissioner’s statement:

“The commissioner notified Favre that he has been fined $50,000 for his failure to cooperate with the investigation in a forthcoming manner. Commissioner Goodell stated to Favre that if he had found a violation of the league’s workplace conduct policies, he would have imposed a substantially higher level of discipline.”

That last sentence is rather telling, isn’t it, since it implies that Goodell did not, in fact, find any “violation of the league’s workplace conduct policies.” One wonders, then, why that wasn’t the end of it.

But the $50k fine is for not cooperating “in a forthcoming manner.” Well why should he? Suppose the allegations are in fact true. Suppose, that is, that Favre sent below-the-belt photos and racy text messages to Sterger. How is that anyone else’s business? Both Favre and Sterger are legal adults, and the claims of photos and messages sent all allegedly took place via personal electronic devices during personal time. How is that the NFL’s business? How is that Goodell’s business? Yes, if he had discovered that objectionable material had been sent during company time or using company equipment, that might be a different story. But the point is that he did not discover that. He couldn’t even be sure the messages came from Favre!

Whether a married man should be sending objectionable photos and inappropriate messages to a woman not his wife is another matter. (The answer is no.) But that is a matter between the persons involved and their consciences (and perhaps their Maker), not a matter for a public clamoring for salacious gossip.

I have no inside information, of course, and can go on only what has been publicly released. But based on that, I cannot see why Favre should not have been completely absolved.

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I quite enjoy reading op-eds and writing them is pretty fun too (though not well-paying for us part-timers!).  The obnoxious ones are even worth reading as they provide great insight into the writer if not the subject of the op-ed.  With that in mind, Gene Healy of the Cato Institute has an amusing op-ed on the worst op-eds of the year.  I’m just surprised David Brooks didn’t make the list – though the competition was pretty stiff this year.  As might be expected, Thomas Friedman (who should get a lifetime achievement award from Gene) and Frank Rich both make the list.  However, the David Broder piece was as obvious a choice as Godfather II was for the Oscar in 1974.   Indeed, Broder’s piece has to be – at least –  in the conversation for the worst op-ed ever!  Here are Healy’s winners (you’ll have to go to the post to see the full discussion):

5. Al Gore and David Blood, “Toward Sustainable Capitalism,” Wall Street Journal (June 24)

4. Thomas Friedman, “Malia for President,” New York Times (May 29)

3. Charles Krauthammer, “Throw the Wikibook at Them,” Washington Post (Dec. 3)

2. Frank Rich, “The Axis of the Obsessed and Deranged,” New York Times (Feb. 27)

1. David Broder, “How Obama Might Recover,” Washington Post (Oct. 31)

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Please stop helping us

John Stossel’s critiques usually aren’t terribly sophisticated, but I still like them (since I’m not even a little sophisticated).  He does manage to understand market economics better than almost all of those sophisticated, Ivy League journalists who make up the MSM elite.

This piece is based on analysis done by GMU’s Todd Zywicki on the impact of the new credit card regulations.  Sadly, the impact of more regulation is not hard to predict: higher interest rates and less credit availability.

Here are some snips:

People who have limited choices when it comes to credit are not likely to have their situations improved by taking away some of those limited options that they have…”

So the real result of this “consumer” regulation? “Hundreds of thousands of people can’t get cards who used to be able to have cards, and all the rest of us now have to pay more…”

“Just to say they don’t have a credit card doesn’t mean that they don’t have credit,” Zywicki retorts. “They’ll just go to more expensive places — the local payday lender or the local pawn shop.”

Sigh.

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Is porn like a Happy Meal?

Many feminists and religious conservatives believe (btw: how often do those two groups agree?) that pornography has harmful external effects on society.  But one does not have to share those views to believe that it makes sense to shield children from pornography, most of which comes through the internet.

But what is the best way to accomplish this aim?  A British MP has proposed recently that ISPs in the UK be required to filter all internet content for pornography, while at the same time making it easy for households to turn the filter off.  As is the case with many public policy issues, the question of whether access should be opt-in or opt-out is critical.  I think that any reasonable utilitarian calculation would endorse the opt-in approach: centralizing these costs has large efficiency gains, and those who want an unfiltered internet can obtain it, virtually without cost.  The only losers would be pornographers (who would still be able to produce and sell their wares, but only to those people who want them) .  Boo hoo.

But the opt-in approach would, given recent rulings of the Supreme Court, not be possible in the US. Does this make sense from a libertarian perspective?  The libertarian view on such matters is usually along the lines of  “if you don’t want it, don’t buy it.”  We all turn down countless solicitations on a daily basis, so why should pornography be any different?

As an adult, I can freely purchase many things that may be harmful to me.  For instance, I could obtain cigarettes by driving to the convenience mart in a few minutes or by ordering them off the internet.  Clearly I have to opt-in to buy cigarettes.  The Marlboro Man cannot come into my house, blow smoke around and tell me that I have to ask him to leave.  He also cannot solicit purchases from my children or give them free samples.  It seems like the ideal solution.  I can buy all the tobacco I want, but it is relatively easy for me to keep my home smoke free if I choose to.  My older children could still obtain cigarettes through illicit means–kids certainly do such things–but it is reasonably challenging for them to do so, and small children would have almost no avenue to obtain cigarettes.

Some advertising on tobacco is restricted in the US.  This perhaps violates the rights of cigarette sellers, and many libertarians oppose such restrictions.   But until cigarette companies have the technical ability to blow smoke into people’s homes without consent of the adults who live there, I don’t find the two cases–cigarette advertising and pornography distribution–qualitatively comparable in the slightest.

My wife and I have filters on our family computers, and many employers, including mine, filter internet content in the workplace.  So there are methods for private individuals to filter the content.  These methods, however, are highly permeable.  And they don’t do much to protect children whose parents would like to keep pornography out of their homes but are not savvy enough or vigilant enough to do so, thereby exposing their children and any children who might be visiting in the home.  I don’t think it violates anyone’s rights for the state to give lame parents a hand in protecting children from damaging content.

Furthermore, many adults do not want to view pornography, either, but end up doing so by accident.  This occurs, for instance, when pornographers buy domain names that are very close to legitimate sites  (for example, the domain whitehouse.com used to be an explicit site that vast numbers of people visited unwittingly as they were attempting to visit whitehouse.gov).   And stumbling across one of these sites is vastly different from stumbling across an ad for cigarettes.  The solicitation itself often contains sexually explicit content.  With the methods used by pornographers, “Just say no” doesn’t work.  We are not given the option to say no.   How many times have you smoked a cigarette in your home by accident?

I think one could make a reasonable argument that parents have a legal responsibility to protect small children from pornography, but that is not what I’m arguing here.  My argument is simply that an opt-in policy for internet content is an efficient method for accomplishing this that does not violate any human rights on freedom of speech, freedom of the press, or freedom of expression.

The lingering concern for libertarians is whether we should give the state the authority to label internet content.  After all, the state might use that authority to constrain political speech and the next thing we know, we are like the regime in Beijing.  Unfortunately, this is the type of argument that has some appeal in the abstract world where extremists form their opinions but little relevance to the real world where various public values bump into each other and reasonable people have to make trade-offs.  I’m sorry, but I just don’t see a simple opt-in restriction suppressing free speech, especially in a modern society with vast numbers of communication outlets.  There is a difference between freedom to print and forcing people to watch.  The pornographers want the latter.  Unfortunately, the Supreme Court does, too.

A few weeks ago my Pileus colleague Jim had an excellent post on efforts to curtail the sale of Happy Meals.  His argument was simple:  If you don’t want your kids to have one, don’t buy one.  In that context, his argument made perfect sense.  However, in this case it doesn’t.  This is because Ronald McDonald doesn’t bypass my security system to come into my home and give free cheeseburgers to my kids when I’m not looking.  And if he did, I could show him the business end of a rifle and have him arrested.  These are not options open to me to confront the low-life who is sending me unwanted pornography.

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The annual USA Today/ Gallup Poll on the most admired men and women of the year. President Obama tops the list of the most admired men and Secretary of State Clinton tops the list for the most admired women (sorry FLOTUS). The discussion of the results are presented in some detail at Gallup.

Hamilton assured us (Federalist 68):

“talents for low intrigue, and the little arts of popularity, may alone suffice to elevate a man to the first honors in a single State; but it will require other talents, and a different kind of merit, to establish him in the esteem and confidence of the whole Union, or of so considerable a portion of it as would be necessary to make him a successful candidate for the distinguished office of President of the United States.”

Let us assume, arguendo, that Hamilton was correct and the placement of President Obama at the top of the list of the most admired men (a position occupied by presidents in 52 of the 64 years since Gallup began asking the question) is a product of his “other talents” and “different kind of merit.”

What I find interesting is Obama’s relatively poor performance when compared with recent presidents at the end of their second year in office. Here is the rank order (followed by the percentage of respondents who cited the president as most admired)

George W. Bush: 28 percent
Dwight Eisenhower: 27 percent
Barack Obama, George H.W. Bush, and Jimmy Carter: 22 percent
Ronald Reagan: 20 percent
Richard Nixon: 16 percent
Bill Clinton: 13 percent

For those who are wondering, the other most admired men included George W. Bush (5 percent), Bill Clinton (4 percent), followed by Nelson Mandela, Bill Gates, Pope Benedict XVI, Billy Graham, Jimmy Carter, Glenn Beck (all at 2 percent), and the Dali Lama (1 percent).

Here is a challenge: who would you list as the most admired man and woman of 2010? The only rule is that your nomination must be alive (given the above list, that may be an overly restrictive condition).

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Ok, he’s not going to be featured in a Dos Equis commercial anytime soon.  But given his fearless work on both ObamaCare and the Repeal Amendment, I hereby nominate Randy Barnett as the most interesting legal scholar in the world.  He is real smart but also intellectually (and legally) imaginative – and that latter trait frequently separates the men from the boys in all realms of the scholarly universe where most folks are pretty sharp.  Of course, this doesn’t mean I always agree with him.  But is anyone in his field currently as interesting?  Here is part of Barnett’s piece in today’s Wall Street Journal on ObamaCare and the General Welfare Clause:

Given the enormous sums involved, sending their tax payments to other states would make it nearly impossible for Texans to fund their own system of medical assistance to the poor: Texas’s poor citizens would suffer while the state’s tax payments would go to support the poor in other states. Taking from one state to benefit 49 others is as much a violation of the general-welfare clause as the Cornhusker Kickback, which proposed taking from 49 states to benefit one.

In short, the real key to the Medicaid challenge by the 20 states is not simply that withholding Medicaid funding is coercive. It is that the taxes paid by citizens of a state that opts out of Medicaid would no longer be spent in support of the general welfare of each and every one of the states—including itself.

I wonder if Marcus agrees with my nomination?

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Another tax picture

Here is another picture on US tax payments using data from the Tax Foundation.  This picture represents the percentage of US tax filers who pay either no or negative income tax, by year.

This trend has wobbled around a lot over the past 60 years, but I’m struck by the increase over the last quarter century.  I don’t have a ready explanation for this increase (nor for the surge and subsequent decline in the 1970s).  Since the last major tax reform was enacted in the 80s, the percentage not paying any taxes has more than doubled to a third of all wage earners, as of 2007.   Other than payroll taxes (which, in theory, are recouped as retirement benefits in old age), a third of Americans are paying nothing to support their government, and many more are paying virtually next to nothing.

What are the implications for a society when an ever increasing proportion of workers pay nothing to or actually receive payment from the government?  The negative income tax has long been supported by many economists because it has strong incentives to work, rather than to collect money without working.  But I’m wondering if there are, perhaps, unseen negative effects of this trend.  The idea of a “shared burden” is becoming more and more quaint, especially considering that military service is no longer compulsory.

I’m not arguing for increased taxes on the poor, but I think we do need to ask ourselves what happens to our values and our politics as more and more people fail to contribute anything to the defense of the nation or to the financing of government services.  In 2008, we elected a president committed to even greater progressivity in federal taxes.  When will this stop?

What if we had a low minimum rate of, say, 3% (on all filers who don’t qualify for the EITC) that was tied to government spending.   If real spending goes up, the minimum rate goes up, if real spending goes down, then the minimum rate goes down.  We could still maintain a highly progressive tax structure, but this minimum rate would incentivize middle America to internalize somewhat the costs of government spending.

Shouldn’t everyone living in the freest, safest, most prosperous nation in the world pay a little bit for those benefits, and shouldn’t those advocating for more spending be forced to pony up?

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An interesting discussion of the question over at Political Science Job Rumors: here.  I particularly enjoyed the discussion of children vs. dogs that evolved out of the main thread (see pages 3, 4, and 5). 

And does this “professional” picture (see second one down) seem a bit odd?    I’m ok with, say, a copy of Thucydides in your hand or something, but this??  Or are we too uptight about such things and should we instead celebrate these types of differences that make other folks interesting and the world in general less monotonous?

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Grover Norquist and Patrick Gleason have an interesting opinion piece on Politico today entitled “Let States Go Bankrupt.” They correctly note that many of the states have significant unfunded liability obligations, a result largely of lavish pensions and health plans. The total is some $3 trillion. That may seem like a particularly modest sum given our overall fiscal problem. But there are good reasons, normative and practical, for Congress to pass legislation allowing the state the option of bankruptcy. In their words:

Many states, including those with the country’s largest population centers, are now on a path to insolvency. This is primarily due to fiscally promiscuous lawmakers, skyrocketing Medicaid costs and unsustainable gold-plated government employee pension plans that most Americans could never dream of.
These states’ ballooning obligations simply cannot be met without either soaking state taxpayers or federal assistance — read: taking taxpayer dollars from properly managed states.

Without the option of bankruptcy, there will be intense pressure for a federal bailout of the states. Once states have this option, they will be able to use the threat of bankruptcy to leverage concessions from current and future recipients of state pensions and healthcare packages. Of course, this will be widely viewed as an assault on the public sector unions, so the politics will be particularly complicated. But the status quo—politicians trade extraordinarily generous benefits to unions in exchange for support, while passing the diffused costs on to future generations or, in the case of a bailout, the general electorate—is unsustainable, no matter how politically advantageous it has proven in the past.

To the states anticipating a bailout to cover the costs of their political exchanges, I join with Norquist and Gleason with a two-word response: “Bah Humbug!” Will Congress do the same?

I have my doubts.

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Really? Billy the Kid?

Apparently Bill Richardson, Governor of New Mexico and Clinton-betrayor, is considering pardoning OldWest gunman Billy the Kid.  This has descendents of lawman Pat Garrett and New Mexico Territorial Gov. Lew Wallace outraged.

I won’t bore you with further details of this case (it has to do with whether the Territorial Governor went back on a deal he supposedly made to pardon the Kid for one of his murders in exchange for testimony in another case), other than to ask if this is what the Governor in 2010 should be spending his time, the time of his staff, and the time of all the interested parties.   If history buffs want to fight about these things, so be it.  But is this what we need from a government that has more pressing problems than figuring out what happened some 130 years ago?

But for me the really troublesome part of this case is that it exemplifies the fascination and even glamorization we sometimes give to violent criminals.  One of the parties in the dispute puts it this way:  “I don’t believe a thief, a liar, a terrorizer of the ordinary people and a multiple cop killer should ever be granted a pardon.”

For those of us who believe in ordered liberty (and especially those who look to the Old West as a time when a society grew and thrived with very little government), we should be the first to condemn this type of effort.

So, Bill and Billy, consider yourself condemned.

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If you want to buy more stuff for your loved ones this Christmas, I’m not going to give you much of an opposing argument .  If you need help doing so, Megan McArdle can tell you (perhaps too much?) more (here, here, and here) about what to buy than I could.  As far as I’m concerned, books are always a great gift.  Magazine subscriptions are too (how about Reason or The American Conservative, if you don’t already subscribe to them?). 

However, for those of you who might like to give a donation to a charity or non-profit in someone’s name in lieu of a present, here are a half-dozen suggestions of institutions worthy of our support.*  As a Smithophile, I should also note that such donations may be tax-deductible (and will certainly provoke my approbation):

1.  The Fund for American Studies

Given its sponsorship of Pileus and many great programs, this is a no-brainer!  But I’m anything but an unbiased observer, so caveat emptor.

2.  The Cato Institute

One of the key pillars of the libertarian movement.  It does great work and has top shelf intellectuals on staff.  If you care about libertarian ideas getting attention in the imperial capital, this is the place to support.    

3.  The Institute for Justice

The IJ is the ACLU for folks who respect the entire range of freedoms and understand that economic freedom and personal freedom are not unconnected.  It might be the most effective libertarian institution in the country.

4.  Foundation for Individual Rights in Education (FIRE)

From everything I’ve read, FIRE does a great job making sure that educational institutions respect individual rights on campus.  Students and professors can be bullied by universities, but FIRE exists to make sure that universities remain free-fire zones for rational inquiry. 

5.  Property and Environment Research Center (PERC)

I came to know PERC back when it was called the Political Economy Research Center.  Regardless of the name, PERC is a great resource for those interested in liberty and the environment.  These folks know that property rights and markets are critical to a truly sustainable world.   

6.  Institute for Humane Studies

Introduces and cultivates ideas central to a free society among young people interested in liberty.

Please feel free to introduce your own suggestions in the comments!

* Note that there are certainly more than six great liberty-friendly institutions that I could recommend.  However, other than TFAS, I wanted to avoid specifically mentioning ones with which I have a current contractual relationship so as to avoid any suggestion of impropriety.  Like most libertarians interested in public policy work, I have been involved with Cato but am not currently on its payroll.

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Parcel bombs have just exploded at the Swiss and Chilean embassies in Rome, according to the WSJ. I guess the TSA is going to have to give enhanced patdowns to even more children and elderly Americans now. (After having thought really hard about it for several minutes, Homeland Security Secretary Janet Napolitano, who is on the job 364 days per year, said that she just couldn’t think of any other way to keep us safe, after all.)

And now it comes out that, in the same interview with Diane Sawyer in which Napolitano forgot how many days there are in a year, James Clapper, who is the Director of National Intelligence (really!), apparently hadn’t heard that earlier in that day 12 people were arrested in London on suspicion of being al-Qaeda operatives involved in a terrorist conspiracy. (Even I had already heard, since the WSJ had sent a headline alert about it to my phone immediately after it took place. (Tip to Director Clapper: Those alerts are free, easy to set up, and really useful sometimes.))

Watch the painful if revealing Sawyer video here.

It is hard not to come to the conclusion that there is not a single competent person in charge here. Are any of the people making the top-level decisions about the military, about homeland security, about global intelligence, or about counterterrorism inspiring confidence in you? Putting aside all partisan politics, and evaluating the job they’ve been doing as objectively as possible: Are their decisions good ones? Do they strike you as informed by long experience and wise deliberation? Do they seem as though they are driven by hard-headed realism and a clear sense of justified purpose?

I am afraid that my answer is “no.” But perhaps you think I am being too harsh or that there are good people at the top I am not thinking of. Fair enough. But how can one not but be troubled by the seemingly endless parade of what are politely called “gaffes,” not to mention the manifestly stupid decisions these people keep making? It would seem that people on all parts of the political spectrum are critical of the job these people are doing. So why, then, do we continue to invest such enormous faith in them?

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Tax picture of the day

So I’ve been playing around with federal income tax data provided by the Tax Foundation.  The figure below shows the taxes (in constant 2000 dollars) paid by the top 1% and top 5% of tax filers.  The top 5% of earners paid close to 60% of all federal income taxes collected in 2008.  So much for the rich not paying taxes.  (The massive progressivity of federal income taxes is probably one of the least appreciated facts in American Politics today–my bet is that most Americans are under the impression that taxes are mostly paid by the middle class).

Anyway, two features of this graph I created really strike me.

1. Although there seems to be a big effect of the Bush tax cuts, the big dip that is apparent is mostly declines in taxes paid because of the last recession.  For the top 1% of earners, total taxes paid dropped by 30% between 2000 and 2003.  But more than three-quarters of that drop occurred before the Bush tax cuts took effect.

2. Taxes paid by the rich in real terms grew rapidly after 2003.  How much of this increase is due to a recovering economy and how much is due to growth effects of the tax cuts themselves is hard to say one way or the other (despite what Paul Krugman will tell you).  But one thing is clear:  The idea that tax cuts to the rich resulted in a decline in tax revenues is a complete myth (again, despite what Paul Krugman will tell you).

I’m not saying that we couldn’t raise revenues by increasing taxes on the rich.  Clearly, we could.  But declining revenues are not the source of our fiscal problems.  The problem is the ever increasing gap between spending and revenues.  (This is especially disconcerting when we consider that a good chunk of federal spending is financed by stealing money from the Social Security contributions of American workers.  This is a double whammy, since Social Security taxes are regressive and since the non-rich rely much more on promised Social Security benefits than do the rich.)

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DHS at the Salad Bar

With news that Al Qaeda may have thought about poisoning salad bars and buffets in the U.S., perhaps the Department of Homeland Security should think about posting a guard or TSA-like official inside restaurants across America.  It would be a great jobs program (“spoon ready,” if you will)  and these agents could do double-time for Michelle Obama’s crusade against obesity by looking sternly at those filling their plates too high at buffets, getting bacon bits at the salad bar, or coming back for seconds.  Or perhaps they could be empowered to physically bar those with too much stomach hanging over the belt – or make them eat their broccoli (George H.W. Bush excepted). 

Sounds like a win-win-win to me.  Stop terrorism, provide jobs, and prevent obesity.  There’s no need to fear, Wonder State is here!   (Or as Dan Klein might say, Overlord is here). 

Should I mention that the #1 way to reduce anti-American terrorist attacks is to actually reduce the U.S.’s footprint around the world?  Of course, this would actually mean a change in our grand strategy, which seems set in stone since about 1947, if not 1898.

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As we approach Christmas and AQ has once again promised a terrorist surprise, it is good to know that Homeland Security Secretary Napolitano–the woman responsible for orchestrating the TSA’s “security theater”–is at the top of her game.  As she noted in an interview:

“We are thousands of people are working 24/7, 364 days a year to keep the American people safe.”

Refreshingly, a DHS spokesperson admitted that the Secretary mis-spoke. Given the events of the past few years, one could imagine Congress issuing a press release to proclaim that the non-partisan Congressional Budget Office had conducted an analysis and determined that there were, in fact,  only 364 days in a year.

Nonetheless, given that the TSA has caught zero terrorist in the past 9 years, one might conclude that taking a day off would  have no effects on results (e.g., 0/365 = 0/364) and might actually be touted as evidence of the administration’s success in eliminating waste, fraud and abuse.

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Rail Failing Again

Yes trains are more aesthetically appealing than the bus.  Yes they seem “less low-rent” for the status conscious among us.  But rail is a bad idea for most American cities, especially compared to buses.  This has been shown time and time again across the United States.  Here is a recent study of the issue.     

Therefore it is not surprising to hear recent news of rail problems in Norfolk, Virginia and Austin, Texas. 

In Norfolk, the rail system has gone so far over budget as to make a mockery of projected budgets:

Light rail, expected to cost $338 million, is more than $106 million over budget [and this doesn't include another million it just spent].

And in Austin, Texas, rail is shockingly failing to meet ridership projections while losing millions:

Capital Metro’s budget for the fiscal year that began Oct. 1 assumes that MetroRail, with operating and debt costs of almost $14 million this year, will bring in about $638,000 of revenue . . . .  Through MetroRail’s first nine months, ridership has lingered at 800 to 900 riders per day, less than half of original predictions.

Every time local politicians try to sell you on rail, remember the many cases of failure around the country and be quite skeptical of the ridership and budgetary claims of rail enthusiasts.  Or at least remember one of the greatest Simpsons episodes ever:

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A Health Care Bleg

Could someone attempt to provide a reasonable defense of why we shouldn’t allow the purchase of health insurance across state lines?  Is there any public interest in preventing said sales?

I’d particularly love to hear from libgressives who oppose such a policy change.  And to (try to) incentivize other bloggers to provide such a defense, I’ll provide a link to the best response.

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Three cheers for the common sense of Denise Bobcombe in response to the so-called danger Happy Meals present to children: “Are you going to be the parent or are you going to let your kids run you?”

Unfortunately, this sense isn’t ubiquitous, leading one person to launch a class-action lawsuit against McDonald’s because of the Happy Meal.  See the story here.

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Let’s suppose there are no natural rights, no right or wrong but what the law says – and the basic purpose of law is to preserve your own life. Let’s further suppose that chaos and constant warfare necessarily mark the absence of government, and that the more government there is, the less private crime there will be. In fact, some of these assumptions are probably wrong, but let’s stipulate them for the moment, for one could hardly come up with premises more likely to yield antilibertarian conclusions. After all, Thomas Hobbes built his entire justification of an absolute, authoritarian state on these assumptions.

Does an unlimited state protect the average person’s life better than a limited state? This is an empirical question that we need to refer to the evidence. (more…)

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Here is Mark Pennington’s fifth guest post of the week.  It has been great to have him aboard, and I hope we’ll have a chance to see his writing here again.

The recent Cancun climate change conference attracted much less media attention than last year’s event in Copenhagen. Green activists and some politicians, however, continue to press for massive programmes of income redistribution from developed to developing nations in order that the costs and benefits of reducing climate change and/or adapting to it are distributed in accordance with a just allocation of ‘ecological space’. The concept of ecological space refers to aspects of the environment that constitute a fixed stock – such as the capacity of the atmosphere to absorb CO2 emissions without provoking catastrophic climate change. Owing to its finite character, greater use of ‘ecological space’ by some actors is said to deprive others of their capacity to develop without threatening the future of the planet. It follows, that developed nations should compensate less developed nations who have yet to use the ecological space they would be entitled to under the principle of equal shares.

Notwithstanding the frequency of this argument and the sense of moral outrage that usually accompanies it, it is far from obvious that developing nations are the ‘victims’ of an unequal and ‘unfair’ use of ecological resources by the global rich. Contrary to the Malthusian doctrines of many greens the process of industrialisation in the developing world today does not require the same intensity of resource use previously required by developed nations. It requires less, because developing countries benefit from the capital structure and innovations that were arrived at in the developed world by an earlier process of trial and error learning. In a period when it was virtually alone in the process of industrialisation, it took 18th century England 58 years to double its national wealth. One hundred years later, however, and owing to its ability to draw on technological developments elsewhere, Japan was able to double its wealth within 34 years and for a smaller level of resource inputs. A further hundred years of industrialisation saw South Korea doubling its wealth within a mere 11 years.[1] The ‘excessive’ use of ecological space by developed nations has opened up the possibility for the developing world to achieve higher living standards without inflicting an equivalent amount of ecological damage.

Inequality in the use of ‘ecological space’ may be a necessary condition not only for economic development, but also for subsequent environmental improvements.

It may not be possible, even in principle, for all people to simultaneously achieve the highest environmental standards. ‘Clean technologies’ for example, cannot be made simultaneously available to all but are dependent on a process of evolutionary change where high cost environmental improvements are first delivered to a few before becoming available to a wider spectrum of people as the cost of technology falls. Thus, ‘low-carbon’ technologies such as solar, wave or wind power cannot be made available to all parts of the world without first having been applied in a number of pioneering countries. Equally, it cannot be assumed that the process of industrialisation and contemporary technological advance could have proceeded on a ‘low-carbon’ basis. The ability to produce effective carbon substitutes today is dependent on an evolved capital structure of ‘high-carbon’ technologies which may have been necessary to enable sufficient production of the components and equipment required to bring low-carbon energy into fruition.

What matters is that given the dependence of ‘cleaner’ growth on a history of ‘dirtier’ growth the most environmentally advanced societies will at any given point either have a history of being the biggest ‘polluters’, or will profit from the technological advances developed by ‘polluting’ societies. There are, however, no common standards of justice, merit or desert to determine ‘who should go first’ in the necessary evolutionary chain. The inequalities in access to economic and environmental goods that prevail today are a combined reflection of purposeful effort by specific individuals and cultural groups, different tradeoffs reflecting a diversity of socio-cultural priorities and, accidents of history and geography. Unless the relative position of different people and countries is to be determined by a more or less random combination of such factors, then the only alternative would be for a global authority to deliberately assign shares of environmental resources to specific actors. The latter process could not, however, be considered commensurate with social justice because there are no globally agreed criteria to determine what this would require.

The concept of ‘corrective justice’ is particularly ill-suited to determine the distribution of environmental goods and bads. While it is true that technological and industrial developments in some parts of the world may have ‘imposed’ potential costs on others that are now seeking to develop in the context of climate change, it is also the case that poorer countries have received uncompensated benefits from this process. Crucially, it is not clear on what basis it could be determined whether the costs outweigh the benefits or vice versa. Any such calculation would require knowledge of what the pattern of economic activity in developing nations would have been were it not for the unequal use of natural resources by today’s developed nations. Such a calculation would presuppose knowledge of countless different resource allocation decisions made by a host of different governments, private individuals and organisations and how the distributive results of those choices would compare with those seen in the world today. There is however, simply no way of knowing how much better or worse off today the inhabitants of say Britain and the United States might be than the residents of India or Brazil if all had started off with an equal allocation of ‘ecological space’, because it is impossible to know which choices and tradeoffs would have been made. In short, the pursuit of ‘climate justice’ is equivalent to chasing a ‘mirage’ in much the same way as is the pursuit of ‘social justice’ more widely.                              

 


[1] On this, see Norberg, J. (2008) In Defence of Global Capitalism, Washington DC, Cato Institute.

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According to the Washington Metro Transit Police, there is “no specific or credible threat to the [Washington subway] system at this time.”   Reuters reports that, nonetheless, the Metro police are planning “to randomly select bags before passengers enter subway stations and they will swab them or have an explosives-sniffing dog check the bags.”

This makes total sense … But let me see if I have it right before saying that with too much confidence.  Someone was recently arrested making bomb threats against the subway system.  But there is no credible evidence of any specific remaining threat.  Therefore, it makes sense to now start randomly checking bags in the subway system – a system that has millions of riders and many, many entry/exit points and limited resources with which to deter/stop/punish regular crimes.   Huh? 

But why stop there?  Why restrict the program to the subway?  Why not just start randomly searching people without cause on the street …. I mean, there are people out there, even active terrorists, who would like to do harm to people and property.  Therefore no one is truly safe and secure as long as people can walk around with bags that might – until searched and verified as safe – contain an explosive.  Indeed, freedom itself is a contributing factor that allows terrorists to do what they do.   Therefore, we can increase our security by targeting freedom itself.   But maybe the problem is confined to public transportation and thus we have to focus on airports and subways because it isn’t as if terrorists will seek out alternative targets should these random checks actually stop someone (which is statistically pretty dubious given the cost of even such a limited program, the amount of police assets, and the number of riders on the system).  It is not as if terrorists have targeted buildings like the World Trade Center (the first attack by ground), or clubs like the Dolphinarium in Tel Aviv, or shopping areas in places like Stockholm, or any number of regular old targets! 

We have just gone totally batshit crazy trying to protect ourselves from a very, very small risk of damage to persons, places, our economy, our system of governance, and our way of life posed by terrorism.  Cost-benefit analysis suggests that random defensive measures are just not going to pass the smell test (pun intended) – leaving aside the threat these measures themselves represent to our values and our way of life.  And I say this as a relatively hawkish libertarian who thinks we should be aggressively seeking to attrit if not destroy active anti-American terrorist groups and their state supporters.  Therefore, I think the war in Afghanistan (although maybe not the way we are fighting it) is totally justified, as are – in theory – the use of special forces/SOF in other parts of the globe.  I also support active police measures like those carried out by federal and local law enforcement communities to stop emerging evidence-based threats.  But please, random searches on the subway……

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Here is Mark Pennington’s fourth guest post for Pileus:

Two of my posts earlier this week (here and here) focussed on the institutional implications of limited rationality. My claim was that robust institutions are those that minimise the consequence of inevitable human errors. In a nutshell, this is the Hayekian argument for the competitive ‘exit’ principle as facilitating a process of evolutionary learning under ‘bounded rationality’. Though this insight has often been recognised in economics (though not as much as one might hope), relatively little has been made of what bounded rationality might imply for questions of distributive or social justice. This is surprising for no less a figure than John Rawls recognised that when choosing distributive rules from behind the ‘veil of ignorance’ people should have access to ‘basic facts of social theory’ to enable them to engage in an impartial choice of just institutions. Impartiality for Rawlsians, of course, equates to support for a ‘basic structure of society’ that institutionalises the ‘difference principle’ (maximise the position of the worst off) and a distributive branch of government – i.e. a welfare state, that distributes resources accordingly.

If the ‘basic facts of social theory’ include recognition of limited human rationality and the need for institutions that promote learning, however, then it is worth reconsidering what the requirements for an impartial choice of social institutions might be. More specifically, if the choice of social institutions takes place under bounded rationality or genuine ignorance (save for ‘basic facts of social theory’), then it seems highly unlikely that people would opt with certainty for any particular distributive rule, such as Rawls’ difference principle. If people are genuinely ignorant, not only of their talents and social position, but also about the values and beliefs they will possess, their attitudes to risk and how these are likely to change in the light of experience and mistakes then it seems more plausible to suggest that they might opt for a ‘basic structure’ that would enable them to learn about, and to choose between competing distributive standards –i.e. one which allows for exit.

As well as ‘rigging’ the result of his own particular thought experiment by positing that actors behind the veil are risk averse in the extreme, Rawls rules out the possibility of people learning from the experiences of others by specifying that actors behind the veil know themselves to be choosing rules of distribution for a ‘closed society’ where exit occurs only by way of death. The justification for this move follows from Rawls’s assertion that given the option potentially selfish actors may threaten exit in order to exert bargaining power against others to secure ‘unfair’ terms of cooperation. People should, in other words, be thought of as choosing rules of distribution in conditions where their social position might be determined by their enemies.  This was always rather an odd move on Rawls’ part since anyone thinking about how to design institutions when they might be assigned a place by their enemies might allow for an exit option precisely so they might escape the possibility of exploitation by opportunistic actors.                        

Even if one were to grant the benefit of doubt to Rawls in this instance, however, it would not be enough to save his theory from the ‘basic fact’ of bounded rationality. On the contrary, in the unlikely event that people do actually agree on a unitary distributive rule such as the difference principle they would have to reintroduce exit options internally in order to have any chance of achieving it. When people must make distributive choices under conditions of limited rationality then it cannot be assumed that knowledge of how to achieve the difference principle or any other ‘patterned principle’ of justice can be ‘given’ to the administrative arm of government.

Does redistribution raise the absolute standard of living for the poor? Should redistribution be conditional on behavioural changes and should it be supplied via cash payments or the provision of ‘free’ services such as education? Is a person best placed to help the disadvantaged by starting a new enterprise and employing poorer sections of the population? Would it be best for someone to take a high paying job and contribute part of their income to charity?  If charitable activity is indeed an appropriate way to help the disadvantaged should this take the form of monetary contributions or spending time directly with the less well off? Rather than assuming that answers to these questions can be known by any single actor or group, the ‘basic structure of society’ must facilitate the discovery and communication of ‘who should give what to whom’ – i.e. it should allow for people to associate with one another on a range of different terms.

In short, without the possibility of exit and the learning opportunities it affords there is no hope of achieving justice understood in Rawlsian terms or anybody else’s. Moreover, in a world where ‘differences’, i.e. ‘inequalities’ in results between individuals and jurisdictions are needed to have any chance of learning what the ‘difference principle’ requires, the observed pattern of distribution at any point in time may be indistinguishable from a scenario in which there was no attempt to institutionalise any particular distributive rule in the first place.

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Jumping for joy

On the recent cover of Time there is a little teaser: “Did Obama fight or cave?”

Dumb question.  The answer is that he did neither.  He jumped…for joy.   I wrote recently that the new tax deal isn’t hate-worthy.  Sensible Democrats should love it, even if they have to complain publicly about how the President sold them out.  And if someone ever releases internal White House video from this past couple of weeks to WikiLeaks, it will show the President and his team doing cartwheels around the Oval Office after the Republican leadership left the building.

The President is many things, but dumb is not one of them.   And the political team that whisked him almost effortlessly into office isn’t  dumb either.  They know two truths:  First, elections always have been and always will be about winning the hearts and minds of the persuadable center.  Second, what those persuadable folks in the center care about most is their pocketbooks and, to a lesser degree, the performance of the broader economy.  (If they didn’t believe this second point before the last election, they are true believers now.)

The tax deal allows Mr. Obama to be concerned for the economic plight of middle America, to be seen willing to work with Republicans , and to be seen standing up to the radical leftist wing of his own party, while at the same time publicly scolding Republicans for their supposed love of rich people.  This morning he gave a statement in association with his White House chat with CEOs that could have been written by the freakin’ US Chamber of Commerce.  No Republican could have given that speech without sounding dyed-in-the-wool ideaological.  But Obama sounded like the prince of reason and throughtfulness.

If the economy improves significantly, which it probably will, Obama is going to skip easily to re-election, and this deal will prove to be a significant starting point for that effort.  The media hype is all about frustrated Democrats–which makes sense because most of the media are frustrated Democrats.   But if the media were as smart as the White House, they’d be paying more attention to the voices that are saying the GOP got snookered.

A silver lining for the GOP is that even though they are hoping to make Obama a one-termer, their candidates for 2012, to put it frankly, really suck.  They need someone who is politically authentic (rules out Romney), brainy in a “Presidential” sort of way (rules out Palin), appeals to the secular center (rules out Huckabee), and who has the charm and political style to compete at the highest level (rules out pretty much everyone else).

But, 5 years from now, there is a good chance that a Marco Rubio, Chris Christie, Paul Ryan, or someone we are probably not thinking about that much right now, will be sufficiently seasoned enough for the Republicans to do their own version of Obama.  And, to boot, American health care will be such a mess, that Republicans will likely return to the White House without a problem, assuming they can field a decent candidate.

Of course Congressional Democrats will still be in a world of hurt.  I’m just heartbroken for them.

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Mark Pennington’s third guest post here on Pileus:

Last week a gathering of British students, organised by the far left (did anybody count the number of Socialist Worker posters on display), trashed much of Westminster, London. In a rare admission by some of their lecturers that ‘incentives matter,’ some of the students had been ‘encouraged’ to attend the event with promises that coursework deadlines might be extended for those involved.

In a further recognition of the importance of incentives, one of the most common arguments that the participants advance is the notion that education is a ‘public good’ with ‘positive externalities.’  Since ‘society’ benefits from students’ receipt of education – a better educated workforce generates more and better paying jobs for the general population -students should be subsidised to attend university even though they are likely to secure higher incomes on average than taxpayers as a whole. Absent the incentive provided by public subsidy education might be ‘under-produced’ relative to some social optimum.

Recourse to this argument in an educational context is widespread yet it rests on a failure to understand a distinction originally made by Buchanan and Stubblebine between policy-relevant and policy irrelevant externalities.[1]  Externalities are policy relevant when the ‘supply’ of a positive external effect is determined by the ability or inability to charge for the relevant units. Thus, a ‘landscape entrepreneur’ may not invest in constructing a public park if she is unable to profit by charging for access to the grounds. Externalities are policy irrelevant when the externality is supplied irrespective of the capacity to exclude non-payers. The decision of a householder to provide a rose-garden for her personal enjoyment may not, for example, be affected by the capacity to charge onlookers for ‘viewing rights’. The distinction between policy relevance and irrelevance here depends on whether the externalities are infra-marginal. This scenario refers to externalities that exist, as in the case of the rose garden, but where interventions would not produce marginal improvements to the level of supply. Thus, if the government subsidises gardeners to increase the production of roses the externality is infra-marginal when the subsidy exceeds any value placed on the additional roses by passing members of the public who may not register the existence of a few extra flowers. In other words, the externality is infra-marginal because for purely private reasons the gardener is already taking into account (albeit unintentionally) the interests of external beneficiaries.

Buchanan and Stubblebine’s analysis suggests that owing to the social nature of life externalities are ubiquitous but most of them are irrelevant from a policy perspective.  Purely private decisions to adopt a rigorous skin care regime or to attend fitness classes to maintain the interest of one’s spouse may, for example, generate positive externalities for others who appreciate the beauty of the human form and may benefit ‘society’ as whole by improving the aesthetic ambience in which we all live. It is unlikely, however, that a more satisfactory level of supply could be induced by government encouraging people to spend additional resources on their appearance. Indeed, to do so might be to transfer resources away from what are potentially more valued uses.

Seen in this context, there is little reason to suppose that education generates policy relevant external effects. First, it is not clear that benefits generated by private decisions are uncompensated or that they might not readily be internalised via private mechanisms. The fact that an educated person may raise the productivity of others with whom they interact is likely to be reflected in that person commanding a higher wage or salary than a less educated person. One would expect profit-seeking firms to pay more for workers who raise the productivity of their co-workers.

Second, insofar as decisions over education do generate uncompensated effects these seem likely to be infra-marginal and thus policy irrelevant. Given that people have purely private inducements to invest in literacy and numeracy– such as the greater likelihood of finding a job – it is not clear why governmental efforts to encourage additional investment would be worthwhile. A similar analysis applies to private decisions to invest in more sophisticated training such as higher education. In general, the expectation of commanding a higher wage or salary will itself be sufficient to induce the supply of any relevant spill-overs, irrespective of whether these are compensated directly by ‘society’. As Mario Rizzo has argued in a recent post on The Unbroken Window, these personal inducements to attend university should now be recognised to include a much broader range of personal benefits such as better dating opportunities and improved prospects in the ‘marriage market’.

Of course, there remains the problem that students may find it hard to secure competitive loans to invest in their future given the difficulties for investors in determining who is a good risk in terms of future educational payoffs. There is, however, no reason to suppose that a government run scheme is uniquely placed to determine an optimum level of student support. On the contrary, in a sector where some employees only recognise the significance of incentives in the context of ‘consciousness raising’  exercises there are reasons to believe that government-funded education may produce too much of a bad thing. 


[1] Buchanan, J.M., Stubblebine, (1962) Externality, Economica, 29:371-84.

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An emerging order?

The Hill is reporting on a fascinating news conference just held by GOP spending overlords.  Here is their account:

“GOP Policy Committee Chairman John Thune (S.D.) and National Republican Senatorial Committee Chairman John Cornyn (Texas) convened a Wednesday morning press conference to criticize Senate Majority Leader Harry Reid (D-Nev.) for trying to speed the package through the Senate before Christmas. But Thune and Cornyn faced a barrage of hostile questions about their earmarks by reporters from NPR, ABC News and NBC News.

“Going through this bill, there is earmark after earmark from the both of you, millions of dollars in earmarks from the two of you and from other senators,” ABC’s Jonathan Karl told Cornyn and Thune. “How do you have any credibility on this? Why do you have earmarks?”

Cornyn said he had credibility on the issue because he plans to vote against the omnibus spending bill.

“If people have concerns about what’s in the bill, we ought to be given an opportunity to offer amendments to strip those out and I’m happy to have that process done,” Cornyn said.

Apparently, a GOP aid ended the news conference when it became apparent that the Thune and Cornyn were in an impossible position–trying to attack the Democratic spending bill even though it was full of their earmarks.  This reminds me of John Kerry’s famous, ” I was for it before I was against it” (or something to that effect) that got him in so much trouble back in 2004.

I’m interpreting this as a hopeful sign that earmarks are going to be harder and harder to sneak through.  An even more hopeful sign would be having more true reformers on Appropriations, especially as chair, but the more these guys get their hypocrisy exposed (Way to go, Main Stream Media!), the better!

Of course this is a far cry from true reform, which would be to say, for example,  “There is no Constitutional basis for the federal government to be involved in the agriculture business, therefore, there is no reason to have an agriculture sub-committee for appropriations.”  The best way to get rid of appropriations is to get rid of appropriations committees.

But a little egg on the face of pork barrellers masquerading as spending hawks is a good way to start the day.

 

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Economist Daniel Klein of George Mason University has been doing a lot of interesting work recently.

Klein is an Adam Smith scholar in his own right, but he has also been encouraging his students to work on Smith as well. He has recently supervised two PhD dissertations on Smith:

1. Brandon Lucas recently defended his dissertation entitled “The Influence of Adam Smith: The Invisible Hand, Hayekian Narrative, and Honest Profit.” Here is the abstract:

Adam Smith’s contributions to the world and to the field of economics cannot be overstated. College level economics students and even most lay people likely know Smith for his Invisible Hand metaphor, division of labor examples, or promotion of earning honest profit. Though such subjects are over 200 years old and often outwardly accepted as straightforward, debate remains active and divided regarding several of Smith’s ideas.The main chapters of my dissertation address three related, but separate, issues to further advance the broad frames of Smith scholarship. The first paper, “Seeking Honest Profit as Smithian Distributive Justice,” investigates whether seeking honest profit can be viewed as Smithian distributive justice. Before, and certainly since, the industrial revolution scores of writers and scholars have considered profit seeking to be an unbecoming trait. The paper uses Smith’s ideas about justice and honest profit to develop a framework showing how the search for honest profits can be seen as meeting the goals of distributive justice and establish a presumption of innocence rather than guilt.

The second paper, “Adam Smith’s Congruence with the Hayekian Narrative,” searches for congruence between Smith’s ideas and the epic socio-political story that Professor Daniel Klein dubs “The Hayekian narrative.” Several elements comprise the Hayekian narrative, with evolution and atavisms being prominent actors. The paper explains the narrative, discussing how humanity’s instincts, which are carried over from the primeval band, often conflict with the extended order, and how social-democratic worldviews may be interpreted as atavisms. The paper compares several of Smith and Hayek’s ideas to illustrate Smith’s similarities with the narrative.

The third paper, “In a Word or Two, Placed in the Middle: The Invisible Hand in Smith’s Tomes,” is co-authored with Dr. Daniel Klein. The paper evaluates Smith’s use of the Invisible Hand in his two major works, The Theory of Moral Sentiments and The Wealth of Nations. Although many scholars debate Smith’s attributed importance and purpose of the phrase, the paper shows physical centrality of word placement was well understood by Smith and that location of the Invisible Hand metaphor corresponds to such an understanding.

2. A second Klein student, Michael J. Clark, recently defended his dissertation entitled, “The Virtuous Discourse of Adam Smith: The Political Economist’s Measured Words on Public Policy.” Here is the abstract:

When Adam Smith advocated a specific approach for political discussion, he recommended and utilized strategic yielding and caution when necessary. The approach involves a willingness to mull through and respect the surrounding views and can lead one to moderation or fudging of extreme views or simple non-disclosure of extreme views. According to Smith, one needed to consider accommodating his more extreme views given the prejudice of the public. Beliefs and attitudes that would cause uproar or conflict were carefully treated and not brashly put forth. Prudence called for political figures or philosophers to obscure, hedge, conceal, or temper their radical beliefs. Smith related the approach to that of the Athenian official Solon who put forth laws that attempted to be “the best that the people can bear.” However, the cautious approach of Smith’s approach has gone overlooked in modern literature. Smith’s caution is being taken for mild to moderate interventionist support and thus many are claiming the father of economics has many ideas aligned with established modern policies of the welfare state and the regulatory state. While the works and ideas of Adam Smith remain foundational to modern economics the interpretation of Smith is changing. This dissertation examines Smith’s measured words and cautious approach to public policy and defends the interpretation of Adam Smith as a strong proponent of liberty.

But Klein has also been doing his own interesting work. For example, he recently published a provocative essay at Cato Unbound entitled “Against Overlordship.” Klein argues that the reigning background assumption in today’s America is that the government owns all property, and possibly indeed owns us as well, and that it provisionally grants rights to us to use our property and ourselves at its discretion and pleasure. Unsurprisingly, he argues that this is an unacceptable way to understand our relation to our government, and that it is an equally unacceptable way to understand government’s relation to property. What is perhaps more surprising is his claim that the position he opposes is in fact what most people in America have.

Cato Unbound has now also published three responses to Klein’s essay, by Matthias Matthijs, David Friedman, and Ilya Somin. All are worth reading—even Matthijs’s essay, which, unlike the other essays, is a model of bad argument.

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The provocative legal decision this week that ruled private health insurance mandates to be unconstitutional has got me thinking.   Mandated insurance purchases are necessary, proponents claim, because the insurance industry will collapse unless (this is only a necessity because the government is essentially eliminating ordinary market insurance, but I digress) we are forced to prop up the house of cards created by ObamaCare.

So, as long as we are chucking the Constitution to re-engineer our society, we ought to apply this mandate logic of ObamaCare to many other realms of life.   Accordingly, here is a list of things we need to mandate right away:

1. Gun ownership.  Obviously the police can’t protect us, and their job is made so much harder because of irresponsible people who fail to protect themselves and end up in the emergency room as victims of crime.  If society is going to take the bullet out of your cranium, you better show some proof you did your best to protect yourself.  All households under 400% of the federal poverty level will receive a subsidy to purchase guns in a new Gun Exchange (not to be confused with “gun shows,” which are evil) set up by each state.  However, no one will be allowed to purchase guns across state lines.

2. Marriage. A whole host of empirical research supports the idea that married people are healthier, happier, better off, and just generally better citizens.  Furthermore, with fewer selfish, single people hanging around, cable TV could broadcast something worthwhile, like more NBA games, rather than Sex and the City re-runs.  Following Obamacare principles, anyone who remains single in a given year shall face a significant fine.  Furthermore, employers with more than 50 employees are required to provide speed dating services to their employees.  Employees of small businesses are encouraged to date the boss’s daughter.

3. Children. Buying health insurance is only part of the new social contract.   Medicare premiums shall henceforth be determined based on the number of adult children the elderly person has who can contribute to financing the Medicare system and wiping drool from the chins of their aged parents.  Each adult child will reduce the Medicare premiums to be paid by the Medicare enrollee.

4. Religion. Who is going to worry about the future and try to avoid cancer unless they have the fear of God put into them?  Without religion, they are just going to end up in the emergency room—a pot-smoking, chlamydia-ridden, anti-depressant-popping, existential mess!    Religions that teach that you can do whatever the heck you want and still be saved will be acceptable (even though they don’t change behavior much, they instill valuable social capital), but only those who can certify a behave yourself or burn in hell theology will receive tax credits and matching grants.

5. Military service. Ever noticed that practically every developed country that has socialized medicine also has compulsory military service.  Think that is a coincidence?  Therefore, each adult is required to provide one member of his or her family to the military—they can send a child, if they have one (see above).  Otherwise, they must purchase a substitute to serve.  Though substitutes have not been around since the Civil War, it is time they make a comeback.  However to protect the underclasses,  no minority substitutes can be purchased, even by minorities.

Good grief, we can mandate our way into Nirvana.  The Right has been preaching that government needs to get out of the way so that individuals can make decisions by themselves.  But maybe we just haven’t though through this mandate concept carefully enough.

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Is it just me or is anyone else concerned that the judicial and public discussion of the commerce clause in relation to Obamacare – even by libertarians – has (by neglect or omission) conceded too much and essentially focused the fight on the federal government’s regulation of inactivity but not activity? 

I get the legal and political strategy, but intellectually I don’t think we should concede that the federal government can constitutionally regulate just about every aspect of economic and personal activity as long as it is connected to interstate commerce.  Of course, after Wickard v. Filburn and many other court cases (minus Lopez), it is certainly the case that the Court has ruled that Congress has the power to regulate just about anything it wants to.  However, why should we be interested in overly respecting precedent when the precedent is a vast and utter catastrophe? 

The logic of Wickard and commerce clause jurisprudence in general is destructive of individual liberty and the notion of limited government with enumerated powers.  Therefore, at the level of intellectual debate, we should question the soundness of these commerce clause cases and try to roll back support for them.

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Slate has an interesting article up about the demise of film projectionists.  The piece describes the process by which traditional films are projected at movie theatres and some of the technology involved (I didn’t realize that film reels had to be turned into “platters” by individual projectionists at the theatre).  The bottom line, though, is that digital films (following platters and better bulbs) will kill off the projectionist occupation. 

Sounds like an ordinary story about innovative and superior technology replacing expensive labor, making the world more efficient one step at a time – and in the process making all of us better off as a result.  But the odd thing about the piece is the tone of the article which seems to suggest that this is a bad thing.  For example, here is one line that seems a bit over the top: “With projectionists gone, another part of our lives will lose the human touch.”  My guess is that most of us haven’t and won’t feel any loss at all – except maybe the loss of annoying breaks in movies due to projectionist error! 

Of course, it is a bad thing for the small group of individuals in that particular occupation today.  But this limited negative effect of innovation and efficiency is swamped by the benefits of these changes – what Joseph Schumpeter called creative destruction.  There are numerous examples of this occurring.  Here is a neat slide show by Sven’s favorite government entity describing some of them.  For example, people who used to work as lamplighters were replaced by the automatically lighting gas lamp and then the electric streetlight we all know and love.*  This has freed up this pool of labor for other activities – so for the rest of time, would-be lamplighters are working in other occupations or professions.  And we are all better off. 

So why the negative tone?  Long live creative destruction – except in my field, of course ;-)

* I actually bemoan the overuse of outdoor lighting.  I’m not against it in all cases.  However, the assumed positive effects of streetlights in deterring crime are very much overstated.  And all of this light comes at a huge loss in terms of energy and the creation of light pollution/loss of dark skies.  My HOA covenant actually has a short section in it dealing with this issue.  Perhaps a longer blog post on the politics of outdoor lighting might be of some value down the line.

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I gave a talk to the Yeshiva College Philosophy Club recently in which I made the following claim:

In my view, what gives people dignity, what is admirable and noble in them, is precisely their capacity for moral agency. It is when they have the liberty to make free choices but are required to take responsibility for their choices that human beings express their uniquely moral natures and become moral beings. Similarly, it is when we give people the liberty to exercise their judgment but hold them accountable for their decisions that we respect their moral natures. Kant was right that human dignity follows from one’s ability to choose ends for oneself, and that the essence of humanity is as a freely choosing agent.

During the question-and-answer session, an insightful student asked me whether it followed from my position that children and others who do not (yet) possess an ability to choose freely therefore do not possess dignity or nobility.

A good, challenging question, because it exposes the limits of my position. I would like to sketch a brief answer.

I think my answer has to be that such people do not, in fact, possess the dignity that results from moral agency. But it does not follow from that that they possess no dignity, nor that they do not possess something else making them inherently valuable, namely preciousness.

I did not argue that dignity result only from moral agency; rather, that moral agency results in a peculiar dignity. So, lacking moral agency entails lacking moral-agency dignity; lacking moral agency means not possessing the peculiar dignity that results from moral agency. But I believe there is another species of dignity, namely that which results from the inherent value that human beings have qua human beings. I call this inherent value preciousness, and I argue that it results in its own peculiar species of dignity.

One reason to respect people’s expression of their moral agency is because the dignity that agency constitutes is inherently valuable. We respect, or should respect, people because of this inherent value, and respecting that value entails respecting its manifestations, which includes moral agency. But I believe people have inherent value even independent of their moral agency, as human beings qua human beings.

This means, I suggest, that although we do not have to respect the choices of human beings who do not possess moral agency—e.g., children or others who do not have or have lost the capacity of free judgment with which to make free choices—we nevertheless do have to respect their inherent value or preciousness. A child is precious even if not yet a moral agent; a person with dementia is precious even if no longer a moral agent.

What this means in practice will depend on the particular circumstances of individual cases. But in general it will mean that we must treat such human beings with humanity, consideration, and charity befitting their preciousness. Such treatment will include using our judgment regarding such things as their well being, their welfare, their happiness, and so on, and it will require many acts of beneficence, all situation- and person-specific. Such acts of beneficence thus require a great deal of localized knowledge, which is one reason they cannot be specified in advance or by third parties.

Regarding children in particular, except in the rare cases of actual, permanent incapacity, respect for children’s preciousness will transition over time into respect for their moral agency, entailing the freedom and accountability mentioned in the quotation above.

What I have said here leaves many issues unresolved. For example, from where, exactly, does humanity’s inherent value, or preciousness, derive? Is humanity’s preciousness greater than that of nonhuman animals? How does a person’s criminal activity affect his dignity, or the respect we must show him?

I have answers, or attempts at answers, to these questions, but I will leave them for another time. Here my goals were to clarify how, on my conception of human nobility and dignity, people without moral agency still deserve respect, and to indicate, in broad strokes, the kinds of obligations we have toward such people.

We have had here on Pileus some sophisticated discussion of our duties or responsibilities toward children; what I say here does not substantially improve on that. The strength of my position, such as it is, relates I believe to its illumination of the ways we should, and the ways we should not, treat all the normally functioning adults with whom we come into contact—who are neither children nor incompetent, and should not be treated as if they were.

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Here is Mark Pennington in his second post as our guest-blogger this week.

“Private versus Public Nudging” by Mark Pennington

Last week I attended a speech by Richard Thaler, of ‘Nudge’ fame.

Professor Thaler is an engaging speaker. His assertion that ‘libertarian paternalism’ is merely an extension of methods widely adopted in daily life is a beguilingly simple, yet ultimately dangerous one. According to Thaler since good mothers constantly attempt to ‘nudge’ their offspring in the ‘right direction’ then we should not worry about governmental nudging. Whether it is ‘fat taxes’ to discourage unhealthy eating induced by ‘weakness of will’ or compulsory enrolment in savings schemes to induce less ‘short-sighted’ and more thrifty conduct, people should learn to love a government that coaxes them towards what they themselves would recognise is in their own best interests.

The classical liberal tradition is not, and never has been suspicious of the idea that individual behaviour can or should be ‘steered’ and that conscious attempts might be made to ‘shape’ our character. Outside of the nudges provided by family life, people may join voluntary associations which exert different forms of social and peer-group pressure to steer them in one direction or another. Religious associations have long discouraged alcohol consumption and have favoured abstinence in various aspects of life. Many of the mutual aid associations that thrived during the heyday of liberalism in the nineteenth century modelled themselves explicitly as ‘character-building’ associations that encouraged thrift and an independent spirit. And, in the contemporary world the various reward schemes offered by health insurers to encourage personal fitness, devices such as minimum term gym memberships, and penalty charges for early withdrawal of investment funds are all examples of privately generated strategies to cope with ‘weakness of will’ and ‘short-sightedness’.

Listening to Professor Thaler I was reminded of the claim made by many socialists in the past – Lenin being perhaps the most prominent – that since private firms routinely engage in ‘planning’ there should not be any concern about the state ‘planning’ on  a society wide scale. Yet, as Hayek noted on numerous occasions, to recognise that ‘planning ‘ is an essential element of a progressive society tells us nothing about ‘who should plan’  and ‘for whom’. Likewise, to acknowledge that ‘nudging’ strategies may be an aid  to effective decision-making in the context of limited rationality, tells us nothing about ‘who should nudge’ and ‘for whom’.  It does not follow that since some nudging may be desirable that we should automatically favour governmental nudging. On the contrary, there are several reasons to suggest that ‘private’ nudging should in fact be preferred to the statist variety.

First, in a context of limited knowledge and limited rationality, we do not know which nudges are most appropriate and for which particular types of behaviour. It makes sense, therefore, to rely on a decentralised process which reduces the possibility of erroneous nudges being imposed on a society wide basis – and this requires that no particular nudge is imposed by law. In the same way that planning by private firms is preferable to planning by government’s precisely because it is competitive, decentralised and voluntary planning, so competitive nudging in markets and civil society is to be preferred to ‘central nudging’ by the state.   That the consequences of misplaced nudging by government agencies tend to be far more pronounced than equivalent failures in the private sphere is all too evident in what has happened to savings ratios across much of the developed world. It is odd, to put it mildly, that governments which have ‘nudged’ people towards immediate consumption through a combination of inflationary monetary policies and taxes on capital should now be trusted to encourage more frugal habits.

Second, while behavioural scientists in general (such as Thaler) may have better knowledge about the biases that limit people’s choices, the specific knowledge needed to cope with particular instances of irrational conduct and detailed knowledge of the reasons why people make the choices that they do is more likely to reside with those who actually make these choices. Classical liberalism does not claim that people are fully rational but that people are more likely to be aware of their own character traits than distant experts, however technically skilled in behavioural economics. Someone who is, for example, prone to ‘weakness of will’ may find it advantageous to join an organisation such as the army, or an amateur boxing club – a life choice that may be entirely inappropriate for an individual who already exhibits the necessary strength of character.  Centrally imposed mandates and taxes are not, however, best placed to identify those choices which reflect preferences free from behavioural bias from those that are not, and are likely to place obstacles in the way of those who have genuinely unbiased preferences to act in ways of which officially sanctioned nudgers disapprove. It might of course be suggested that people may lack the knowledge or determination to avail themselves of private nudging strategies in shaping their own lives. Yet, if people are as lacking in motivation to address their character problems as this analysis implies then there would seem no more reason to believe that they would vote for a government proposing to subject them to ‘libertarian paternalism’.

Finally, people who are to be charged with nudging in the public sector may themselves be subject to the same or perhaps different behavioural biases to those of the population at large. That Professor Thaler seems unwilling to consider the dangers of behavioural bias in the institutions of government and those of democratic politics might be considered to indicate a cognitive blind spot on his behalf. That such biases do exist is attested to by the work of the political scientist Diana Mutz [1] (who is by no means of a classical liberal/libertarian bent). Through some pretty comprehensive empirical work she has demonstrated that the people who become actively involved in politics are less likely than the population at large to exhibit tolerance and a willingness to change their mind over time. They are the people who are least likely to come in to contact with those who exhibit different values to their own, let alone actually having sufficient experience of such people that they might try to understand the reasoning behind the values that they hold. In an echo of Hayek’s analysis of ‘Why the Worst Get on Top’  under ‘democratic socialism’,  there appears to be a selection mechanism operative in politics which favours the ascent of the most doctrinaire and intolerant actors.  If libertarian paternalism is not to collapse into its better know cousin – authoritarianism – then there can surely be no better reason to favour private to public nudging.


[1] Mutz, D. (2006) Hearing the Other Side: Cambridge: Cambridge University Press.

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I am not a fan of the Obama/McConnell tax bargain.   I’m in favor of economic policies that promote growth and reduce the size and scope of government.  Obviously, this deal doesn’t do those things.

On the other hand, I have to say that I don’t hate this deal.  Here are my reasons:

1. My usual Barro-esque position that deficits are not the problem.  Spending is the problem.  The worst part of the original deal (worse things have been added by Congress, as might be expected), was the extension of unemployment benefits.  This is more than just a transfer, because it is a transfer that subsidizes not working–one of the most anti-growth things we could do.  On the other hand, I’d rather give money to the long-term unemployed than to corn farmers, which is what has happened now that Congress got their hands on the bill.  Overall, though, the deal does not increase government spending significantly, which is the main reason it falls into my “do not hate” category.

2. I’m not an old-style, new-style, or any-style of Keynesian, but I am sympathetic enough to the disequilbrium arguments to believe that raising taxes in a depressed economy is very bad idea.  The fact of the matter is that non-Keynesians don’t have very good explanations for business cycles either.   In short, a sort of economic precautionary principle applies here: just because we don’t know that much about macroeconomic cycles doesn’t mean we should do something patently stupid: raise taxes on productive activities during an economic downturn.

3. I think there is a very strong possibility of a significant improvement in the economy over the next couple of years.  If so, then it is likely that the conventional wisdom will develop that government spending on public works programs (the first stimulus) had no effect, but tax cuts (this forthcoming second stimulus) had a positive effect.  This conventional wisdom will develop even though there won’t be solid evidence to support it.  But I’m OK with promoting unfounded conventional wisdom that leads us to better policies–meaning less government spending.  This new conventional wisdom is what people like Paul Krugman are really afraid of.   Basically, any policy that leads more people to doubt the advice of Krugman is good for America in the long run.  This might causes his ears to blow smoke and his beard to catch on fire (also good for America).

4.  Hey, its good for me!  I’d be a pretty big winner because of the payroll tax reduction.   Because the government loves my lifestyle, my income taxes are trivial, even though I’m comfortably in the top quintile of the income distribution.  But I pay a lot of payroll taxes, so that reduction helps me a lot.   I can’t complain too much about something that puts money in my pocket, can I?

There is a lot to dislike about this deal, and the irony of a big increase in the deficit coming on the heals of the report by the Simpson/Bowles commission is not lost on me.  But it is easy to point to a lot worse things we are or could be doing.

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Police are using regulatory inspections as a pretext for warrantless, apparently racially biased searches. If you’re going to support occupational and business licensing, you’re going to have to accept a hobbled Fourth Amendment.

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Breaking news from Virginia federal district court. Consider this an open thread on the topic. I will try to update with reaction from around the web.

UPDATE:

Here’s a link to the decision (PDF). SCOTUSblog has a summary.

Orin Kerr says Judge Hudson’s decision contains a significant, possibly fatal error.

 

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On the right there is growing resistance to the tax deal Republican leaders negotiated with President Obama. The deal trades another extension of the Bush tax cuts for something like $500 billion in new spending and a small cut to the payroll tax (it’s devilishly hard to find any concrete details on the plan online – can anyone out there help?). The new spending virtually represents a second stimulus. Much of it is an unemployment insurance extension, but apparently there is a ton of pork as well – ethanol subsidies, wind subsidies, etc.

The bottom line is that the deal blows up the deficit even further. When will Republicans realize that spending is the problem, not tax rates? Spending will have to be paid for in taxes sooner or later. If Republicans really believed their fiscal-conservative rhetoric, they would oppose any deal that increased government spending at all. Say it with me, Republicans: “every spending increase is a tax increase.”

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Below is Mark Pennington’s first guest post.  As you can see, it will be an interesting week! – GC

Mark Pennington

I am delighted to have been invited to contribute as the guest blogger on Pileus this week and to air some of the central ideas in my new book, Robust Political Economy: Classical Liberalism and the Future of Public Policy. At the core of this book is a very basic but oft neglected idea – ‘failure’ is endemic to all social institutions because human beings are imperfect. By far the most important imperfection is that people are cognitively limited and thus they make mistakes. Robust institutions, therefore, are not those that eliminate failure, but those that reduce the consequences of inevitable human errors. Before we determine that a particular set of institutions ‘fail’ meanwhile, we must explain how and why an alternative set of institutions can do better.

Basic as this insight may appear, most public policy discussion assumes that government action is necessary to ‘correct’ for ‘failure’ in markets and civil society without adequate consideration of equivalent if not worse failures in politics. Nowhere has this tendency been more apparent than in the claim that the financial Armageddon of 2008 was a ‘systemic failure’ of ‘capitalism’ and that moves to regulate the operation of markets are now required to reduce the prospect of similar failures in the future. What such arguments neglect to explain is why the prospect of ‘systemic failure’ in the process of regulating capitalism is considered any less likely than the market failure it is supposed to cure.

Contrary to fashionable commentary, the classical liberal tradition has never claimed that markets are ‘perfect’ institutions populated by fully rational agents. Neither has it denied the possibility of ‘systemic’ market failure. In a world where learning via imitation is crucial for transmitting knowledge and where ‘herding’ behaviour may be prevalent it is entirely possible that many actors may learn the wrong things and simultaneously invest in mistaken ventures – as the sub-prime bubble so clearly demonstrated. The great advantage of markets, however, is that they reduce the possibility of such failure because potentially erroneous decisions are not backed by the force of law – private property affords those who dissent from the way the crowd is behaving the liberty to act differently. 

By contrast the regulatory process which so many are now demanding should discipline markets, is not subject to an equivalent process of competitive testing. It is in the very nature of regulation that decisions are imposed on society as a whole in order to reduce behavioural heterogeneity. But if regulators are no more omniscient or rational than anybody else – and there is no reason to suppose that they are – then the consequences of any errors they make will be more far-reaching precisely because their decisions are backed by coercive authority. As Jeffrey Friedman[1] has shown in a truly brilliant essay, though market failure played a role in the recent crisis, the scale of the meltdown was in large measure due to a series of systemic failures in monetary and financial regulation. From the decision of monopoly central banks to keep interest rates at excessively low levels, to the regulatory and fiscal inducement of government-backed mortgage companies to relax lending requirements for low income families, to internationally enforced capital regulations which induced banks to securitize risky mortgages, and the creation of legally protected monopolies in the credit rating business – the homogenising effect of all these measures virtually guaranteed that if mistakes were made, the consequences would be devastating.  

The real lesson that must be learned from the financial crisis, therefore, is that regulators and politicians are just as prone to irrational and ill-informed conduct as is anybody else – but with their unique powers of coercion they have the capacity to do far more harm. Alas, as I aim to show in several of my contributions to Pileus this week, the area of monetary and financial regulation is but one of a raft of issues where policy-makers seem incapable of grasping this most basic principle of political economy.


[1] Friedman, J. (2009) A Crisis of Politics not Economics, Critical Review, 21 (2-3).

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