The Future Uncertain

Free Speech Lives

2010-01-22T14:22:00.003-05:00

The days are few and far between where I am made genuinely happy by something coming out of Washington, and this has been truer the last few years than most. But yesterday's decision in Citizens United v. FEC was positively electrifying. The language is sweeping:

"The First Amendment’s protections do not depend on the speaker’s financial ability to engage in public discussion.”

“When Government seeks to use its full power, including the criminal law, to command where a person may get his or her information or what distrusted source he or she may not hear, it uses censorship to control thought. This is unlawful. The First Amendment confirms the freedom to think for ourselves.”

“Our Nation’s speech dynamic is changing, and informative voices should not have to circumvent onerous restrictions to exercise their First Amendment rights.”

“The First Amendment does not permit laws that force speakers to retain a campaign finance attorney, conduct demographic marketing research, or seek declaratory rulings before discussing the most salient political issues of our day.”

Yes indeed. The arguments against the decision fall into several categories, none of which withstand much scrutiny:

Unlimited corporate speech leads to corruption. Fearing a torrent of corporate cash to achieve their election defeat, Congressman will knuckle under to corporate demands. Alternatively, Congressmen can reap the benefits of corporate money spent in their favor. Here, Congressmen are basically saying "stop me before I take a bribe again." There is no corruption problem if Congressmen are not corrupt, and the solution to that problem is to punish corruption or, much more saliently, to remove the opportunities for corruption by ending Congress's capacity to take loot from one party and give it to another. The implied contempt for John Q. Public -- that public opinion can be rolled by the expenditure of enough cash -- is also striking.

Corporations will drown everyone else out. Corporations have money, and no other voices will be heard. Senator Menendez of New Jersey opined that "We must look at legislative ways to make sure the ledger is not tipped so far for corporate interests that citizens' voices are drowned out." Alas, the First Amendment oes not read "Congress will make sure everybody gets a turn, because otherwise it's no fair." Instead, it reads, movingly in its simplicity, "Congress shall make no law abridging freedom of speech." So Senator Menendez's "legislative ways" will have to take account of that.

Indeed, the speech that is backed by the most resources is not the speech of large corporations, but the speech of Congressmen themselves. The media crave interviews with politicians, who also use public resources to communicate with constituents. Every blowhard senator or representative who rushes to a microphone to condemn this decision needs to realize that what it is about is the power of people argue for their defeat, and that campaign-finance law is one big incumbency-protection racket.

Corporations ain't people. No, but the people who compose them are. A group of citizens who unite for a particular purpose and call themselves "Citizens against Corporate Slavery” certainly has the right to issue a statement and to give money to politicians in the name of that group. So does a group of citizens who unite for a particular purpose and call themselves "Google." The First Amendment makes no distinction among for-profit associations and associations formed for other purposes. Period. It is true that some shareholders or employees may object to a statement issued in the name of the group of citizens who unite to call themselves “Google,” but that is true of any group. In a free society, they may exit the group, issue a dissenting statement, or just swallow hard and ignore it. That is no rationale for shutting down the power of the group to speak collectively at all.

Corporations are generally not formed to speak, but when citizens choose to associate that way, and to speak on behalf of that association, their First Amendment rights are not affected in any way. The First Amendment has no asterisks.

Special interests will hijack the legislative process. Tell me another one. President Obama actually used this argument after the decision came down, saying the decision has “given a green light to a new stampede of special interest money in our politics." In short, his agenda is the public interest, and opposition to it is the special interests. This is the oldest rhetorical trick in the collectivist playbook. People who think drug companies should fund the health care of third parties are the public interest, but the companies objecting to it (and people who object to it philosophically) are something else.

As a final aside, Googling "corporate power" and "Citizens United” already yields over 10,000 hits. Sen. Schumer in particular has already said, "The bottom line is this: The Supreme Court has just pre-determined the winners of next November's elections. It won't be Republicans, it won't be Democrats, it will be corporate America." As far as I know he is more or less in the mainstream of current progressive thought. And so the corporations-run-the-world trope appears to be firmly ensconced on center stage in progressive thinking.

So overall, a fabulous day. The only disappointment is the realization, given the accelerating politicization of the law, that this decision is only as good as the next Justice's retirement.

Our Descent into Madness

2010-01-18T11:23:00.001-05:00

In One Flew over the Cuckoo's Nest , Ken Kesey tells the story of a man anything but mad, but who suffers the consequences of being labeled mad because of his rebellion against the petty tyranny of those who run the asylum. Think about that as you think about the course of health-care legislation, which is now perilously close to passing.

Because of an accident of World War II, many Americans get their health care through their employers, as tax-free compensation. Because of wartime wage controls, companies looked for ways to solicit workers, and offering fringe benefits like health insurance was one way. The authorities long ago declared that such benefits are not taxable income. If employers bought us houses in lieu of paying higher wages, our houses would be really big. And because they buy us health-insurance in lieu of paying higher wages, our health insurance tends to be gold-plated. Like any subsidy, a tax subsidy of health insurance has led to higher demand for health insurance, and therefore people relying on others to pay for their own routine, perfectly predictable health expenses.

In response to those higher costs, which plague all third-party payer systems, but seem to affect ours more than most, we are now apparently resolved to control costs by taxing the pretax plans that have premiums that are too high. In other words, we don't tax the insurance to begin with, as we would for any other form of compensation, but then decide to compound the sin when people then choose to demand a lot of healthcare, which then claims a lot of resources at high social cost.

The Wall Street Journal indicates the current state of play:

Under the Senate bill, health insurers would have paid a 40% tax on premiums that exceed $8,500 annually for individuals or $23,000 for family plans. That would have affected 19% of existing policies. The new agreement raises those thresholds slightly, to $8,900 for individuals and $24,000 for families, so fewer workers would be affected.

Of course no one knows the "right” amount to spend on health care. Anyone who says we spend too much is obligated to give a number of what healthcare should cost -- 16.378% of GDP, an appendectomy should cost $2130.62, something along those lines. But of course no one knows that answer. Like any other good, those numbers are the result of interplay between millions of competing buyers and millions of competing sellers, with the sellers themselves buyers of the resources needed to sell their services, and everyone possessing information invisible to the planner. There is no imposing a bureaucratic solution on that. The result of cost controls will inevitably be some combination of rationing, people lobbying to get their special health-care needs or role in society declared exempt from cost controls, black markets, increasing the attractiveness of health-care services by ways other than improving the quality of the care but billable to the user (e.g., more luxurious hospital rooms), and other ways that we can never predict but which the planner is always expertly quick to find someone to blame for.

Cost targets are the weapon of the slave master. That we have gotten to this point -- we are prepared to give bureaucrats and politicians control over costs that are created because of the decisions of past bureaucrats and politicians -- is essentially planning in a nutshell. The proper solution to this problem is simply to tax health-insurance compensation like any other.

But we have long since left the moment when good sense was an option. During the early years of the Great Depression President Hoover consented to legislation authorizing farm subsidies, because he wanted farmers to make more money. Alas, subsidies encourage overproduction, and farm prices fell at an even faster rate than they otherwise would have. Thus, Hoover supported the Smoot-Hawley tariff’’s ability to raise farm prices, with catastrophic consequences. This is where our health care is headed, if this isn't stopped.

The Californian Union

2010-01-16T15:12:00.001-05:00

The Economist magazine reports that the European Union, long under criticism for its democracy deficit, has without publicizing it given to citizens in Europe significantly enhanced power to pass laws through referenda:

Thanks to a barely debated clause in the Lisbon treaty, the EU is about to embark on an experiment in direct democracy. Within a year, the European Citizens’ Initiative will come into effect. One million EU citizens from a “significant number” of countries will be able to ask the European Commission to put forward new draft laws.

As with so many bits of the Lisbon treaty, which came into force in December, it is not clear how the citizens’ initiative will work in practice, or even if it is a good idea. Euro-cheerleaders spent years banging on about the need for Lisbon, saying its new rules would make Europe simpler, more efficient and more democratic. Now they have the treaty, many of the same people are muttering and wailing about unresolved problems hidden in its leaden prose. Interview senior Brussels types about Lisbon, and the same phrases come up again and again: “we have no idea how this bit will work” and “of course, national leaders had no real idea what they were signing.”

Well, leave that last bit aside; this we have come to expect. What is likely to happen in an environment of empowered democracy like this? I suspect that the wall that the Eurocrats have built against the rampaging democratic mob will not hold. Anything that Europeans vote in a referendum to ask the European commission to do, the European commission will ultimately have to do.

At first blush this seems like a substantial improvement over the standard European practice of rerunning referenda until they get the results they like, of European leaders expressing contempt over the stupidity of the people they rule, etc. In fact though, the European referendum process is likely to be a problem. The most informative example is probably California. There, democracy is direct; people vote, and they make law immediately. In Europe, that is not the case, but again this is unlikely to be much of a meaningful barrier.

And results in California have been none too reassuring. Californians have repeatedly voted to reserve certain portions of the budget for specific purposes, imposing major constraints on future legislatures trying to balance budgets. They have repeatedly enacted measures driven primarily by special-interest advertising, and have shown a marked propensity to heavily discount the future in pursuit of the interests of the selfish present. The referendum process in California, which my high school-history teachers assured me was designed to break special-interest control of the California legislature, has in fact enhanced the ability of pressure groups to rent-seek. Few serious observers contend that the current California referendum pattern – where a small group of people hire signature gatherers, and then blitz the airwaves with 30-second advertisements designed to roil the emotions, has led to better governance.

Added to this effect is the fact that a prime target of European referenda is likely to be the thing that European officials don’t let Europeans talk about – immigration and cultural assimilation in particular. None of this will be good for European social cohesion. But at least it’s democratic.

What the Buzzards Saw Atop the Republic

2010-01-12T14:02:00.002-05:00

Former Alaska Gov. Sarah Palin starts her new TV work tonight. She has evidently decided that scripted appearances, where she picks the topic and questions, better prepares her to face the electorate than, say, continuing to govern Alaska.

Meanwhile, the President of the United States is having a hard time scheduling his annual set-piece speech, the State of the Union, because of...television. The Hill has the story:

For all you Lost fans out there, don’t worry. The White House has promised that the upcoming State of the Union speech by President Barack Obama won’t cut into the premiere of the show’s final season on Feb. 2.

White House Press Secretary Robert Gibbs recently said, “I don’t foresee a scenario in which the millions of people that hope to finally get some conclusion in Lost are preempted by the president.” But he didn't say when the SOTU will take place.
Lost fans created Facebook pages and tweeted to beg the White House not to cut into the three-hour time slot for the show that ABC set aside for that Tuesday.

The SOTU is typically delivered in late January, triggering speculation it will occur on Jan. 26. That's the same date as one of the popular first few audition episodes of American Idol.

At a time when the American military is openly fighting in two countries (and sub rosa, in who knows how many), the federal deficit as a percentage of GDP is reaching levels that would make Argentina blush, unemployment is at the highest level in a generation, and we are seriously debating whether or not the federal government should take over the most important one-sixth of the economy, it is, apparently, a question of priorities.

If You Walk Awy, I Will Follow

2010-01-12T13:58:00.002-05:00

Roger Lowenstein has some arresting advice for people who are underwater in their mortgages - walk away:

White has argued that the government should stop perpetuating default “scare stories” and, indeed, should encourage borrowers to default when it’s in their economic interest. This would correct a prevailing imbalance: homeowners operate under a “powerful moral constraint” while lenders are busily trying to maximize profits. More important, it might get the system unstuck. If lenders feared an avalanche of strategic defaults, they would have an incentive to renegotiate loan terms. In theory, this could produce a wave of loan modifications — the very goal the Treasury has been pursuing to end the crisis.

Precisely. Government officials have been urging people, Lowenstein recounts, to "do the right thing" and pay if they can afford to. In fact, underwater borrowers are parties to contracts that state the penalties for nonpayment, and if those penalties exceed the cost of continuing to make mortgage payments, not only do borrowers have the right to walk away, they arguably should walk away. By doing so, they are conveying the message that lenders overestimated what houses would be worth, and made loans to people who shouldn't have gotten them. Borrowers who walk away will pay costs, as they should, in the form of worse credit ratings. How much worse is up to lenders, who will have to decide if a walkaway is a bad credit risk. The sooner the information about the wisdom of past lending practices gets into the price system, the better.

Lowenstein notes that a Bush Administration official dismissed walkways as "speculators," which is true. All market traders -- people deciding whether or not to go to college, whether or not to take a particular job, whether to lend to someone to buy a house, whether to walk away from a loan to buy a house -- are speculating. They are using the information they have and the prices they face to make the best decision they can, thus injecting that information into the price. Given the pejorative meaning it has taken on, "speculation" is not even economically meaningful, and financial reporters should probably refrain from using it.
It is true also that a walkaway commits a negative externality by lowering property values on his street. But a person who moves into a neighborhood and makes a bid on a house also commits a positive externality, and in any event many of these externalities are properly internalized because a single person has built the subdivision to begin with. So that is not much of an argument either.

I suspect that most of the economic argument against walking away boils down to macroeconomics -- the fear that an epidemic of walkaways will cause the housing market to once again spiral down, delaying macroeconomic recovery. But this macroeconomic idea -- the idea that "the economy" is a single organism -- is bunk. What we ought to be concerned about is whether the microeconomics are right -- whether the price system is incorporating all the information it needs to to function properly. Given the contracts that were written, and the rules of the game for breaking them, underwater borrowers would be doing society a service by giving up homes that do not serve their interests.

A Leader in Search of Followers

2010-01-07T22:45:00.002-05:00

Two stories from the current American administration at first seem to have little in common, but in fact are collectively very revealing.
The first involves the presidential adviser Rahm Emanuel, as recounted in the Israeli newspaper Ha'aretz:

Emanuel met with Jacob Dayan, consul general of Israel in Los Angeles, about two weeks ago, after which Dayan briefed the Foreign Ministry.

According to reports, Emanuel told Dayan the U.S. is sick of the Israelis, who adopt suitable ideas months too late, when they are no longer effective.

The U.S. is also sick of the Palestinians who never miss an opportunity to miss an opportunity, Emanuel reportedly said.

The second comes from the President himself, as recounted in a Fox News blog:

The bottom line is this: The U.S. government had sufficient information to have uncovered this plot and potentially disrupt the Christmas Day attack, but our intelligence community failed to connect those dots, which would have placed the suspect on the no-fly list.

In other words, this was not a failure to collect intelligence, it was a failure to integrate and understand the intelligence that we already had. The information was there, agencies and analysts who needed it had access to it, and our professionals were trained to look for it and to bring it all together.

I will accept that intelligence by its nature is imperfect, but it is increasingly clear that intelligence was not fully analyzed or fully leveraged. That's not acceptable, and I will not tolerate it.

Time and again we've learned that quickly piecing together information and taking swift action is critical to staying one step ahead of a nimble adversary. So we have to do better, and we will do better, and we have to do it quickly. American lives are on the line.

So I made it clear today to my team I want our initial reviews completed this week. I want specific recommendations for corrective actions to fix what went wrong. I want those reforms implemented immediately so that this doesn't happen again and so we can prevent future attacks.

The common theme in the two stories is the belief of the President's chief of staff and the President himself about why bad things happen. The Arabs and the Israelis cannot have failed for over 60 years to come to a mutually satisfactory peace agreement because they have deeply conflicting interests, political constraints, a fundamental unwillingness to make peace given what they have to give up to get it, or anything as discouragingly complicated as that. Instead, the failure lies in the personal shortcomings of Palestinian and Israeli leaders. If only the right men were in charge, peace would flow like floodwaters.

So too with the failure to detect the would-be airline bomber on Christmas Day. Our vast intelligence apparatus was not up to the job until President Obama scolded them and told them to do a better job, as if the intelligence agencies were not already profoundly dedicated to preventing terrorists blowing up airplanes, and merely required a kick in the pants from their boss. Again, the complexities of our world do not seem to enter the picture. That any large organization is going to be prone from time to time to bad decision-making, to an inability to get information flowing to where it needs to go, that we are an open society subject to moral and legal constraints while the terrorists are not, that (as the Irish Republican Army once mockingly told Mrs. Thatcher after barely failing to kill her) terrorists only have to get lucky once while the government has to get lucky every time, these things are foreign to the President.

The belief that a great leader can make progress happen, and can make political systems work better, is deeply ingrained in the progressive mind. While it is true that conservatives are also likely (perhaps even more likely) to subscribe to the great-man theory of history, and lionize people like Ronald Reagan and Winston Churchill, their heaviest thinkers are more likely to accept than their progressive counterparts that the world is complicated, that things happen for reasons. The belief in the great man changing history by moving human society forward has led at a minimum to willful ignorance of and frequently to support for some of the most wicked leaders of our bloodiest century, the twentieth. The fetishization, as opposed to the mere admiration, of the great leader (and I am reminded of the presidential adviser who with rarefied ignorance for someone in a position of such responsibility invoked Mao Zedong as one of her heroes) tends to come from the belief that the way forward is obvious, and only stubborn individuals block it. There is no reason based on clashes of human interests, in other words, for politics to be difficult. This article of faith has a childlike quality to it that would be adorable were the issues at stake not so serious.

When Worlds Divide

2009-12-30T17:00:00.003-05:00

So the governor of the Indian state of Andhra Pradesh resigned after a fairly juicy sex scandal. Times Now has the details:

Breaking his silence, former Andhra Pradesh Governor N D Tiwari, who resigned in the wake of alleged sex scandal, today rubbished reports against him as "fabricated and false" and said he will continue to be in public life. On return to his home state, Uttarakhand, 86-year old Tiwari told reporters at the Jollygrant Airport near here that some people in Andhra Pradesh had hatched a conspiracy against him and levelled "false" allegations.

Declining to name anyone, he said some people associated with Telangana statehood agitation wanted to meet President Pratibha Patil during her proposed visit to Hyderabad, but he had refused to entertain their request. These people got angry with him and hatched a conspiracy against him, he claimed. Tiwari had resigned on Saturday on "health grounds" in the wake of a raging controversy after a sting operation by an Andhra TV channel purportedly showed him in a compromising position with three women in Raj Bhavan. The Raj Bhavan had dismissed the allegations as a "tissue of lies."

I confess I am a little embarrassed to set up a post this way, but stay with me. The interesting details are not those of the governor's energy (he is well into his 80s), but those of the state of Andhra Pradesh itself. Andhra was created out of a portion of the independence-era state of Madras, and merged years later with part of the state of Hyderabad to form Andhra Pradesh. In the last few weeks, there has been agitation to create a separate state out of portions of Andhra Pradesh, to look after the interests of some of the people who live there. The BBC has the latest.

This is not the first time India has broken states up. In fact, it has happened numerous times since independence. This is striking, because it has never happened in the United States, another very large country, since West Virginia split off from Virginia amid the turmoil over slavery.

Why so much jurisdictional fission? Some years ago I wrote a paper in Economic Development and Cultural Change arguing that since India at independence already had a series of ready-made pressure groups in the form of castes and tribes, it became very easy to organize on those principles when rent-seeking. It is much easier, in other words, to use caste and tribal identity to agitate for special privileges from the government than, for example, class identity. At independence, India correspondingly created a list of what were called the Scheduled Castes and Scheduled Tribes, which were given (by current American standards) extremely generous forms of affirmative action, or reservations as they are known there. Legislative seats, university positions, and jobs in state-owned enterprises were reserved for people on these lists.

The list was designed to clear up the residual discrimination of Hindu society (in the case of caste) and isolation (in the case of tribe). As a compromise, it was agreed that no castes or tribes would be added to the list once it was drafted. However, governors in each state got to create the list, and politicians soon learned that splitting up a state allowed the creation of new lists, which meant new groups of dependent voters. The ability to create such utterly dependent citizens was enhanced once Indian politicians came up with the impolitely named category of Other Backward Classes, which unlike scheduled castes and tribes could be expanded without limit.

And so in some states upwards of 80% of the population is now eligible reservations, which is absurd on its face. And reservations have become, election in and election out, the consistently most important issue across the nation in Indian politics. Even India's world-renowned technological institutes may soon be subject to them.

My article also contended that the desire to create new lists in order to gain votes was the primary incentive for breaking states up. Every time I have mentioned this in the past to Indian friends they have scoffed. But the journalistic description of the current Andhra Pradesh episode -- in particular of the alleged need to "protect" certain groups -- makes me believe more than ever that I am right.

This is the unavoidable outcome of state-mandated preferences on grounds of race, caste, sex, or other non-meritocratic categories. The original justification expands to cover more and more alleged sins and kinds of people, and the beneficiaries are never satisfied that the problem has been solved. (In the US the only obstacle has been direct referenda, and some of them, for example in California several years ago, might not pass in a few years given rapidly changing demographics.) Those who lose out in such preferences find either that their options are limited or that they must leave, as many Indians from non-protected groups have done. In the meantime, look for the number of Indian states to rise over time, and look for people to continue to hide the reasons why.

My Anti-Corporate Blog

2009-12-29T18:56:00.002-05:00

I'm starting a new blog whose purpose is to keep track of anti-corporate thought in the broader culture. I will not abandon this one, but the new one (which will be updated whenever I find something worth writing about there) can be found here. The first post on it was the post below about Avatar.

Avatar

2009-12-28T11:51:00.002-05:00

The movie Avatar is quite the rage. Below is the plot summary, according to the Internet Movie Database:

When his brother is killed in battle, paraplegic Marine Jake Sully decides to take his place in a mission on the distant world of Pandora. There he learns of greedy corporate figurehead Parker Selfridge's intentions of driving off the native humanoid "Na'vi" in order to mine for the precious material scattered throughout their rich woodland. In exchange for the spinal surgery that will fix his legs, Jake gathers intel for the cooperating military unit spearheaded by gung-ho Colonel Quaritch, while simultaneously attempting to infiltrate the Na'vi people with the use of an "avatar" identity. While Jake begins to bond with the native tribe and quickly falls in love with the beautiful alien Neytiri, the restless Colonel moves forward with his ruthless extermination tactics, forcing the soldier to take a stand - and fight back in an epic battle for the fate of Pandora.

In The Rise of the Anti-Corporate Movement, I talked of the rise of anti-corporate thought in the popular culture, with science fiction being a particularly fruitful vein. The Alien and Terminator series, as well as the classic Blade Runner, all depict sinister corporations as responsible for futuristic misdeeds. And while I hasten to add that I haven't seen it, Avatar appears to be along those lines. The military as nothing more than a glorified corporate army, corporations as greedy exploiters of the natural resources belonging to native peoples, and most of all corporations as the forces that secretly rule the world, these are all recurring themes in the ACM. File it with the most recent James Bond picture, Quantum of Solace, as a sign of the further mainstreaming of the once-fringe paranoid, Manichean subset of ACM thinking.

A Change in the Climate

2009-12-18T11:32:00.001-05:00

If news reports (or at least their relaying of American blame-shifting leaks) are to be believed, we have Red China to thank for killing the Copenhagen climate conference. One wonders what it says about the U.S. as the defender of individual liberty that we had to rely on them (and India and Brazil too, in all likelihood) for slaying this dragon.

The conventional wisdom about climate change goes something like this:
“We should be required to limit our CO2 emissions because we know we will otherwise have disastrous effects on the climate.”

But really, much of that sentence could benefit from a little deconstruction – could be challenged if people were willing to apply the critical thinking that, as a university professor, I keep hearing we want citizens to have in abundance:
to limit: Take for granted, for now, that CO2 emissions are going to raise global temperatures significantly. It does not follow that, at the margin, the best response is to decrease emissions. If carbon emissions generate a lot of benefit – ambulances taking heart attack victims to hospitals consuming vast amounts of electric power, supercooled or supercleaned factories making the mysterious parts that power the explosion of information known as the internet, the airplanes carrying not just people with self-important business like a climate conference to go to, but their own missions of importance (visiting dear relatives, interviewing for a rewarding job, whatever). Civilization is good, and we don’t want to destroy it,

Perhaps it would be better to accommodate climate change – to move human settlement back from the shore, to build flood-control systems, etc. All these things may require us to sacrifice less than radical limits on emissions.

be required: By whom? By the experts and functionaries, naturellement. The scientific revolution originally took place for its own sake, for the joy of discovery. And technology was created to serve human welfare, often in the pursuit of profit. But the modern bureaucratic state has ~~harnessed~~ corrupted science in the service, not of problems in a metaphysically certain sense, but problems that government has identified. Because of the influence of special-interest groups and bureaucratic self-interest in controlling individual autonomy, the latter is something different.

The creation of a massive bureaucratic entity to control carbon emissions, even if nominally cloaked in pro-choice outerwear like carbon credits, means that a huge sphere of previously relatively autonomous activity –transportation, manufacturing, communication, and even family decisions themselves – will come under the control of administrators, who will decide with the force of law how much we can live. (British writers have suggested annual individual carbon or air-travel quotas, and even child ceilings.) There is absolutely no reason informed by long historical experience to suggest this power will be used wisely. (Consider that the EPA, answering to no one, has already announced it will regulate CO2 if Congress does not, something no honestly free society would tolerate.)

The writer Thomas Friedman said on television the other day that his “daughters’ future” depends on getting CO2 under control. But by destroying impossible-to-predict innovations and by extending bureaucratic control over a huge chunk of the economy, a CO2 treaty is a far more sinister threat to his offspring. Such problems as occur might frequently be better handled by decentralized or even voluntary responses than through a massive central plan.

we know: What do we know? That CO2 would increase the climate other things equal is apparently just basic chemistry, but that is a weak statement. The single most noteworthy thing about climate “science” is the amount of scientific misconduct found within it. The faked “hockey stick,” the number of non-climatologists on the IPCC, and the unwillingness of climatologists to share their data, especially with unwashed non-credentialed members of the public, is frankly disgraceful; nothing any scientist who behaves that way says should be taken seriously.

I now keep meticulous records of all the backward-looking statistical modeling I do in my research. When graduate students or professors have asked in the past for my data and programming, I have given it to them with no ifs, ands or buts. The recent Climategate scandal is not the first incidence of climatologists massaging their data and hiding their work from the public. Now that the East Anglia data is coming out, people are finding interesting things. I am in no position to comment on their utility, but analyses of climate “science” by two people whose only official credentials are free men with an interest in the outcome seem to have found interesting things, and their work can be found here and here. Do not look for them in refereed journals near you, but remember them when you are asked to do your duty as a citizen subject to consensual government.

we will otherwise have disastrous effects: The climate is to a first approximation as complex as, say, the US macroeconomy, and our ability to model the latter is primitive. A critical criterion for a good statistical model is its ability not just to explain the past but to predict the future. Can climatology do this? Does it have a record of accurately predicting average temperatures in various places since the first IPCC report? I don’t know, but I suspect not. Climate models, it seems, are primitive, and relying on them to make irreversible changes in the relation between government and citizen, both in scope and in distance from those governed (multinational organizations instead of local governments) is madness.

The climate is also subject to other effects than what we do; if nature overwhelms CO2 emissions, making major sacrifices is pointless. (Indeed, warming since the Ice Age is in a sense responsible for civilization itself.) Will CO2 emissions cause helpful effects in some places? Will agricultural productivity go up? Will shipping become cheaper? Against this effect must of course be weighed the negative effects, but as noted above, many can perhaps be mitigated at low cost. Only the possible swamping of island nations by water raises the most serious moral questions.

Thus, if I were a teacher of critical thinking and ethics, I would hope my students would eventually realize that a better sentence looks something like this:

“Current evidence suggests that human activity is having some effects on the climate. Perhaps action should be taken in response.”

That is more like where we are scientifically and in terms of ethically reasoning our way through it. Starting from there would get us to a much better answer,

Bread and Circuses

2009-08-05T15:48:00.000-04:00

This is CNN:

From CNN Political Editor Mark Preston

WASHINGTON (CNN) — National Republicans turned the tables on their political counterparts Wednesday by redirecting angry telephone calls coming into their switchboard to the Democratic National Committee.

The DNC released a Web video early in the morning accusing the GOP of inciting mob activity at town hall meetings.

At the end of the video, the DNC instructs people to call the Republican National Committee to express outrage. Callers who dial the RNC's main number to voice their concern about the DNC's charges are told to press 1, which sends them to the DNC's main switchboard.

Not exactly Lincoln and Douglas, is it? I cannot help fearing that politics, and media coverage of same, becoming mostly this kind of thing is a symptom of the last days of once-great republics.

Property and Civilization

2009-08-03T12:42:00.003-04:00

"Velib was supposed to make urban travel more civilized," lamented the daily newspaper Le Monde in an editorial. "Instead it has increased uncivilized behavior. No one expected that."

NPR's Morning Edition had a story this AM about bicycles provided for free to residents of Paris to ride around town, from which the above quote is taken. Alas, many of the less refined residents of that city seem more interested in vandalizing the bicycles than in using them in a way consistent with the broader public interest with which our ruling classes are so preoccupied. How could free stuff, and environmentally beneficial free stuff at that, make people more uncivilized?

Most economists have no trouble diagnosing what went wrong in this experiment. If I own a bicycle, I expect to use it for many years to come. I need to take care of it, and I need to protect it from vandals. (Lawrence Summers once famously said that no one in history has ever washed a rented car.) But if I'm using a public bicycle, I don't care, in the most narrow conception of self-interest, whether it is useful after I'm done with it, and if I am actively hostile to the society around me, I will not hesitate to damage it.

There is a deeper story here, the story of property and human progress - not material progress, but progress in how we live together. There are still vast stretches of the world where the right to property is nonexistent, and people’s very lives are nothing more than whims of those who do control (and someone inevitably must) how resources are used. This is been the lot of man for most of our history since the creation of agriculture. The mightiest decide how to dispense the food, the land, the water, and everyone else is their serfs until they can band together violently and become the mightiest by overthrowing the old boss.

Property changes all that. It gives you the ability to control resources, and to use them to advance through life -- to achieve, to dream, to make sure your family is provided for. Perhaps more critically, it also gives you a stake in the system -- a belief that the state’s unwavering commitment to defend what is your is a critical ingredient of social peace. Contrary to the image propagated by Rousseau's noble savage metaphor, hunter-gatherer societies are actually profoundly violent. The modern homicide rates for people such as the Yanomamo are perhaps 100 times the rates even in 12-century England, and some of them (for example, the Aché of Paraguay) had 20th-century homicide rates as much as 1000 times as high as those of the contemporary United Kingdom. (My source for these data is chapter 6 of A Farewell to Alms by Gregory Clark.)

The society in which I can own just like you is a society in which you and I are bound together by self-interest to preserve that set of rules of the game. And so the long-term decline of property rights in the era of the redistributionist and welfare state has the hidden but ultimately critical cost of damaging that bond of equality of opportunity that ties the rich to the poor to middle class. Big government de-civilizes us. The universally shared belief that we are all free to make our own destiny in the marketplace on the same terms as anybody else gives us the confidence to try to do great things, to agitate for the preservation of the social order, and to stigmatize those whose selfishness corrodes that order. A society where everybody who wants to have a bike must own it is a society in which the defense of ownership is very important. It is a society more conducive to civilized behavior. A society where the government gives everybody a bike for free is something else altogether.

From Truthers to Birthers

2009-07-31T11:19:00.002-04:00

Polls taken during the later stages of the Bush administration indicated that over 30% of Americans, and sometimes even higher proportions of young Americans, believe that the U. S. Government either by omission (knowing about the attacks in advance but doing nothing to stop them to promote Israel, Halliburton or whatever) or commission brought about the September 11 attacks. It is hard to say with any precision how many Americans overall entertain serious doubts about whether Barack Obama is constitutionally eligible to be president; the only comprehensive survey evidence I could find in a brief search on the web involved either Internet polls or one poll funded by the crackpot websiteWorld Net Daily suggesting that the number of Americans who think president Obama's eligibility is seriously open to question is less than 10%, although that is not a small number. (This poll reported at politico.com shows that a majority of Republicans has at least some doubts about whether the president was in fact born in the U.S.)

Conspiracism has always been with us. The (liberal) historian Richard Hofstadter wrote a famous essay in the mid-1960s that eventually turned into a book, whose title, The Paranoid Style in American Politics, suggests that it can all be dismissed as irrationality. But such a theory allows us little room to make testable predictions. I think we can do better in understanding why bipartisan extremism of this sort is on the rise. In a widely-cited passage, Hofstadter actually at one point describes conspiracism as rational, in a sense:

One of the impressive things about the paranoid literature is precisely the elaborate concern with demonstration it almost invariably shows. One should not be misled by the fantastic conclusions that are so characteristic of this political style into imagining that it is not, so to speak, argued out along factual lines. The very fantastic character of its conclusion leads to heroic strivings for ‘evidence’ to prove that the unbelievable is the only thing that can be believed.

This is suggestive of a process in which the conspiracist has a very strong prior belief. Like anyone in any situation of uncertainty, upon receiving new information he must revise his belief based, as Rev. Bayes noted, on the strength of the prior belief and the strength of the new evidence. In many circumstances of the sort that are lending themselves to the new conspiracism - Dick Cheney arranged the bombing of the World Trade Center, for example -- sensible people in contrast reject the conspiratorial story out of hand. Their own prior beliefs about such an explanation are not inordinately high, because they do not enter with a very dismal belief about Dick Cheney. In conjunction with the readily available evidence that in fact the people who are publicly claiming credit for the attacks had the motivation to do it, it is only a question of the means, which after the event also become explicable. So the official story holds together.

But what if someone does in fact have a prior belief about Dick Cheney that is unusually suspicious -- even before the September 11 attacks, a belief that Mr. Cheney is in government primarily to siphon money to Halliburton, perhaps because Halliburton, as a big corporation (and an oil company to boot), is itself a sinister force. More generally, what if he believes that the American conservative movement is in fact not just wrong but evil? Then, the probative force of the evidence that can sway a person without such beliefs does not do the job for him. (The exact same argument holds for someone with high prior skepticism of the American left in general, or Barack Obama in particular.)

Now all we have to do is explain this high prior skepticism. I suspect it is the combination of several factors. First, the rising degree to which we now expect government to solve our problems, so that control of the government becomes a profoundly important question. The other side winning the next election is a dramatic threat to all of the government policies that so affect the lives of a once-free people. Conspiracism is the product of a decayed republic, where politics assumes cosmic importance because people have become so intertwined with the state and depend upon it to advance both their material interests and their belief in a just world.

And that last idea suggests another intervening factor. In his book Life, the Movie, Neil Gabler argues that popular entertainment has infiltrated every arena of American life. Not just in the sense that celebrities, movies, and so on are important to us, although that is a big part of the story, but in the sense that we consume much of life as if it were entertainment. We treat politics in particular like entertainment, although often entertainment with profound moral content. We want the good guys to win and the bad guys to lose just as if we were watching a movie or play. We take sides, and invest our side with the righteousness of truth and justice and the other side with the dark robes of evil. Elections are not abut consensual governance, but a rollicking good show. (Hence the domination of horse-race coverage in the media.) But if evil is triumphing and good is on the run, how best to explain that? Only some grand dark force can explain right routed by wrong.

The political scientist Robert Putnam wrote a highly influential book in the late 1990s called Bowling Alone: the Collapse and Revival of American Community. Among many other points, he argued that the nature of American political engagement has changed. Where once upon a time being a citizen of the Republic meant attending township meetings or becoming a precinct ward, now it primarily involves national pressure groups like the NRA or Environmental Defense Fund signing up huge numbers of members who do nothing other than send in checks to Washington, which the organizations use to hire staff, generate even more fund-raising letters, and (most importantly) making campaign donations and funding campaign commercials. The organizations have all the contact with the actual legislators, and it is the job of the citizen merely to send in the money and to watch the organizations’ polemical warriors go out and strike the evildoers a mortal rhetorical wound on Fox or MSNBC. That kind of citizenship -- the passive citizenship of watching, instead of the active citizenship of doing -- also lends itself, I suspect, to conspiracy theories as an essential element of the morality play (with "play" the operative word) that politics has become.

Finally, there is ignorance. Our students are increasingly urged to be "educated" about the broader world around them. The Chronicle of Higher Education had a recent essay (Google cache) arguing that students are more "globally aware," and that that is a good thing. But if all "globally aware" means is that people learn that there are a lot of other countries, and that America really is just another one, that is not the same thing as actual knowledge about the world. People who know that there is a country called Iran, and that their cultural values are different from ours, do not necessarily know anything about the history of Shiite Islam, nor do they necessarily know actual things about the broader world -- how China came to be such a vast country, why Madison so feared factional warfare, etc. A society that knows how to read the news but not understand it, a society where everyone is taught, especially at school, of the importance of civic engagement and directing the path of the country, but is ignorant of the historical knowledge and insights into human behavior necessary to do that with any wisdom, is a society ripe for simple explanations of complex things.

When Red Becomes Blue

2009-07-28T11:49:00.002-04:00

Joel Kotkin in The American Enterprise notes that the economic rain does not appear to fall equally on the just and unjust alike:

For example, while state and local budget crises have extended to some red states, the most severe fiscal and economic basket cases largely are concentrated in places such as New York, New Jersey, Illinois, Pennsylvania, Michigan, Oregon, and, perhaps most vividly of all, California. The last three have among the highest unemployment rates in the country; all the aforementioned are deeply in debt and have been forced to impose employee cutbacks and higher taxes almost certain to blunt a strong recovery.

The East Coast–dominated media, of course, wants to claim that we have reached “the twilight” of Sunbelt growth. This observation seems a bit premature. Instead, traditional red-state strongholds such as the Dakotas, Idaho, Texas, Utah, and North Carolina, dominated the list of fastest-growing regions recently compiled for Forbes by my colleagues at www.newgeography.com.

Competition among jurisdictions, just as the economist Charles Tiebout once predicted, will either fix their economic policies or they will die politically:

“When the economy comes back,” notes veteran California-based economist and forecaster Bill Watkins, “there will be a pent-up demand. People will compare and move to the places that are affordable and don’t have the fundamental tough tax and regulatory structures.”

These demographic and economic trends will have a long-term political impact. The net in-migration states—almost all of them red—will gain new representatives in Congress after the next census while New York, Pennsylvania, Michigan, and perhaps even California could see their delegations shrink.

In fact, amidst the Blue Man’s current political ascendency, the devolutionary process is likely to continue. Its roots are very deep, and will prove more difficult to reverse than media and policy claques suggest. In historic terms, blue states’ relative decline represents one of the greatest shifts of political and economic power since the Civil War.

But I wonder. It is true that states of Michigan, Ohio, and even mighty California are seeing significant out-migration to states with brighter economic prospects. (Not that there is anything new about this; when I was a child in Houston in the 1970s, the roads were full of bumper stickers that read "Will the last person out of Michigan please turn out the lights?".) Expatriate Californians have been an increasing presence in Colorado, New Mexico, Nevada, and other Western states for some time.

But there is some evidence, particularly on environmental matters, that they take their voting behavior with them. The changes are thus strengthening rather than weakening land-use planning, extreme anti-pollution and species-protection measures, and the other regulations that have proven so detrimental to housing costs and economic growth in California itself. Attitudes about labor cartels, which have long been protected in the Rust Belt states and in California, might also migrate with the migrants.

Having observed firsthand the failure of such policies in the states they are fleeing, why would people then choose to impose them on their new homes, which are succeeding precisely because of their absence? There are two possibilities. The first is cluelessness, an explanation that I am always open to. The second is that the people who are fleeing have personal stakes in imposing the same rules here as they had there. The people who can afford to move are the ones who have the biggest stake in protecting the investments they make in housing once they move to their new jurisdiction, and restricting the supply of housing is the easiest way to achieve that. More generally, people are getting the policies they want, and these policies will be coming to Texas and Wyoming soon enough.

Against this unhappy outcome is only the possibility that political competition is really meaningful, something I argued against in my previous post, and in many prior to that. The fact that incumbents are so easily reelected, that modern political technology allows the measurement of voter preferences to such a fine degree, and that politics is the product ~~as much~~ more of interest-group capture (i.e., competition for bribes/campaign contributions) than competition for votes combine to suggest that the faith in democracy as competition to eliminate what ails Michigan and California is misplaced. And so interest-group struggles over how to divide up ever-more opaquely raised tax revenues become the theory of the modern state with the most predictive power. Mancur Olson, in other words, in other words, is right.

James V. De Long, in another article in The American Enterprise, recognizes this problem, but predicts that the breakdown of the special-interest state leads to its replacement by something more amenable to human achievement. I am aware of no historical precedent for such a timeline, but whether Mr. De Long or Olson is right is the question on which the future of America as a dynamic, innovative society hangs.

What Is the Real Lesson of the Cleveland Clinic?

2009-07-23T12:57:00.004-04:00

President Obama was at the Cleveland Clinic today, and planned to say that it should be a lesson for the rest of us on how to run the health-care "system." He apparently admires, in particular, the way the clinic has decoupled medical decisions from financial incentives. In his news conference last night, he indicated he wanted to eliminate the problem where the doctor chooses a tonsillectomy instead of a cheaper alternative course of treatment because "I make a lot more money if I take this kid's tonsils out."

Leaving aside the casual way the political leader insults the integrity of a huge proportion of his constituents, presumably in the belief that it is only they who block his grand plans, the Cleveland Clinic indeed merits thought. It is a lesson alright, but not in the way the president thinks. The primary lesson of the Cleveland Clinic is rather that it is there . According to the Wikipedia entry, the clinic was founded by four physicians as a group, back when that was an unusual practice, in an attempt to provide better patient care. Since then, it has evolved into a massive facility that treats patients from all over the world. Like the Mayo Clinic, the Texas Medical Center, and other facilities, it is a crown jewel of American medicine.

And it is a product, lest we forget, of the American medical system we keep hearing such bad things about. It is an economic/medical life form of sorts, that has evolved in response to the environment, both on the cost side and the demand side, it faces. It is not something a central planner could have concocted. Indeed, the centrally planned version of the Cleveland clinic would presumably look like the big state-owned hospitals in single-payer countries, with their crowded conditions, long waiting periods, and ghastly hygiene.

When the allocation of scarce health-care resources is a matter for politics, cost containment looms extremely large. In theory, democratic competition is supposed to lead to the best health care system, in the same way that competition among restaurants leads to the best ones staying in business and the worst ones closing. In fact, political competition privileges those who speak loudly and those who lobby effectively. Given that the pressure groups seeking to stake claims to public funds are hardly confined to health care but include individuals from every arena of social activity, those claims always exceed the resources available, so that cost-cutting becomes an overpowering concern. The market system requires self-interested producers to incorporate cost into their decision-making, but also the value they are providing to patients. There is little evidence that this is true in politics. Indeed, it is more than discouraging to read about the extent to which cost control has dominated the discussion of why we need more government control over health-care decisions. In general, costs go up when more resources are claimed, and for them to come down usually requires that the service be provided. Only the arrogant politician supposes that there is some giant pot of "waste" waiting for him to discover it and fund more for less, confident, in the teeth of all the evidence, that such efficiency is the hallmark of every other type of government activity.

In a properly functioning market, the aforementioned interplay among health providers and health consumers leads, as it does in every other economic endeavor, to experimentation, and that experimentation culminates in institutions like the Cleveland Clinic. Health-care providers try, and if necessary abandon, new medicines and new surgical techniques, and more importantly they try, and if necessary abandon, new forms of social organization. They operate clinics that require payment in cash; they try group practices based on incredible degrees of specialization (the orthopedics group that has the hand specialist, the knee specialist, etc.), or they select comprehensive clinics that contain under the same roof every specialty imaginable. Those experiments that succeed stay; those that fail go. The things that don't work are purged quickly, although it is for precisely that reason that we do not observe them, and therefore cannot tally them as a success of the market system, even though they are. In a centrally planned system, in contrast, those experiments that might succeed are never born, and those that fail lobby to stay forever. This is the biggest tragedy of the looming massacre of our already wounded health system; the Cleveland Clinics of the future that we will never hear of.

The Democracy Sacrament

2009-07-21T13:33:00.003-04:00

Two stories that seem not to fit together in fact do.

The LA Times has a website that challenges the visitor to balance the CA budget, and it is surprisingly difficult. I imposed no tax hikes, and chose all spending cuts except law enforcement (a clearly legitimate government function), furloughing government workers (a cheap shot), and one-time fixes (intellectually dishonest, just kicking the can down the road one year).

I still barely managed to do it. I assume the reason for that is that federal mandates and California's mountain of referenda take a lot of spending cuts off the table. This is ultimately what democracy, unrestrained, comes to. It is so easy to vote that other people's money (including people in the future) be put in service of your interests rather than theirs. Once people discover they can do this, as the saying goes, the game is soon up. (Myron Magnet in City Journal tells of how this has played out in New York.) California's experiment in radical democracy has hit the wall.

The good news is that, contrary to some of my fears in the last few months, it seems that people are drawing a line on how much of a power grab they will tolerate at the national level. Cabinet officials and Congressmen are getting confronted all over the country (go here to see an example involving HHS Secretary Sebelius) over the ongoing attempt to end private health care before anyone has time to read the bill or find out what it costs. It seems that people were willing to tolerate the big stimulus corruption-fest, but are unwilling to add onto that another huge burden of public spending for health care. For now, anyway.

And this brings me to the other story, Honduras. The president of that land wanted, in clear violation of its constitution, a second term, and presumably one meant to last for the rest of his life. And so he tried to conduct a referendum authorizing that. But the Supreme Court told him he couldn't, the Parliament concurred, and the military was ordered to remove him. (The similarity not just to Hugo Chavez but particularly to Salvador Allende are eerie.)

But much of the world, including US officials, thinks of this as a coup against a democratically elected precedent. This is the result of the belief that elections are the source of political legitimacy, that how we choose the government, rather than what the government may do once chosen, is the only interesting question. If the people of Honduras want to vote on whether their president should have another term, the majority rules, right?

Wrong. Elections are part of a complicated package that include the separation of powers and protection of the citizens' basic rights, and no part works without the other. (The wave of radical democracy in Latin America that started with Chavez has crippled the other components of ordered liberty.) This sacramentalization of democracy, of transient majority opinion as the font of all wisdom, is unfortunate, but increasingly common. In the US the barriers are perhaps holding, but if so just barely.

The Way the Kogi Crumbles

2009-07-17T14:59:00.003-04:00

From The Wall Street Journal (hat tip: Koreanfornian Cooking):

Kogi, a humble lunch truck, became instantly famous in Los Angeles last November when it began selling Korean tacos: grilled short ribs marinated in Korean flavorings, topped with Asian slaw, and wrapped in Mexican tortillas. Today, Kogi, has three trucks, a lounge, 36,000 Twitter followers, and lines around the block wherever they park.

Kogi had a great Internet-era, come-from-nowhere run selling something no one else had—until now, maybe. It’s not surprising that Korean-style tacos are popping up at restaurants around the country. But Baja Fresh, 283-unit casual Mexican food chain went a step further last month when it tested a version of the Korean taco at one of its restaurants and called it “the Baja Kogi taco.”

Highway robbery? No, says the corporation: “There were certainly no intentions to rip off a name or a product,” says Chuck Rink, president of Fresh Enterprises, which owns Baja Fresh.

This is an only-in-America story. It has dynamic and valuable cultural evolution. The Korean taco trucks have quickly become the hottest thing in LA, despite their humble circumstances. And it has cultural fusion: Korean insides wrapped in a Mexican outside. Not to mention that the spokesperson quoted in the article for the taco-truck company, Caroline Shin-Manguera, has a last name that bespeaks neither Latino nor Asian culture, but something altogether new. The addition of lawyers to the mix is what officially assimilates the tale into the melting pot.

The success of the Korean taco truck, and the need of a big corporation to get in on it, is a lesson in how foolish a lot of thinking about culture in the age of globalization is. Culture is never pure. It is always subject to outside influences, which are not bacterial contamination but instead experimentation, often for the better. "Protecting" some imaginary pure culture ideal form is thus equally foolish. And, contra anti-globalization hysterics, this an instance of the big corporation having to adjust its behavior because of innovation from below, and in so doing bringing a new cultural form - the Korean taco - to far more people. This is culture in a globalized world, and we are lucky to be alive to sample it.

The Crossroads

2009-07-16T10:47:00.003-04:00

I was interviewed by our local paper last week, along with some other economists, about how to fix our budget mess. It was one of those usual things where they try to get the left and right points of view. I regret, upon reading that the unemployment rate in Michigan is a positively Spain-like 15.2%, that what I said sort of accepted the status quo, only substantially downsized – change Medicaid from a guaranteed-pay program to an individual insurance subsidy most importantly.

I should’ve aimed higher, because the welfare state has hit the wall. I have previously argued that social-welfare expenditures are going up all over the Western world, and that they are going to crowd out most other government functions:

But the rising burden of state pensions and health care in aging populations is going to result not just in rapidly growing tax burdens, but in a sharp narrowing of the political playing field. Options for spending money that would have been eminently debatable in the flush decades of yore are simply going to be fiscally impossible because of rapidly growing entitlement spending. This spending is going to crowd out not just private-sector economic activity but opportunities for public spending of all kind.

It has happened faster than I predicted. Below is a chart from BizzyBlog, via The Belmont Club:

This is a catastrophic decline in both individual and corporate income-tax revenues. Despite this, the Congress and President have already had the big stimulus party, much of which, it turns out, is being spent propping up state budgets rather than "shovel-ready" activities, with these budgets themselves exploding first and foremost due to expenditures on health, along with state pensions and education. In other words, future taxpayers are being shanghaied into paying for our current health care. Given that the projected deficit for next year, at about 12.5% of GDP, is higher than any country for which the World Bank has data for 2005 (the highest figure for that year was the Maldives at 12.1%), we now have the economic profile of a Third World basket-case country. And this is before the Congress has gotten around to destroying the health-care system.

The welfare state generates at least two lamentable dynamics. In the first, chronicled with characteristic skill by Charles Murray, the welfare state turns our minds away from the seeking of greatness and a life well-lived, and inward toward the emptiness of consumption. No one wants to take a big risk of scientific exploration if it cuts into the vacation time, and no one wants to go to Mars if it puts the state pension fund at risk.

The second dynamic is more directly economic. In it, once the welfare state hatches, benefits go ever higher. The electorate, having a very short time horizon, cares about gimme gimme now, and when the bill comes due it’s someone else’s problem. The resultant increased tax load drives business and high achievers out of the state – factories close, young people leave, etc. This is where states like Michigan have been for some time. Then, the people left tend to be poorer and unemployed, and require more expenditures under the existing entitlements scheme. This initially prompts the legislators to rummage through the state couch hoping a few billion dollars magically fall out. They legalize slot machines, they contemplate legalizing marijuana. None of this is done on the merits; all of it is done because of the need to feed the insatiable maw of the welfare state. (I predict that legalizing prostitution and illegal immigrants will ultimately be contemplated because of the desperate need for taxes.) Eventually, in Margaret Thatcher’s pithy phrase, the socialists run out of other people’s money, leaving only collapse or dramatic reform as futures.

That crossroads appears to have arrived. I wish I had told that newspaper reporter that my state should try something radical. It should brand itself as the one state in the Union that is serious about rewarding achievement. It should pull out of Medicaid, end all government spending not devoted to providing true public goods and significant externality control, and should then (because it now can) end the individual and corporate income taxes, repeal all protectionism for labor cartels, and sharply curtail anything that makes it difficult to open or expand business. It should then watch what happens. We must now choose a road, and the one we take will make all the difference.

Noted Without (Much) Comment

2009-06-08T12:19:00.003-04:00

I don't know how I missed this, from April 16. Our Energy Secretary, Stephen Chu, a Nobel Prize winner in physics and therefore presumably one of the smartest people in the world:

You read stories in Europe where there are in small apartments zero-net energy consumption apartments. There is--you know, body heat keeps a lot of the apartment warm. You can't do this in a big apartment with a few people.

The story of civilization, of course, is the story of escaping situations where we have to depend on one another's body heat to stay warm. Read the whole thing yourself to see if I have taken him out of context.

The things that pass for knowledge I can't understand.

This is Your Future

2009-06-03T10:20:00.007-04:00

I should disclose right up front that this is a post assumes too much. I'm making assumptions about what I'm seeing in the photo below, which may or may not be true, but if true are... disquieting regarding what lies ahead.

The caption at the New York Times article containing this photo reads: "Brian Deese, who interrupted his law school career, is the little-seen force behind the revamping of the American auto industry." I'm going to assume that the other people pictured in the photo are also important staffers in the Obama administration, and indeed perhaps in the effort to restructure GM.

What do they look like? They look young, smart, like perhaps they are recent graduates of America's best university graduate programs, undoubtedly majoring in social sciences or the law. (We are now perhaps run more by lawyers than we ever have been. The president is a lawyer; the vice president is a lawyer; the House and Senate and, needless to say, the Supreme Court are dominated by lawyers. Only Nancy Pelosi is the conspicuous exception.)

I don't have anything against young people; I used to be one. I teach them every day, and I know their norms. They often want to change the world, which is commendable. But they often feel they know enough to change the world all by themselves, which is terrible. To graduate from Stanford, or Yale Law School, requires the highest sort of intelligence. But intelligence is not the same thing as wisdom. Wisdom comes as much from experience and from self-reflection as from pure intelligence. And in governing men, the better part of wisdom is to realize the limits of your intelligence, particularly its limits in organizing human affairs to your liking.

The reorganization of GM, like the reorganization of the health-care system, or the reorganization of the macroeconomy, depends on knowing information possessed by millions of individuals all around the world -- information about trade-offs, about value, etc. As we pass that information up the ladder from the individuals who possess it to our benevolent rulers, more leaks out of the bucket at each stage. And so every decision our rulers make will have consequences they did not anticipate, which is an outcome far more dangerous in the hands of someone with the police power behind him, and with a need to get a majority of the population to see the other as a mortal danger to all that is right and true, than when it is caused by, say, a hedge fund. The problem is not that Mr. Deese has apparently never spent a day in the auto industry, working for a publication rating cars, etc., although that is bad enough. The problem is that no one with that much power will do a good job on such a large and complicated question. Our rulers may be subject to hysterias - The green economy is the future! GM should be around for another hundred years! And there are important questions they fail to ask - does a single-payer health system in other countries have hidden negative consequences? Does it negatively affect the health care of people fifty years from now? But the smartest people tend to be those who are most confident in the ability of human intelligence to direct complex societies and achieve desired outcomes, despite the total lack of historical evidence for this belief. They themselves are smarter than all that.

And if our rulers are not in fact benevolent, the problem is even worse. It is a government of the cockiest and most earnest subset of the National Honor Society, the Model U.N. team and the debate team now. Get ready.

Five Questions for Judge Sotomayor...

2009-05-27T21:34:00.002-04:00

that probably won't be asked:

1. In your speech when your nomination was announced you spoke of the profound importance of the “rule of law” in your thinking. What does the “rule of law” mean? Does it fail to mean this?

2. In Ricci v. DeStefano, you upheld a district-court ruling on a major issue of public concern, whether affirmative action by the City of New Haven violates anti-discrimination laws, without bothering with an opinion. Why did you think the appellants were not deserving of an explanation? Did they receive the benefits of the rule of law?

3. You have spoken approvingly of federal judges “[making] policy,” and indeed made light of those who oppose it. The last time we had an official with lifetime tenure explicitly making policy it was George III. How exactly is five Supreme Court justices “making policy” different?

4. Whenever there is affirmative action, a person receives a job, school position, federal judgeship, etc., because of what s/he looks like. But someone else, usually unknown to us, symmetrically fails to get a job, school position, federal judgeship, etc., because of what s/he looks like. Does that latter person benefit from the rule of law?

5. You have said, “I would hope that a wise Latina woman with the richness of her experiences would more often than not reach a better conclusion [as a judge] than a white male who hasn't lived that life." Does the experience of having your property seized by the state “more often than not” enable you to reach a better conclusion on eminent-domain cases? Does the experience of being a crime victim “more often than not” enable you to reach a better conclusion on Fourth and Fifth Amendment cases? Does being a criminal?

Who Was the Last Justice Who Had to Meet a Payroll?

2009-05-26T18:34:00.004-04:00

The new Supreme Court nominee, Sonia Sotomayor, has occasioned much commentary about the role of “diversity” and experience in Supreme Court appointments. President Obama himself indicated that he “[viewed] the quality of empathy, of understanding and identifying with people’s hopes and struggles as an essential ingredient for arriving at just decisions and outcomes.”

I confess I'm not sure I want decisions that are "just." I want decisions that are proper interpretations of the Constitution, given the plain text and/or what was contemplated when it was written. But I'll play along.

The definition of "empathy" in the Oxford English dictionary is surprisingly short and sweet: "The power of projecting one's personality into (and so fully comprehending) the object of contemplation." It is taken for granted that this quickly translates, as does a desire for "diversity," into considerations primarily of the nominee’s tribal profile -- her sex and ethnicity/race. But one could easily imagine other types of nominee distinctiveness that more readily lend themselves to better-informed decisions.

Lawyer/non-lawyer. as far as I know, every Supreme Court justice in the 20th century has been a lawyer, but it wasn't always so. It is true that that the job of a justice requires proper interpretation of statutes and the Constitution, and proper use of relevant common-law precedent. But this is something any sufficiently intelligent individual who has a profound interest in the law could do. A non-lawyer would bring much greater diversity of experience with the question of the role of litigation and lawyers on American society. Many lawyers, particularly those who have come of age in the last 50 years, take it for granted that litigation leads to social improvement. But perhaps it doesn't; perhaps a non-lawyer could appreciate that more than a lawyer could.

Schooling. According to their current official bibliographies (PDF) every current justice (and Sandra Day O'Connor) has a law degree either from an Ivy League school or their non-East Coast equivalents, Northwestern and Stanford. Most Americans don't attend universities like that. Do we want people from community colleges, no college at all, Georgia or Portland State on the Supreme Court as well? I suppose not. The college admissions process is at its highest level still, despite the diversicrat corruption of it, fairly meritocratic, legacies and athletes aside. The people who get into the best colleges tend to be the most accomplished and smartest people, so using this as a screening device doesn't bother me much. But the question is worth asking, if diversity of experience is as important as we are led to believe.

Beneficiary or recipient of government restrictions on commercial freedom. Perhaps the most important diversity deficit of all. Having searched the official biographies, I can find no evidence that any current Supreme Court justice has ever, in the face of constantly changing rules handed down by the courts and legislatures, had the responsibility of filling orders or meeting a payroll. This is an ignorance with consequences. Those who impose rules without ever having to face the consequences of them lack a profound sort of empathy, one far more important than the empathy allegedly generated by skin color, or being the recipient of government benefits. Have Supreme Court justices lost their homes or their businesses to ravenous governments and the rent-seeking that powers them, or seen a business go from profitable to not because of some preposterous regulation? At this point in our history I would much rather have someone who has been on the business end of an eminent-domain order or restriction on freedom of contract than someone who has been the victim of "discrimination," or relied on extracted taxpayer funds (i.e., on "the government") to open doors.

The fact that it's probably been decades since we have had a Supreme Court justice who ever owned his own business is astonishing; the complete lack of empathy for the business owner is not to be found in Congress or, historically, in the higher reaches of the executive branch. But business owners appear to be (I am happy to be corrected) unheard of in recent decades in the Supreme Court. (Justice Stevens, in conspicuous contrast, did anti-monopoly work for the government.) There appears to be no kind of "empathy" for those who have to risk their own wealth to try to create goods and services that consumers are willing to pay for.

But some kinds of diversity, evidently, are more important than others.

National Healthcare and the Battle of the Sexes

2009-05-22T14:02:00.004-04:00

Here is Canada's National Post newspaper on a classic central-planning problem, and associated social conflict, involving the Canadian health-care system:

The growing ranks of female physicians in Canada will slash medical productivity by the equivalent of at least 1,600 doctors within a decade, concludes a provocative new analysis of data indicating that female MDs work fewer hours on average than their male colleagues.

The paper comes just a year after a blue-chip list of medical educators publicly condemned what they called the scapegoating of women for Canada's severe doctor shortage.

The fundamental problem, as I have often noted, in public expectations about health care is that there is no such thing as "universal health care," if by that people assume that they can have any health care they want, anytime they want it. Health care is costly to produce. The resources needed to do so have alternative uses, and so health care must be rationed by some criteria or another.

A "doctor shortage" is unfortunately a term too imprecise to be helpful. According to the article, "The long surgical wait times and lack of family physicians that plague the Canadian health care system are largely blamed on the paucity of doctors.”

But what is the right number of doctors, the number of doctors that ends the "paucity"? The article attempts to answer this question by comparing the number of physicians in Canada to the number in other OECD countries, but Canada is not a copy of other countries. Like every other country, it is a collection of many different individuals. Its individual citizens have different opportunities, different health profiles, different lifestyles, different attitudes toward health. Information about how much each person needs health care is dispersed to each individual; no government agency can possess it all.

We may intelligently speak of an economic shortage, in the sense that, at the prevailing cost of doctors' services to the patient, more people want doctors’ services than there are doctors willing to provide them. (Even this definition is imprecise, but it is close enough.) Canada has this problem in that, according to the article, waiting times are extremely long for both surgery and for services by family physicians.

And somewhat remarkably, the rising presence of female doctors among all Canadian doctors is said to be responsible for this. Women are about a third of Canadian doctors now, but since they're a majority of medical-school students there, they will soon be a much greater share. And since, according to research, women doctors work on average fewer hours than male doctors (because of more claims on their time due to their child-care responsibilities), it only stands to reason that the presence of more female physicians in the workforce will lead to longer wait times. Right?

Alas, this group-based zero-sum thinking is inevitable when genetic groups -- the sexes, races, religions, etc. -- look to the state to referee their disputes. In fact, even if it is true that women on average have more competing claims on their time, so that they devote fewer hours in a week to medical care than male doctors do on average, there are many female doctors for whom this is not true, and many male doctors who also have a high opportunity cost of time. This is the classic example of a problem that a free market solves through its capability to make use of highly decentralized information -- in this case, each physician’s private knowledge about the opportunity cost of his or her own time.

If there are currently more claims on physicians' time than there is time available to be claimed, then the solution to that problem is to raise the compensation for physicians' time. But that is the sort of problem state health-care systems can seldom solve, because they are interested in getting the cost of the entire system down (assuming heroically that they are not interested merely in maximizing politicians’ political success functions by soliciting transfers from special interest groups). What the government should be interested in is encouraging physicians who have sufficient amounts of time, relative to the alternatives, to devote that time to patient care. By allowing the market to set the wage, all such physicians by definition do so. There is no "shortage," although health care is rationed by money instead of by time. But on the other hand, there is no aggregate conflict between male doctors and female doctors. No one blames female doctors are putting in too few hours. Instead, there are only individual doctors, either male or female (it makes no difference), each of whom decides how much time to devote to taking care of patients, and how much time to devote to child care, golfing, or whatever the next best alternate use of his or her time is.

The kind of thinking on display in the article is a result of the belief that good social outcomes only require that the government crunch the right equations. But the Canadian physician shortage is not a function of the aggregate sex composition of Canadian doctors (30 years ago this would have seemed obvious), but the result of the fact that, given what the government has decreed they be paid, too few people are willing to work.

California's Government Overload

2009-05-18T17:22:00.003-04:00

Here is LA Times columnist Gregory Rodriguez on "California's Democracy Overload":

Think of it this way: Much of the life of an average citizen is lived in the spirit of indifference, if not outright defiance, toward the political system. From time to time, we're all expected to cast a ballot, tune in to what's going on at city hall, the statehouse, Capitol Hill, and either express our grievances or throw our support to one cause or candidate or another. Our general indifference is interrupted by intense moments of engagement. But to ask voters to make too many decisions too much of the time tips the delicate balance between indifference and engagement, and that can lead to civic contempt…[I]t's time for the good-government types to stop bemoaning the state of California's direct democracy and its voters and start remembering that, for most of us, in politics as in so much else, less is more. We're going to continue living out our days not thinking intensely about the inner workings of government. So find a way to make our representatives do their jobs.

Aha... after centuries of experience with representative democracy in the US and UK, the solution is as easy, and somehow still undiscovered, as "making our representatives do their jobs." Mr. Rodriguez goes on to bemoan the fact that having to constantly monitor the government stresses Californians out, which means that California's government by direct referendum is increasingly not just a political but a mental-healthcatastrophe.

On that latter point I agree, but I suggest that Mr. Rodriguez does not draw the proper lessons. It is true that citizens are too busy, and sometimes intrinsically too poorly informed, to make sense of their government. The exception is telling in its own right -- those who pay the most attention to the workings of government are those who have the most to gain from it at the expense of their fellow citizens. (Sugar farmers pay a lot of attention to American sugar protectionism, sugar consumers almost none.)

Mr. Rodriguez supposes that we should simply leave it to our representatives to monitor the conduct of state affairs and to carry out the public interest. But the reason we have politics is that we disagree on what the public interest is, and the cost of democratic politics in particular is that self-interest masquerades as public interest. This suggests that the government that has metastasized beyond the ability of citizens to effectively monitor it is itself a problem -- that the solution does not lie in magically "finding a way to make a representatives do their jobs," but in confining government to those activities that citizens can effectively monitor.

The alternative, presumably, is that our elected representatives monitor and work with the permanent administrative class. But this solution assumes too much. It assumes away the problem that the permanent administrative class may have its own self-interest, and that this may be in conflict with the interests of the poorly informed citizenry, which is poorly informed primarily because time is scarce and information expensive. (A cynic might even suggest that one of the reasons laws are written in such impenetrable lawyerese is to make citizen monitoring difficult, much the way lawyers throw around so much Latin.) It assumes away the problem of collusion between representatives and administrators, so that the former may be re-elected and the latter may enhance their power to direct others’ lives.

If the citizens can no longer effectively monitor the state, that is not a problem of the citizens, nor is it a problem for clever political engineers to solve. It is a problem of the government simply doing too much for a society that hopes to remain free, and that has become a permanent, self-sustaining, even parasitical interest group of its own. If the citizens cannot have a good understanding of a government function, good enough to decide whether they are for or against it after an objective 30 seconds of presentation, the government shouldn't be doing it.

India's Election

2009-05-16T15:02:00.004-04:00

The BBC analyzes the Indian election outcome:

The latter predicted a neck-and-neck race between the Congress- and BJP-led coalitions. They said that the Third Front of regional and caste-based parties would play a pivotal role in forming the government.

The Communists even spoke about Congress being forced to support such a government.

Then there were the traditional woes of the ruling party - the three previous prime ministers had lost elections after one term.

But Congress bucked every trend and has emerged triumphant in a victory analyst Mahesh Rangarajan calls a "historic moment" in India's democracy.

The victory is emphatic and with the caste-based regional parties suffering setbacks in states like Bihar and Uttar Pradesh, India's political landscape suddenly does not look so deeply fractured.

Some years ago I published an article in which I predicted that sectarian (or in Indian language, "communal") concerns would more and more dominated Indian politics. Since I made it, it seemed to be becoming progressively more true with every election. But in a result that is fortunate for India's future, and for geopolitical stability generally, that trend appears to have stopped.

There are two things to applaud. The first is the decimation of India's vigorous communist movement. While it is generally confined only to a few parts of the country, in those parts it was routed. This means that the economic reforms that began in the early 1990s have borne enough fruit for Indians to justify continuing to support them. Given the stake the world has in mainstreaming 1.1 billion Indians into the global economy and the miracles it generates, this is something to applaud. That India is choosing to go this route while America and Europe turned more collectivist gives those of us in the latter nations some reason for hope. Only people who have really lived under socialism know its true cost.

In addition, India appears to be turning away, somewhat to my surprise, from fractious sectarianism. Both the Bharatiya Janata Party, which pitches itself to the high ends of the Indian jajmani ladder, and the Bahujan Samaj Party, which aims toward the socially weaker but democratically powerful castes, did worse than expected, perhaps due to the comical megalomania and corruption of and the serious charges of serious crimes against, their leader, Mayawati. The BJP has been a friend of economic reform, perhaps out of recognition that it is necessary to make India strong, but so too is the Congress party-led winning coalition. They insist on a lot that a purist would reject, such as extensive farm subsidies, but half a loaf is better than none.

That Indians have endorsed reform and individualism during these turbulent times is undoubtedly partly due to the fact that the Indian economy has not been racked as badly as others. But it is also a sign that delivering and adhering to true reform pays off, and generates political support and additional reform. Heading down the opposite road, on the other hand...

Life under Collectivism

2009-05-13T12:48:00.003-04:00

Dennis Prager has a column on how collectivism (or, in his word, “socialism”) destroys greatness, not of a people but of each person:

The state sucks out creativity and dynamism just as much as secularism does. Why do anything for yourself when the state will do it for you? Why take care of others when the state will do it for you? Why have ambition when the state is there to ensure that few or no individuals are rewarded more than others? America has been the center of energy and creativity in almost every area of life because it has remained far more religious than any other industrialized Western democracy and because it has rejected the welfare state social model.

This is a theme that has been bouncing around in recent years. In a speech I like, Charles Murray describes the attitude of Europeans raised in the welfare state thusly:

What’s happening? Call it the Europe syndrome. Last April I had occasion to speak in Zurich, where I made some of these same points. After the speech, a few of the twenty-something members of the audience approached and said plainly that the phrase “a life well-lived” did not have meaning for them. They were having a great time with their current sex partner and new BMW and the vacation home in Majorca, and saw no voids in their lives that needed filling.

It was fascinating to hear it said to my face, but not surprising. It conformed to both journalistic and scholarly accounts of a spreading European mentality. Let me emphasize “spreading.” I’m not talking about all Europeans, by any means. That mentality goes something like this: Human beings are a collection of chemicals that activate and, after a period of time, deactivate. The purpose of life is to while away the intervening time as pleasantly as possible.

If that’s the purpose of life, then work is not a vocation, but something that interferes with the higher good of leisure. If that’s the purpose of life, why have a child, when children are so much trouble—and, after all, what good are they, really? If that’s the purpose of life, why spend it worrying about neighbors? If that’s the purpose of life, what could possibly be the attraction of a religion that says otherwise?

The same self-absorption in whiling away life as pleasantly as possible explains why Europe has become a continent that no longer celebrates greatness. When life is a matter of whiling away the time, the concept of greatness is irritating and threatening. What explains Europe’s military impotence? I am surely simplifying, but this has to be part of it: If the purpose of life is to while away the time as pleasantly as possible, what can be worth dying for?

Collectivism is dispiriting for at least three reasons. First, life is in a collectivist society irretrievably zero-sum. The reason the poor don’t have enough is because the rich have too much. The reason Chrysler workers are in danger of losing their jobs is because bondholders are asking for too much. The European model, or the German labor model (with unions getting a seat on the board of directors in many large companies) or the stakeholder model (where a corporation is run through consensus among “stakeholders”) it's all about forcing people to consensus, even when agreement may not be the best solution from the point of view of society as a whole. (It is often from irreconcilable differences within the established order that the greatest ideas spring.)

Imagine collectivism as the government bringing all the groups it deems as worthy of having a say in how society, a publicly owned or publicly chartered firm, the health-care system, or whatnot should be run into a single closed room. The government wants consensus to be reached in an atmosphere of amicability, and so the room is nicely furnished -- it is in the White House, even. It is assumed that what will happen is that all of the groups will bring angry disagreements to the table, but sitting around a table will force them to resolve them.

But of course staying in the room isn't, and shouldn't be, the only option. It should be possible to leave the room and start your own business, or to stay out of it entirely -- to elect to have the government leave you alone in your choices of schooling, e.g. But collectivism says that the leader picks the guests, and whatever solution the guests come up with is binding on everyone. (This framework ignores the very real problems that seats at the table may be acquired through bribing the leader, or that the meeting in the room may be camouflage for the leader brutally imposing his own proposed solution on everyone, or even doing so in pursuit of his mere political success. But my example is collectivism taken on its own terms.)

And so collectivist societies are those in which the existing set of interest groups congeals, never to change. And all social disagreement is to be resolved through zero-sum conflict within the room, instead of through the dynamism made possible when free men are allowed to exit it, or to barge into it on the merit of their own achievements. Collectivism is the same old pressure groups doing less and less producing and more and more arguing, meaning that what your enemy is getting becomes the most important datum in evaluating social change. (Anyone who was ever worked in an environment with collective bargaining knows this to be true.)

Second, as Prager and Murray note, the collectivist society is one in which individual greatness no longer matters. Fairness in the distribution of the fruits of toil, and not the permanence and magnitude of those fruits, is the only interesting question. We do not dare to be great, because life is only about momentary pleasure and fairness. Why go to Mars, or take the risk on that revolution in human transportation, or on a potential cure for cancer, when our six weeks of vacation are coming up, or when we’re 55 and it's time to put that dreary job behind us? Perhaps the most important effect of the spread of globalization to the vast seas of humanity in India and China is the inculcation of the belief that individual achievement and greatness matter, that individual glory is to be had in solving human problems. These concerns will be nowhere to be found in our collectivist conference room.

Third, collectivist life is simply less interesting. The economist Edmund Phelps had a piece a few years back in the Wall Street Journal, which included these remarks:

I would, however, stress a benefit of dynamism that I believe to be far more important. Instituting a high level of dynamism, so that the economy is fired by the new ideas of entrepreneurs, serves to transform the workplace--in the firms developing an innovation and also in the firms dealing with the innovations. The challenges that arise in developing a new idea and in gaining its acceptance in the marketplace provide the workforce with high levels of mental stimulation, problem-solving, employee-engagement and, thus, personal growth.

If the meeting in the conference room is being chaired by the president of France, and the people in it are all the CEOs of France's leading national champions, that is not a meeting I want to be in. More particularly, those are not companies I want to work for. The collectivist expresses grand enthusiasm about solving problems, but the problems he is interested in solving are so small in the grand scheme of things -- extending 2009-quality health care to more people, managing the status quo of slow decline, saving today's jobs for a few of today's workers. Work that is truly worthy of human ingenuity -- figuring out why the existing way of doing things is so unsatisfactory, trying to persuade people that your solution is the best one in a manner that forces you to really have a stake in the outcome, creating new technologies and trying to find out if they are worth to society what you think they are, these are problems that people in dynamic societies have to solve all the time, often by quitting their current employment and boldly embarking on their own. Collectivism saps that spirit, which has consequences not just for individual greatness but for human happiness as well. Perhaps large numbers of people agitating for more time away from work, even as they simultaneously agitate for complete protection from dismissal from it, is the sign that the decline of collectivism has permanently taken hold. That moment appears to have long since arrived in Europe, and is now knocking at the door here.

When Lawyers Make Cars

2009-05-12T10:08:00.004-04:00

The Wall Street Journal (subscription required) has an article describing how secured creditors in the Chrysler bankruptcy gave up their place at the head of the line for claims on Chrysler assets. At one point, an anonymous Obama flunky (the remark appears to have Rahm Emanuel all over it) notes:

"You don't need banks and bondholders to make cars," said one administration official.

Hundreds of car companies, based in dozens of countries and dozens of cultures, some of them the world's largest and most successful companies, somehow have in over a century of making and selling cars all managed not to figure this out. But our lawyer president, our lawyer vice president, our lawyer presidential chief of staff, and the other highly credentialed fellows not willing to speak on the record have finally got it all figured out. Thank goodness.

Swine Flu

2009-05-01T15:57:00.002-04:00

Is the swine flu already making us nuts? Consider the following, from Reuters:

:BOSTON — A flight from Munich, Germany to Washington has been diverted to Boston because a passenger complained of "flu-like symptoms."

Airport spokesman Phil Orlandella said United flight 903 was being diverted to Boston early Friday afternoon after a 53-year-old female passenger told flight attendants about her symptoms.

He said the flight had 245 passengers and 6 crew members. The flight had been scheduled to land at Washington Dulles International Airport later Friday.

It is not clear to me why, even if it were true that a swine-flu patient were on board the plane, it would be better to send it to Boston instead of Washington. But the larger question is whether swine flu is the sort of event that merits this kind of hysteria. Mark Steyn has also bought into it:

Well, you know, we’re, historically speaking, we’re overdue for one of these killer flues, not necessarily something on the scale of 1918, but certainly a big, global pandemic. And of course, what’s changed since 1918 is we’re now in the era of mass transportation, where people go from one end of the world to another. If you remember the SARS, the little SARS epidemic thing from five years ago, five or six years ago, that basically leapt across the planet very fast, from rural China, somebody went up and stayed in a fancy hotel in Hong Kong, infected everybody, I think, in the elevator and the bathroom, public bathrooms of that hotel, and they all then flew on, brought it to Toronto and killed a big, whole mass of people in Toronto. So I think if this thing does get around that fast, then we are looking at potentially something very serious.

The world, or at least that part of it excessively influenced by the media, appears to be in the grip of what we might call the mania of the epidemiologists. Epidemiologists study models of disease spread, and like many scientific models they are useful to point. But like all scientific models, at some point they cease to be useful. We appear to be rapidly reaching that point. Several years ago I wrote a post on the implications of globalization for the spread of new diseases. I argued that the rapidity with which a disease spreads, relative to our historical examples, is a function of forces promoting acceleration and forces promoting deceleration. Among the forces of acceleration are the intrinsic infectiousness of the new agent and the ease with which people can travel from one place to another. The former is essentially unpredictable (although perhaps it becomes more prominent than before due to changes in human society that make the generation of new lethal viruses easier, e.g. through the close proximity of humans and large factory farms). The latter, clearly, has become more powerful in recent years as transportation has become easier.

This is what promotes the doomsdayism of the Steyn sort. But there is more to it than that. The two deadly epidemics that "everyone" knows something about are the Spanish flu epidemic of 1918-1920 and the European Black Death. If acceleration is all you pay attention to, then enhanced propensity to spread, combined with unavoidable periodic generation of new lethal agents, equals disaster.

But the forces of deceleration are far more powerful than they were even 30 years ago. The world has a vast network of (dastardly) drug companies capable of ramping up production of new medicines, provided only that they are paid enough to cover the cost. There is now a vast medical-research apparatus that spans the globe -- in America, in Europe, and Japan, and increasingly elsewhere in East Asia. Our abilities to unravel the mysteries of any particular agent, and then to take advantage of the immense power of a decentralized global economy to distribute remedies, themselves generated much more rapidly than before by the global knowledge system, make addressing outbreaks far easier than before.

Monitoring too is far easier than before. Identifying the virus, figuring out who has it, and figuring out how it is likely to spread are made easier by the same medical-research infrastructure referred to above. But most critical of all is the fact that we are simply much wealthier now than we were in 1918, or in the Middle Ages. And wealth has both accidentally and intentionally inserted into society many breakwaters that slow the spread of the disease. Consider the typical airport public restroom. It is frequently operated on an entirely hands-free basis. Instead of having to push a door open, you walk in through an open gateway, make a turn to ensure the bathroom’s privacy, and then once inside find a bathroom where the toilets, the sinks, the soap dispensers, and the paper-towel dispenser do not require you to touch anything. No one had swine flu in mind when they designed this, but it will have the effect of slowing its spread just the same. Masks are much more available and very affordable, even if they are not 100% effective. Suburbs lower population density, meaning that one infected person is likely to get fewer people sick than he would have 100 years ago in an urban slum.

Dangerous new diseases will undoubtedly spring up from time to time. But epidemiological models, or at least the public perception of them, are badly amiss. There is no reason to shut down global travel because of some oversimplified model that says merely that one person is a vector that invariably infects n other people. Greater wealth means that all sorts of things that used to pose mortal threats to civilization don't anymore. Earthquakes do us less damage than when we were poor. So do pirates, telegenic though their barbarisms be. And so does the swine flu.

"That All Groups Are Created Equal..."

2009-04-24T13:14:00.002-04:00

If you are both old enough to remember the 1970s and a glass-half-full sort of person, you'll recall former California governor, and current California attorney general, Jerry Brown as an out-of-the-ordinary politician who is not afraid to follow his own muse. Here is the office of Atty. Gen. Brown on why Proposition 209, passed several years ago in California to outlaw discrimination (and in particular, affirmative-action) by the government of that state for any reason, violates the Golden State's constitution:

“Ironically, by effectively disadvantaging racial minorities and women in the political process, without an evident compelling governmental reason for doing so, [Proposition 209] seems to accomplish the very evil it purported to eliminate … racial and gender discrimination.” (Source)

It is, to be charitable, disappointing that a man who has reached the position of chief law-enforcement officer for the state of California has promulgated these views in public without embarrassment. Not just tradition but the full body of law in this country speaks only in terms of individuals. The landmark case on affirmative action in the United States, Bakke Versus Regents of the University Of California , explicitly rejected the idea that a state institution could discriminate to make up for generalized past discrimination against particular groups. Martin Luther King, Jr. marched on behalf of, and the landmark civil-rights legislation of the 1960s spoke in terms of, rights of individuals to be free from discrimination in housing and employment. (Such a policy raises issues of discrimination of a different sort, in that employees and tenants have greater rights than employers and landlords in the arena of commerce, but that is a post for another day.)

In the United States of America, in other words, groups have no rights. (Even if they did, it is hard to think of a less than infinitely elastic definition of a right to equality in the "political process.") It therefore makes no sense to talk about the rights of "women" to engage in political activism. An individual woman cannot be stripped of her right to vote, or to hold public office, merely because she is a woman. But "women" collectively have no "rights" in American law and philosophy relative to those of any other group. Spengler, as usual, puts it provocatively:

Abraham Lincoln, the next best thing to an American prophet, called his countrymen "this almost chosen people". Most Americans still would agree with him. Americans may not love their country more than other peoples, but they love it in a different way. This love is visible at any small-town celebration of Independence Day, in the tearful eyes of older people. They have not forgotten the humiliations that drove their antecedents out of their countries of origin European states always have been the instruments of an elite; Americans believe their government, is there to defend them against the predation of the powerful.

For all its flaws and fecklessness, America remains in the eyes of its people an attempt to order a nation according to divine law rather than human custom, such that all who wish to live under divine law may abandon their ethnicity and make themselves Americans. The rights of Americans are held to be inalienable precisely because they are a grant from God, not the consensus of the sociologists or the shifting custom of a particular historical period. Ridiculous as this appears to the secular world, it is embraced by Americans as fervently as it was during the Founding. Even worse for the secularists, it has raised a following in the hundreds of millions in the Global South among people who also would rather be ruled by the divine law that holds their dignity to be sacred, than by the inherited tyranny of traditional society.

This emphasis on the individual instead of the tribe is not just an idle philosophical difference. It is precisely because America is the ultimate individualistic nation that people from so many places, in so many cultures, have been able to come here and fit in relatively seamlessly. They possess the same rights to transact, to make contracts, to self-defense, and (very secondarily) to vote, as do any other individuals, regardless of race, religious affiliation, etc. (It has of course not always been thus, but it is our special genius that such injustices could be remedied by making an appeal to the inherent dignity of all individuals, not to the equal rights of all groups.)

America works only to the extent that people can be confident that their individual rights will be respected, in exactly the same measure as those of every other individual citizen. Once they are incentivized by the law and persuaded by the culture to think of themselves as members of groups first and individuals free to pursue their self-interest as they see fit last, the game is up. We become just another tribal society. I don't necessarily expect Jerry Brown, nor the vast tribal-grievance industry, to understand that, but I do expect them not to reinvent the law.

The People's Banking System

2009-04-21T09:37:00.003-04:00

Larry Kudlow is arguing that the Obama administration is now seeking to gain actual control of banks, or at least a substantial voting role:

White House and Treasury officials are now talking about turning government TARP loans into common stock for the 19 biggest banks. It’s clearly a backdoor path to nationalization, as Uncle Sam would be the largest shareholder in these institutions. What’s more, it’s not at all clear that the administration will even let certain banks pay down their TARP loans.

Some of us have been saying that for a while.

The New Chaos

2009-04-18T12:10:00.004-04:00

Major depressions used to be common in the United States. We had them in 1837, 1857-8, 1873-8, 1897, and, most famously, 1929-1939. (As an aside, until 1929, the general attitude was to do nothing. It was not taken for granted that the president had a magic button in his office that he could push to end any economic problems that came along. Somehow, the economy always righted itself, and we continued to move forward.) But with one exception, we until recently had gone almost 70 years without one. The exception, the economic dysfunction of the late 1970s and early 1980s, was idiosyncratic because it was in a sense intentional, the result of having to wage extraordinarily contractionary monetary policy to fight the inflation caused by the misbegotten expansionary monetary policy during the oil-shock period.

But in 1994 on these events have been commonplace around the world. India in 1991, Mexico in 1994, East Asia in 1997, Brazil and Russia in 1998, Turkey in 2000, Argentina in 2001, the Arab Gulf states in 2006. And now, most of the planet.

It seems to me that the fact to be explained is not just why we are having this crash, but why we went so long without one, particularly in the advanced economies of the West. Financial crashes, I think, are usually the follow-up to financial bubbles. And those bubbles occur when major positive disruption to production possibilities brings overall opportunity, but great ignorance about how the opportunity is best to be exploited. The frequent depressions in the US through 1929 were caused by an economy dramatically remaking itself from predominantly agrarian to predominately industrial, the replacement of small farms with large factories. This was a revolutionary process that was not well understood at the time, so mistakes were frequent. When the mistakes reached critical mass, they had to be cleared out, and that was the function of the crashes.

In this view, the disappearance of major bubbles and crashes after 1929 was not due to government learning how to manage the business cycle better but to the much slower pace of economic transformation. Western economies matured, and so chances for speculative bubbles to build up essentially disappeared.

So what would explain the chaos of recent years? We are once again in a time of truly radical transformation. Part of it is technological -- the mainstreaming of the Internet in the late 1990s led to a huge number of highly speculative commercial ventures, all of which are plausible at the time but with the passage of time and the learning of knowledge about what consumers want proving that some of them were mistaken. This, I think, is the explanation for the Internet bubble during that period.

But the truly big story is the emergence of literally billions of people into the global economic system. They bring with them their energy, their dreams, and their ideas. Clearly, in the aggregate, the removal of these people in places like India, China, and Brazil from the imposed stagnation of state-dominated economies is a tremendous step forward for humanity. But how will the merging of all these people into the modern world change our possibilities? This has yet to be decided, and entrepreneurs have to decide it one gamble at a time. Even the current financial crisis is in part due to the introduction of new financial instruments, which are not currently well-understood. This is not unprecedented. The introduction of common stock led to the South Sea bubble, the introduction by John Law of paper currency into France did much the same there, and even the famous Dutch tulip bubble was driven in part by the introduction of tradeable futures contracts. All of these tools are still in use centuries later, and so too will be securitized mortgages, credit default swaps, and the other financial exotica that are blamed for the current mess. Being novel, they were often used irresponsibly, but it takes a while to learn the limits of any new invention.

More broadly, this introduction of people, the generators of ideas that change what is possible, into the global system is the phenomenon; the technological changes are only the epiphenomenon. And the scale of this great merging has brought with it a new instability -- the end of the artificial stability caused by the relative stasis in the number of people participating in the global system owing to the popularity of socialism. For centuries most of the heavy lifting with respect to advancing the human condition has been done by a relatively small number of countries -- the UK first, then continental Europe, the US, Canada and Australia, then Japan and the other early East Asian Tigers. Now, huge numbers of people in countries all over the world are getting into the game, and they will bring disruption with them. This will bring tremendous benefits, but it will be a bumpy ride. The current financial turmoil will not be the last.

The Boomers in the Academy

2009-04-18T11:48:00.001-04:00

Sorry the posting has been so light, but I have been unusually busy this term. Posting will continue to be light for awhile.

The Chronicle of Higher Education has an article about job satisfaction among college professors. A primary finding is that professors from the baby-boom generation are less satisfied than both their younger colleagues and their elders:

In examining differences between the generations in their responses, the researchers found that Traditionalists and Xers were about equally satisfied with their jobs over all. But, for reasons the researchers could not explain, Baby Boomers stood out as discontented.

Moreover, the Baby Boomers seemed more preoccupied with money than younger faculty members were—the more satisfied Boomers were with their salaries, the more likely they were to express overall job satisfaction. Their being happy with their workload generally portended lower levels of overall job satisfaction.

The age of the faculty members that Baby Boomers worked alongside also appeared to have an influence on their job satisfaction. The happiest Boomers were those who worked in disciplines with the highest proportions of Generation X faculty members, and the unhappiest were those who worked in the disciplines with the highest proportions of Traditionalists. The researchers speculate that many Boomers who work around large numbers of Xers may feel energized by the company of junior faculty members, while many who work around large numbers of Traditionalist faculty members may feel they carry the load for people whose seniority gives them more control over their own work responsibilities.

Maybe. But it could be that baby-boom faculty members tended to come, first, from a generation that was unusually self-preoccupied. There was no history before them, and all that comes from now on is the fruit of their singularity. When they find that the University has other concerns beyond theirs, they become "discontented."

In addition, many baby-boom faculty members may have become professors precisely to wage revolution from within the academy walls, the ethical consequences be damned. (Ward Churchill is the iconic case.) Such faculty members would be made unhappy by their seniors precisely because they seem immune to the charms of the revolution, and because they are the enemy the boomers have long sought to disgorge. Younger faculty, in contrast, can still be wooed, and also provide baby boomers with the illusion that they themselves still have some relevance to the young.

I like this hypothesis, because I have now been in the academy long enough to see the crippling damage caused by the nihilism of the 1960s -- the infatuation with relativism, the distaste for the pursuit of excellence traditionally defined, the manifest ignorance of how these University came to be in the first place, and what it will take to keep them what they have been. But it seems not to have occurred to the authors of the study.

Leave Your Lights On, If You Need To

2009-03-28T12:41:00.005-04:00

My 10-year-old son informed us at dinner last night that at 8:30 tonight we might think about turning out our lights for an hour, because it will be Earth Hour. When I asked him why, he said because it is a chance to pollute less and therefore help to save the earth. (I am writing this post using dictation software, and when I originally said "the earth," the program suggested "the Earth." But I corrected the software, because capitalization is reserved for the divine, and the earth is ultimately merely inanimate rock, albeit rock whose importance derives from its usefulness for human ends.)

I suspect I was not the only parent put in that situation. And so I explained to him that the electric light bulb is the culmination of thousands of years of effort by human civilization. Until it was invented, we were prisoners first of the natural ebb and flow of daylight and then of whatever we could conjure up with primitive fuel-based lamps. Because civilization, in its American variant, had progressed to the point at which individuals were free to explore new scientific and engineering ideas, and to try them out and see whether they had any value to other people, a fellow named Edison was able to liberate us in this way. Night baseball, emergency surgery in the middle of the night, the broadcast of the national concert on the Mall the evening of every July 4 that we enjoy together, all of it is made possible by civilization, and this little invention itself allows civilization to proceed faster in newer and more interesting directions.

And so it is with all the sacrifices we are asked to make in the name of combating global warming, or if you prefer, in order to appease global-warming hysteria. Throughout civilization's long road, man has turned the earth to his purposes. Even the mighty Amazon "rain forest," now the object of quasi-religious veneration as some sacred preserve of pre-industrial virginal purity, is now thought by many cutting-edge archaeologists to be a creation of prior centuries of agricultural innovation by the local humans, who were simply doing what humans are prone to do.

That is the proper way to think about the relation between humans and the earth. I agree that we have some duty to leave parts of it -- Yellowstone, clean rivers, and so on -- to future generations. But we also have a duty to those future generations, and to ourselves, to push human limits, even if we have to use natural resources to do so. We have left always left the earth differently than we found it, but have emerged better as a species for it.

I told my son that it was a long and hard road to get to this point, where we could have the luxury of a civilized conversation in the midst of plenty and liberty about the necessity of doing without electric light for an hour. It is the function of civilization to free us from the constraints of nature. Nature is not a thing to be worshiped, it is a thing to be tamed. This is an argument that is currently swimming against the tides of the culture, but I hope it sticks with him.

Whom Should We Be Angry At?

2009-03-19T11:40:00.004-04:00

Baron Bodissey at at Gates of Vienna has an unconventional interpretation of the manufactured outrage over AIG-exec bonuses. Leave aside that, cosmically speaking, this is a matter of no consequence, the state of the financial system, how it got this way, and what we should do about it being the questions a legislative assembly worthy of our respect would be spending the most time on.

The Baron's point is that the AIG executives more than earned those bonuses, because they were able to bring in over $173 billion in revenue to the firm. How? Why by shaking the Washington money tree, of course.

To paraphrase the great sage Obi-Wan Kenobi, who's more foolish? The fool who stole the money, or the fool who gladly gave it to him?

Is Happiness a Political Question?

2009-03-12T13:00:00.002-04:00

Mary O’Hara ,in the Guardian plugs a study by the World Health Organization and the Mental Health Foundation of Britain summarizing some research that suggests that income inequality makes people unhappy:

So-called happiness league tables frequently show that people who live in countries without gaping income inequalities between rich and poor - Sweden tends to be at the top of such surveys, with the UK hovering towards the bottom - are generally more content, but [study author Lynne] Friedli is keen to point out that the WHO research goes "much deeper" than many of the surveys that make the news.

(H/T Mark Steyn.)

It is worth noting initially that the assertion that inequality is a strong predictor of gross national unhappiness is incorrect, despite the frequency with which it is claimed by a lazy press. In Gross National Happiness Arthur Brooks find first that the inequality findings are not robust to different wording on survey questions. And the non-pecuniary things – marriage, community engagement, family – turn out to be better predictors of happiness than lucre. Perhaps most importantly, he summarizes the research and finds that, at least in the U.S., belief in equality of opportunity, not of outcome, is the key factor. People do not begrudge Bill Gates his billions, as long as they believe they have a chance to go as far as their talents will take them.

One unappreciated implication of this is that if everyone believes he is special, say because his schools, parents and society have remorselessly cultivated his self-esteem throughout his childhood, then everyone who doesn’t make it to the top attributes it to some kind of cosmic unfairness - to a lack of "social justice." The society that prizes self-esteem yet allows people the freedom to reward, or not, their trading partners according to their perceived value, cannot long stand. Inequality of result will lead to envy, envy will lead to redistribution, and redistribution to destruction of opportunity.

But a deeper question is, “So what?” Even if it were true that a massive exercise in redistributive taxation could make people happier, it does not follow that this creates any mandate for such a scheme. To see why, imagine that tomorrow a scientist concocted a compound that, when injected into newborns, would insure that they would be happy from the moment they awake until the moment they sleep, every day of their life – a vaccine against unhappiness. Should the government require that parents give such an injection to their children? Almost everyone would say no.

Why? Because there is more to life than happiness. The well-lived life does not just reside in the economist’s useful but limited concept of “utility” – a certain consumption pattern leading to a certain amount of happiness. Happiness comes not just in where you end up, but in what you had to do to get there. The society where people are handed things they have not earned is one where we cease to be human, because it is in the attempt, including the failed attempt, that we find out what we can and can’t do, so that when we can’t do it we are in a position to emerge better by learning how to do it better next time. It is in the trying as much as the doing.

By the same token, humans who were happy all the time would cease to be human. Our hypothetical immunologically lobotomized citizens would be a shell of their forebears, with no adversity to spur them to find that unknown reservoir within themselves, to do something greater. They would possess no desire to learn, to improve, to create. (This is why high-school students historically found "Brave New World" so disturbing.)

The hypothetical happiness shot is repugnant to our sensibilities for the same reason high taxes in the name of happiness are – they view happiness as an outcome to be managed by planners, not a thing to be achieved, or not, by imperfect individuals making their way in an imperfect world. Government-dispensed happiness would be a thing given to us on our knees by our betters, a thing in which we could feel no sense of pride.

There is a reason the U.S. is a land where the pursuit of happiness, rather than its achievement, is the founding credo. The new happiness research, all the more so in the hands of a press that cynically manipulates it, is a threat to something more profound than human happiness, and that is human dignity.

What Politics Has Done to Us

2009-03-06T14:40:00.003-05:00

Thomas Ricks, a Washington Post military correspondent and author of two books (Fiasco and the brand-new The Gamble) on the invasion of Iraq, recently told of a lecture he gave near Mills Valley, CA, which generally votes quite progressive.

At one point, he argued that despite the disastrous nature of the decision to invade, American troops should stay because it is the least bad outcome. In particular, it might (no guarantees) prevent genocide. At this point people in the crowd began shouting things like “So what?” and “Genocide happens all the time.”

Now, I do not suppose that the people near Mill Valley support, or are even indifferent to, genocide. They do not hate Iraqis or Arabs generally; indeed, they undoubtedly style themselves the opposite sorts of people. It would not surprise me at all if some of the people in the audience had been active in the campaign to save the innocent in Darfur, or (if they are old enough) East Timor. Clearly, there is something going on several psychological layers under the surface, and that something is, I suspect, a feverish wish to avoid George Bush’s war succeeding.

So what can account for this? Politics is always about ambitious people seeking to set the population against one another, and we seem to be reaching a point (perhaps it has been building for a long time) where the defeat of our domestic political enemies is more important than our common success. In my own moments of weakness, I occasionally briefly find myself wanting the Dow to sink faster so as to turn the American people against the breakneck collectivization of their society. I also perhaps worry subconsciously that they will turn out to have been right, a natural but unattractive human quality in a democratic society.

The disagreement doesn’t even seem to be over issues, the way it was during the struggle to abolish slavery. It seems to be a form of cultural tribalism, the more traditional form now harder to sell in America (itself a vindication of the country). Not just the large issues such as war and peace and statism vs. freedom, but even historically small-bore issues such as gay marriage or school vouchers become apocalyptic struggles.

In a way, this is a luxury that a wealthy, stable country can afford. But for how long? Those who can afford to more and more live in neighborhoods with others with similar political views. The late movie critic Pauline Kael once famously noted that she couldn’t understand how Richard Nixon won the 1972 election because almost no one she knew voted for him. That kind of self-segregation is hardly unique to Manhattan, and is probably getting worse. As students of ethnic conflict have long known, those you don’t know well are easy to demonize, to relegate to the subhuman. Because we travel in different circles, we not only hate their policies, we hate them.

I make a point of not choosing my friends on the basis of politics. (Given that I work in academia and live in a lefty college town, otherwise I might have no friends at all.) But I wonder how common that belief is. I do suspect that the funneling of ever more disagreements into an ever-more expansive state will make this process worse, will erode the sense of common destiny that once undergirded our political differences, and will thus make the American experiment in self-government ever-more fragile. The inculcation in Americans that politics is the answer to solving their problems (go here for an example that is, because it takes advantage of young people, particularly reprehensible) is, paradoxically, making it ever-less capable of doing so.

Ignorant About All The Wrong Things

2009-03-04T09:30:00.002-05:00

President Obama said something revealing the other day:

On the other hand, what you're now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it. I think that consumer confidence -- as they see the American Recovery and Reinvestment Act taking root, businesses are starting to see opportunities for investment and potential hiring, we are going to start creating jobs again.

"Profit and earning ratios" is not a term that comes up much among financially literate people. (Google it, and you find that President Obama's statement is the only thing that comes up.) Profits are earnings, and so that ratio would always be one. Or perhaps he meant profit ratios and earnings ratios, but in that case the two would always be identical, so he is being redundant.

He was probably trying but failing to repeat something he once heard someone say on CNBC or something, which is "price to earnings ratio," the price of a stock divided by its profits. This is a financially meaningful term, and people in the know often say that the historical range for it is between 17 and 20; anything above 20 is a priori overpriced, anything below 17 is presumably a good buy.

Who cares? When George W. Bush was running for president in 2000, a reporter tripped him up by asking him the name of the president of Pakistan, which he did not know. Now, this was clearly an egocentric exercise by the reporter, but it was fair game. Mr. Bush was bidding to lead the most powerful nation in the world, and that he be aware of the names, let alone the philosophies and personalities, of the leaders of the rest of them was not an unfair thing for the American people to expect.

So people could in fairness increase their personal probability that Mr. Bush was a man who didn't know much about the world. We are now in a position to increase the probability that the 47-year old community organizer we elected as president, a man who has never run anything other than presidential campaign and legislative staff organizations, who has never created a single private-sector job, is clueless about how the economy operates. He is, one might suppose, the sort of person who thinks that big declines in the stock market on his watch have no useful information to impart to him, and that wealth is a thing that magically falls from the sky for politicians to cut up and distribute to the grateful masses.

President Obama is a highly intelligent man; you don't get into and excel at Harvard Law if you're the village idiot. But being smart is no guarantee of anything. (See Theodore Dalrymple's recent piece, among many others, for the reasons why.) Being smart is not the same thing as being wise, and our new president appears to have no wisdom at all about finance, economics, and incentives. Right now, that is an underwhelming endorsement at best.

How to Get Out of This Mess Cheaply

2009-02-28T10:49:00.003-05:00

Recently I have taken to telling friends that the most efficient way to get us out of the economic mess would be to spend several million dollars and use it to send all of the high government officials - in the White House, the Fed, the Congress, the Treasury, wherever they are lurking - on vacation for 18 months in some tropical paradise. There they could try doing something radical - namely, nothing - for a little while, and in the mean time buyers and sellers could sort out the mess, liquidating some businesses and rewarding others. Recognizing that these folks are used to living high off the taxpayer hog, we wouldn't want to stint on accommodation, food, etc. But really, it couldn't cost much more than $50 million, and it would be well worth that just to avoid all the sanctimony and ignorance to which we are about to be subjected, let alone all the horribly expensive mistakes now in the proces of being made.

But it turns out Iowahawk imagines an even cheaper option.

The 36% Solution

2009-02-27T10:08:00.001-05:00

The government of the U.S. is now, merely a few months after assuring us that it had no such interest, about to become a major voting shareholder in Citibank. But it will not become a majority owner, converting its stake only to 36%. A lot of the financial-press attention has focused on the impact on the existing shareholders. Why did the government settle for less? The conventional wisdom, as the hourly radio news assures me as I am writing this, is that it is a sign that “the government hasn’t given up on Citi.”

I wonder. If you wanted to have control over Citi assets, and wanted to use them for controversial purposes, what would you do? You wouldn’t simply grab control, which would bring to mind the dreaded socialist phrase “nationalization.” But you would obtain enough control to have de facto veto power over major decisions. You could then use that power to increase diversity, cut the executives’ pay, increase the accountability to the “stakeholders,” and all that other stuff that will get you re-elected but end the bank’s effectiveness in performing its core historical tasks. Citi shareholders and managers have no credibility in objecting; they elected to dance with the devil, and now the devil is calling the tune.

But seeing it that way would be too cynical.

Should the U.S. Be Making Cars in 2525?

2009-02-14T16:13:00.001-05:00

The U.S. is about to name a "car czar," someone to supervise automotive restructuring as a condition of accepting government loans. The automakers are supposed to submit plans next week to satisfy congressional overseers. Barney Frank, Nancy Pelosi, etc., in other words, are to preside over the reorganization of major American businesses. It is too easy to point out that these are the same people who gave use the housing mess. (Mark Steyn once mocked 1970s Britain as a place where "the government made your car." It is not so funny now.)

So instead, here is a good starting question. Should the U.S. still be making cars in the tear of Zager & Evans, 2525?

If your answer is "No," how do you answer if I replace "in 2525" with "next year," "in 5 years," "in 20 years," "in 50 years" or some other value? The only honest answer to every question is "I don't know," with the probability at some level close to one if we substitute "next week," and declining toward zero beyond that.

This means that there is some year that the U.S. should stop making cars, and that no one knows what it is. And so to decide this question we have a procedure. If companies can produce cars in the U.S. and sell them at prices that exceed the opportunity cost of the resources needed to make them, the answer is "keep going," and otherwise the the answer is "stop." This procedure is generally known as "the market."

It is possible of course to substitute an alternative procedure, in which elected representatives vote, in response to political pressure exerted by various factions, via votes, campaign donations, blackmail, or whatever tools they choose to employ, on providing money extracted from taxpayers either now or later (the latter, of course, don't vote) to car companies until, one day, they stop providing it. Note that it is no answer to say that the companies, like Chrysler in the 1980s, will use the money to become profitable once again. Ultimately, one day, the time at which Americans ought to no longer make cars will come.

Which procedure produces better results? Which procedure has us ceasing to make cars at closest to the right time? We trust the market procedure to answer when the question is, "When should a hair salon close?", "When should Americans stop manufacturing horse-drawn carriages?", etc. What is the difference here? Scale, surely. The automotive industry employs huge numbers of people. But why does scale make any different with respect to the ultimate question - should American resources be tied up in this end, or reallocated somewhere else? No one knows the answer to this question, but there is substantial reason to think the market process will do a better job than the political process. Indeed, the result generated by the political process, so far, is that American companies will be asked to preserve existing collective-bargaining agreements as much as possible, despite their immense cost. They will be expected to meet very expensive emission requirements. And they will be expected to sell the results at a price American consumers will pay. This approach does not inspire confidence.

Alas, the politicians get to write the laws, and the workers, consumers, bondholders, shareholders and the competitors to U.S. car companies, whether they make cars or not, must merely obey them. And therein lies all the difference. Not in what should happen, but in what will happen.

The Road to Economic Hell

2009-02-10T11:52:00.004-05:00

Our new Secretary of the Treasury, this morning:

"It is essential for every American to understand that the battle for economic recovery must be fought on two fronts," Geithner said in a speech in Treasury's ornate Cash Room where he unveiled the administration's new plan.

"We have to both jump-start job creation and private investment and we must get credit flowing again to businesses and families," he said.

I'll forgive him his "battle" metaphor, even though the rhetoric of war has been used in every catastrophic expansion of collectivism and the state in the last 100 years. I am more immediately struck by the use of the phrases "jump start" and (albeit as a clumsy mixed metaphor) "flowing again."

"Jump start" is what we do to dead car batteries. Someone unfamiliar with how a car works might view the turning of a non-functioning car into a functioning one merely through the application of those yellow cables as some sort of otherworldly miracle. The application of electric charges makes the car every bit as good as it was the night before, before we forgetfully left the lights on.

Alas, the economy is not a dead battery, nor indeed a single entity of any kind. To be sure, people are pessimistic, and for good reason, but the problem is not one of restoring their psychological health. The problem is not with "the economy." The problem is with a billion individual bad economic decisions, each of which must be resolved by buyers and sellers in its own way. Investors, as I have noted before, have to map out the financial landscape to find out where the problems are, and how deep they are, in an environment in which the Congress and President of the United States are just firing off every gun in the arsenal wildly, no matter the consequences in higher taxes for future Americans, in hopes that some bullet hits the target. Financial uncertainty plus vastly increased political uncertainty is not what one wants for an investment environment.

Our economic troubles boil down to a lot of resource-misallocation mistakes that have accumulated over time. The politicization of the housing and financial markets, a tremendous globalization-driven boom that created huge amounts of wealth but also allowed a lot of in-hindsight fiascos to accumulate, and the postponement of the day of reckoning through a futile Fed-led 24/7 running of the printing presses in the last few years has created an aggregate mess. But while the mess is macro, the solution is micro. The mistakes have to be weeded out. Once upon a time, in the era of great social transformation brought about by industrialization, booms and depressions were common. The government didn't imagine that it could do anything about them, and they were usually (although not always) short affairs.

But it is clearer every day that our politicians see themselves as messiahs. They are convinced, despite the utter lack of any historical evidence, not just that they but that only they can solve the problem. Thus, expect a lot of random political noise - bail out this but not that, no wait, spend another $500 billion, no wait, nationalize the banks, no wait, buy American - to make things a lot more uncertain, and therefore a lot worse.

When The Savior Fails to Show

2009-01-28T02:14:00.002-05:00

"Obama's election was the one event this year that gave me hope for the future!"

- Anonymous correspondent, quoted by James Delingpole in The Spectator.

Anne Applebaum of The Washington Post has an interesting point of departure:

The rejoicing was not entirely unanimous, of course, not least because the frothy media coverage itself provoked some backlash. One British friend told me that while he'd enjoyed watching the inauguration, "this salvationist acclaim for a political redeemer worries me, since it shows the depth of the almost universal despair." Similar rumblings were heard elsewhere.

Indeed. So powerful is the commercial and military might of the United States still (despite prophecies of looming decline) that people not just in the U.S. but in other countries look to him as someone who can magically conjure up solutions to solve their main problems in life – diplomatic, financial, environmental, and even personal.

Leave aside that there are some places – India, most prominently – where our new President is greeted as much with skepticism as with hope. Why would the President of the United States be in a position to be the savior he is expected to be? Government by its very nature cannot solve most problems effectively. A few – market failures properly defined – it can, but does not necessarily, solve better than individuals pursuing their self-interest. But typically, government attempts to address problems beyond its sphere of minimal competence – to end the Great Depression (which was only Great in the U.S., where government efforts to address it through new and innovative methods were the greatest), to fix family breakdown, to prevent the poorly understood mechanics of the incredibly complex global climate system from going in one bad direction or another, to get beyond the human politics that has been in operation, and understood, for millennia, to fix people's health problems, and on and on – actually make these problems worse. The first questions to always ask when the messiah comes bearing the seal of the Office of the President of the United States ought to be, “Will these things you propose actually solve these problems, and what is the historical evidence for this claim?”

Even if the President of the United States had such a divine capacity to predict the future and push all of the necessary societal buttons to force people to act against their interests so that allows he can fulfill his promises, the Constitution (wisely) limits his power to do these things. He must negotiate the opposing interests he faces in Congress, some even in his own party, and he must do things that the Supreme Court will allow. He has no ability to move mountains. It is perhaps a sign of end-stage corruption of government by democracy alone that we believe the government can do anything, and if it fails to do so it must be the fault of some Enemy - some Emmanuel Goldstein marshaled up for the occasion. If people not just in Santa Monica and Akron but in Britain, France, Mexico and Indonesia are waiting for President Obama to make it all right, we are headed for a very angry time.

Should American High Technology Be Less Successful?

2009-01-25T17:43:00.005-05:00

Because soon it may be. The LA TImes talks of how Google, having bet big through campaign donations to Barack Obama, is now set to reap its rewards. (Special interests carving up the citizenry - the "change we seek.")

In 2006 I wrote the following about Google's decision to open up a lobbying office in DC:

But that they see the benefits of lobbying as justifying the costs is disturbing, another sign that information technology is every day becoming more like cars, oil, and every other industry where the returns to pressuring the government are large. And that can have no good effects on the progress of the information revolution.

Well, the entanglement of the state with the car industry (and of course the financial industry) has become far more profound than even I imagined when I wrote this. Not good news for those - say, car customers, shareholders and employees of companies, people in the future with no say in the matter but now stuck with much higher tax bills and higher costs for goods and services because of the permanently increased reach of the state - without so much heft in DC. Thinking of how such industries as passenger rail and automobiles have performed as innovators during their era of extensive entanglement with Washington, it is a little disturbing to read the following from the Times account:

Google says the main reason it has improved its standing in Washington is that Obama's tech priorities mirror its own. He has endorsed network neutrality. His technology agenda also calls for expanding broadband Internet access to rural areas and appointing the first government-wide chief technology officer ([Google CEO Eric] Schmidt has been mentioned for the position but reiterated this week he was not interested).

"This administration is more focused on science and technology," Schmidt said in an interview. "That's positive for all of technology, and particularly Google."

Does anyone feel that the American technology sector, during the era that Washington, the Microsoft antitrust case aside, has more or less left it alone has performed poorly? Has it failed to innovate, failed to make people's lives better? Is more government focus on high technology likely to make high technology more or less effective for the American people relative to how effective it was before? This is the question to ask right now, because if we wait until the government gets really "focused on science and technology" it will be too late.

What Was the Matter With the Old Declaration?

2009-01-19T02:09:00.002-05:00

The Declaration of Independence, it seems, is in need of repair. Quoth the President-elect, according to USA Today:

What is required is a new declaration of independence, not just in our nation, but in our own lives -- from ideology and small thinking, prejudice and bigotry -- an appeal not to our easy instincts but to our better angels.

"Our easy instincts,” which some might suppose could be translated as“our own ownership of our lives, goals, and destiny,” is not good enough for the collectivist horde. It has long been a disturbing collectivist tic - the belief that progress is inevitable, and the need for it so obvious to anyone who thinks the right thoughts – that only "special interests" (the collectivists’ interests conspicuously not among them) and "ideology" (i.e., mindless political disagreement obstructing the construction of paradise) stand in the way.

But in fact, these “ideological” differences are profound and unavoidable, and if we try to paper them over, it means we cede the protection of self-government to the soul's slavery of being led by usurpers – perhaps charismatic, perhaps sufficiently rhetorically gifted to succeed in politics on nothing more than the promise of “change,” but usurpers just the same.

Ideology is there for a reason. It is there because free men, thinking freely, have come to different conclusions about the nature of a just society. Purporting to end it eliminates that freedom. Ideology is there because, if we wish to remain free we are not and can never be “one,” and pretending otherwise quickly turns the opposition into the enemy. The only thing that holds us together is our belief that we are a nation of individuals. Politics is there to channel disagreements about “ideology” into less destructive channels. There is no eliminating it without ultimately feeling a need to eliminate the opposition.

Here is The Washington Post story on what the President-elect believes is necessary:

President-elect Barack Obama announced the formation of a new group known as "Organizing for America" that aims to continue the grassroots advocacy that the former Illinois Senator began in his presidential campaign.

"As President, I will need the help of all Americans to meet the challenges that lie ahead," Obama said in a video message e-mailed to supporters (and reporters) this morning. "That's why I'm asking people like you who fought for change during the campaign to continue fighting for change in your communities."

The new group will be the flagship of "Obama 2.0" as many people have taken to calling the transformation of the political organization created during the 2008 campaign.

There is something more than a little disturbing about mass mobilization of people to create permanent groups of government supplicants (for that is what they will be), with Uncle Sam the welfare-state dealer luring them into dependency before unleashing them, so transformed. on the obstacles to the progress – otherwise known as free men – so dear to the progress-ives.

People need and deserve a higher purpose, no matter what the sociobiologists say. But only if it is their own higher purpose freely chosen, which requires that this purpose not be imposed on others. The conquest of this eternal desire by the individual for existential clarity, which he might, left to his own devices, nobly fulfill through the occasionally stumbling living out of his own life, by a collective movement for "change" or "progress" defined by ambitious politicians who seek to put the state in charge of our destiny, nevernot end well. At best it gives us the decaying culture of modern welfare-state Europe, at worst Lenin. It leaves a people dependent on the state, perhaps (if they are lucky) materially sated but lacking the fundamental challenges of life - the need to triumph, and to fail to triumph, over the obstacles it throws in the way of one's goals. It leaves a society bereft of ambition and achievement, leaving only undisciplined anger at the failure of the state to solve problems, along with the failure to recognize its creation of many of them to begin with. It is not what the signers of the Declaration had in mind.

Where Does the Tuition Money Go?

2009-01-08T03:42:00.002-05:00

George Leef of the John William Pope Center for Higher Education Policy discusses Charles Murray’s recent book, which I reviewed here. Mr. Leef ends with a sentence that raises an interesting question - where does all the bloated expenditure on higher education end up?

For decades, America’s higher education establishment has been riding high. It succeeded in persuading most of the populace that more education—that is, formal education—was an unalloyed benefit for both the individual and the nation. That may have been true decades ago, but it no longer is. Instead of trying to preserve the notion that college is good for almost everyone, the education establishment should face the reality that many young Americans would be better off if they didn’t go to college right after high school.

Economists refer to the return going to an asset’s owner because of the asset’s permanent scarcity as a rent. The term derives from rent to land, which was seen to be the most meaningfully finite resource in the days of Smith and Ricardo, but can apply to any asset whose lack of good substitutes, including from competition from new entry, generates high returns for its owner. This can accrue to the owner of an unusually good voice, an unusually attractive face, the ability to write unusually elegant economic models, the ability to obtain special government privileges (whence the term “rent-seeking”), and so on.

Higher education ought to generate substantial rents. State universities are heavily subsidized, so that the cost to the student is considerably less than the expenditure on resources made by the school. This should generate ample opportunity for faculty/administration chiseling. Private and, to a lesser extent, state universities are able to price-discriminate by calibrating financial aid. After demanding, and getting, a slew of financial information from potential students, schools calculate their willingness to pay, and give them financial aid for the rest, which is just a convoluted way of charging each student a different price. By doing this, the school extracts most of the gains from trade between school and student. Competition through entry is possible, and does exist through University of Phoenix-type arrangements, but heavily subsidized first movers are difficult to compete against.

But if universities generate such tremendous rents, where do they go? Administrators are arguably very well-paid relative to the opportunity cost of their time. (If an English professor becomes a university president, what is his next-best alternative?) Some professors, especially science and engineering stars at research universities, and professors in business colleges (who tend to have better private-sector alternatives) are paid pretty well, but many, especially in the humanities are not (as they would be the first to tell you).

I think that much of the rent is taken not as money, but as leisure and vanity indulgence. The faculty member who retires (often at a relatively young age), having brought the same crumpled lecture notes into class for 20 years, is legendary. Few middle managers in the private sector could get away with such a lack of dedication to continuing education. Many faculty take a huge chunk of the year off – summer and Christmas season in particular. Compared to private-sector managers, they have a large amount of time available even during the workweek, often not having to be on campus unless they are teaching. Faculty and administrators alike are tremendously creative in creating fads (“critical thinking,” “civic engagement,” “assessment,” etc.) to justify conferences, which are often held in nice hotels in pleasant cities and for which the university often picks up the tab. The tenure system itself contributes to this leisure rent, by making it almost impossible to dismiss faculty for anything other than gross misconduct outside the classroom. It is an artifact of earlier times, but is retained by the sort of uncompetitive system Messrs. Leef and Murray describe. (I say this as someone with tenure myself.) Faculty are not under threat for being fired for what they say, which is the nominal justification for tenure. If anything, tenure serves to strengthen the ideological cartel of the existing faculty, another form of noncompetitive rent – the ability to propagandize students with little competition.

Administrators too have ways to vent the rents, most famously through the indulgence of the edifice complex, the construction of probably unnecessary buildings with the current administration’s names suitably immortalized in stone. Other methods undoubtedly exist. These methods, in combination with the grossly inefficient way in which faculty structure their work schedules, raise the cost of education, in ways a supermarket could not get away with.

College work ain’t digging ditches. It is rather nice work if you can get it, which is why the competition for faculty positions, particularly in the humanities, is so high despite the low pay. (If sociology professors are underpaid, why do hundreds of people often apply for a single opening at a decent university?) The rents from the tremendous inefficiency of the higher-education market are often not taken as cash, but that does not make them small.

The National-Security State Metastisizes

2009-01-05T21:01:00.001-05:00

Michael Yon, who has reported from Iraq and Afghanistan with great distinction in recent years, tells of the fate that befell a Thai friend of his when she ran afoul of the national-security state:

While the U.S. Immigration officer named Knapp rifled through all her belongings, Aew sat quietly. She was afraid of this man, who eventually pushed a keyboard to Aew and coerced her into giving up the password to her e-mail address. Officer Knapp read through Aew's e-mails that were addressed to me, and mine to her. Aew would tell me later that she sat quietly, but “Inside I was crying.” She had been so excited to finally visit America. America, the only country ever to coerce her at the border. This is against everything I know about winning and losing the subtle wars. This is against everything I love about the United States. We are not supposed to behave like this. Aew would tell me later that she thought she would be arrested if she did not give the password.

Humans are driven by fear; it is a basic survival instinct. Politicians are driven by the need to accumulate and retain power; it is what they do. And these two basic facts of life often collide to unfortunate effect, especially in a society that claims to cherish individual autonomy.

The threats – infinitely clever terrorists, illegal drugs seizing hold of every child – always seem so powerful, and the burdens so distant. The national-security state always seems nonthreatening when the victim is Some Other Person – that Muslim over here, every one of whose people just bring it on themselves, that union activist or gun nut over there who just won’t keep quiet, that person way over there who shouldn’t be moving that much money around anyway. What does the innocent person have to fear, anyway? What’s a little technical violation of civil liberties when our security is at stake?

Until, that is, our liberty is gone. Would the founding generation have put up with this nonsense?

The Great China Blackout

2009-01-05T01:07:00.004-05:00

Power consumption is a decent indicator of economic activity. Here is what it has done in China in recent years:

2005: 24.24% increase
2006: 33.13% increase
2007: 14.93% increase

And Nov. 2007- Nov., 2008? According to Barron's, electricity consumption in that period fell 9.6%.

Whatever the official data say, the China bubble is popping, hard. Just as some of us have long thought, even if the timing, and the global impact, are different from what we expected.

I thought then, and I still think, that the combination of Chinese repression, 20 years of established growth generating hundreds of millions of middle-class people with first-hand memories of the bad times, and Chinese nationalistic pride will allow the government to ride this out. But we are about to find out.

Hat tip: Ambrose Evans-Pritchard, for alerting me to the China power-consumption data.

Stumbleupon

2009-01-03T02:01:00.002-05:00

I seem to be getting a lot of traffic from a website with which I was unfamiliar, StumbleUpon. If you like what you read, you may wish to take a look at my first book, where there is much more of the same.

If you know who recommended me please leave a comment, as I would appreciate knowing about it.

American Housing and the Great Crash

2009-01-03T01:16:00.005-05:00

The global financial crisis happened because the US, by failing to oversee lending markets, recklessly let a housing bubble develop. When it popped the whole world, having bought into the bubble through securitized mortgages, fell too. Right?

Think again. Oh, it's true that the US housing market developed a bubble. As I have noted here , that is because of the politicization of housing loans by the federal government, which made lenders' job difficult. But it is also true, as I've argued here, that the crash is more likely a function of the global boom that unfolded, depending on one's preferred starting point, in 1982, 1991 or 1998. This boom was profound, changing hundreds of millions of lives, but ended the way such booms always do, with a backlog of mistaken ventures in need of cleaning out. At worst, the U.S. housing bubble was nothing more than the needle that popped the bubble that particular day.

Can this be? Below is a chart that links two numbers. On the vertical axis is the percentage fall in stock markets around the world in 2008. On the horizontal is the country's rating for clean governance by Transparency International, an anti-corruption group.

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Note the close relationship between lack of transparency (i.e., more corruption) and the size of the fall. Indeed, the correlation between the two quantities for the 28 countries I arbitrarily chose (because market data were easily available) is 0.69, which in social science is very large.

So what does it mean? In any society economic actors make mistakes relative to what they know after the fact. In societies with a lot of corruption (which masks information, because each government bribe is by construction hidden from the investing public) or with miserable accounting or other problems with financial information the number of such mistakes over any interval is larger. Thus, this crash is a major cleaning out of a large pile of accumulated mistakes, not an outburst of irrationality or the residue of some strangely unprecedented spasm of greed. The correlation would undoubtedly be even more impressive if it used the quality of financial reporting and information instead of overall government transparency, but is very informative as it is.

For more evidence that this is a rational resolution of a rational bubble (driven by the emergence of many countries with great potential but unknown strengths and low information conductivity into the global system), note that China suffered one of the biggest market declines despite the fact that foreigners are not allowed to trade in its stock markets to any significant extent. How can that be if the crash is simply contamination from U.S. housing? Pakistan too has suffered a dramatic fall, despite the lack of importance, I suspect, of U.S. housing securities on the Karachi exchange. The U.S. and the U.K., in contrast, despite being the epicenter of the housing bubble, had (relatively) modest declines.

What is going on is, as I have said before, an information problem, not a liquidity problem. Only by discovering the information many want but few have - information about which ventures undertaken during the great bubble are sustainable, and which were errors; about where, in other words, the remaining unexploded economic bombs lie - can order be restored.

But why let the data get in the way of a good political fable?

The Mortgage Bubble - Just the Facts

2008-12-21T20:28:00.002-05:00

The Independent Institute has a new report (pdf) about the history of the mortgage bubble, and its subsequent collapse. It makes the same arguments, and uses of the same data (and much more) I used here. But the history of the political interference in the mortgage market that revved up in the early 1990s is far superior. Essential reading for anyone who wants to understand the mortgage mess as a failure of government, pure and simple.

European Unrest

2008-12-18T20:32:00.000-05:00

Esther at Islam in Europe, who always does a great job presenting the phenomenon of Muslims in Europe in all its complexity, has a roundup of simultaneous low-level disturbances (riots, if you like) in Malmö (Sweden), France and Greece. The disturbances concern, respectively, the arrest of radicals in a mosque, reaction to education reform, and whatever it is that Greek anarchists riot about.

It's not 1848, but it is a little disconcerting. If I were a betting man I would look to Spain next.

Cross-posted at European Wilding.

Do Macroeconomists Know Anything?

2008-12-15T21:44:00.002-05:00

When I was in graduate school getting a Ph.D. in economics, I had the hardest time passing my macroeconomics comprehensive exam. I found much of the material counterintuitive, and the mathematics more difficult than in microeconomics or the field exams that I took.

Well, now I have my revenge. Macroeconomists, and those in policy circles they have trained, aren’t coming off looking too good right now. Here is Marketwatch on the Fed running out of interest-rate ammunition in its attempt to get the U.S. economy moving again:

Rates are already very low and are not playing much part in the credit crunch that is strangling the economy.

Investors should know that the Fed still has plenty of ways to stimulate the economy, even with rates near or at zero, economists said.

The bottom line on Fed policy is supply of money. The Fed typically targets the price of money, but, with the price so low, it will focus on increasing the quantity of money through its balance sheet.

Vince Reinhart, a former senior Fed staffer who is now at the American Enterprise Institute, said the Fed will make a promise in its policy statement "to use the balance sheet to help foster economic recovery and better-functioning markets."

Macroeconomics is premised on the idea that there is this single entity called “the economy,” and “the economy” can be treated the way a diseased organ is. But “the economy” is really the coordination of the conflicting desires of 300 million people (or, nowadays, six billion people). At any moment, changes will leave some people worse off, some better off. Even now, recent economic changes are operating in favor of some people. Lower oil prices are making truck drivers better off, lower home prices are making homes more affordable, etc.

If the collective sum of everyone’s changed circumstances is on balance negative at any moment, we can defensibly talk about the abstraction called a “recession” or “depression.” It is no fallacy of composition to say the economy right now is on balance terrible. But it is such a fallacy to suppose that the remedy lies in treating the entire “economy.” Undergraduate textbooks still speak of how “spending” and “the economy” respond to particular actions by the government, in the same way a doctor can say how a bacterial infection will respond to an antibiotic. But the economy is not an organ; it is not even a body, in which all the parts generally work together to advance the prospects of reproductive success. Instead, it is a network of people both competing and cooperating as they try to advance their interests, based on the rules of the game. The macroeconomic measures of trouble we are observing are really the sum of millions of microeconomic mistakes (in conjunction with a smaller number of successes). Those mistakes have to be liquidated, no matter how painful it is.

There is a reason that interest rates have failed to do the trick, and that is that what we face is not a liquidity problem but an information problem. People are not yet certain how many financial bombs remain unexploded, and the only way out is to let them blow up so we can learn what we need to learn as fast as possible. There is no magic tool in the Fed’s workshop – not interest rates, not the “balance sheet,” not anything else – that will do what rate cuts have failed to do. Nor can any crude stimulus package coming out of Washington, which operates on the mistaken premise that some mistakenly conjured aggregate abstraction called “spending” is too low. (Large cuts in taxes would be somewhat more effective, not, as even a now-and-then smart economist like Paul Krugman argues, because spending will go up, but because politicized decisions about resource use will be replaced – in fact, more than replaced, because of greater incentives to take risks – by market ones.) Washington can however easily make things worse by constantly rewriting the rules of the game – voiding debts if the borrowers have enough political strength, bailing out this guy but not that, announcing a big spending program and leaving it to the future to figure out how to pay for it – etc. Political uncertainty multiplies market uncertainty. The unpredictable effects of both Congressional and Fed responses to current circumstances are making things worse.

All macroeconomic problems are fundamentally microeconomic problems, and the continued defiance of this fact by our ruling classes is costing us a fortune.

Joe the Advance-Money Thief

2008-12-09T21:53:00.001-05:00

A New York Times contributor has a fairly typical collectivist op-ed about the forthcoming book by 2008 presidential campaign gadfly Joe the Plumber:

The unlicensed pipe fitter known as Joe the Plumber is out with a book this month, just as the last seconds on his 15 minutes are slipping away. I have a question for Joe: Do you want me to fix your leaky toilet?

I didn’t think so. And I don’t want you writing books. Not when too many good novelists remain unpublished. Not when too many extraordinary histories remain unread. Not when too many riveting memoirs are kicked back at authors after 10 years of toil. Not when voices in Iran, North Korea or China struggle to get past a censor’s gate.

Joe, a k a Samuel J. Wurzelbacher, was no good as a citizen, having failed to pay his full share of taxes, no good as a plumber, not being fully credentialed, and not even any good as a faux American icon. Who could forget poor John McCain at his most befuddled, calling out for his working-class surrogate on a day when Joe stiffed him.

Note first that the fact that Mr. Egan can't trust someone to fix his toilet unless he has been properly licensed is sort of pathetic. That he needs government rather than his own good sense to pick a plumber is something I wouldn't expect to observe in a country fit for grownups to live in.

Equally important is this idea that it is the job of big publishing companies to write the books that pass Mr. Egan's no doubt properly credentialed notion of "good." As a starter, it raises the notion of what is "good": plenty of highly educated and well-read people have starkly different standards from Mr. Egan on this question. And of course one might argue that the opinion of what someone who buys Joe the Plumber's books ought to ethically count as much as Mr. Egan's, and that markets are there to sort out these conflicting views. This is the fundamental justice of the market - no gatekeeping critic can block that which is desired; all aesthetic judgments are treated equally.

But never mind. Publishers know what is really "good," but they ignore the good in favor of the profitable:

"For the others — you friends of celebrities penning cookbooks, you train wrecks just out of rehab, you politicians with an agent but no talent — stop soaking up precious advance money.

I know: publishers say they print garbage so that real literature, which seldom makes any money, can find its way into print. True, to a point. But some of them print garbage so they can buy more garbage."

This is classic leftist thinking - there is a zero-sum amount of "advance money," and more for Joe the Plumber means less for unjustly neglected real writers. And so publishers have some kind of mysterious responsibility to devote their own resources and expose their shareholders, workers, and authors they have already signed to deals to risks in order to advance Mr. Egan's interests, rather than those interests that these groups have worked out together to their mutual satisfaction in the marketplace. The idea that we live in a positive-sum world, and that Mr. Egan was free starting the moment this column occurred to him to round up enough money in gilded New York to start a firm to publish the writers he likes - he could probably find it amid the loose change in the office couch down the hall of (justifiably) bestselling Times columnist Thomas Friedman - simply never crosses his mind. He could then find out if there really is enough advance money to go around - if the value to readers of the writing Mr. Egan adores is higher than the opportunity cost of producing it.

But that would require Mr. Egan to expose himself to risk, and it's better that other people be strongarmed into doing that. The resources that the shareholders of Random House have accumulated - the human capital, the human networks, the printing presses, the editors and their judgment - are really there to serve Mr. Egan's arbitrary (just as anyone's is) notion of good writing. The popularity of this kind of thinking - from auto bailouts to paying for health care to growing crops to, now, writing books - is why this is every day a progressively less free society. The day someone figured out how to privatize reward and collectivize risk was the day that freedom began to die, and Mr. Egan, in his own inconsequential way, long ago signed onto that agenda, probably without a moment's reflection.

As an aside, if you want the cultural assumptions of Mr. Egan's argument properly skewered, do it the Iowahawk way.

The Medicare Miracle That Isn't

2008-12-03T01:04:00.000-05:00

Many advocates of single-payer health-care make the argument that the U.S. government should simply extend Medicate to all citizens. The elderly are overwhelmingly satisfied with Medicare, the argument goes, and so it is a simple matter to preserve all that is best with the U.S. health-care system - a free choice of a doctor with whom a patient can have a long-term relationship - while fixing what is worst - its unaffordability. I confess I do not know where the evidence that the elderly are satisfied with Medicare comes from. I suspect it is mostly argument by anecdote. When my mother turned 65 she was delighted with it, although whether she got the same quality of care she could've had had she (and we) been responsible for all her health care, as we were for her food, housing, and other essentials, is impossible to say.

But I have always had my doubts about how satisfactory Medicare really is, and know an offhand remark in The Portland (Ore.) Tribune has brought those doubts some support. Below are the money quotes:

Those waits already are long for many Portland patients, especially those with Medicare or Medicaid health insurance. Those providers don’t reimburse physicians at as high a rate as most private insurers.

About 45 percent of all Oregon physicians won’t even take new Medicare patients, according to McMullan. With a glut of patients and a lack of internists, McMullan says, they have begun rejecting the patients whose insurance won’t reimburse them as well.

As I suspected. With Medicaid this has long been known, but time-based (as opposed to money price-based) rationing may be endemic to Medicare as well. The article notes that it is happening too with some fully insured primary-care physicians (PCPs), although I suspect not nearly as much.

It is not correct to say there is a "shortage" of PCPs, as the article suggests there is, because that shortage has to be connected to some notion of willingness to pay, willingness to offer, prices and alternatives, and never is in such claims. But time-based rationing is almost certainly far more common among Medicare and Medicaid patients than among those paying cash or fully picking up the tab for their own health insurance (where it is probably zero), and than among patients with conventional employer-based health insurance.

In principle there is no objection to having more and more doctors be specialists, and fewer and fewer willing to be PCPs. Increasing specialization has been a hallmark of medicine, as with every other line of work, for centuries. There is probably nothing magical about PCPs per se, except that employers and insurers, in an effort to keep moral-hazard costs down, insist on interposing them as gatekeepers. That of course is a function of the fact that in the U.S. we treat health insurance as an opportunity to get others to pay for our routine health care, rather than as conventional (e.g., auto-liability or homeowners') insurance against low-probability, high-consequence acts. I think the more serious issue is time-based rationing of health-care treatment generally. And that, I fear, may be coming soon to a country near you.

Noted Without Comment

2008-11-25T20:21:00.001-05:00

From Canada's National Post:

OTTAWA -- The Carleton University Students' Association has voted to drop a cystic fibrosis charity as the beneficiary of its annual Shinearama fundraiser, supporting a motion that argued the disease is not "inclusive" enough.

Cystic fibrosis "has been recently revealed to only affect white people, and primarily men" said the motion read Monday night to student councillors, who voted almost unanimously in favour of it.
...
The motion was forwarded by Donnie Northrup, who represents science students. Mr. Northrup did not respond to a request for an interview. (Emphasis added.)

Barack Obama, Anti-Corporate Nutter

2008-11-20T02:57:00.000-05:00

The remarks below are from an interview then-Senator, now President-elect Obama gave to Joe Klein of Time Magazine. (Hat tip: Soren Dayton at Red State.)

As a consequence, our agriculture sector actually is contributing more greenhouse gases than our transportation sector. And in the mean time, it's creating monocultures that are vulnerable to national security threats, are now vulnerable to sky-high food prices or crashes in food prices, huge swings in commodity prices, and are partly responsible for the explosion in our healthcare costs because they're contributing to type 2 diabetes, stroke and heart disease, obesity, all the things that are driving our huge explosion in healthcare costs. That's just one sector of the economy.

He never uses the adjective "corporate" here, and indeed uses it only once in the entire interview, but this is hard-core anti-corporate stuff. In my research (go here and search in the book for the word "monoculture") I discovered this illucid idea that large agribusiness puts the world food supply in danger through the creation of monocultures - the destruction of local food systems and their replacement by giant banana plantations, corn farms and cattle pens. This makes global food more vulnerable to destruction by pests, raising the possibility of famine. As best I can tell it is traceable to an anti-globalization activist named Helena Norberg-Hodge, who wrote an article in 1996 laying out this argument in The Nation.

Sen. Obama cleverly phrases this as a national-security issue, but it is still just as loopy. The average global consumer has more food choices than ever (my mother certainly couldn't get organic tofu and fresh flour tortillas when she went to the store), global malnutrition is probably at an all-time low, we have the scientists at places like USDA and Texas A&M on call precisely for problems like this, and this kind of techno-pessimism has never been true, but never mind all that. Corporations, in their relentless pursuit of profit, are crafting some kind of science-fiction disaster whose results would make Thomas Malthus blush.

I am disappointed and worried to hear this. "Monoculture" is a signaling word, like "transnational corporation," that marks the speaker as an anti-corporate extremist, who has bought into the full anti-corporate madness. During the campaign I thought John Edwards had the fever the worst, but my inability to see it in Sen. Obama is a testament to his slickness as a campaigner and the quality of his campaign advice. An anti-corporate extremist at a time of profound global economic uncertainty is not exactly what the doctor ordered.

Washington Never Goes Into Recession

2008-11-16T21:32:00.000-05:00

In “Only Booming Washington Defies the Gloom,” The Times informs us that no matter what is happening to Shanghai, Palo Alto, Singapore, London and the other places where people actually create value, Washington DC, the capital of the rent-seeking empire is in fine fettle:

Then to Washington, a city that is heavily Democratic and where blacks are in the majority. Euphoria reigns. Construction cranes are everywhere, and although the property market is softer than in the past, commercial space is being readied to house the growth in government that is inevitable when the president-elect and his activist team take over. And that means jobs for the private-sector lobbyists, lawyers and hangers-on who inevitably attach themselves to a new administration in the manner of the sandpipers who feed on the backs of hippopotamuses in the Serengeti National Park.

Lobbyists are particularly frantic. All save $60 billion of the $350 billion initial authorisation under the emergency economic stabilisation act has been spent and, as The New York Times described the “mad scramble”, “the Treasury department is under siege by an army of hired guns for banks . . . and insurers — as well as from improbable candidates like a Hispanic business group representing plumbing and home-heating specialists.” Then there is the “fix housing first” group that wants mortgage rates lowered to 2.99% and a $22,000 tax credit for new buyers.

Biologists know. Special-interest groups, whose rolls go on for page after page in the DC phone book, are the parasites, and the producers are the hosts. But unlike parasites in the wild, economic parasites can grow in harmony with, rather than opposed to, their delivery vehicles. The malaria virus damages the mosquito, and the human; only the parasite is a winner. But economic parasites, be they eager “to harass our people and eat out their substance” from the left or from the right, government wins, always. People plead on behalf of prescription drugs yesterday, banks today, autos tomorrow. No matter who wins the election.

The Schools are Broken But Not in the Way You Think

2008-11-11T22:53:00.000-05:00

Charles Murray is the only author whose books I will read simply because he wrote them. He has a profound gift for saying provocative things elegantly yet in a way that any reasonably educated person can understand. His books alternate between serious scholarly studies (The Bell Curve - co-authored with Richard Herrnstein - and Human Accomplishment) and essays, mostly on the relation between politics and the well-lived life (What it Means to be a Libertarian and In Pursuit: Of Happiness and Good Government.) His latest, Real Education, is a tour through several different broken-down parts of, as he sees it, a fully dysfunctional U.S. education system.

He begins by anchoring the book in the central claim of The Bell Curve - that IQ is profoundly important in the way lives turn out, and that it is not that amenable, once diminishing returns set in, to public policy. He asserts that many Americans come out of schools knowing too little to prepare them for American adulthood not (a few wretched inner-city schools aside) because the schools have failed for mechanical reasons to prepare students for high-skilled work but because the schools have failed to recognize what these children are and are not capable of. He notes that according to national testing data two-thirds of American eighth graders fail to answer a multiple-choice question much like the following properly:

“A business owner currently employs 90 workers. He decides that next year he will increase the workforce by 10 percent. How many workers will he then have?

a. 110
b. 99
c. 80
d. 90”

This is not a schools problem, it is an IQ problem. There is a vast world of lower-IQ Americans who simply are not going to be able to get much use out of an education system that prepares them for college, even though they might be terrific at other (often high-paying) jobs for which a college degree used to be unnecessary. This in no way suggests that such people are not equally valuable members of society as any Harvard graduate, merely that their skill set is different.

A good educational system would prepare everyone for a career he is capable of, instead of preparing for a college degree, which many end up not getting and which is for most of those who do an extraordinarily expensive way to get training that could be provided more efficiently outside the ivy-covered walls. It would also provide the essentials of democratic citizenship, at an appropriate level and at an earlier age. It would also do better at challenging to the limit (demarcated by their failure to achieve a goal after everything else came easy) the nation’s gifted.

I found three things to quarrel with. (I am not competent to dispute his summary of the psychological literature on intelligence.) If his thesis is correct, the American democratic political system has created and sustained for an extended period of time a profound failure, something one could wonder about. Some policies that I find objectionable – the welfare state – are popular despite my misgivings. Others – sugar protectionism – are so small despite their obvious problems that it is easy to understand the lack of public clamor for the repeal of any particular one, even if the costs of all similar policies are high. But that a fundamentally misguided yet major component of American policy could persist for so long raises questions for anyone who believes in the efficacy of democratic politics in weeding out at least the most obvious mistakes.

I also wondered whether other countries show the same huge number of low-IQ students as the U.S. does. If not, that might argue against the IQ-is-destiny foundation of the book. (Messrs. Murray and Herrnstein claimed, to great notoriety, in The Bell Curve that the IQ distribution differs among different ethnic groups, but a big enough difference in the IQ distribution among the US and other less polyethnic countries might swamp this effect.) It could be that other countries do in fact get better results through better schools, but no mention of other countries was made.

I finally found myself wondering about my own children. Our son attends a private school. It is a progressive school, in the old-fashioned sense, situated in an unabashedly left-wing college town. Most of the parents are themselves impeccably progressive politically. And yet none of the culture-wars nonsense infects this school. There is no “Heather has Two Mommies,” no clamor about different ethnicities having different learning styles, none of that. The school is educationally progressive (meaning a lot of learning is self-directed), not politically progressive, despite the fact that the parents generally are politically progressive.

I think the reason for this is precisely that it is a private school. No parent is going to lobby for something that the other parents do not want, because all parents get an equal say, not through voting but through their dollars – if they find the school lousy, their kids are gone. In public schools, in contrast, small numbers of parents (and non-parents) can lobby to get the curriculum changed to favor their side of the culture wars, and do. The turning of the public schools into a big cultural rent-seeking swamp is a problem that I think deserves more attention, although it would undoubtedly have distracted Mr. Murray from the things he wished to talk about in the book. Having said that, I came away, as it were, smarter for having read it.

The Old Continent in the New World

2008-11-06T03:57:00.000-05:00

In one of my classes I have long given a lecture on how the US and Europe are so different with regard to economic policy, and how this has generally redounded to the benefit of the U.S.

It was one of my favorite lectures, but I may now have to scrap it, and throw into the digital trash all of the data and wonderful anecdotes I have collected over the years. One of the most striking things about this electoral turn of events is how much more like Europe we could soon become. According to India’s Economic Times, Jose Manuel Barroso, Europe’s chief bureaucrat, could hardly repress his satisfaction as he said he looked forwarding to crafting with President Obama a “new deal for a new world.” Among the items he looks forward to reworking is “financial reform,” by which is meant attempts to bring the global flow of funds under the control of the state.

It is possible, although the odds are in my view less than 50/50, that the next two years will see the introduction of a European-style single-payer health system. In that regard, the worst election news in my judgment did not come from the presidential race, but from Arizona, where a proposition asserting that Americans do not lose their freedom to contract with private parties even when the contract in question involves health care appears to have gone down to a very narrow defeat. Not even half the Arizona population, in other words, agrees that a resident of that state and a medical provider have the right to strike an agreement in their mutual interest. Further European-style privileging, East India company-style, of labor unions as monopoly bargaining agents, with all of the corruption, intimidation, economic stagnation and the annihilation of individual creativity unions bring, is also on the agenda. The Constitution makes radical change difficult, so the worst excesses may be trimmed, but an agenda that would be familiar to Clement Attlee may at least be on the table.

This battle will be lost. Not necessarily the political battle, but the battle with economic reality. It may well be that the result of the election is to make America much more like Europe, the opposite of what people (including me) were predicting until very recently. But the world has other ideas. Countries full of hard-charging, creative, innovative people all over the world (whose talents have thus far benefited America tremendously, but need not continue to do so) are not interested in the welfare state or the rights of unions or other alleged “stakeholders.” They are interested in achieving great things on their own, in escaping from the smothering hand of collectivism rather than embracing it. As an Indian official recently memorably said, “We find the Europeans fighting for a 35-hour week, and we in India are fighting for a 35-hour day.“ For the Americans too, the battle will be futile, but only at tremendous cost to the American standard of living and national interest.

Another Loss

2008-11-05T20:40:00.000-05:00

Amid all the hoopla about the election, I did not hear until this morning that liberty suffered another loss with the passing of Michael Crichton. I do not know whether he was a believer in limited government, but I do know that his contribution to the cause, by exposing the dangers of scientifically illiterate public policy, a topic I have written about myself, was profound. Below is an excerpt from a widely cited lecture he gave at Caltech, called "Aliens Cause Global Warming":

I want to pause here and talk about this notion of consensus, and the rise of what has been called consensus science. I regard consensus science as an extremely pernicious development that ought to be stopped cold in its tracks. Historically, the claim of consensus has been the first refuge of scoundrels; it is a way to avoid debate by claiming that the matter is already settled. Whenever you hear the consensus of scientists agrees on something or other, reach for your wallet, because you're being had.

Let's be clear: the work of science has nothing whatever to do with consensus. Consensus is the business of politics. Science, on the contrary, requires only one investigator who happens to be right, which means that he or she has results that are verifiable by reference to the real world. In science consensus is irrelevant. What is relevant is reproducible results. The greatest scientists in history are great precisely because they broke with the consensus.

There is no such thing as consensus science. If it's consensus, it isn't science. If it's science, it isn't consensus. Period.

Read the whole thing.

Just Another Country Now

2008-10-30T01:23:00.002-04:00

Fouad Ajami writes in "Obama and the Politics of Crowds" about something that has been on my mind for some while now, but which I cannot express as gracefully as he. He writes of his sadness, the sort of sadness only an immigrant liberated by America's (small-r) republicanism can possess, of what the success of the Obama candidacy means. It means we are becoming European in our mediocrity, and in our pessimism:

Daniel Patrick Moynihan, the late Democratic senator from New York, once set the difference between American capitalism and the older European version by observing that America was the party of liberty, whereas Europe was the party of equality. Just in the nick of time for the Obama candidacy, the American faith in liberty began to crack. The preachers of America's decline in the global pecking order had added to the panic. Our best days were behind us, the declinists prophesied. The sun was setting on our imperium, and rising in other lands.

And we are becoming like every troubled land in placing our faith in men and not laws:

My boyhood, and the Arab political culture I have been chronicling for well over three decades, are anchored in the Arab world. And the tragedy of Arab political culture has been the unending expectation of the crowd -- the street, we call it -- in the redeemer who will put an end to the decline, who will restore faded splendor and greatness. When I came into my own, in the late 1950s and '60s, those hopes were invested in the Egyptian Gamal Abdul Nasser. He faltered, and broke the hearts of generations of Arabs. But the faith in the Awaited One lives on, and it would forever circle the Arab world looking for the next redeemer.

A few months back I had a discussion with one of my colleagues. I had said that one of the reasons I objected to Sen. Obama was that he did not believe in American exceptionalism - the idea that we are different, in ways that are profoundly good and important. Instead, he believes that America is out of control and behind the times in terms of "progress" - the welfare state, signing on to the carbon-hysteria agenda, etc. America, in his view, needs to be restrained by philosophically loathsome treaties in the name of the global good, and its people have to sacrifice their dreams so the state can do good. Just like they do in other countries.

My colleague didn't really believe my criticism of Sen. Obama, and I think perhaps did not understand so well the point I was making (which was probably my fault for explaining it so poorly). Indeed I asked him if he believed in American exceptionalism, and he said he did, but couldn't really explain why.

The reason, of course, is that America is the only nation in history to be founded on the individualist creed. (To be sure, we inherited much from Britain, and from Rome and the German tribes before them, that made this possible.) But it is possible we are headed as a nation to being just like everybody else. We believe in the necessity (forgetting our own unique and priceless heritage) of "change," even though we are not sure what we mean when we approve of it. We give little thought to the need for an America devoted to individual sovereignty, as the last refuge of those in danger of being crushed by collectivism. All we need is the brave leader with the magical powers to change human nature to get us to the promised land, free of poverty, depression and rancor - our Peron, our Nasser.

Of course, one of the reasons the Nassers, Perons, and assorted other corrupt parasites and demagogues who rule their benighted lands cannot do too much damage is that America is always there, as the land where the individual can control his own destiny without being absorbed into the collective. But what if we wake up one day and it isn't?

How Not to Solve the Global Financial Crisis

2008-10-27T23:18:00.001-04:00

Next month there will be a summit involving something called the G20 on the global financial crisis, says Pres. Bush, according to The Chicago Tribune:

"This summit will be the first in a series of meetings aimed at addressing this crisis. The summit will bring together leaders of the G20 nations -- countries that represent both the developed and the developing world. And the summit will also include the heads of the International Monetary Fund, the World Bank, and the Financial Stability Forum, as well as the Secretary General of the United Nations.

"During this summit, we will discuss the causes of the problems in our financial systems, review the progress being made to address the current crisis, and begin developing principles of reform for regulatory bodies and institutions related to our financial sectors. While the specific solutions pursued by every country may not be the same, agreeing on a common set of principles will be an essential step towards preventing similar crises in the future.

The idea that a bunch of heads of state, joined by a bunch of bureaucratic micromanagers of the sort who tend to populate the World Bank, the UN and particularly the IMF, can hold a meeting in the de facto capital of the world, Washington, and fix what ails the world economically is misplaced. We got into this mess because of years of accumulated mistakes that inevitably arise during a a great boom, which must be cleaned out. In this case the problem is worse because of the extra noise in housing markets introduced by Washington’s social engineering, which, combined with the global securitization of mortgages, has allowed everyone else to first enjoy our bubble and now imbibe our bitter medicine.

The only way out is the same approach that Andrew Mellon, President Hoover’s Treasury Secretary, was said (by Hoover) to have recommended: "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate." Once the mistakes are out of the system, growth resumes. The mistakes have piled up because of combined dramatic growth-driven economic uncertainty and political uncertainty. Recent evidence – stock markets continuing to decline around the world despite one Keynesian/FDR remedy (stimulus, bank bailouts) after another – suggests that we cannot use macroeconomic management to get us out of this mess. There is nothing that a bunch of leaders can do from on high to fix a problem that is fundamentally, like all economic phenomena, an individual one – this individual decision now seen to be a mistake, that one not, that one over there a wonderful opportunity yet to be exploited.

What the summit does represent is risk – political risk in particular. This is because politicians and bureaucrats will want to do what they like to do - enhance their control, try to be seen as doing something right now instead of telling their constituents that it will be necessary to wait a bit. The combination of a lame-duck U.S. President, a more micromanagingly interventionist Administration and Congress in the wings, and Asian nations looking to reengineer global economic management for their own political interest while European nations look to increase state control for philosophical ones, is an explosive one. A quarter century of economic progress is at risk. If we take the 1930s way – control, management, administration, regulation – and forget Mr. Mellon’s advice, the results will be the same.

Living in a Union Age

2008-10-20T00:44:00.000-04:00

Claire Berlinski, whose previous book I reviewed as part of a larger group of Euro-doom tomes here, has a striking piece in City Journal about how the Democratic Party proposes to do in the U.S. the sorts of things that caused so much damage in 1970s Britain, until Margaret Thatcher, facing a country teetering on the edge of ruin, undid them:

When Thatcher was elected in 1979, Britain had just endured a winter of discontent—a season of strikes and trade union agitation so severe that the nation stood effectively paralyzed. Food supplies were interrupted, whole industries choked, and exports fell. “We don’t want to increase our trade with you,” said the Soviet trade minister to his British counterpart. “You’re always on strike.” Rubbish piled up on the streets that winter; at one point, so did human corpses. This was what had become of a nation that was once the world’s greatest trading power.

For obvious reasons, Thatcher put reform of the trade union law at the top of her agenda. Among the key provisions of Britain’s 1980 Employment Act was a change in the way government would recognize unions. At the time, workers voted to join unions—or not—in public, by voice vote. Dissenters suffered harassment and physical intimidation. Henceforth, Thatcher decided, new union membership agreements would require approval by means of a secret ballot in order to protect rank-and-file workers from bullying by union organizers.

(The article is presumably a part of the promotion by Ms Berlinski of her new book about Mrs. Thatcher.)

The so-called Employee Free Choice Act would require that unions be recognized as a bargaining agent when a majority of employees publicly declare for one. Under current law, a majority must vote in secret for the union as their collective-bargaining agent.

Any privileging of collective bargaining in the law - requiring, for example, that employers even recognize a union if they do not wish to - is a violation of individual rights. It is also a disaster for productivity, turning the workplace into a place of zero-sum struggle (with customers conspicuously excluded from the conversation) instead of an effort of mutual cooperation for mutual gain. In a unionized workplace, fingers are pointed, pay is detached from productivity, and productivity consequently falls, with consequences for the rest of the society (which gets no say, although arguably it should, in whether a union is recognized).

But the issue of the moment here is what this means for people who do not wish to join unions. I know from personal experience (at a university I have worked at) that unions react badly to dissenters, and there are bad consequences to refusing their very untoward advances. When workers generally speaking are identified in public as union opponents, bad things may happen to them. Is it too much to suppose, therefore, that threats or fear of backlash might motivate them to vote for a union that they otherwise dislike? This is why political elections employ secret ballots in open societies, and public ballots in totalitarian ones.

There is nothing particular about labor unions in this regard. Any group so privileged in the law behaves the same way. (The ABA and the Recording Industry Association of America use their legal monopoly privileges to behave with equal thuggishness towards paralegals and copyright violators, respectively.) This is why equality before the law - allowing each individual to pursue his interests under the same rules as other individuals - is so important. But these are increasingly collectivist times. And Americans may soon be about to learn what it took the British a decade of pain to realize. That it is happening here, in the land Mrs. Thatcher admired so much for its devotion to the ideal of individual equality, is all the more unfortunate.

Union membership in the U.S., outside of the public sector (which is not subject to the realities of the private one), has been in decline for decades. Economically and philosophically this has been wonderful for the people of the United States of America. But it may be coming to an end.

The Bright Side of the Financial Crisis

2008-10-13T04:12:00.000-04:00

The BBC laments that the fight, such as it is, against climate change is going to be a casualty of the global financial problems:

The global economy is losing more money from the disappearance of forests than through the current banking crisis, according to an EU-commissioned study.

It puts the annual cost of forest loss at between $2 trillion and $5 trillion.
The figure comes from adding the value of the various services that forests perform, such as providing clean water and absorbing carbon dioxide.

Good thing, too. Here are some recent items from what climate-change hysterics think we as a species have to give up, under the iron fist of as many scientist totalitarians as it takes, to save the planet:

We have to give up much of modern medicine:

Dr. Richard Nicholson, editor of the Bulletin of Medical Ethics, told the assembled bioethicists they had to look beyond their usual issues to consider the far larger ecological threat he said could soon end up destroying mankind.

The issue is urgent for bioethicists, he said, because the healthcare industry in the rich OECD countries is a major source of carbon dioxide emissions. It also spends vast amounts to prolong patients’ lives, about half of it in the final months before death. “The more effort we put into saving individual lives, the more likely we are to doom the human race to extinction,” he said.

“Just being a little bit more green isn’t the answer,” he insisted. Rich countries will have to find ways to cut their carbon emissions almost completely within the next few years. His outlook for the healthcare industry was summarised in a bleak PowerPoint slide:

Possible changes in medicine
• close most hospitals and concentrate on good-quality primary care
• reverse the brain drain and send redundant health workers to developing countries
• outlaw assisted reproduction
• stop medical research undertaken for utopian or financial reasons.
If western countries closed all their hospitals, he said, life expectancy there would drop by only eight months.

“What is more important,” he asked, “maintaining our wealth and economies for 20-30 years until climate change wipes them out, or trying to ensure that as much as possible of the human race survives?”

(Emphasis in original.) All medical research is conducted for financial reasons (or at least self-interest) of one sort or another, but leave that aside. Air travel too will be a foregone luxury we wistfully tell our grandchildren about:

The study concludes: "The notion that we can treat what we do in the home differently from what we do on holiday denies the existence of clearly related and complex lifestyle choices and practices. Yet even a focus on lifestyle groups who may be most likely to change their views will require both time and political will. The addiction to cheap flights and holidays will be very difficult to break."

(The study was led by Stewart Barr, who found that environmental hysterics were the most likely to take long-distance flights, with one cited, delusionally, saying he could offset his in-the-air carbon emissions by recycling. Climate sacrifice for thee and not for me.)

Finally, here is climate-change hysteria in a nutshell:

"It is time for civil society and environmental organisations to take the world," Pavan Sukhdev, an Indian economist and co-author of 'The Economics of Ecosystems and Sustainability' told IPS.

What if “the world,” or more accurately the free men and women who make it up, the Third Worlders hoping for something better for their children than cholera, malaria and being at the utter mercy of beloved "nature," the hard-charging entrepreneurs who want to use some CO2 to improve human possibilities, the adventurous young people who want to get in a car or plane and try live in a different place, don’t wish to be taken? Ultimately, hard green is about control over you and yours, and that is what makes it so dangerous. Despite the “losses” referenced in the BBC story, people somehow manage to get up in the morning, go to work, live ever-more autonomous lives, pass on a better standard of living to their children, and otherwise make the doomsdayers look silly. This – civilization and what it has meant for humanity – is what is at risk from modern environmentalism.

Dead Man's Hill

2008-10-06T22:58:00.003-04:00

What caused the housing bubble? Greed, lack of regulation, or too much regulation?

Below (a little fuzzy, unfortunately, but I think the story is clear) is a plot of home ownership rates in the U.S. from 1965-2008, from the Bureau of the Census (Table 14).

You can see that historically ownership rates fluctuated between 63-65%. But beginning in roughly 1994 they began a rise to historically unprecedented levels. What happened? Between 1993-7, particularly in 1994 (the Wikipedia history is a little fuzzy) the government increased pressure on banks in a variety of ways to lend to those who didn't get loans, particularly the poor and those in inner-city neighborhoods. This was a shock to the financial system - a changing of the rules that required lenders to reevaluate their risk exposure. Against traditional risks of nonpayment on one side had to be weighed new, unclear risks concerning the risk of government punishment for not meeting government targets about loans to politically favored but financially troubling borrowers.

Added into the mix was the decision by the Federal Reserve after Sept. 11 to loosen monetary policy dramatically. (We all remember how nervous everyone was about the economy after the attacks, with Wall Street falling badly on the day the markets reopened.) As much as economists like to think no one with rational expectations would fall for it, politicians know through their repeated use of the tactic that they can rely on money illusion to give the economy a short-term boost. And so easy credit followed easy money, and this combined poisonously with the CRA reforms to generate the pattern above. All financial bubbles have their roots in a combination of new developments and broad uncertainty, and that is what the CRA reforms, in combination with the new subprime mortgage-security instruments the financial industry developed to help companies navigate them, did. In hindsight it is clear that the bubble popped in 2006, and took much of the global economy (how much remains to be seen) with it.

The numbers do not lie. Markets correctly solve the problem of who should and shouldn't own a home, once we take cognizance of the fact that for some people to have a home will impose very large costs on others. This is a disaster made in Washington, by politicians for their short-term interests at the expense of the rest of us.

The Bill Comes Due

2008-10-06T04:16:00.000-04:00

Here is The Financial Times on Arnold Schwarzenegger’s request from the federal government of the United States for money:

Arnold Schwarzenegger, California’s governor, has told the federal government that upheaval in the credit markets could leave his state in need of an emergency $7bn loan to pay for public services such as law enforcement, hospitals and firefighting.

California taps the credit markets around this time every year to raise “revenue anticipation notes”, which tide it over until tax revenues arrive in spring. But with credit markets frozen, it does not expect to raise sufficient funds from investors this year, leaving it short of cash. It needs the money by the end of October.

In a letter, Mr Schwarzenegger said: “Absent a clear resolution to this financial crisis” the state “may be forced to turn to the Federal Treasury for short-term financing”.

Note first that it is a measure of California’s desperation that it is going to Washington for money. If it were forced to raise money in normal universe (although it doesn’t), the federal government would know that it has no money.

California is not alone. Massachusetts is contemplating the same strategy. These of course are two of America’s most, um, “generous” states, who dole out money liberally to prison guards, for health care, etc. This mess demonstrates a critical difference between public- and private-sector decision-making. Businesses are constrained by the market right now, and the market is ruthless. Those who must acquire their resources only by consent have to take account of the costs, not just now but well into the future, of their decisions. For politicians, who have the power to change the rules to extract new sources of revenue, at least until the well runs dry, the relevant time horizon is much shorter – the next election at the latest. And so costs can be kicked down the road to some future politician.

Despite my admonitions, the bailout bill is now law. If there is any silver lining here, it is that the immense sacrifice required of taxpayers will at least temper the demand for ever more spending on ever more “programs.” That, according to this account in the LA Times from 2004, is what happened in Orange County, CA after its bankruptcy in 1994. If we are lucky (and we will have to be), the huge burden about to be imposed on future taxpayers will make clear to Americans that government spending has consequences. But I am not optimistic. I suspect, particularly if the Democrats control the White House and Congress after November, that Govs. Schwarzenegger and Patrick (and who knows how many others) are going to get their money. From you, and me.

Two Bracelets

2008-10-01T22:03:00.000-04:00

Anyone who saw the first presidential debate, and many (including me) who didn’t, is familiar with the two candidates’ exchange of views over the Iraq war through reference to bracelets they wore that came from the mothers of soldiers who died in Iraq. The most notorious moment in this exchange occurred when Sen. Obama, who looked like he was ready to pounce, nonetheless appeared to momentarily forget the name of the soldier and the mother who were so much in his thoughts.

But to me the most interesting thing about this exchange is the way it indicates the growing problem of the role of a voluntary military at a time of seemingly endless and costly war. The problem, in short, is that the military becomes just another undecided pressure group whose sacrifices must, in the jargon, be spun by ambitious politicians. To the anti-war groups, the deaths of soldiers must be portrayed in a way that increases support for ending the war, and to those who support the Iraq and Afghanistan campaigns the very same deaths must be used to persuade the Americans to support victory.

We live in an odd time. As a cynic put it recently, the American military is at war, but America is at the mall. We have seldom had such a great disconnect between what military people go through and what happens to civilians during a typical day. During World War II the military did the dying as usual but the lives of civilian Americans were tightly woven into the war effort in every respect. That is clearly not the case now, as any stroll down an American city street during a busy workday, chock full as it is of people doing perfectly ordinary and pleasant things with little thought given to the geopolitical decisions their government has made on their behalf. That the military would be politicized now was perhaps inevitable, and I think this is a trend that will get worse. We will soon enough see politicians explicitly charging the other politicians, who of course are the bad guys we all must fear, with actually betraying the military. And where does this lead?

The military as far as I know takes its oath, which requires them to defend the Constitution rather than a particular man, very seriously. But how long could it go on like this – the military at war, the people not, and politicians increasingly using the fate of the military to scour up votes? Down this road lies the path to the increasing militarization of our domestic politics. If the military is asked to support one side or another, eventually it will. Perhaps it is inevitable with an all-volunteer force and the United States playing, depending on your predilections, global cap or imperial master. But either way, there are precedents, some of them none too reassuring.

For or Against?

2008-09-26T19:38:00.000-04:00

The bailout that is. I will grudgingly accept, for the sake of argument, the claims that Ben Bernanke and Henry Paulson looked into the abyss last week and decided it had to be done. Still, it is on balance a bad idea. (But the realist in me thinks that Sec. Paulson is thinking about this first from the point of view of Goldman Sachs and the investment-banking industry, and only secondarily as the secretary of the Treasury of the whole country.)

The most important requirement right now is to set the rules of the game once and for all. The primary reason the Great Depression was as bad as it was not that there had been a financial collapse in 1929 - those were commonplace, and a year or two later normality was always restored. The problem was the new cure for the disease - the panicked handing over of immense power to FDR, who used it arbitrarily and socialistically (in the sense of giving the state the power to set prices, change the rules of the game faced by property owners, etc.) Depending on what he had for breakfast, a bank might or might not get taken over, an industry's freedom might or might not come under the control of the NRA, a new federal agency might or might not be established.

Even if the proposed taking over and selling off of all the bad debt were overseen by a wise philosopher-king with dictatorial powers, I might be against it because of the moral-hazard problems. But we have to think about the world we live in, and the people overseeing this massive new government intrusion into the financial system will not be Platonic public servants but Barney "We are not facing any kind of crisis" Frank, George W. "I hate high taxes but I love to expand federal spending" Bush, Christopher Dodd, etc.

Already the government's behavior has been completely ad hoc - Bear Stearns and AIG get saved, Lehman doesn't. The bailout will open the door to more arbitrary changing of the rules, crippling the ability of entrepreneurs and financiers to know what the rules are. Accounting rules may be X one day, -X the next; lenders may be required to favor American borrowers one day, subsidized to invest in Israel or Southern Africa the next. And most if not all of those changes will be in the direction of greater government control of free individuals in the market - controls on executive pay, the political hammer brought to bear to force lending to favored groups (the thing, remember, that helped get us into this mess), and other things political entrepreneurs will come up with that don't even occur to me now. Painful though the current situation is, the only sensible choice if we are to hold the line against further collectivization of our economy - and hence of our freedom itself - is to endure the pain, and to tell economic actors unequivocally that there will be no bailout, so that they can get on with the dirty work of taking out the trash.

The Fruit of a Poisonous Seed

2008-09-20T20:28:00.000-04:00

I had not heard of Peter Wallison, but he sure looks smart now. From The New York Times, Sept. 30, 1999:

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

...
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison, a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

When politics subsidizes something, we get too much of it. Every time.

Away for Awhile

2008-07-31T11:19:00.000-04:00

Those of you who come here regularly have undoubtedly noticed the rate of posting has slowed to a crawl. I will teach a class on globalization at a university in Taiwan in the fall, and preparing for that has occupied most of my time. Posting will not be substantial again until early September. I appreciate your interest, though.

Government by Google

2008-07-19T11:27:00.000-04:00

Chris Anderson, the editor of Wired, has a short piece there called, ambitiously, “The End of Theory.” (Hat tip: On the Media.) It argues that the traditional way of doing science – construct a hypothesis, collect data to see if the hypothesis is falsified, repeat as necessary until the hypothesis becomes a generally accepted “theory” – is about to be made obsolete by the Google way:

But faced with massive data, this approach to science — hypothesize, model, test — is becoming obsolete. Consider physics: Newtonian models were crude approximations of the truth (wrong at the atomic level, but still useful). A hundred years ago, statistically based quantum mechanics offered a better picture — but quantum mechanics is yet another model, and as such it, too, is flawed, no doubt a caricature of a more complex underlying reality. The reason physics has drifted into theoretical speculation about n-dimensional grand unified models over the past few decades (the "beautiful story" phase of a discipline starved of data) is that we don't know how to run the experiments that would falsify the hypotheses — the energies are too high, the accelerators too expensive, and so on.

Now biology is heading in the same direction. The models we were taught in school about "dominant" and "recessive" genes steering a strictly Mendelian process have turned out to be an even greater simplification of reality than Newton's laws. The discovery of gene-protein interactions and other aspects of epigenetics has challenged the view of DNA as destiny and even introduced evidence that environment can influence inheritable traits, something once considered a genetic impossibility.

In short, the more we learn about biology, the further we find ourselves from a model that can explain it.

Just as Google ranks web pages’ importance in a given search not by their content but by the degree to which other web pages refer to them, science may, instead of starting with a story and then seeing whether it plays well out amongst the data, be shifting to a model where scientists look at the data first and use the correlations themselves as the finding of interest.

Now, one has to be cautious about such revolutionary proclamations; several years ago similar things were said about Gary Wolfram’s arguments about the relation between computation and science. But, like Mr. Wolfram, Mr. Anderson is a very smart man. His most recent book, The Long Tail, arguing that the digitization of knowledge opens up access to small-market cultural forms that were previously unprofitable to distribute, decisively changed the way I thought about globalization and culture in The Rise of the Anti-Corporate Movement.

But whether science is about to change or not, translated into moral/political philosophy the Google approach is disastrous. Governments – particularly the American one – start from philosophical premises and then design the government accordingly. It is unacceptable in the traditional American way of thinking to start with desired results, perhaps driven themselves by a crude utilitarianism, and then to increase government power accordingly. There are both philosophical and practical/utilitarian reasons to be concerned.

Suppose, for example, that someone discovers a high rate of correlation between legal gun sales and violent crime, thus leading to the conclusion that ending the sales drives down the crime. The first objection is philosophical – there is a right to self-defense that morally precedes the right of the state to limit gun trafficking in its assertion of the public interest. The second objection is that the political process needs a hypothesis, and may get it wrong – legal gun sales may be high precisely because crime was already high. So could we trust the political process to make use of the available information in the most socially responsible way? Unlikely. Government scientists, and the legislators enabled by their findings, will naturally tend toward explanations that lead to more control and regulation – to, at best, try and solve the problems that we can see, heedless of the ones we can’t see and the ones we create out of our solutions. At worst, the exploration for correlation is used simply to enhance the ability of the state to control us. (I leave it to the reader to decide whether the NASA scientist James Hansen’s hysterical assertion that oil company executives should be put on trial for crimes against humanity is an example of the former or the latter.)

Al Gore once told The New Yorker that he saw the U.S. as a giant parallel computing machine, where ordinary people identified problems through their scientific work, political activity, etc., and then funneled the results up to Washington, which magically solved the problems discovered. This kind of thinking, presumably, is how he assumes that we can (or doesn't care that we can't) with relative ease and little corruption or loss of freedom shift the entire electricity grid to non-carbon sources in ten years. Google famously claims that its technology is profitable without “doing evil.” Government by Google, alas, would not end nearly as well.

Boutique Enrivonmentalism

2008-07-10T13:29:00.000-04:00

Earlier today I purchased lunch at the campus restaurant. I got two salad containers, one for vegetables and one for fruit. In the course of putting the fruit in the smaller container, I spilled some of it. Being a civic-minded sort of person, I immediately went in search of napkins to clean it up, which would necessitate a trash can into which to throw the napkins. Finding them, particularly the trash can, was astonishingly difficult. In the end, having retrieved the napkins and cleaned the mess up, I had to actually exit the restaurant and walk down the hall of the building in which it is located to find a trash can, and then to search among the three possibilities for the one that is not for plastic and not for newspapers.

I do not know why it was so difficult to accomplish such a simple task, but I strongly suspect it has something to do with "sustainability." Our campus, like many, has a sustainability initiative, and a sustainability committee full of earnest people with sustainability on the brain working to make our campus, well, sustainable. Whether "sustainability" is even a meaningful empirical concept, and if so what exactly it means, are subjects for another day. But I was motivated to think about the increasing plague on civilization presented by what we might call the boutique environmentalist.

There are actually many different problems that fall under the rubric of "environmentalism." The solutions to some of them do not bother me much. It is obvious that we must have laws against polluting the air and the water, because to not have them would be to grant the right to damage the help of other people. While doctrinaire libertarians might object, I don't have much of a problem with the national-park system, or the public funding of the construction of bike paths in urban areas. So there are aspects of environmentalism that are perfectly reasonable in a free society.

But nowadays there is a certain sort of environmentalist who simply is at war with civilization itself, often from a perch on high of fairly substantial wealth (or, equally exclusively, of a personal, idiosyncratic lack of use for the things that modernity makes possible). He insists that oil drilling be kept out of ANWR even though he will never go there and even though for the rest of us, including but not limited to the people who would make a lot of money drilling for it in Alaska, the oil would be useful. He lazily conflates his own arbitrary views about how property should be used with obvious moral truths, and therefore has no problem demanding that the government enforce those views, no matter the consequences to other people. He believes that humanity (particularly its CO2 emissions) is generally a plague on otherwise unspoiled creation, even though he may himself regularly indulge in the fruits of civilization. (Indeed, he may even be Al Gore himself.) He is ignorant about the anger his shrill cries on behalf of "sustainability" and "carbon footprints" generate in developing countries, where people desperately want the opportunities that people in the West have long taken for granted, opportunities for which carbon emissions, and modern technology generally, are indispensable. Most of all, he wants to actively manage other people's lives -- to use environmental regulations to limit their ability to drive, to use electricity, into otherwise navigate their way through the modern world. He wants to do this even though most of the cost will be borne by other people.

Somewhere between Theodore Roosevelt's and Rachel Carson, environmentalism in the US and Europe went badly off track, and stopped being about heroic people protecting their families from poison, or preserving natural beauty for future generations. The trick in the next twenty years or so will be to keep the hands of the boutique environmentalists off the throat of civilization.

America, the Ruthless Hammer of Individualism

2008-07-09T11:48:00.000-04:00

Spengler has what is even by his rarefied standards an amazing essay at Asia Times on American exceptionalism:

Abraham Lincoln, the next best thing to an American prophet, called his countrymen "this almost chosen people". Most Americans still would agree with him. Americans may not love their country more than other peoples, but they love it in a different way. This love is visible at any small-town celebration of Independence Day, in the tearful eyes of older people. They have not forgotten the humiliations that drove their antecedents out of their countries of origin European states always have been the instruments of an elite; Americans believe their government, is there to defend them against the predation of the powerful.

For all its flaws and fecklessness, America remains in the eyes of its people an attempt to order a nation according to divine law rather than human custom, such that all who wish to live under divine law may abandon their ethnicity and make themselves Americans. The rights of Americans are held to be inalienable precisely because they are a grant from God, not the consensus of the sociologists or the shifting custom of a particular historical period. Ridiculous as this appears to the secular world, it is embraced by Americans as fervently as it was during the Founding. Even worse for the secularists, it has raised a following in the hundreds of millions in the Global South among people who also would rather be ruled by the divine law that holds their dignity to be sacred, than by the inherited tyranny of traditional society.

America the individualist annihilator, America the individualist redeemer. An American world in which the individual is king, and the group and its petty demands subservient to him. This is why we are so essential, yet so hated. Read the whole thing.

On the American Birthday

2008-07-03T21:47:00.001-04:00

On this day before America’s birthday, I am reminded of a terrific recent essay in Inside Higher Education by Thomas Lindsay of the National Endowment for the Humanities on how college fails to cultivate introspection about our land:

What does it mean to be an American citizen?
From all the heat generated of late over immigration, one might have supposed that some light would have been cast on this crucial question. Given the need to elevate our national dialogue over this issue, it is disheartening that this has yet to happen. It appears that the idea that is American citizenship is all but lost on America’s citizens themselves. Here our universities can be of invaluable assistance, through introducing their students to the perennial questions and issues that define American democratic theory and practice.

Any attempt to perform this task ought to begin at the beginning, with the very justification for our existence as a country—the Declaration of Independence. Its claims are meant to be universal, addressed not only to King George III, but to a “candid world.” The Declaration argues that, in the new American order, blood, creed, and national origin—the constituents of citizenship throughout history—have been dethroned. Instead, U.S. citizenship entails adherence to moral and political principles the truth of which, says the Declaration, is “self-evident” to those who reason rightly. These principles, which form what can be called the “American theory of justice,” argue for human equality; for the inalienable rights to life, liberty, and the pursuit of happiness; for government established by popular consent; and for the right of the people to rebel should government cease to fulfill the purposes for which it was instituted. On this basis, the United States is more than a mere address, more than its history, and more than its demographics. It is, in its essence, an idea.

Yet how many of us today, native-born no less than newly arrived immigrants, can recount the Declaration’s four self-evident truths? More crucial, how many of us have even a rudimentary grasp of the moral and intellectual foundations of the “American theory of justice”?

He goes on to recommend a core course for all undergraduates in which primary documents such as the Constitution, the Declaration of Independence, the Seneca Falls declaration and others are read and given the attention they deserve.

Strikingly, I cannot detect much in the way of political ax-grinding in Mr. Lindsay’s proposal. (Unless one's politics requires one to detest America itself.) This is not the disguised big-government advocacy of the civic engagement fad, but a call to make young Americans aware of what they have inherited. I see a project that I, and I suspect many faculty with whom I disagree about the nature (but not the worth) of the American experiment, could get behind. Higher-ed rent-seeking being what it is, it will never happen at my university, or most. But even the non-academic may find the essay of use. Self-government is a tree constantly in need of nourishment, and increasingly our seedlings are left to die.

Culture - Yours, Mine and Ours

2008-07-03T16:05:00.000-04:00

The Washington Post has a story about the College Board wanting to eliminate the Italian advanced placement test:

The prospect that AP Italian might be eliminated has set off a reaction that might seem surprising, considering that 2,000 students took the Italian AP exam this year. Prominent Italian American groups and Matilda Cuomo, wife of former New York governor Mario Cuomo, have mobilized to save the course. Italian Ambassador Giovanni Castellaneta has also weighed in with the nonprofit organization that oversees the AP program.

"We cannot have the Italian program eliminated. It is too important to us," said Maria Wilmeth, co-director of the Italian Cultural Society of Washington.

It is always fascinating in America to watch what Americans one or more generations removed from the ancestral culture do with that culture. Two patterns seem common.

The first is the freeze-drying of that culture. Go to Hawaii or Little Tokyo and you will see lots of the old-style Chinese characters that the Japanese government reworked after the war. (Ditto with Chinatowns all over America.) The dress worn on symbolic occasions too looks as if it came from a time capsule. This is testimony to cultural evolution – Japan and China and Italy, left to their own devices, changed over time, while Americans from those places eager to maintain ties to their roots had nothing to be tied to other than the culture that prevailed there when they arrived here. (A third-generation Italian-American of my acquaintance wrote a book on going to Italy for the first time to live for several months, and finding it now bore no resemblance to the Italy his parents and grandparents celebrated.) This often does not end well; Irish-Americans, for example, were often far more militant about Northern Ireland than most of the Irish on both sides of the border themselves, and Jewish, Arab, Pakistani, Indian and other Americans now seek to tilt American foreign policy in ways that benefit their genetic/geographic comrades.

This is an important phenomenon because it suggests that attempts to preserve a culture are really attempts to preserve it in a particular time and place, and are doomed to fail. Italians used to eat minestrone (apparently a poor person’s food even then), now they don’t. Hindus used to not live in the neighborhood, now they do. Homosexuality used to be unacceptable, now it’s not. That is life in a dynamic society, and there is no avoiding it.

The second thing I notice is the ease with which people assume that other people’s property, lives and activities are really there to serve them. The AP Italian test is not there on account of its importance to the Italian Cultural Society of Washington. It is there to serve (or not) colleges and their applicants. And the College Board has decided that, relative to the alternatives, it does not. And so the usual suspects gear up to, in the article’s words, “lobby” the College Board as if it were a government, in order to subsidize their particular culture. Even the Italian ambassador has apparently met with CB officials.

I observe with some relief that at least the College Board is a private organization, and the ambassador and Ms Cuomo are not lobbying to have American public schools subsidize their own cultural capital. But this is exactly what advocates of bilingual instruction, e.g., are doing when they lobby government officials with say over what gets taught in those schools. The state should subsidize only that which unites us, and leave it to individuals to produce the things whose benefits accrue mainly to them. If not, you get Belgium or Canada, where cultural strife (and intervention by foreign officials, those of France in these two cases) are permanent features of life.

Where Are the Gas Lines?

2008-06-27T13:34:00.000-04:00

The next time you hear someone complaining about how “speculation” is driving up oil and therefore gasoline prices, ask him what exactly it is that he misses about this:

In the story Silver Blaze , Sherlock Holmes mischievously asks Inspector Gregory to give some thought to the dog that didn’t bark – which is now taken to mean any incident that doesn’t happen and is therefore informative in some non-obvious way. An event that is currently not happening, despite very high oil prices, is long gas lines a la the 1970s. I can remember when I was a schoolboy listening to my mom talk about having to go to bed early so that she could get up at 5:00 the next morning and go buy gas before it ran out for the day. (Back in those days gasoline stations generally did not have convenience stores, and were not open around the clock.)

The primary reason today’s moms and dads in America do not suffer that fate is that oil and gasoline prices were deregulated at the onset of the Reagan administration. This meant that when gasoline became harder to get, prices could go up and tell people that the consequences of their choosing to use gasoline were higher than they used to be. And so at a time when rapidly growing economies in the developing world have much higher demand for oil, and when more and more of the world’s oil supply is under the control of governments , whose incentive structure causes them to postpone needed investments, extract the oil as fast as possible to keep the electorate pacified so that they will still be in power when they wake up tomorrow, and replace skilled managers with political cronies, gasoline is always there when we want it.

Of course, we have to be willing to pay the price that the vendor is asking, which is much higher than it used to be. This is, in an almost magical way, solving the problem of greater competition for less oil in the only way that it can be solved – not through a gigantic central-planning apparatus, or showboating congressional hearings, or legislation against the usual suspects, but by allowing individuals to decide whether a given use of a given amount of gas at a given time in a given place is worth the sacrifice or not. Americans are thus making what economists call marginal adjustments – they are one at a time buying fewer and fewer SUVs, they are deciding whether that extra trip is really necessary, they are riding buses and trains more to work and driving cars less. Higher prices are leading to less consumption, just like a blackboard model predicts.

But another development that has made it easier to reconcile all the people who want gasoline with the difficulties of providing it to them is the vast increase in the complexity of the oil trading market since the early 1970s. Back in those days, oil was generally produced by big Western oil companies, who made long-term contractual commitments to governments who due to blind luck happened to preside over the territory where the oil could be found. But the shortfalls of the 1970s generated a vast market in oil futures and other financial instruments that maybe it easier both to hedge against unexpected supply disruptions and to inform potential buyers farther in advance that consumption of oil in the future would be more (or less) costly than they thought.

It is thus especially irritating, if not exactly surprising, to hear politicians, few of whom have ever had to solve a problem remotely as complex as the problems that oil company managers solve every day, going on and on about how “speculators” are driving the price of gasoline up. People who talk this way do not generally have a precise theory of how exactly this happens. Presumably, the chain of causation has a “speculator” buying an oil futures contract secure in the knowledge that the very act of his doing so will drive the price up, allowing him to sell that contract later and make money. Oil “speculators” in other words have some sort of mysterious license to make money that the rest of us are too dumb to catch on to.

But for every oil “speculator” who buys an oil contract on the assumption that he will make money off it later, there is another “speculator” who is selling the contract on the assumption that he will lose money if he keeps it, because the price is headed down. Each trader is reacting on the basis of some data that he possesses, and only the future will tell which one is right. It is true that the decision by one “speculator” to increase his offer for an existing contract applies pressure to increase the price. It is equally true that this increase informs anyone who wants to pay attention that oil will be more expensive than he previously thought, giving him incentives to economize on its use. “Speculators” who make money at any particular moment in time are being rewarded for the things they thought they knew that are true, and those who lose money are being punished for the things they thought they knew that are in fact wrong. They are behaving no differently than the student who chooses to take my class or not on the basis of what he expects to gain, than the young family deciding whether to buy a particular house because they think the neighborhood is either good or going to get better, or the voter who decides whether or not a particular politician merits his trust. All of them are gambling, and the essence of gambling is not knowing everything about the future that we wish we knew.

The collective force of what oil "speculators" know that is in fact true is a kind of free gift to the rest of us, who are able to plan our lives more effectively with this new information about whether gasoline is likely to be more or less dear in the near future. The consequence of going after “speculators” (for example, by limiting their creativity in the kinds of contracts they create) is that they reveal less of their private information, making it the oil market function less effectively. Whenever “speculators” are blamed, and that blame is successfully encoded into the law, bad things happen. Politicians, of course, generally advance their careers by pointing fingers, and so social disasters are like manna from heaven to them. In rain or shine, politicians will always get theirs . It is those of us stranded out here in reality, who actually have to make sacrifices (whether paid as money or time in a gas line) to get things like gasoline who have to bear the consequences of this kind of decision-making.

Service

2008-06-23T10:12:00.001-04:00

Sara Rimer writes in The New York Times of a Harvard faculty member who thinks that Harvard students are spending their lives badly:

A prominent education professor at Harvard has begun leading “reflection” seminars at three highly selective colleges, which he hopes will push undergraduates to think more deeply about the connection between their educations and aspirations.

The professor, Howard Gardner, hopes the seminars will encourage more students to consider public service and other careers beyond the consulting and financial jobs that he says are almost the automatic next step for so many graduates of top colleges.

“Is this what a Harvard education is for?” asked Professor Gardner, who is teaching the seminars at Harvard, Amherst and Colby with colleagues. “Are Ivy League schools simply becoming selecting mechanisms for Wall Street?”

The students alas, knaves that they are, seem to be increasingly attracted to the corporate life for financial reasons, leaving public-"service" jobs going begging.

But this raises a profound philosophical question. What is the "worth" of any particular vocation? Economists way back in the 19th century recognized that attempting to define the objective worth of any particular good is pointless. Rather, the value of a good is simply whatever it is worth to the person who holds it, or wants to. And so a term like "public service" is silly. It implies that some jobs -- the jobs that, for example, Professor Gardner thinks need doing in greater quantities -- are underpriced, while Wall Street jobs are overpriced.

Along these lines, a recently minted student named Adam M. Guren is quoted as saying that “[a] lot of students have been asking the question: ‘We came to Harvard as freshmen to change the world, and we’re leaving to become investment bankers — why is this?’ ” Leave aside that the world is full of people who want nothing more than to be left alone by the sorts of people who go to Harvard to change the world. It turns out that investment bankers generally do a lot more to change the world than all the king’s horses, all the king's men, all of his social workers, all of his AmeriCorps volunteers combined. Every major corporation that provides the things we depend on to keep civilization running got help at some point from some investment banker, who helped get scarce resources from where they were to where they could do more good. This is precisely why investment bankers make so much money. Why do social workers and teachers, in contrast, make so little? There are a variety of reasons, having to do with the number of people who can do those jobs, the fact that those who hold them take much of their compensation as greater leisure time or job security, and other things that don't much apply to investment bankers. Every trader in the marketplace is serving something greater than himself by creating value for those he trades with. The world positively needs our best and brightest to go into investment banking, entrepreneurship, and the other activities that move civilization forward. That Harvard's new president, Drew Gilpin Faust, failed to recognize this and therefore devoted an entire commencement speech to this non-problem, make it clearer than ever how much Larry Summers is missed at the helm of the world's most famous university.

If I were the language dictator I would permanently retire the term "public servant," at least when it is used as a synonym for "politician" or "bureaucrat." People go into such work, or work for charities and the like (and something tells me that going into missionary work, despite its low pay, is not the sort of public service Professor Gardner had in mind), because what they get out of it is worth what they put into it. So too with investment banking; neither can be intrinsically said to be more useful for society than the other. The less we hear of sanctimonious politicians and intellectuals urging Americans to avoid the "corporate" life and to instead yoke themselves to the causes those politicians and intellectuals favor, the better off we will be.

But Why Do Gays Want to Get Married?

2008-06-19T15:15:00.001-04:00

The Supreme Court of California has decided that same-sex marriage (I at least give thanks that it’s not called “same-gender marriage”) is a right guaranteed by the constitution of that state. It is probably not what the people who drafted the relevant provisions had in mind when they drafted them, but let it pass. Here's what the head of one pressure group said about the decision, and the onset of marriages that followed:

“This is the beginning of a vision of what it means to live in a nation and a state that says we value one another as equals,” said Kate Kendell, the executive director of the National Center for Lesbian Rights.

This is a justification for constitutional upheaval worth thinking about. I can understand legalization of gay marriage on grounds of contractual freedom and equality before the law. Federal and state law privileges heterosexual married couples in all sorts of ways, and I have some sympathy for the argument that this represents discrimination. I also have sympathy for the argument that the purpose of marriage is to bind parents to children, and that removing that foundation stone will change society in ways that we will not like. This is why such marriage is so common in time and place. (To the self-styled "progressive" of course, all of history is a prelude of barbarism; centuries of tradition contain no wisdom that we will lose by overturning them.) On balance though, I think that the equality before the law argument is stronger, and I think the best way to resolve this problem is the separation of marriage and state. Let all religious denominations decide the rules under which they will declare people married, and let all (or at least most) people in love stipulate any contractual terms they like, with those terms to be enforced by the state like any other contract. Grant no particular government favors to any particular arrangement.

But I am much more interested in the rationale for the current trend to legalize gay marriages. The most common term that is used by the media and various courts is "recognition" of gay marriage , and this is suggestive. It assumes that gay marriage already exists as a prior moral imperative, and all we are doing now is forcing the law to accept that. The reason to legalize gay marriage, in other words, is to have the state validate the perfectly legitimate romantic desires and commitments of gay men and lesbians. Ms. Kendell's remarks above also strike this theme - legalized gay marriage is an expressive statement about what society "values."

What does it say about our society in 2008 that social movements have formed to try to attain emotional satisfaction from government? This is not a healthy sign for a free society. We long ago passed the moment when it was accepted that the state could annul individual freedom on the ground of some higher public purpose involving income equality, some assertion about the nature of fair treatment, etc. But we have now crossed a bridge where the state and its powers are to be used merely to make statements about what is socially acceptable and what is not -- to do nothing more than to engage in self-expression so that certain individuals and society are not just equal but feel equal. Gay marriage is apparently primarily about allowing gay and lesbian couples to have the sense that society values them as much as it does heterosexual married couples. (To assert that a society rather than an individual can "value" something is to make a category error, but again let us move on.)

I view gays as generally born, not made; I have no particular trouble with people of the same sex falling in love, in getting the same benefits from their employers as heterosexual couples do, provided only that the employers voluntarily agree to provide them. But I view this whole controversy, like most, from the viewpoint of individual freedom. And the news there is bad; no society that uses government for these kinds of purposes will remain free for long.

Shanghai Surprise

2008-06-17T22:04:00.000-04:00

The Shanghai Stock Exchange Index has lost 52.4 percent of its value since Oct. 17, 2007, a substantial rout. As far as I can tell no one outside of China seems too worried about it. Perhaps it is just an overdue correction, perhaps it is the government's goal to pop a bubble (monetary policy has been tightening for some time), and perhaps the rate of stock ownership in China is so low that, as many suggest, it doesn't amount to much.

Or perhaps not. We shall see.

Power

2008-06-17T10:58:00.000-04:00

The primary force driving regulation of business in the United States, a trend that has grown without remorse since the latter half of the 19th century, is the belief that businesses are able to dictate terms -- to their workers, to their suppliers (themselves often other businesses), to society at large. This makes acceptance of the principle of equality before the law difficult. In my introductory economics class, we often discuss anti-discrimination laws. I pose the question I once read somewhere, which goes something like this: if it is alright to prohibit employers from refusing to hire someone because of that someone's race, sex, etc., is it all right to prohibit employees from refusing to work for someone because of that someone's race, sex, etc.? Without question, the primary objection students raise to this analogy is that employers and employees are different. In particular, employers have "power" over their employees through their ability to withhold something of value -- namely, the job.

Except when they don't. Employees have the ability to withhold something of value too -- their work. Sometimes, that is a thing of tremendous value, all the more so when workers are in great demand. At a time of overall economic difficulty in the US, The New York Times reports that in Iowa, workers are calling the shots:

Last year, the state added nearly 13,000 nonfarm jobs, in part because of growth in ethanol and wind energy, and lost 3,300 people from the workforce. With statewide unemployment at 3.5 percent, compared to a national rate of 5 percent, nearly everyone who wants to work and can work has a job. “We’re looking for ways to grow our population,” Ms. Buck said.

For workers like Brando Guerrero, 25, a sales analyst at Nationwide Insurance in Des Moines, the jobs shortage means companies “have to sell themselves to potential employees, because there are so many opportunities here.”

“Do they have a free gym, dry cleaning, Starbucks on site?” he said. “What are they doing to make the community better? And once you’re there, companies know they have to promote you to keep you. We’re a little spoiled in our opportunities here.”

(As an aside, the article remarkably goes on to describe this as a negative phenomenon, as something with the potential to crimp Iowa's growth.)

As I have argued elsewhere, "power" is a word that is thrown around a lot because it gets people excited during election season, but appears to have no objective meaning in a political context. We can do a little better by invoking the idea of "coercion," which (following the economist Paul Heyne) is the ability to get someone else to do something you want by limiting his options, in contrast to "cooperation," which is the ability to get someone else to do something you want by expanding his options. This corresponds roughly to the economic idea of elasticity of demand, which measures the closeness and availability of substitutes for what a particular seller is offering.

Seen this way, businesses have relatively little power in any free society. I once heard a colleague argue that Microsoft has tremendous power over her because its buggy software, in combination with its widespread use in our university, limits her ability to do her work. But the very existence of Microsoft software gives her options that she didn't have before, and in any event there are always alternatives for a particular task to Microsoft. "Power" only enters the equation if someone requires her to use a particular type of software -- if her employer, for example, requires her to use Microsoft software or lose her job (which it does not).

Only government in this sense has power by its very nature. And so struggling to combat someone else's "power" is really a way of using the government to force someone else to live for your ends rather than theirs -- in other words, for you to exercise power over them - by increasing their taxes, by threatening them with punishments if they don't follow the regulations you have persuaded the government to draft, etc. This constant war of all against all is the essence of politics and government, and anathema to individual liberty. Government is a necessary evil -- it must provide the lighthouses, defend the borders, build the dams, etc. But sometimes the evil part is more important than the necessary part. And in most modern societies, the desire to use government to redistribute opportunity, cloaked as the desire to cancel someone else's imaginary "power," has correspondingly become the most pressing threat to freedom in the world's most advanced societies.

Life in the Old Amendment Yet

2008-06-12T11:05:00.001-04:00

I owe Adam Liptak, who covers law for The New York Times, an apology. For awhile he has been running a series on American legal exceptionalism, the ways in which we do things differently from most other advanced industrial democracies. Most of them have made the U.S. come off looking bad – articles about our penchant for choosing judges by election, our high prison population, etc., contrasted to the more modern way things are done elsewhere. I thought to myself that if he really wanted to see what makes the U.S. different, he might look at its solid grounding in individual liberty – the idea that the rights of the individual, not the needs of society, are the foundational principle here. Would he, for example, write about the way other societies have substantially pruned back the freedom of speech?

Well, he has. The article notes the Mark Steyn trial catastrophe, and notes that it would be impossible here. To my surprise and delight, the comments to this point are overwhelmingly supportive of freedom of speech. True, a few clever ways of gutting civil liberties are conjured up. (One poster named Tiziana argues that speech should not violate the (imaginary) “right to his/her honor, his/her personal and family intimacy and his/her right to his own image (the right to be white, yellow or black, fat, old, ugly or gay)”). But given that the Times is a left-wing paper with a left-wing audience, it is reassuring to see that on the left too there are many who believe that we ought to be a country that believes that the remedy for undesirable speech is more speech.

One could quarrel with some of the details of the article – the print headline on the jump page carelessly refers to what is under discussion as “words of hate.” It is the creation of an arbitrary category of speech called "hate speech" that generates the problems - attention is diverted to whether or not something said qualifies as such, and since those on the receiving end of criticism tend to litigate much more aggressively than those who do not, putting these questions into the legislative arena (or a quasi-judicial one where the traditional rights of defendants do not hold, such as the Canadian human-rights tribunals, is so dangerous) tend to result in an ever-more expansive definition of "hate speech." (This is why the requirement that a defamation plaintiff prove falsity and damage is so important.)

Still, and in contrast to exam answers I get more often than I would like from my students, the belief in freedom of opinion appears to be still breathing.

A Million Little Problems

2008-06-11T09:54:00.000-04:00

There was a letter in yesterday’s Wall Street Journal (no longer available online) by Kenneth Lee of Rayton, MO, responding to this piece by Amity Shlaes on the Great Depression and why it was Great. The author argues:

Amity Shales is just guessing that her economic theory about the Depression is valid. She cannot recreate all the factors that led to the Depression, or account for the utter despair that engulfed us. Unfortunately, FDR didn’t have the luxury of do-overs. He had one chance to act and the fate of a nation hung in the balance.

But that is exactly the problem. One of the greatest problems of the triumph of modern macroeconomics is the belief that “the economy” is a simple uniform chemical solution, one that reacts to government policy (the introduction of a precise amount of a new substance) in perfectly predictable ways. In fact “the economy” is the sum total of a constant stream of decisions by hundreds of millions of people within our borders, more and more linked to the choices of people outside it. When by crude aggregate measures “the economy” goes bad, it is not necessarily amenable to cures by macroeconomic nostrums such as a “stimulus package.” Instead, “the economy” consists of assets (including human capital) and decision-makers, with each of the latter possessing unique goals while facing different and constantly changing prospects. At a moment some geographic jurisdictions seem to be characterized on average by diminishing prospects, even as some are characterized by the opposite.

The Great Depression was not one big problem, it was a million little ones. A decade of rapid technological change after World War I was in need of sorting out, and the stock market crash of 1929 was the least imperfect way of doing that. Some experiments turned out to be successful, others failed. The trouble with FDR arrogating unprecedented power unto himself to solve the One Big Problem was that he was not betting his own money, and had only very crude tools to impose on everyone at once. The fact that he constantly changed his mind – the value of the dollar against gold would be up one week, down one next, depending on what FDR had for breakfast, rules for what kind of business conduct was and was not permissible set (and constantly re-set) by his monstrous NRA - made entrepreneurial planning considerably more difficult. Business owners, never knowing what the rules of the game were going to be tomorrow, recognized that they would be fools to invest today. When FDR made a mistake (and everything he did was likely to be a mistake, given what he knew and what he had incentives to know), it could not help but be a massive one. Something to think about the next time someone proposes a major government solution to this or that economic “crisis.”

I hope to live long enough to see the day when the history of the Great Depression and why it lasted so long taught to most of us in school incorporates this idea.

Remember Free Speech?

2008-06-09T10:46:00.001-04:00

It may surprise you to know that in Canada news magazines are apparently not private property. Such is the only conclusion that can be drawn from watching the show trial of Mark Steyn at the hands of the British Columbia human rights tribunal, which is I suppose the farce to Stalin’s tragedy. For those of you not familiar with the case, Mr. Steyn wrote a best-selling (both in Canada and the U.S.) book called America Alone: The End of the World as We Know It. I reviewed it as part of my survey on the literature of Euro-doom, and its basic thesis is that because of demographic factors and insipid multiculturalism, Europe is likely to become an Islamist land. This in turn is a thing to be mourned because of the retrograde nature of the Islamist culture being imported into the old gray continent. The language is often rollicking, the sort of thing likely to draw scolding in faculty lounges. And now, apparently, it is actionable.

Excerpts of the book were printed in the Canadian newsweekly Maclean’s, which was subsequently pusued before several human rights tribunals (much as ambulance chasers down here look for the plaintiff-friendliest jurisdictions in which to file their claims) on charges of, as I understand it, making it likely that Canadian Muslims would be exposed to hate. Remarkably, the plaintiffs asked for the right of reply in Maclean’s – not as a letter, but as an article of equal length to Mr. Steyn’s book excerpt. Even more remarkably, as I understand it, the BC tribunal has the power to order this remedy.

The magazine’s lawyers have done the common law and its traditions proud (see its publisher scold a human-rights tribunal rep by having the audacity to mention, you know, centuries of Anglo-American legal heritage here) by mounting a vigorous defense. But the battle is already lost. In the last day of Maclean’s live-blogging of the event, lawyers for the magazine are already arguing on the turf of censorship:

Now going through the relevant provision of BC human rights code: anything that “is likely to” expose members of identifiable group to hatred or contempt. Based on Sect. 13.1 of federal human rights code. Invoking the Supreme Court’s Taylor ruling — both sides agree on this — with its definition of hatred: “extreme ill will and an emotion that allows for no redeeming qualities” in the person at whom it is directed. Also involves “unusually strong and deeply-felt emotions of detestation, calumny etc.” Intent was clear in definition — that definition was meant to be reserved for only the most extreme cases, and not to chill expressive activity.

Must be an objective test of whether hatred present — central question of law. Citing case law: It’s not how particular individuals understand a message that qualifies it as hate speech — must use an objective approach, ie the reasonable person standard.
Collins decision (actually decisions — there were two cases) are “of uncertain value.” Made clear in the text of these decisions that tribunal considers itself an administrative tribunal and and as such is not bound by previous decisions, ie precedent does not have the same weight as in regular courts. So Maclean’s suggests tribunal not emulate approach followed in those decisions, which applied “unnecessarily complicated” tests In balancing free speech against other concerns.

This reminds me of the jurisprudence that goes on over eminent domain, government regulation of the labor market and other longstanding infringements of the rights to property and contract down here. The fundamental principle – that these are second-tier freedoms, to be circumscribed as necessary in the name of the public interest – is now well-established in American law, and free speech appears irrevocably headed down that road in Canada. That it is not in the U.S. is said to be a function of the First Amendment, but absent eternal vigilance the First Amendment too is just paper.

Immigration in Three Countries

2008-05-31T15:15:00.000-04:00

Theodore Dalrymple writes on how three societies handle the immigrant problem – which we might define as, accepting the equal dignity of immigrants, and their rate to come and pursue happiness and improve our society, without their turning our society into all the intolerant, opportunity-destroying ones they fled to begin with. He argues that France and the UK each get only half the puzzle right. First, France:

That France, as a result of the Revolution, has for a long time been a secular state de jure, rather than merely de facto, as is Britain (where religious tolerance is an outgrowth of custom, not law), enabled it to abolish headscarves in the public schools without incurring the odium of anti-Muslim bigotry. The ban simply accorded with the state’s secular founding philosophy. Multiculturalism, that is, is not compatible with the founding Enlightenment mythology of France; assimilation, not integration, is the goal. Everyone learns the same history in France; and nos ancêtres les gaulois comes to express not a biological but a cultural truth—and an easy-to-understand one, at that.

France, in other words, has its creation myth in its Revolution, and anyone of any ethnicity or race can (and, more importantly, must) adhere to it. As to the UK:

There is another major difference between the Muslim areas of France and Britain, however: this time, to Britain’s advantage. The relative ease of starting a business in Britain by comparison with heavily regulated France means that small businesses dominate Britain’s Muslim neighborhoods, whereas there are none in the banlieues of France—unless you count open drug dealing as a business. (This is one of the reasons why London is now the seventh-largest French-speaking city in the world: many ambitious young French people, Muslims included, move there to found businesses.) And since many of the businesses in the Muslim areas in Britain are restaurants favored by non-Muslim customers, the isolation of Muslims from the general population is not as great as in France.

It does no good, in other words, to tell the despised minorities they are equal if the lack of economic growth means economic dynamism is not able to overcome the ordinary prejudices against them. Thus, the ideal society requires a powerful sense of national identity plus economic freedom – America, to a very second-best approximation. All those immigrants studying for their canned citizenship exams and being hokily sworn in amid all the American flags, combined with the freedom to go out and start your own business or enhance the productivity of someone else’s – this is the recipe for tolerance in a diverse age.

One could quarrel with some of his specifics – the French national principle of secularism through aggressive sterilization of the public square, for example, requires them to discriminate against devoutly religious students by preventing them from adhering to their dress and other religious requirements in the public schools. This is a fairly obvious breach of freedom of religion. But the whole article is an interesting read for a very pressing problem faced by the world’s most advanced countries.

Affirmative Action and its Discontents, Around the World

2008-05-29T10:59:00.001-04:00

On opposite sides of the world, two stories of the perils of ethnic politics. The BBC tells of protests by the Gujjars in India:

Thousands of protesters from India's Gujjar tribe have burnt tyres and blocked key roads into Delhi in support of their demand for better treatment.
Tens of thousands of paramilitary troops and policemen have been deployed to maintain order.

Over the past week, at least 41 people have died in clashes between police and Gujjars in Rajasthan, western India.

Only below does the BBC clarify what is meant by the who-could-be-against-that? phrase “better treatment”:

The Gujjars say they want to be placed on an official list of disadvantaged tribal groups that benefit from preferential recruitment to government jobs and educational institutions.

The Indian affirmative-action system is much vaster than that in the U.S. Soon after independence the central government created a list of Scheduled Tribes and Scheduled Castes, groups that because of isolation in the former case and Hindu traditions in the latter were judged to be systematically disadvantaged. Almost as soon as "reservations" (as affirmative action is known there) began efforts began to make the list of eligible groups bigger, and to expand the prizes available. While the SC and ST lists are fixed in stone, this restraint has been evaded in at least two ways. First, not wasting a moment on political correctness, the government created a category called “Other Backward Classes,” which it can expand (in exchange for political support) at any time. Second, whenever a state splits into multiple states (as has happened several times), the new governments get to draw up lists all over again. Recently, (highly controversial) efforts have been made to extend the reservation system to India’s prestigious technological institutes, the MITs of the subcontinent.

Meanwhile, in America, reports The Chronicle of Higher Education, universities are now working extremely hard to make sure their students get put into the right boxes:

Colleges should continue to collect detailed data on their students' racial and ethnic identities, notwithstanding new federal guidelines that will categorize many students simply as "two or more races," two scholars urged on Wednesday at the annual conference of the Association for Institutional Research.

Among other things, Hispanics/Latinos are being urged to classify themselves racially as well as by the artificial status of Hispanic/Latino or not, so that (for example) "black" "Hispanics" get counted as black too. Mixed-race students are being put into the proper piles – half-“Asian,” half-“white” students, for example, are to be counted as Asian, but those of mixed white/aboriginal status are not being counted as American Indian, because such status is apparently being used opportunistically by people who are really “white” to take resources from the true Amerinds.

Thus, the classic dynamics of ethnic (or religious) preferences, and the subsidy of group identity generally, in politics. Every group diverts resources to claiming a share of the pie, in part by investing in their own group’s particular identity capital. This investment presumably comes at the expense of allowing individuals to define their own identities, or to define themselves first as Americans and only secondarily by the ethnic adjectives preceding “American.” Additionally, people try to increase the number of ways in which ethnic-capital should be rewarded – from mere seeking out of minority suppliers in government contracting (the original LBJ vision of affirmative action) to higher-education representation to higher-education academic departments to sufficient employment "diversity" to, perhaps one day, explicit representation in legislatures.

The Chronicle also reports that “in a paper that they distributed at Wednesday's session, Mr. [C. Anthony] Broh and Mr. [Stephen D.] Minicucci write that the two-question format ‘amounts to a visual statement that groups are not treated equally in higher-education policy.’”

It evidently never occurs to Mr. Broh or Mr. Minicucci that in America groups are not supposed to be treated equally. Individuals are.

Presidential Idol

2008-05-21T11:35:00.002-04:00

Tonight is the final episode of the American Idol season. I am not a fan of the show, but appreciate its appeal. It occurs to me that the Idol process is underutilized. I propose that it be extended to politics – call it "Presidential Idol."

Neal Gabler wrote a book awhile back called Life: The Movie, in which he contended that politics is now entertainment. We think of politicians and their foibles the way we think of movie stars or rock musicians and theirs. The 24-hour news cycle, the need to hold viewers, means that political coverage is about who’s up, who’s down, who had the play of the day, etc. have clearly given us a different kind of politics and politician. The book was written during the Clinton years, when we got far more for our politico-entertainment dollar than we have a right to expect, but there is still something to his thesis, I think.

And so I propose that American Idol be extended to politics. Perhaps the president could be selected through a year-long series of elimination shows. The Ross Perots and the Mike Gravels could be knocked out, amid great hilarity, in the early weeks, and then the serious contenders could step up, plucked from obscurity in Mississippi or Montana. The panelist of judges would perform much the same role that George Stephanopoulos and Tim Russert do now. The final rounds could be carried out through a competition in which contestants sing, dance, identify (or mis-identify) world leaders and work through minor inconsistencies in the answer they gave to some question eight weeks ago and the one they gave two weeks later. If necessary, we could hold the first rounds in Iowa and New Hampshire, before taking the show on the road. In fact, electing a president this way would make it considerably easier to break the Iowa/NH stranglehold; simply have the production company decide on its own to move the early rounds around every four years.

This proposal would even increase voter turnout, which I’m told is a good thing. Repeatedly dialing the phone late into the night until you get a chance to vote for Hillary! (or Barack!, or, most tantalizingly, John!) is just as good a way of voting as voting by mail, as is done now in Oregon. Sure, there are constitutional and campaign-finance issues, but those can be finessed away as they usually are. And if there are worries about whether it will make good television, perhaps they can try it with some state legislative district in flyover country first. How much worse could it be (and how different is it, really) from what we have now?

Gridlock

2008-05-20T11:18:00.000-04:00

Gas surely is expensive these days. So why isn’t the government doing something about it? (Whether it can or should is a question certainly worth asking, but play along.) After all those oil executives were perp-walked into those Congressional hearings, all we have to show for deliberative democracy is a bill that stops the stockpiling of oil into the Strategic Petroleum Reserve, which everyone who voted “Yes” agrees is a meaningless gesture. (Just once, I'd like to see an oil exec refuse to testify, saying that his daily business of producing gasoline and getting it into pumps all around the country at a price that eliminates shortages and surpluses is difficult work, a problem that no group of Congressman with political tools and incentives could hope to solve, so he's too busy to come in and give the Congressmen their sound bites today.) There is certainly no shortage of ideas about what to do – open up areas currently off-limits to drilling, subsidize public transportation, etc. Some of these ideas are bad, but surely a compromise could be found.

Could, but probably won’t, because the incentives of politicians often work against actually legislating. The most widely used model in political science is probably the median-voter model, which asserts that people’s preferences on an issue are distributed on a bell curve. The greatest votes are to be had in the middle, and so competitive politics forces us there, i.e. toward compromise and away from all-or-nothing. This is, I think, a reasonable model of macro-politics (not too much welfare state, not too little either), but often fails as a model of micro-politics.

It is probably true that Americans would prefer some Democratic and Republican proposals passed together to nothing passing (or only something trivial passing, like the SPR pause). But politics is about winning elections, not about doing what the people want. If politicians on both sides can plausibly blame the other side for inaction, inaction is what we will get. This outcome is more likely if the population knows or cares little about the details of policy, or if citizens with the most extreme preferences (who will reject compromise) have unusual sway in politicians’ decisions.

Not that there’s anything wrong with that. It may be that gridlock by design (even deceitful design), like government divided by party, helps restrain government spending and growth. Liberty does not have a big constituency, and so a Congress full of vituperation and blame may be a Congress that doesn’t need to grab more money and write more freedom-destroying rules. (This meme has been out there for awhile, but see a dissenting view here. )

The incentive for gridlock is perhaps why extremists so often go to court to get their ends, as in the recent California Supreme Court ruling on same-sex marriage. A bare majority of a high court is enough to get sweeping change enacted, and judges typically do not have to please the electorate by cultivating blame for the other side. It is certainly a reason not to get romantic about politics, to invest your hopes in it. Politicians have incentives too, and often they do not lend themselves to solving “public” problems.

Making Good Governance in China

2008-05-13T17:29:00.002-04:00

Does economic freedom promote political freedom? No one argues that it does for certain, but many (Milton Friedman, most famously) have argued that it is a necessary condition. Few nations put the proposition of inevitability to the test like China. A vast increase in economic self-determination (at the individual level) and wealth appears not to have been accompanied by an improvement in governance or human rights.

That view is misplaced. First, the average Chinese citizen can chart his destiny in the market to a much greater extent than before. He can get an education pick his employer, change jobs, migrate, make his way in the world in ways that his parents could not. Second, there is some evidence that for all the problems that clearly remain, Chinese governance is improving too.

I was struck by the second picture above, and its relation to the first - two heads of government on television with loudspeakers in a time of crisis. Admittedly, the second one appears in an official Chinese government press story, but it nonetheless reminded me of the images of President Bush using his own loudspeaker at Ground Zero soon after 9/11. The Chinese press is currently full of images showing Chinese officials being Johnny on the spot. We expected President Bush to be there, because public opinion demanded a show of strength, but what about Prime Minister Wen? He answers to no electorate, and Chinese leaders certainly felt no obligation to go on TV after the 1976 Tangshan earthquake, which may have killed 750,000.

But more than ever before the Chinese government answers to its people because it must. People expect economic growth, they expect their economic rights to be respected, they expect public services (including earthquake relief) to be delivered effectively, and they will turn against any government that fails to accomplish these tasks. All is not rosy, to be sure. Public discontent can legally exist, but the Communist Party still reigns supreme. Nationalism in China is very powerful at the moment, and an accountable government could in theory be turned in a more angry direction than more sagacious officials would like by such nationalistic pressure in the event of a crisis. Chinese people can say these things they couldn’t a generation before, but they still can’t say that the Chinese Communist Party should be replaced. The laogai prison-labor system and violations of the human rights of the weak and powerless are still entrenched. (And along with many others, this blog, recall, apparently can’t even be read in China.) China in 2008 is not Denmark in 2008 with respect to basic freedoms or the rule of law. But it is not China in 1978 either. (The new buildings, bought with new wealth, appear to have survived the Sichuan earthquake much better than the older ones from a poorer time.) China’s greater economic freedom is taking it, three steps forward and two back, toward being a more responsible nation.

Elitism

2008-05-12T15:09:00.000-04:00

Stanley Crouch has always been one of the most eclectic voices in the American conversation; even when he goes astray, he is worth reading. Here he is on the “elitist” charge against Sen. Obama:

Columbia- and Harvard-educated, bad-bowling Obama is an elite, the conservatives - and the Clintons - claim. He is out of touch with the working class, they say.

It has become commonplace for the predictable millionaire puppets of Fox News and their conservative talk radio counterparts to present themselves as the voices of the working class in combat with an educated elite from places like Harvard.

But beneath those cliches fester ideas that are deeply anti-democratic.
They are anti-democratic because they scoff at this basic truth: Education is the key to social mobility in our country. The stereotyped working class has no innate limits. It has produced the majority of doctors, engineers, architects, educators and others who realized the dreams of their families by studying hard and moving into careers quite different from those of their parents and their neighbors.

Education has always been viewed as suspect by everyone from slave owners to totalitarians. Wherever in the world you find them, they share one hostility: They hate books.

The presidency is not an Academy Award for Best Performance as a bowler, a fast food gobbler, a whisky and beer guzzler, a hard-hat-wearer or a hunter. We ought to know how far leadership capabilities are from surfaces, slogans and costumes.

This is a little unfair. It is not education and achievement that Americans resent, but the belief of some of our most educated that America is broken, and it is their job to fix it. Mr. Crouch is correct that we do not necessarily want presidents who can bowl well or shoot straight, but neither do we want a president who sees himself as a divine Master Engineer, a trait found not in the upwardly mobile highly educated per se, but in a certain sort of highly educated person more generally. (If you have the time and the temper, see an example of snotty overeducated elites proposing to burn down all that they inherited in the 1962 Port Huron Statement, the founding document of the 1960s radical left.)

I am aware of no American who resents the child of the “working class” (a term that I don’t much care for) who from humble beginnings makes it big. Sen. Obama is as admired as any other American in this regard. What is resented is the equating of degrees with the right not just to govern, but to rule. It is the sense of entitlement that sometimes accompanies (excessive) education that rightly gives the average American pause. He knows that the marriage of ideas and power is often a dangerous one. This is why he resents, for example, Sen. Obama’s now-notorious armchair psychoanalysis of why white rural Pensnsylvanians “cling to” their guns and their God. It suggests that Sen. Obama is a doctor, there to cure them of some deep sickness that is all that stands in the way of Sen. Obama’s (or any progressive’s) master plan for remaking America in the face of centuries of tradition and its hidden wisdom. This has been the way of things in America for a long while; resentment of elitist overlords dates at least as far back as Andrew Jackson’s electoral campaigns.

Books are not the problem. People who think books tell them how to manage the lives of others are the problem.

We Won.

2008-05-10T15:44:00.000-04:00

Promoting his new book The Post-American World in Newsweek, Fareed Zakaria notes the relative decline of the U.S. in every arena save the military one:

We are living through the third great power shift in modern history. The first was the rise of the Western world, around the 15th century. It produced the world as we know it now—science and technology, commerce and capitalism, the industrial and agricultural revolutions. It also led to the prolonged political dominance of the nations of the Western world. The second shift, which took place in the closing years of the 19th century, was the rise of the United States. Once it industrialized, it soon became the most powerful nation in the world, stronger than any likely combination of other nations. For the last 20 years, America's superpower status in every realm has been largely unchallenged—something that's never happened before in history, at least since the Roman Empire dominated the known world 2,000 years ago. During this Pax Americana, the global economy has accelerated dramatically. And that expansion is the driver behind the third great power shift of the modern age—the rise of the rest.

At the military and political level, we still live in a unipolar world. But along every other dimension—industrial, financial, social, cultural—the distribution of power is shifting, moving away from American dominance. In terms of war and peace, economics and business, ideas and art, this will produce a landscape that is quite different from the one we have lived in until now—one defined and directed from many places and by many peoples.

He goes on to argue that the U.S. retains substantial economic strength, mainly because of its unique attractiveness to energetic, creative immigrants, but will never dominate the world as it has since 1989. Maybe, maybe not, but I think we are entitled to a victory lap or two.

In a 2003 speech to Congress, Tony Blair remarked, “As Britain knows, all predominant power seems for a time invincible, but, in fact, it is transient. The question is: What do you leave behind? And what you can bequeath to this anxious world is the light of liberty.” He turned immediately from that to the war against militant Islam, but it is striking how much of what decent people dreamed of in the darkness of the early 1940s, and then during the most frightening stages of the Cold War, has come to pass. America has built a profoundly better world during its moment in world history.

Global trade is as free, and as widespread, as it has ever been. The construction of binding agreements among nations to restrain their protectionist urges has created wealth all over the planet, and moved hundreds of millions of people from the grinding poverty and constant flirtation with death that has always been their lot to the prosperity invented by the Western world. The US certainly did not invent the idea of free trade as a moral crusade (the British did, during the debate over repeal of the Corn Laws), but used its influence to entrench economic freedom around the world, from which political freedom may (but need not) germinate.

Consensual government too has spread worldwide. It is true that a huge proportion of the global population still lives under dictatorship of one sort or another (and parts of it, e.g. Russia, have slid back just in recent years), but poke through the data at Freedom House on the extent of civil-liberties protection and democratic governance now, and compare it to the 1970s. Even where authoritarianism still prevails, as in China, it is of a much more relaxed sort then it used to be. China still has prison factories and executes large numbers of criminals, but one man (Mao Zedong) no longer has the power to starve millions, to turn society upside down, to empty out the cities. Chinese citizens (they are not "comrades" any more) have the power to sue some of their public officials and win sometimes, even if corruption is still rampant. Prosperity has given the average Chinese considerably more control over his destiny than he had only twenty years ago, not least the freedom to leave if China limits him too much.

Contrary to conventional wisdom, war is in decline. There are terrible exceptions, particularly in the Congo, but both internal civil conflict and nation-state war have been falling for twenty years, in part because there is more to lose from warring given how much there is to gain from trading.

When FDR and Churchill wrote the Atlantic Charter, and when Harry Truman desperately tried to organize a meaningful response to Soviet expansionism in the late 1940s, things looked bleak. Our “crises” now (several hundred thousand home foreclosures, higher food prices generating riots in the more isolated and economically mismanaged regions of the world, which conspicuously now do not include the historical basket cases of India and China) seem trivial next to the things that used to preoccupy our leaders.

To be sure, there are irritants in the "post-American world." The ideology of Islamism, with its atavistic inability to live peacefully with people of other faiths and its efficacious promulgation primarily through a sort of transnational, oil money-funded mafia family, is one. Another is the inevitable rising tide of nationalism in China, which will behave like other rising powers before it and demand respect at the geopolitical table commensurate with its rising economic heft. This nationalism (multiplied by resentment over past humiliations at the hands of the West) could, as it did in 1914, lead to reckless war.

But our grandparents would’ve been glad to have these problems. So enjoy your moment on the victory stand, America. Costly though they have been for your own constitutional values, your sacrifices have borne extraordinary fruit, mainly for people around the world who are not even Americans. It is more and more an American world, no matter how "post-American" it is.

Elections

2008-05-07T11:25:00.002-04:00

Not many people outside of academia these days remember Lani Guinier. She was President Clinton's ill-fated first nominee for attorney general. She was one of at least three academics (Robert Reich and Donna Shalala were the other two) that President Clinton named to his Cabinet, which surely must be some sort of record.

Her nomination ran aground when people began looking into her work. She was a democratic theorist who was dissatisfied with the way American elections are typically conducted – people vote for one candidate, and the candidate who gets the most votes wins. As obvious as that system sounds, there are many other ways to run an election. One could allow people to rank candidates for example, with second or third rankings counting, but less than the top ranking. Or one could have a European Parliament- or Israeli-style proportional representation system, where people vote for parties, and parties get seats in parliament in the same proportion in which they got votes. She argued that many communities, particularly minorities, could not get meaningful representation in our longstanding first-past-the-post system. It turned out that a lot of Americans didn't think much of that idea, and her nomination was quickly dropped.

I thought of her as I watched the Democratic primary process unfold this year. The reason Senator Clinton was able to hang on as long as she did was that Democrats toward their convention delegates in primary states by proportional representation, rather than through the winner of a primary getting all of the state's delegates (which is the way the Republicans generally award theirs). This was done to make the election more "fairly" represent the sentiments of Democratic voters. But it led to lots of unintended consequences, in particular the inability of Senator Obama to drive Senator Clinton from the race.

This process is suggestive of a major fallacy in how many of us think about politics, including but far from limited to Professor Guinier. There is a naïve belief that there is some perfect Rousseau-type public will waiting to be discovered. Elections need to be organized so that they will detect it, so that this public will can be implemented.

This belief is flawed on at least two counts. First, it is not obvious that the momentary public will ought to be implemented in anything like its totality. It is the function of the Constitution, and its explicit enumeration of rights, to prevent just such a thing. (Some of us paid attention in our high-school government classes, some of us didn't.) Second, it is impossible in any event to even define, let alone detect, some conception of the public will that everyone would agree on in advance. The result is that rejiggering election laws lead to unintended consequences. Elections are held on the premise of solving a series of public problems, the problems fail to be solved in part because they are far beyond the ability of public officials using force and zero-sum rearrangements of wealth to solve them, people with unconventional views (who were often most insistent to begin with that government could solve these problems) find that their ideas are chewed up in the maw of conventional politics and blame this for the failure of politics, and so the system has to be "change" yet again. (Think of how often a country like Italy has changed its election laws.)

In extreme cases, people become so disenchanted with the inability of the messy system to achieve the results that they want that they cast their lot with extremists who promise to get us "beyond politics." They promise to worry only about solving problems, and not to be tied to any particular ideology. This of course all too often leads to disastrous consequences. European-style extremism has not found very fertile soil in the United States or in Great Britain, where the first-past-the-post system is also used. To be sure, much of the failure of various totalitarianisms to take much root here has to do with our nature -- Americans temperamentally simply don't cotton to the politics of mass movements and higher universal purpose. We take our cue from the Federalist papers, which warned us about the constant dangers of faction hijacking the government machinery to attack the people's liberty. (That the language of getting beyond politics is so prominent in the American left these days is disturbing for these reasons, but that is another story.) But our system, which goes out of its way to avoid having every view, no matter how extreme, get a seat at the table of power forces public officials away from these extremes. This forced centrism has probably done a lot to limit the growth of government that has so plagued other advanced societies. Even though my views tend toward the extreme on matters of personal liberty, we would be fools to change it.

Windfalls and Hot Air

2008-05-05T10:23:00.000-04:00

Mark Finkelstein at Newbusters has an interesting analysis of Sen. Clinton’s TV appearance this weekend. In discussing high gasoline prices, no fewer than 13 times does she make a verbal attack on oil companies, suggesting very strongly that their gouging behavior is why we are paying upwards of $3.50 for a gallon of gas, and suggesting (evidently in her world supply curves never shift left) that we can impose a “windfall profits tax” without affecting the incentives to produce oil. Several questions suggest themselves:

1. If oil companies can gouge, why didn’t they have enough sense to gouge in 1998, when I could get gas for less than $1.00 a gallon? Why did they watch oil prices plummet from $39 to $11 a barrel in the early to mid-1980s?

2. If “windfall profits” justify a “windfall profits tax,” do “windfall losses” justify “windfall losses subsidies”? (I am almost afraid to ask that one, for fear that the answer for most politicians will be “Yes.”)

3. If oil companies gouge gasoline prices, why do gasoline and crude oil spot-market prices move in lockstep over decades, even though both prices are set by the interaction of thousands and thousands of traders in highly competitive markets? Can speculators really be orchestrating prices to this degree?

4. How is it that we have access to any gasoline at all, given the dramatic rise in demand for oil in rapidly developing societies in Asia, South America and elsewhere? How did it come to be that our gas pumps are full rather than empty in such circumstances? Did it have anything to do with risk-taking and initiative by oil companies? If we tax “windfall profits,” will it make it easier or harder for Americans to procure the products that rely on crude oil?

5. Given that the big Western oil companies control less and less of global oil supplies (and state oil companies in places like Russia and Venezuela control more and more), why are oil companies still the target of anger among a certain sort of politician as much as they were in the 1970s? Could more state control over oil have anything to do with falling production in places like Venezuela, and could that have perhaps more to do than Big Oil with tighter global supplies?

Sen. Clinton is running for president on the platform of being ready for work on day one, so I’m just askin’.

SAT Scores Up; Colleges Panic

2008-05-03T14:53:00.000-04:00

The Chronicle of Higher Education has an article about the fact that very-high SAT scorers make up a much larger proportion of the student body at elite colleges than they did in 1989. (Some data are here.) If that is all I tell you, how do you interpret this? Surely the most sensible reading is that competition for these colleges is much higher than it used to be. The amount of positions at elite colleges is fixed, but the population of young Americans, and the emphasis they and their parents place on getting into a name-brand school, forces these scores up. The average Harvard admit is simply going to be a far better student than he was in 1989. Presumably this is a good thing, for Harvard and the country.

But that is not how the Chronicle interprets the findings. Instead, it reports that:

Two recent studies conclude that selective colleges give excess weight to SAT scores to improve their college-guide rankings, but they could attract more minority and low-income students by giving more consideration to other admissions criteria.

In other words, the main impact of better SAT scores is that (some) minorities can’t access the most elite higher education. The argument is phrased as “high scorers' share of selective-college enrollments has risen largely because of the institutions' ‘attempts to climb the pecking order of various college ranking systems.’” By this is meant the sorts of rankings that show up in places like US News & World Report. This “[hurts] the prospects of low-income and minority applicants, who are less likely to post high scores.”

Several things to chew on here. First, the authors of the studies cited in the report appear to take it for granted that emphasis on getting better rankings is bad. But given how opaque the quality of college education is (price alone is a surprisingly poor guide, unlike, say, a men’s suit), rankings surely help consumers (i.e., parents) make better decisions. Colleges arguably should be trying to climb these rankings for the same reason that restaurants and car-makers try to get good ratings from food critics and Consumer Reports.

Second, it is uncritically assumed that admissions of poor and “minorities” (by which is really meant “minorities other than Asians”) are objectively too low. But scholars such as the UCLA law professor Richard Sander (whose very important work I have noted here and here) that using criteria other than standardized tests and GPA, at least in law schools, results in mismatch – non-Asian minorities are admitted to the top law schools at higher rates, but drop out and fail bar exams at much higher rates, meaning that their time is basically wasted (as is the time of the students who didn’t get in because they did). The passage of Prop. 187 in California, which banned all race-conscious affirmative action at state universities there, had the salutary effect of increasing graduation rates of non-Asian minorities who were admitted to UC Riverside and UC Santa Cruz or Cal Poly-San Luis Obispo instead of Berkeley or UCLA.

Ultimately, whether SAT scores are overrated in the admissions calculations that universities make depends on their predictive power – do students with high scores graduate at higher rates and get higher grades without having to make such special accommodations as easier majors or extensive tutoring services. If not, then admitting lower-SAT students will require investment in this special help that the students in whose stead they were admitted may not need. Is the SAT informative compared to other things in the admissions packet? Are the ratings the colleges want to climb useful to parents and students? What kind of admissions policies make for the best students? I do not know the answers to these questions, but I do know they are the questions to ask; the ethnic makeup of the student body is a considerably lower-priority question.

Politics and the Nature of Man

2008-04-30T14:47:00.001-04:00

Katherine Kersten at The Minneapolis Star-Tribune has some thoughts on the welfare state and its consequences, based on her trip to Scotland:

Some of the Scottish people I met were eager to detail the burdens of life in a "nanny state." Among them were the husband and wife who ran the guesthouse where I stayed, and the guide who helped me find my way through the Highlands.
These folks work seven days a week to keep their little businesses afloat. What irked them more than the gas tax and the strike, they said, was what they called "spongers" -- the substantial and growing percentage of the Scottish population supported by the nation's expansive welfare system.

Footing the bill

"Spongers" include able-bodied young men who live off government benefits, and turn down jobs with impunity because "that sort of work is unsuitable for me." They also include legions of young, unmarried mothers who expect taxpayers to support them and their children indefinitely.

The hard-working, middle-class taxpayers I met are proud of Scotland's beauty and rich heritage. But many seem fed up with footing the bill for a bloated welfare state.

"The government talks about redistributing wealth, but it rarely talks about the importance of creating wealth," complained my guesthouse host. "That's what we're trying to do."

One of the primary things that differentiates the individualist from the collectivist is that the latter believes both in grand historical forces as the primary drivers of history, and that bad things happen to good people because of bad acts by bad people. When one believes in both of these things simultaneously, the justification for the sizable welfare state becomes clear and obvious: the poor and weak are poor and weak because society has made them so, and so society can, through public policy, cure what ails them. That the collectivist should have the necessary authority over the policy goes without saying.

But there is no room in the collectivist’s model for the “sponger.” People are good, and will work if given the chance, and will be happy to provide for the defenseless through high taxes and other submission to state control. If the sponger inconveniently shows up anyway (not so much as the welfare cheat as the businessman who evades government price controls, or the farmer who refuses to produce at repressed state prices), he must be dealt with, by whatever means necessary. So too are people prisoners of their demography, with all social interaction being carried out on the terms of and decisively defined by the unholy trinity of “race, class and gender.”

The individualist, in contrast, believes that it is within the capability of every man to do great things, provided only that he be given the freedom to do so, and to bear the consequences if he fails to do so. Great things happen because great individuals achieve them. The collectivist has a fundamentally dispiriting notion of man and what he is, possessed of no authority over his own destiny and thus tailor-made to be led by the (state) slavedriver. The most compelling argument against the growth of the welfare state is not its bad incentives for work, its destruction of traditional social networks that,before they were crowded out, used to deal with social problems, and its violations of individual liberty (although those are all damning objections in their own right), but its reduction of man to an animal, fit only to be made the captive of the technocratic elite even as he is a captive of history's inevitable forces too.

Textbooks

2008-04-26T12:07:00.000-04:00

The New York Times comes to grips with expensive textbooks:

College students and their families are rightly outraged about the bankrupting costs of textbooks that have nearly tripled since the 1980s, mainly because of marginally useful CD-ROMs and other supplements. A bill pending in Congress would require publishers to sell “unbundled” versions of the books — minus the pricey add-ons. Even more important, it would require publishers to reveal book prices in marketing material so that professors could choose less-expensive titles.

The bill is a good first step. But colleges and universities will need to embrace new methods of textbook development and distribution if they want to rein in runaway costs. That means using digital textbooks, which can often be presented online free of charge or in hard copies for as little as one-fifth the cost of traditional books. The digital books can also be easily customized and updated.

Right now, textbook publishers are calling the tune. They add as many bells and whistles as they can and pump out new editions as quickly as possible — as a way of making perfectly good textbooks obsolete. Not every book can be cheap. A specialized text that only a few people know how to write and that reaches a small audience will be costly by definition. But there is no reason for an introductory textbook to carry a price tag of, say, $140 in an area like economics where the information changes little from year to year.

Leave aside that Congress telling book publishers how to run their businesses would seem to run afoul of the First Amendment. This analysis of the textbook market is misplaced.

One of the most common mistakes people make in trying to think economically is to suppose that all prices are driven primarily on the supply side. For example, things added to textbooks make them more expensive. But demand is often as important in driving up prices as supply. The primary reason textbooks are expensive is not (at least in a direct sense) "marginally useful CD-ROMs and other supplements," but simply that students willingly (if reluctantly) pay these prices. Why will students pay them? Because they are critical to succeeding in so many classes. Why are they critical to succeeding in so many classes? Because professors build their classes around textbooks. Why do professors build their classes around textbooks? Because publishers make life easy for them by writing canned exams, study guides, web supplements to (even replacements of) traditional lectures, etc. Professors, in turn, have little incentive to care what their students pay, and so publishers can get away with all of this. Publishers also use the new-edition tactic to gut the used-textbook market, which would otherwise eat a lot into sales. The professor is more or less indifferent to whether the new edition adds enough value over the old one to justify its higher cost, and so is comfortable with this tactic.

I teach five classes on a regular basis. In one I use no text at all, and in two others I use standard textbooks but make them optional. In the other two I have mandatory books, but books that are not traditional textbooks but mass-market books that are a lot cheaper but do not have "problem sets," web supplements, etc. But that requires that I create and grade my own tests, not lean on the publishers' add-ons, and otherwise actually aggressively teach my classes. It is old-fashioned, but it surely does keep student costs down. There is some justification for the traditional textbook model in some science and language classes, and other places where repetitive problem-solving and/or drills are important, but the fault otherwise lies at least as much with the professors who select their books as it does with the publishers who offer them.

Scientocracy

2008-04-24T15:05:00.000-04:00

The Union of Concerned Scientists is concerned that politicians are interfering with scientists’ ability to govern us:

An investigation of the Environmental Protection Agency released today found that 889 of nearly 1,600 staff scientists reported that they experienced political interference in their work over the last five years. The study, by the Union of Concerned Scientists (UCS), follows previous UCS investigations of the Food and Drug Administration, Fish and Wildlife Service, National Oceanic and Atmospheric Administration, and climate scientists at seven federal agencies, which also found significant administration manipulation of federal science.

The rise of the scientocracy has had destructive effects on liberty in the U.S. Since the rise of the regulatory state with the creation of agencies such as the FDA (and many more since the late 1960s), it has become standard to assume that the role of scientists in government is to provide unbiased scientific research, and then recommendations about how particular government regulations should be crafted. Politicians, in turn, should generally do what the scientists say. Starting from this premise, any intervention by mere political officials cannot help but be seen as “interference.”

But in fact this misunderstands what the role of civil servants, scientifically credentialed or otherwise, ought to be. In a free society the governing institutions must be accountable to the citizenry. Politicians and pressure groups will often seek to maneuver authority for policies that are politically unpopular over to the rule-makers in the bureaucracy, with the EPA grab of authority to regulate CO2 emissions under the Clean Air Act, even though such emissions were not even on the radar when that act was drafted, being a classic example. Regulatory control of individual choices must be expanded because the scientists say so. Politicians find it in their interest to merely call for vague goals that no one can be against such as clean air or safe food, and to leave it to the professional scientists to tell us what that means on the ground.

This model has appeal because scientists are very respected, and politicians (for good reason) are not. Why not simply leave it to the scientists to find out in good conscience what should be done, and leave the politicians out of it? Because ultimately a free people require that government not be, so to speak, privatized – to be handed over to “experts” who make decisions because they are (allegedly) apolitical. But scientists are like everyone else. They have interests, which all too often coincide with giving themselves more power. (I do not recall the Union of Concerned Scientists ever calling for less government action on some matter.) I want politicians interfering with the bureaucracy, especially the scientific bureaucracy, as much as possible. The tyranny of scientists – on stem-cell research, on pollution regulations, or anything else – does not turn out any better than any other kind.

Do College Degrees Cause Prosperity?

2008-04-19T13:24:00.000-04:00

The Mackinac Center in Michigan has a new report that calls into question the effort by governments there, in Ohio and elsewhere to increase standards of living by increasing the number of fannies in college classrooms. The naïve faith that increasing the number of people who are college graduates can, in the words of the Ohio newspaper editorial linked above, “rescue the state's economy” misunderstands what college can and can’t do for a society.

The naïve belief holds that a college degree is a magic prosperity pill that increases the lifetime income of anyone who swallows it. It is certainly true that college graduates on average earn more than those who don’t get one, and that internationally the average education level of the population is associated both high higher average standards of living and with economic growth rates. Thus, more education should yield more prosperity.

Up to a point this is surely true. A society where no one can read and write is clearly not going to be as wealthy as one in which everyone can. Certain skills provided by education make people more productive. But potential skill is simply not equally distributed among the population. To model it in an instructively harsh way, imagine that there are two kinds of people, Lows and Highs. The two types are distinguished by their potential productivity. Highs, if given a college degree, are very productive, while the degree does nothing for Lows.

There are two types of mistakes the education system can make. The first is to fail to identify the Highs, and thus not provide them education that would clearly benefit them and, through their efforts in the marketplace, the rest of us too. The other mistake is to send Lows into college. If they don’t graduate, then incentives are powerful for standards to be lowered to allow them to graduate. Less-difficult majors are created, the distribution of grades shifts to the right, etc.

In addition, there is downward displacement. In other words, the large number of new graduates, only some of whom are Highs, means that jobs that didn’t use to require a college degree now do. Some students who are Highs then feel pressure to incur additional expenses to separate themselves from the Lows, and so go on to earn graduate or professional degrees that weren’t necessary before the expansion in access to undergraduate ones. In addition, the lower informational value of a college degree or transcript from all of this (it is no longer as clear whether a college graduate is a Low or High) lowers the overall average expected productivity, and hence wage, of college degrees.

How can we minimize the two kinds of mistakes? Clearly, we need to target potential Highs who are missed by the system. The GI Bill might be an example of a policy that achieves this. Access to college was much more difficult right after World War II, and that plus the life-changing nature of the war experience (how tough can it be to pass the philosophy final after seeing combat at Bastogne or Okinawa?) means that there are lots of people who can benefit from access to college. But sweeping policies designed to give lots of people college degrees simply will not necessarily magically increase everyone’s income; it is not the piece of paper itself, but what people can conclude about a person from the fact that he possesses the piece of paper, that matters.

While the taxpayers’ tolerance for such language will be understandably limited, it is worth reminding people that a primary benefit of a college education is simply the ability to live a more reflective life, to struggle with the great issues of human existence, and to be more capable of participating in consensual government. The “better jobs” argument, alas, can only be taken so far.

Mixing Sports and Politics

2008-04-17T14:40:00.000-04:00

Here I do not mean mixing sport and politics but looking for the echoes of political philosophy into sport. Fred Schwartz in The National Review has an interesting little essay on which professional sport is the most consistent with conservative principles. For a variety of reasons, he argues for baseball. Is he right?

While his arguments dwell on attire, immigration policy and the like, I think the strongest argument for baseball as the quintessentially conservative game has to do with the evolution – of which there has been surprisingly little since integration – of the game. The fundamental fact about baseball, which differentiates it in my view from other sports, is that the choices managers and players face are essentially the same now as they have ever been. The rules are the same (other team sports are constantly tinkering with theirs) as they were decades ago, as are the strategic choices – hit-and-run or not, take a pitch or two with a fleet runner on first, etc. – as they were at the dawn of the live-ball era. The only real on-field innovation that I am aware of in the thirty-plus years of my fandom is the development of specialized relief pitching. A baseball fan teleported from the 1920s would find the players bigger and more global, but would recognize the game itself. This is not true for most sports, which have a constant flow of coaching innovations (the 46 defense, the dribble-drive offense, and so on). If conservatism means respect for traditions of the game themselves, baseball clearly contrasts with football, basketball and hockey, all the more so given the veneration for its past that is such a part of baseball. Only in baseball do we get the overwrought, teary-eyed nostalgia of a Roger Kahn, Bob Costas or George Will.

In contrast, I have become persuaded by some recent reading that American football has a whiff of the fascist motif about it. The charismatic leader, in the form of the fiery coach or trusted quarterback (a position with no analogue in the other team sports), plays a much bigger role in football than elsewhere. There is no football equivalent of the post-ideological, leader-led drive toward the common purpose that Jonah Goldberg argues is the essence of fascism, but the martial elements and mass-rally motif of a typical football crowd are still, a reasonable person would I hope agree, suggestive.

But if conservatism means American conservatism, with its critical component of decentralized cultural evolution, then as much as I hate to say it, the ultimate conservative (or perhaps, more accurately, libertarian) sport is soccer. In soccer it is players, not coaches, who do much of the innovating, through the creation of the soccer kick, bicycle kick, etc. This is a way of extending the range of human possibilities, just as techno-libertarians such as the types over at Reason admire. The Brazilian Leonidas, inventor of the bicycle kick, is to sports what Steven Jobs is to technology. And as in most strains of libertarianism there is one paramount rule – no force or fraud – and little else to restrain anything else humans might try. So too with soccer, where “do not use your hands” is the only overarching commandment; within this constraint, most everything else is legal.

None of this has anything to do with which sport is better. I like American football just fine (make of that what you will), and like a lot of Americans, I don’t much care for soccer. Indeed, one of the reasons Americans may dislike it is that we prefer to invent our own sports. I don’t pick my friends according to their politics, nor do I pick movies or sports by their abstractly argumentative political characteristics. But soccer (and American football and basketball) will be significantly different twenty years from now from what they are now, and I find that an attractive characteristic.

How Much Worse Could it Be?

2008-04-16T13:38:00.000-04:00

According to CNN, Youngstown, Ohio is disappearing:

YOUNGSTOWN, Ohio (CNNMoney.com) -- Youngstown, Ohio, has seen its population shrink by more than half over the past 40 years, leaving behind huge swaths of empty homes, streets and neighborhoods.

Now, in a radical move, the city - which has suffered since the steel industry left town and jobs dried up - is bulldozing abandoned buildings, tearing up blighted streets and converting entire blocks into open green spaces. More than 1,000 structures have been demolished so far.

Under the initiative, dubbed Plan 2010, city officials are also monitoring thinly-populated blocks. When only one or two occupied homes remain, the city offers incentives - up to $50,000 in grants - for those home owners to move, so that the entire area can be razed. The city will save by cutting back on services like garbage pick-ups and street lighting in deserted areas.

Here are my recommendations, for whatever city fathers think they are worth:

1. The Youngstown Zoning Ordinance runs 173 single-spaced pages. It specifies in minute detail what kinds of buildings property owners may build, how to supplicate before the authorities when a building or its alteration is being contemplated, etc. Repeal it. Entirely.

2. Youngstown levies a 2 ¼ percent income tax on residents and nonresidents, and on profits earned by corporations from business done in the city. Repeal it. Entirely. Cities all over the country get along just fine without an income tax.

3. Adjust government spending as necessary.

4. The government of Ohio demands that Youngstown businesses acquire the following kinds of licenses if necessary:

Accounting License
Alcohol License
Asbestos Contractor's License
Auction Firm License
Barber Shop License
Bedding License
Certificate of Authority
Cosmetology Shop License
Dairy License
Design Firm License
Elevator Permit
Engineers/Surveyors Corp License
Fictitious Name Registration
Finance License
Insurance Business License
Landscaping License
Lottery License
Nursery License
Pesticide Business License
Pharmacy License
Real Estate License
Sales Tax Registration
Salon License
Security License
Tanning Facility License
Tobacco License
Vehicle Dealer License
Weights and Measures
Withholding Tax Registration
Worker's Compensation

Recognize that Western civilization survived and even flourished for centuries without, for example, the need for cosmetologists and real estate middlemen to be licensed by the government. Proclaim that in the name of reviving your city these requirements will be waived, and dare the government of Ohio to stop you.

5. Announce that the city of Youngstown no longer gives a rat’s patoot about how many workers you have, how much you’re paying them, and how many hours a week they are working. Declare Youngstown a sanctuary city for workers and employers who wish to simply bargain freely.

6. Remind yourself before taking these steps how bad things are now, and remember this ten years from now when they are much better and you are contemplating going back to the old ways.