Archive for April, 2012

Robert Wenzel gave an address to the New York Fed earlier this week. It is worth reading in its entirety (here). You can read some positive reviews by Vox Day (Vox Populi) and Tyler Durden (Zero Hedge, see some of the comments).

On economic methodology:

I hold the view developed by such great economic thinkers as Ludwig von Mises, Friedrich Hayek and Murray Rothbard that there are no constants in the science of economics similar to those in the  physical sciences. …

I defy anyone in this room to provide me with a constant in the field of economics that has the same unchanging constancy that exists in the fields of physics or chemistry. And yet, in paper after paper here at the Federal Reserve, I see equations built as though constants do exist.

On Bernanke’s reign at the Fed:

There have been more changes in monetary policy direction during the Bernanke era then at any other time in the modern era of the Fed. Not under Arthur Burns, not under G. William Miller, not under Paul Volcker, not under Alan Greenspan  have there been so many dramatically shifting Fed monetary policy moves. Under Chairman Bernanke there have been significant changes in direction of the money supply growth FIVE different times. Thus, for me, I am not at all surprised at the current stop and go economy. The current erratic monetary policy makes it exceedingly difficult for businessmen to make any long term plans.

On Bernanke’s appeal to Operation Twist, Wenzel notes that it seems quite peculiar, given that a 2004 Fed paper coauthored by the current chairman concluded:

 “Operation Twist is widely viewed today as having been a failure, largely due to classic work by  Modigliani and Sutch”


“Operation Twist does not seem to provide strong evidence in either direction as to the possible effects of changes in the composition of the central bank’s balance sheet.”

After additional comments on the Fed (none of them positive), Wenzel ends on a delightful note:

The noose is tightening on your organization, vast amounts of money printing are now required to keep your manipulated economy afloat. It will ultimately result in huge price inflation, or,  if you stop printing, another massive economic crash will occur. There is no other way out.

Again, thank you for inviting me. You have prepared food, so I will not be rude, I will stay and eat. 

Let’s have one good meal here. Let’s make it a feast. Then I ask you, I plead with you, I beg you all, walk out of here with me, never to come back. It’s the moral and ethical thing to do. Nothing good goes on in this place. Let’s lock the doors and leave the building to the spiders, moths and four-legged rats.

The address contains a nice primer on Austrian economics, a lively critique of current policy, and a lot of head scratching. One can only imagine how it was received at the New York Fed. 

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If you recall, in March, AG Holder justified the use of drones in “targeted killings” (see related post here). The comments were of interest, in part, because a drone had been used recently to kill Anwar al-Awlaki, a US citizen, in Yemen and in part because Congress was authorizing the expanded use of drones domestically (see related post here). As Holder explained at the time, the decision to target a US citizen would not be subject to judicial review. There would, however, be some guarantee of “due process,” although little was said as to what that process would entail. Who needs details when we have Mr. Holder’s word:

Any decision to use lethal force against a United States citizen – even one intent on murdering Americans and who has become an operational leader of al-Qaeda in a foreign land – is among the gravest that government leaders can face. The American people can be – and deserve to be – assured that actions taken in their defense are consistent with their values and their laws. So, although I cannot discuss or confirm any particular program or operation, I believe it is important to explain these legal principles publicly.

Now it has been revealed that the administration has authorized the expanded use of drones in Yemen. The CIA and the Joint Special Operations Command will be allowed to use drones for so-called “signature strikes.” That is, targets are identified based on a variety of intelligence without actually knowing the identify of the targets themselves.  As the Washington Post reports:

The expanded authority will allow the CIA and JSOC to fire on targets based solely on their intelligence “signatures” — patterns of behavior that are detected through signals intercepts, human sources and aerial surveillance, and that indicate the presence of an important operative or a plot against U.S. interests.

Until now, the administration had allowed strikes only against known terrorist leaders who appear on secret CIA and JSOC target lists and whose location can be confirmed.

If we don’t know the identify of the targets—they may or may not be US citizens–I am assuming that this will not create any problems for AG Holder’s guarantees of due process.

Even if we could accept the guarantee of due process, there is another problem—the lack of congressional authorization. As Bruce Ackerman noted last week before the policy change, the authorization is questionable:

Just days after the Sept. 11, 2001, attacks, Congress authorized the use of force against groups and countries that had supported the terrorist strikes on the United States. But lawmakers did not give President George W. Bush everything he wanted. When the White House first requested congressional support, the president demanded an open-ended military authority “to deter and preempt any future acts of terrorism or aggression against the United States.” … The effect was to require the president to return to Congress, and the American people, for another round of express support for military campaigns against other terrorist threats.

In Ackerman’s judgment, the policy change (then being contemplated) was well outside of congressional authorization. Ackerman offered the President some advice:

The president should not try to sleep-walk the United States into a permanent state of war by pretending that Congress has given him authority that Bush clearly failed to obtain at the height of the panic after Sept. 11.

Apparently, the advice was rejected and President Obama has assumed powers that even his predecessor could not exercise.

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Although Romney would be strategically-wise to pick Marco Rubio for the VP slot, let’s hope Romney’s foreign policy isn’t driven by simplistic, misleading, and dangerously wrong statements like these from Rubio’s big foreign policy speech:

I always start by reminding people that what happens all over the world is our business. Every aspect of lives is directly impacted by global events. The security of our cities is connected to the security of small hamlets in Afghanistan, Pakistan, Yemen and Somalia. Our cost of living, the safety of our food , and the value of the things we invent, make and sell are just a few examples of everyday aspects of our lives that are direcly related to events abroad and make it impossible for us to focus only on our issues here are home.

More BOSNYWASH foreign policy establishment thinking with a neocon tinge from Rubio here.

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Actually, it appears to be accelerating. The train is the impending insolvency of the large entitlement programs. The news today: Social Security. A summary of the latest trustee report (as presented in the Christian Science Monitor):

The trust funds that support Social Security will run dry in 2033 — three years earlier than previously projected — the government said Monday.

There was no change in the year that Medicare’s hospital insurance fund is projected to run out of money. It’s still 2024. The program’s trustees, however, said the pace of Medicare spending continues to accelerate. Congress enacted a 2 percent cut for Medicare last year, and that is the main reason the trust fund exhaustion date did not advance.

Setting aside the fiction that the trust funds constitute a store of wealth, there is nothing genuinely surprising here given the economic conditions and the policy response. Many of those who have exited the workforce (those “discouraged workers” whose exit has helped mask a sluggish recovery) have simply retired. Many who remain employed are working fewer hours and thus paying less into the system. At the same time, efforts to prop up demand by providing payroll tax cuts have further reduced the flow of revenues into the system.

There is also little new (other than the accelerated timetable for fund insolvency). Analysts have been projecting this for decades, urging reform. Of course, myopia reigns in Washington. Few would ever engage in a serious and sustained consideration of reform if doing so would require that they sacrifice the short-term political advantages that might be derived from framing reform as “balancing the budget on the backs of the elderly” or “an ideologically-driven assault on two of government’s finest programs.

Of course, fixing Social Security is not a technically difficult task. There are a few key leverage points (e.g., increase revenues by raising the earnings cap, changing the indexing formula, means testing benefits, etc.). Medicare is more complicated, but only marginally. Each of the alternatives have costs and benefits and should be subjected to vigorous analysis and debate. The problems, alas, are political and can be reduced to a simple fact: elected officials (and those who seek to join their ranks) place a high discount rate on the future.

As we approach the 2012 presidential campaign, we have the opportunity, once again, to address the impending entitlement crisis. If the past is any guide, both major party candidates will choose instead in a conspiracy of silence.

And why not? A decade or two is an eternity in politics.

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At any rate, when it comes to human social communities:

In smaller social universes, where the total population is less diverse, people tended to form friendships with others less like themselves. (emphasis original)

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Interesting to see this come out of the center-left Brookings Institution:

Anti-density zoning — embodied in lot-size and density regulations–is an extractive institution par excellence. Through the political power of affluent homeowners and their zoning boards, it restricts private property rights — the civic privilege to freely buy, sell, or develop property — for narrow non-public gains. Property owners in a jurisdiction benefit from zoning through higher home prices (because supply is artificially low) and lower tax rates (because population density is kept down, as school age children are kept out), while everyone else loses.

Previously, my work has found that zoning laws inflate metro-wide housing costs, limit housing supply, and exacerbate segregation by income and race. Other work faults these laws for their damaging effect on the environment, since they make public transportation infeasible and extend commuting times. With a few possible exceptions…, it’s hard to think of an existing political institution in the United States that is more destructive of human and social capital.

Strong words!

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Light pollution which brightens the beautiful dark sky with an ugly muted glow is one of the most underrated negative externalities around.  I talked a little bit about this earlier.  Unfortunately, it is a really difficult problem to solve. 

On the one hand, Coasian bargaining can’t solve the problem given the huge transaction costs of dealing with the millions of people who cause the natural dark sky to disappear (not to mention that a property right in the skies relevant to this issue can’t really be defined or allocated easily unless you gave someone a near monopoly grant). 

On the other hand, even government solutions would be resisted by the “cult of light” that has formed around the notion that we need artificial lighting outdoors in order to be safe and secure (or to properly advertise business activity).  I can’t imagine a tax on improperly shielded outdoor lights large enough to change behavior and decrease light pollution would be very popular with the electorate.  And light fixture and bulb companies would almost certainly use their vast lobbying power to help kill such a tax even if it had an electoral chance.  That leaves regulation – which might suffer from the same political barriers – and education.

Of course, someone might argue that the harm done is so small in the aggregate that it isn’t even worth a political decision costly to the preferences of many more people.  Maybe so, even though I generally reject utilitarian defenses of any particular act or policy. 

So I think we are stuck for the immediate future with the ugly sky we’ve created through the millions of innocent and often well-intentioned decisions of market participants that harm others without compensation.   Part II of this series will try to help educate people about light pollution and how we can reduce it without great harm to other ends.

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From Immanuel Kant’s An Answer to the Question: ‘What is Enlightenment?’:

Enlightenment is man’s emergence from his self-incurred immaturity.  Immaturity is the inability to use own’s own understanding without the guidance of another.  This immaturity is self-incurred if its cause is not lack of understanding, but lack of resolution and courage to use it without the guidance of another.  The motto of enlightenment is therefore: Sapere aude!  Have courage to use your own understanding! 

Laziness and cowardice are the reasons why such a large proportion of men, even when nature has long emancipated them from alien guidance (naturraliter maiorennes), nevertheless gladly remain immature for life.  For the same reasons, it is all too easy for others to set themselves up as their guardians.  It is so convenient to be immature!

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Reason and Porn

Interesting editorial decision by Reason‘s blog Hit & Run to put sexually explicit images in a post on a schoolteacher fired for her past employment as a porn star

One could defend the decision on the grounds that the pictures help the reader better understand the story.  Specifically, they help clarify what the school district was reacting to when it decided to terminate its employee and show that the teacher wasn’t engaged in the softer Playboy-variety of pornography that might be less of a concern for the citizens of Oxnard, California.

On the other hand, one could ask whether a general readership magazine like Reason really needed to show these explicit images to convey this story, especially given that the author noted that a “gallery of images” could be found at the Smoking Gun site and provided a link to that gallery.  Moreover, one of the main points of the story is that the district was reacting a lot more swiftly in her case than in a potentially more egregious case of teacher student abuse.  The pictures have very little to do with that part of the story – though they might suggest more equivalence to the more prudish among us (though not me). 

In general, I’m opposed to knee-jerk prudery.  Sometimes risqué pictures, images, gestures, and coarse language are necessary to properly convey a particular message or highlight a specific point and thus aren’t unnecessarily obscene (in the non-SCOTUS definition of the word).  However, there are times and places where one might be better to err on the side of caution and greater decency.  Something like Reason‘s famous Lobster girl certainly intends to cause sexual excitement but she isn’t really (despite the kissing) engaging in erotic behavior that I wouldn’t want my kids to see depicted on-screen or in person.  No harm, no foul. 

But a lot of us surf the net at work or in common family areas and don’t expect to see pretty explicit sexual acts on a general interest libertarian magazine site.  Imagine pulling up Hit & Run just as a colleague or female student walks by your office!  So perhaps the pictures might have been better placed “below the fold” so to speak by using a “Read more” tab with a general warning about it perhaps not being appropriate for the workplace (as I’ve seen on sites like the Marginal Revolution).  Such a tab might even induce more people to click over to the site – so even naked (pun-intended) trolling for eyeballs and revenue could buttress this type of more considerate posting style.

Given my love of reason and Reason, I’d hate to have to limit my consumption of the magazine and its blog to late night hours at home!

UPDATE: Reason replaced the images discussed in the post above with a suggestive but relatively innocuous close-up of the teacher in question.  Kudos to Reason!  

ANOTHER UPDATE: Tim Cavanaugh’s (the author of that post) propriety meter seems to be malfunctioning this weekend since he just added a post to Hit & Run about the housing market that contains a pretty tasteless child molestation joke.  Repeat after me Tim: child molestation is NEVER funny.  And remember, just because one should be free to say anything doesn’t mean one should say anything freely.  May I please refer you to fusionism Mr. Cavanaugh?! 

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For those liberty lovers who need something to fill those empty weekends, look no further: the Ron Paul video game (video sample here). The creator hopes to “make liberty sexy.” You win the game when you end the Fed, by the way.

Hmmmm…. When isn’t liberty sexy?

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The Bucket of Warm Spit

FDR’s first Vice President, John Nance “Cactus Jack” Garner, once noted that the office was “not worth a bucket of warm spit” (note: the contents of the bucket vary based on the source). Given his opposition to the court-packing scheme, I will accept his judgment as sound.

The question of who will be selected to carry the bucket is always an interesting one. At present, attention is turning to Mitt Romney. Who should he select? As the Hill reports, two new polls on this question have provided different responses.

CNN/ORC poll provides the following rank order:

  1. Condoleezza Rice: 26 percent
  2. Rick Santorum: 21 percent
  3. Chris Christie: 14 percent
  4. Marco Rubio: 14 percent
  5. Paul Ryan: 8 percent
  6. Bobby Jindal: 5 percent
  7. Bob McDonnell: 1 percent

Quinnipiac only reports two results: Christie (31 percent) and Rubio (24 percent).

Assuming that the vice presidency is worth more than a bucket of warm spit, are there any names that the pollsters have missed that might prove more attractive, particularly to those of us who find so little attractive in the presumptive nominee?

Note: I am not certain that any selection could convince me to participate in the binary.

UPDATE:  Marco Rubio and revealed preferences.

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Kanye West or Ayn Rand?

There is no more despicable coward than the man who deserted the battle for his joy, fearing to assert his right to existence, lacking the courage and the loyalty to life of a bird or a flower reaching for the sun. Discard the protective rags of that vice which you call a virtue: humility—learn to value yourself, which means: to fight for your happiness—and when you learn that pride is the sum of all virtues, you will learn to live like a man.

Kanye West or Ayn Rand?

People always tell you, “Be Humble.  Be Humble.”  When was the last time someone told you to be amazing?  Be great!  Be great!  Be awesome!  Be awesome!


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Sheila Bair, former FDIC chair, has made the following proposal (WaPo), in part, to illustrate the absurdity of what we view as sound economic policy.

The set up:

Are you concerned about growing income inequality in America? Are you resentful of all that wealth concentrated in the 1 percent? I’ve got the perfect solution, a modest proposal that involves just a small adjustment in the Federal Reserve’s easy monetary policy. Best of all, it will mean that none of us have to work for a living anymore.

The delivery:

Under my plan, each American household could borrow $10 million from the Fed at zero interest. The more conservative among us can take that money and buy 10-year Treasury bonds. At the current 2 percent annual interest rate, we can pocket a nice $200,000 a year to live on. The more adventuresome can buy 10-year Greek debt at 21 percent, for an annual income of $2.1 million. Or if Greece is a little too risky for you, go with Portugal, at about 12 percent, or $1.2 million dollars a year. (No sense in getting greedy.)

Of course, this brilliant plan would solve multiple problems, ranging from that pesky 1 percent (we would all be 1 percent) to education and social welfare (who needs it, if we are all members of the investing class). As for the long-term fiscal implications (not that anyone cares any more), we could simply print more money.

If it works for the financial community…why wouldn’t it work for the rest of us. This summer could be “recovery summer.”

Well played, Ms. Bair.

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Be honest. Doesn't this picture make you want a pepperoni pizza?

The New York Times website’s Room for Debate section today proposes the question:  “Do we need more advice about eating well?”

Most “expert” opinions (from people in the food information business) conclude that obviously we need better information.  Otherwise, how would  the nutritionists make a living.  They believe access is key:

If no healthy food choices are available where you live, if you are too poor to afford those choices, if unhealthy ingredients are largely unavoidable in processed food, or if you lack sufficient time to prepare healthy options, then no amount of knowledge will help us eat better food.

A slightly scarier version is given by another expert:

I believe that many people know what food is good for them, but do not have access to or cannot afford the healthier options, and for this reason, eat poorly. If people can grow safe, healthy, affordable food, if they have access to land and clean water, this is transformative on every level in a community. We cannot have healthy communities without a healthy food system. And ultimately, it is the responsibility of the individual and the greater community to transform the food system landscape together.

Yet another helpful person says:

If healthy food is not available, you won’t eat it. That’s a common-sense conclusion. And it is one supported by a growing body of research. Studies have shown that people who lack access to healthy foods have a higher rate of obesity and other diet-related diseases than those who have convenient access to healthy foods. Studies also present strong evidence that people with greater access to healthy food consume more fresh produce and other healthful items.

These people imagine a world where “communities” (i.e., government bureaucracy) provide all citizens with a cornucopia of low-cost cauliflower and cucumbers at every meal, causing the obesity epidemic and heart disease to fade into the distant past.

What expert discussions on healthy diets (and I’ve heard and read a lot of them) almost always fail to mention is a simple fact:

Veggies are GROSS!

Seriously, no matter how much you dress up broccoli and radishes, they are never going to hold a candle to a basket of good old American french fries.  This doesn’t take a NIH grant to figure out.  Just stick a plate of enticing greens and herbs in front of a six-year-old and watch her puke her brains out.

Now as we get older we learn to eat our vegetables because they are good for us.  I’d like to live long enough to go skiing with my grandchildren, and I know french fries won’t get me there.  But that doesn’t mean I need a lot more advice about eating healthier.  I know I would be better off having a lean white fish with spinach and sea kale than a cheeseburger fresh of the grill.  I don’t need some snooty expert telling me about saturated fats and processed cheese.  And just because you offer me a multi-grain muffin topped with toasted oatmeal doesn’t mean I don’t want to shove that muffin up your nose and make a mad dash to Dunkin Donuts.

I’m also particularly not interested in hearing self-righteous claims like:

The basic principles of healthy eating could not be easier to understand: eat plenty of vegetables and fruits, balance calorie intake with expenditure, and don’t eat too much junk food.

I wish I had a dollar for every idiot spouting off on how the formula for maintaining a healthy weight is easy: calories in < calories out.  Believe me.  There is nothing simple or easy about basic human craving.  We know quite a bit about nutrition these days, but hardly anything about the biology and psychology of food desire.

So, give me your sage advice, you experts, but just don’t try to tell me how eggplant really is tasty!

Now, where did my wife hide that leftover Easter candy?

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Morning Links

  1. Your logical fallacy is… (good for papers-grading season, HT: Steve Saideman)
  2. “Two years back it could be tough for our employees to be at a family gathering because people were complaining about the banks constantly,” he says. “Now the situation has changed and our employees can go to family gatherings without problems.”
  3. The Economist on the economics of Scottish independence. I don’t read the facts as being quite so negative as spun in the article. Running out of oil in 2040? Still plenty of time to diversify.

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Can’t believe it has been two years since we started Pileus.  Thanks a lot to TFAS for its great support!

Here is a quotation from Wendell Berry that my dear wife pointed out as worthy of posting, and it seemed quite appropriate for our anniversary:

I wish to testify that in my best moments I am not aware of the existence of the government. Though I respect and feel myself dignified by the principles of the Declaration and the Constitution, I do not remember a day when the thought of the government made me happy, and I never think of it without the wish that it might become wiser and truer and smaller than it is.


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Tyler Cowen makes the case that a large, inefficient public sector can be a good thing:

we should not be trying to squeeze the entire economy into the shoebox of the dynamic but risky “Economy I.” For public choice reasons, as well understood by Karl Polanyi (an underrated public choice theorist if there ever was one), the polity requires some respite from Economy I, whether we like that or not… Furthermore the more “sluggish” Economy II, by operating under different principles, often serves as a useful R&D lab for Economy I. Think MIT and Stanford, or note that Adam Smith ended up as a customs commissioner, as his father had been. Goethe and Bach worked for governments for much of their lives. It’s about balance and synergy, though it is perfectly fair to see contemporary Western Europe, especially in the periphery, as a region which has far too much Economy II and too little Economy I.

The first point in particular reminds me of Dani Rodrik’s argument for the welfare state under conditions of globalization: the government sector is relatively “safe” and can buffer dislocations due to global markets. Cowen isn’t referring exclusively to the public sector as “Economy II,” since the latter also includes labor-intensive, service-sector occupations, but he does imply here that the university system is a desirable public subsidy in part because it is inefficient and gives researchers respite from the private market.

I never really grasped that argument from Rodrik, and I still don’t. It seems to me that if you want inefficiency as a risk hedge, you could just bury some boxes of money and set fire to some of it in good times, then dig up what’s left in bad times. Less facetious: why not invest in a global equities index? Even better: why not push for globalization as a solution to its own problems? After all, there’s nothing about the economies we live and work in that’s inherently national. I live and work in the Erie County, New York economy. It’s a highly open economy. Why doesn’t Erie County, New York have an even bigger welfare state than the U.S.? Because we can buffer risk by investing in or, in the limit, moving to other parts of the country. So labor mobility and capital mobility are themselves solutions to the very risks posed by globalization of the merchandise trade combined with volatility in the terms of trade.

And you don’t have to set fire to any money.

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… and President Obama looked as rattled as John Kruk facing Randy Johnson in the 1993 All-Star Game (except that Larry Connors’ question was a first strike right down the middle).  Not sure, though, if this was lefty vs. lefty as it was in the Kruk-Johnson matchup.  Either way, you gotta admit that Connors had some guts going into the White House, toeing the rubber, and firing such a good one (and a fair one too).  Pileus was on top of this issue long ago: for example, see here.  


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According to the Chronicle of Higher Education, David Barash “is an evolutionary biologist and professor of psychology at the University of Washington.”  He blogs at the Chrony’s “Brainstorm” blog that I occasionally peruse (and I’m wondering more and more why I ever do so). 

Barash recently wrote a post with the ominous title: “Major League Baseball Takes On the First Amendment.”  I was intrigued thinking that perhaps Bud Selig and his evil minions at MLB were attempting in their typical wisdom to change yet another cherished institution.  First the wildcard and now the 1st Amendment!  How could they possibly think it is a good idea to go after something as cherished as the 1st Amendment which secures free speech – as well as a number of other rights – from Congressional interference ? 

I wondered if Bud and his boys were going to lobby Congress to restrict free speech on the public sidewalk outside stadiums so that the Red Sox brass don’t have to listen to wise fans mocking the absurd signings of John Lackey and Carl Crawford.  Or was MLB going to ask Congress to rewrite the law so that journalists have to pay a rights fee every time they mention the name of an MLB team?  So what was going on, I wondered.

But as I read Barash’s post, I could not find a single reference to Congress (or even the Federal government or the states).  Apparently, Barash thought that the Miami Marlins was taking on the 1st Amendment by suspending one of its employees for, as Barash explains, expressing “his man-love for Cuba’s invalid former caudillo, Fidel Castro.”  I highly recommend actually reading the 1st Amendment when such claims are made – or ideally, an author should read it before writing such a thing:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.

Professor Barash should note that there is no mention here of the right to say anything one pleases without consequence.  It is a claim against the government alone, not private citizens or employers.  I do think the Marlins went overboard by suspending the manager for something of so little consequence (though I know the team is worried about offending Florida’s anti-Castro Cuban-American community who are a key part of its fan base).  But this isn’t a 1st Amendment issue at all Professor!  Or perhaps this scholar of evolution thinks the Constitution is evolving too right before our eyes and has been changed to include something not found in the original text and I missed it?!

* BTW, I know that authors of newspaper op-eds don’t always write their own headlines.  However, I am assuming that Barash wrote the headline for this piece.  If not, shame on the Chrony instead.

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As the economy slowly claws its way out of the financial crisis and the deepest and most prolonged recession since the Great Depression, it is good to know that some of the lending practices that contributed to the collapse are once again being deployed. As Jessica Silver-Greenberg and Tara Siegel explain in today’s NYT:

as financial institutions recover from the losses on loans made to troubled borrowers, some of the largest lenders to the less than creditworthy, including Capital One and GM Financial, are trying to woo them back, while HSBC and JPMorgan Chase are among those tiptoeing again into subprime lending.

Credit card lenders gave out 1.1 million new cards to borrowers with damaged credit in December, up 12.3 percent from the same month a year earlier, according to Equifax’s credit trends report released in March. These borrowers accounted for 23 percent of new auto loans in the fourth quarter of 2011, up from 17 percent in the same period of 2009, Experian, a credit scoring firm, said.

But I thought the new regulations were going to put an end to these practices? No, in fact, they have stimulated their return:

The banks, for their part, are looking to make up the billions in fee income wiped out by regulations enacted after the financial crisis by focusing on two parts of their business — the high and the low ends — industry consultants say. Subprime borrowers typically pay high interest rates, up to 29 percent, and often rack up fees for late payments.

Thankfully, “the push for subprime borrowers has not extended to the mortgage market, which remains closed to all but the most creditworthy.”  My guess: it is only a matter of time until these practices revert to the old normal.

As most accounts of the financial crisis suggest, moral hazard was a significant problem.  Financial institutions assumed that they could act with reckless abandon and assume risk but the costs, should things collapse, would be socialized by the government. The events of the past few years have only reinforced this assumption.

As Solomon remarked:

 “As a dog returns to his vomit, so a fool repeats his folly.”   Proverbs 26:11

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Bryan Caplan takes on Will Wilkinson on the issue of labeling the self and others here in response to Will’s piece here.  

Caplan’s basic argument is that labeling isn’t a big problem and that a strong identity in terms of an “ism” or its equivalent can actually be productive.  In short, putting on goggles can sometimes help you see things you might not have otherwise.  Of course, Caplan recognizes the costs of labels too, but he doesn’t think you have “to salute the intellectual equivalent of the Swiss flag” to avoid/minimize them (I think this phrase is a great one, btw). 

Wilkinson, on the other hand, thinks that labeling – or more accurately – politics makes us dumber and more callous.  Thus he rejects the libertarian label others try to tag him with – and not just because, as he admits, he isn’t actually a libertarian (!). 

My two cents is that labels are useful heuristic devices (mental short-cuts) that efficiently provide a huge batch of information.  Yes, they can simplify or distort like all heuristics.  But they can also convey a great deal of information so that a conversation can move forward without having to set up every piece on the board perfectly before the next rhetorical move.  Whether as self-identification or trying to capture the views/thoughts of others, using labels, like other descriptive words that aggregate information, isn’t the problem.  The problem is when we purposely distort the views/thoughts of others for our own ends or when we simplify when more granularity if required for the relevant engagement.  But does a conversation partner really lose “15 IQ points” or so when he calls me a libertarian during a discussion of U.S. drug policy even though that fails to capture my entire perspective on drugs (should be legal to manufacture, sell, and use without permission or barrier except in the case of antibiotics which should be controlled AND morally wrong to use or use in excess those drugs that are generally inconsistent with human flourishing)?

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When X is Not-X

There have been some wonderful pieces written in the past few weeks trying to make sense of the President’s claim that a SCOTUS decision to overturn the Affordable Care Act would be unprecedented. Of course, the pieces often proceed as follows

  1. The President stated X
  2. The President obviously knows not-X
  3.  Therefore X must have a deeper meaning and significance

The newest installment—and one that may come the closest to providing an accurate interpretation—is written by Jonathan Cohn i(n today’s New Republic).  As you will recall, the Solicitor General made reference to Lochner and Chief Justice Roberts responded by reminding the government’s attorney that the decision involved state regulation rather than federal regulation. Deploying the approach presented above, we can conclude that either (1) the SG was incompetent or (2) the appeal to Lochner had a deeper meaning that must be discerned. Obviously, (1) could not be true.

After a rather enjoyable discussion, Cohn concludes:

But I’m pretty sure both Obama and his administration’s lawyer were saying something different, and broader, when they invoked Lochner: By invalidating the Affordable Care Act, the Supreme Court would be resurrecting a vision of constitutionally limited government that, quite rightly, went out of fashion a long time ago.

Any thoughts?

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From Martin Luther King, Jr.’s “I Have A Dream” speech:

I say to you today, my friends, so even though we face the difficulties of today and tomorrow, I still have a dream. It is a dream deeply rooted in the American dream.

I have a dream that one day this nation will rise up and live out the true meaning of its creed: “We hold these truths to be self-evident: that all men are created equal.”

I have a dream that one day on the red hills of Georgia the sons of former slaves and the sons of former slave owners will be able to sit down together at the table of brotherhood.

I have a dream that one day even the state of Mississippi, a state sweltering with the heat of injustice, sweltering with the heat of oppression, will be transformed into an oasis of freedom and justice.

I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character.

I have a dream today.

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I’ve never voted for a Democrat or Republican for president at a general election. I’ve always voted for a Libertarian (in 2008 I voted for George Phillies, who was on the ballot as a Libertarian in New Hampshire in addition to the official candidate, Bob Barr), and I’ve never had reason to regret my vote. Throughout my adult life (I first voted in 1996), every U.S. president has been worse than the one before, and the major-party candidates they defeated would almost certainly have been just as bad.

One common argument I hear from Republicans is that libertarians should vote for Republican presidential candidates because of the Supreme Court. And indeed, libertarians generally share conservatives’ enthusiasm for the prospect of the Supreme Court’s overturning at least part of the PPACA. However, the recent 5-4 Supreme Court decision authorizing invasive strip searches of all arrestees shows us the other side of the coin: the Supreme Court’s conservatives are disturbingly willing to defer to the executive branch on issues of non-economic personal liberties. Most of the politically controversial cases with which the federal judiciary deals have to do with civil liberties and civil rights. Major Commerce Clause cases come around only once every few years — and even there, Scalia and Kennedy are unreliable.

How will the current Court (more…)

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Yes, it is Good Friday everywhere, but it is particularly sweet in Connecticut this year. Yesterday, the state Senate passed a bill to repeal the death penalty (read coverage here). The Senate was the largest barrier, but after a lengthy debate the bill passed 20-16, largely along party lines. The bill should pass the state’s House of Representatives without too much trouble and Governor Malloy has promised to sign it.

It is a particularly difficult time to pass the bill. The single story that has dominated local media in the last few years focused on a home invasion killing in Cheshire, CT (two men sexually assaulted and murdered a woman and her two daughters by dousing the house with gasoline; the husband/father had been beaten and tied in the basement). The killers were found guilty and given the death penalty. Hard to make a case for repeal in this environment, particularly when public opinion supports the death penalty (and has only grown stronger in its support overtime). Moreover, Connecticut does not use the death penalty as cavalierly as most states (while there are 11 people on death row, only one has been executed since 1960).

Yet, state legislators did something that is rare: following a lengthy, serious,and public debate, they took a principled stand in the face of public opinion.

Sometimes liberty wins, even in a state like Connecticut that embraces the activist state.

Good Friday!

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What constitutes self- government and its relationship to this illusive thing called culture?

On March 15, 2012, a conservative governor, self-described as favoring limited government, signed into law stricter measures on certain substances not previously banned within the state of Indiana, and not specifically banned in national law. This certainly is a state’s prerogative within a federal system rightly conceived, but my question now is not with federalism, but with the efficacy and long run cultural consequences of prohibitions for self-government more broadly conceived than merely political governance.

Jefferson once argued that the moral faculties of individuals require exercise to develop and strengthen, much like the limbs of the body. That sort of analogy was popular with both American and English proponents of liberty at the time. It has been called by some historians, “faculty psychology.”

Today, many of the insights of faculty psychology are being confirmed by modern positive psychology. The difference is, that modern psychologists have applied modern methods of scientific procedure to show that well being and the capacity to exercise choice over ones life go hand in hand. The older faculty psychology, however, went a bit further, contending that the capacity of self-government actually increases with the freedom to exercise it. With the exercise of choices, a culture of self-government is fostered over time. Values arise and are promulgated, not by political fiat, but by recognizing their worth through the experience of consequences. This is not to say that any culture will fully represent a particular ideal, but simply that certain values will come to predominate among individuals as they learn their worth through consequences over time. Often this means the school of hard knocks, but eventually real learning is the result, and the final product is what we call social capital.

The more we take away from the freedom to make choices, however, the less will be our capacity to exercise these faculties and learn from them. Our ability to exercise responsible choice will actually atrophy and degenerate the more we become inured to regimes of command and control . And once that capacity begins to degenerate, it becomes harder and harder to relearn the habits of personal  self-government.

There is always a period of social dislocation and chaos when prohibitions, regulations, and subsidies are first removed. During the long hard winter of soviet communism, Russian civil society was deeply scarred and is only now slowly reestablishing itself—very slowly indeed. Unfortunately, patience is not abundant among political reformers, who all too quickly rush in with prohibitions and regulations of whatever ill is perceived to be afflicting us at the moment.

My question is this: do we in the United States still retain a sufficient degree of capacity for self-government, in the individual sense of “government of the self?” Every time government removes a choice, a worry or a care from our purview as individuals, does this not detract from our ability to be free?

Liberals and conservatives seem enamored with prohibitions—of different sorts of course. For example, the left wants to ban or restrict guns; the right wants to prohibit drugs. If you mention the failure of alcohol prohibition, they both scoff, even though the conditions are really not so different historically speaking. Yet bring right and left together and they will point accusingly at the other  to insist that his or her particular ban is impractical!

Alas, both Right and Left have made the road back to liberty a very steep and difficult climb and are making it steeper every day.

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President Obama has moved on from constitutional history (his warning that a Court decision to overturn a statute would be unprecedented) to American history more broadly. His remarks focused on the Ryan budget:

“Disguised as [a] deficit reduction plan, it’s really an attempt to impose a radical vision on our country. It’s nothing but thinly-veiled Social Darwinism. It’s antithetical to our entire history as a land of opportunity and upward mobility for everyone who’s willing to work for it — a place where prosperity doesn’t trickle down from the top, but grows outward from the heart of the middle class. And by gutting the very things we need to grow an economy that’s built to last — education and training; research and development — it’s a prescription for decline.”

We have discussed the Ryan budget on this blog in passing. For the upcoming year, Ryan proposes $3.6 trillion in spending and revenues of $2.4 trillion, for a deficit of $1.2 trillion. This is in sharp contrast to the Obama proposal, which would place spending at $3.8 billion, with revenues of $2.5 trillion, for a deficit of $1.3 trillion.

Is Ryan’s budget a “thinly veiled Social Darwinism?” It is, only if Social Darwinism can be cast as a decision to retain spending above 20 percent GDP.  It has been a while since I read Spencer and Sumner, but I don’t recall either making the case for spending in this range (or any range, for that matter).

Is Ryan’s budget “antithetical to our entire history,” as the President claimed? Once again, we have some empirical problems.

Ryan hopes to achieve federal spending reductions to 20 percent GDP by 2015. By way of comparison, average spending during the George W. Bush presidency was 19.6 percent GDP. During the Clinton presidency, average spending was 19.8 percent GDP.

If Ryan’s goal of reducing government spending to 20 percent GDP is radical, the empirical record seems to argue otherwise.

But perhaps we have not reached far enough back in time. Of course, the President’s remarks focused on “our entire history.” We could go back to 1968, the peak of Johnson’s Great Society and the war in Vietnam when government spent 20.5 percent of GDP. If we go earlier, the record might suggest that Ryan’s budget is radical, but not in the way  suggested by Mr. Obama. In recent weeks, the President has sought to channel Franklin D. Roosevelt. During the domestic phase of the New Deal, government spending peaked at 10.5 percent GDP (1935), approximately one-half of the level of spending proposed by Ryan. And let us not forget that 10.5 percent was a radical departure from the Hoover administration (3.4 percent GDP in 1930). The historical timeline of spending can be easily verified by the Office of Management and Budget (see OMB historical table 1.2).

I find it fascinating that a “conservative” proposal to reduce spending to slightly above the average of the Clinton-Bush years, approximately to the level attained during the peak of the Great Society and Vietnam War (1968) can be framed as an exercise in Social Darwinism.

Imagine what would happen if Ryan wanted to spend like FDR?

Of course, the President may have meant to covey a somewhat more complicated argument regarding the role of social policy and tax expenditures in shaping after-tax income–an important argument that needs to be made and given some serious scrutiny. But the breathless turn to hyperbole and the broadly brushed generalizations don’t do much to further serious debate, even if they provide quick talking points.

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…Making taxpayers foot the bill for your campaign events.

Obligatory disclaimer: Republican presidents did this too, I’m sure.

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See here in the New Yorker.  These models don’t tell us that Romney will lose to Obama but they certainly suggest that Romney will be the Republican nominee.  Of course, you already knew that anyway, but the models help support our intuitions. 

Different models will help us conclude that Romney is likely to lose in the generals if the economy continues to move in a positive direction (see here and here).  If the economy tanks – given the importance of things like “rate of job growth” and “net change in the unemployment rate” – then all bets are off.  See here for a discussion of some of these economic indicators in presidential election models, here for a criticism of prediction models, and here for a defense/discussion of prediction models in general.  I don’t think these models tell us everything and don’t have the predictive power of models in the physical world (of course), but they do help us see a bit better in the dark.

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Matt Zwolinski and John Tomasi have a thought-provoking piece entitled, “A Bleeding Heart History of Libertarianism,” in the latest Cato Unbound. They criticize postwar libertarians (specifically mentioning Mises, Rand, and Rothbard) for seeing property rights as absolute and, in their view, regarding the welfare of the working poor as irrelevant to moral justifications for capitalism:

In the remainder of this essay, we will discuss one particular way that neoclassical liberalism has a better grounding in the libertarian intellectual tradition than the libertarianism of Mises, Rand, and Rothbard. It is not the only contrast, but one of the clearest and most important differences between these two schools of libertarian thought has to do with the proper nature of concern for, and obligation to, the working poor. On this issue, the neoclassical liberal position is that the fate of the class who labor at the lowest end of the pay scale under capitalism is an essential element in the moral justification of that system. And this position, we will argue, has a far more solid grounding in the libertarian intellectual tradition than the justificatory indifference to which the postwar libertarians are committed.

They go on to cite John Locke, Adam Smith, and Herbert Spencer (yes, Spencer!) as classical liberals who would be more sympathetic to the neoclassical-liberal project of justifying markets partly on the basis of their consequences for the welfare of the least well off. However, they also argue, plausibly, that Rand and Rothbard in particular were not indifferent to the fate of the poor, simply that they viewed the coincidence of respect for individual property rights and a better life for all as a happy fortuity. (Mises was more of a consequentialist and perhaps after all a comfortable fit within neoclassical liberalism.)

I would stress that (more…)

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From the former head of the Harvard Law Review and sometimes professor of constitutional law (via CNN transcript):

Ultimately, I’m confident that the Supreme Court will not take what would be an unprecedented, extraordinary step of overturning a law that was passed by a strong majority of a democratically elected Congress.

And I’d just remind conservative commentators that for years what we’ve heard is the biggest problem on the bench was judicial activism or a lack of judicial restraint, that an unelected group of people would somehow overturn a duly constituted and passed law.  Well, this is a good example.  And I’m pretty confident that this – this court will recognize that and not take that step.

I don’t know what I find more interesting: (1) the belief that the Court overturning a law would be unprecedented; or (2) the attack on the justices as “an unelected group of people.”

Perhaps the next step will be the Judicial Procedures Reform Bill of 1937 2013.

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The quotation above comes from page 16 of a public finance textbook by Robin Boadway and Anwar Shah (Fiscal Federalism: Principles and Practice of Multiorder Governance, Cambridge UP 2009).

Is that right? Let me throw out just one counterexample: Bates, Markets and States in Tropical Africa.

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Coup in Mali

In case you missed it, there was a coup recently in Mali.  It was probably not unconnected to the recent regime change in Libya, as discussed here by Joshua Keating.  In short, the coup was apparently provoked by the military’s concern at how the government was fighting the Taureg insurgency in the north (there was probably a lot more involved than this, but we’ll see).  These insurgents, according to Keating, have benefitted of late from the return of Taureg mercenaries that were fighting for Qaddafi up in Libya.

From a US angle, this tidbit from AP is pretty interesting:

A diplomat who requested anonymity because he is not authorized to speak to the press said that Sanogo, the coup leader, was among the elite tier of soldiers selected by the U.S. Embassy to receive military counterterrorism training in America. Sanogo, the official said, traveled “several times” to America for the special training.

It is a bit perplexing, though, how this got through the editors at AP:    

Mali is one of the few functioning democracies in the volatile western quadrant of Africa. In the capital, soldiers surrounded the presidential palace on Wednesday as well as the state television station, announcing a coup at dawn on Thursday.

For recent news from Mali, see here and here.  I await a liberal interventionist or neoconservative (or AFRICOM) voice saying that Mali is the next critical battleground in the war on terror or that American security interests demand U.S. involvement at some level.

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Harvard philosopher Robert Nozick passed away in 2002 and wrote Anarchy, State, and Utopia in the early 1970′s.  So of course he wasn’t thinking about ObamaCare’s individual mandate when he wrote the following selection.  However, I think it is an important statement about why such coercive acts are morally flawed:

Side constraints express the inviolability of other persons.  But why may not one violate persons for the greater social good?  Individually, we each sometimes choose to undergo some pain or sacrifice for a greater benefit or to avoid a greater harm; we go to the dentist to avoid worse suffering later; we do some unpleasant work for its results; some persons diet to improve their health or looks; some save money to support themselves when they are older.  In each case, some cost is borne for the sake of the greater overall good.  Why not, similarly, hold that some persons have to bear some costs that benefit other persons more, for the sake of the overall social good?  But there is no social entity with a good that sacrifices for its own good.  There are only individual people, different individual people, with their own individual lives.  Using one of these people for the benefit of others, uses him and benefits the others.  Nothing more.  What happens is that something is done to him for the sake of others.  Talk of an overall social good covers this up.  (Intentionally?).  To use a person in this way does not sufficiently respect and take account of the fact that he is a separate person, that his is the only life he has.  He does not get some overbalancing good from his sacrifice, and no one is entitled to force this upon him – least of all a state or government that claims his allegiance (as other individuals do not) and that therefore scrupulously must be neutral between its citizens.   

The moral side constraints upon what we may do, I claim, reflect the fact of our separate existences.  They reflect the fact that no moral balancing act can take place among us; there is no moral outweighing of one of our lives by others so as to lead to a greater overall social good.  There is no justified sacrifice of some of us for others. 

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