Category Archives: Economics

Economics, Philosophy, Political Commentary, Science And Society

The Economy Is Not A Machine

9 Comments

I don’t understand why people don’t understand this. An ecosystem is a much more accurate (and more useful) analogy. And I’ve always found this amusing/frustrating:

Keynesians on the left are eager to dismiss Intelligent Design (ID) as the creationist afterthought to evolution, but just as eager to embrace its analog in economics. Disciples of Adam Smith know better. Darwin, after all, read Smith. As the late naturalist Stephen Jay Gould wrote, “the theory of natural selection is a creative transfer to biology of Adam Smith’s basic argument for a rational economy: the balance and order of nature does not arise from a higher, external (divine) control, or from the existence of laws operating directly upon the whole, but from struggle among individuals for their own benefits.”

It’s particularly ironic (and there must have been some cognitive dissonance) that Gould wrote this, because my understanding was that he was a life-long Marxist. And of course, the opposite applies as well — many free marketeers refuse to believe in biological evolution. They understand that there is a natural emergent order in the marketplace, but can’t believe that life could evolve unguided from above.

I’m one of those weirdos who believes in both free markets, and free nature.

[Update late morning]

Arnold Kling has some thoughts on the myth of the “economic multiplier”:

It is amazing what happens when you assume that you live in a linear world. You say that the multiplier for government spending is 1.57.

Really? Over what range? Think of it this way: at which level of additional government spending would the path of U.S. real GDP be the highest?

(a) $100 billion in spending above the baseline
(b) $1 trillion in spending above the baseline
(c) $100 trillion in spending above the baseline

If you use a constant multiplier of 1.57, the right answer is (c). Yet we know that this is not the right answer. At $100 trillion in additional government spending, the United States would be operating like Zimbabwe, with similar results.

This is similar to the (dumb) argument often made by space advocates that space spending has a high (or higher) “multiplier” effect than other kinds of spending (the study most cited on this is the one done by Chase Econometrics back in the 70s).

Yes, obviously, if you pay engineers to do things, they’ll go out and spend the money on goods and services, and create more jobs for other people. And yes, if you develop technology, some of it is bound to have an economic benefit and improve productivity, or create new products, and grow the economy.

But when one makes these kinds of arguments, it’s all too easy to ignore what you’re spending the primary money on. It really does matter what product the engineers are building with government money. When it comes to space, does anyone think that it makes no difference whether we had continued to employ people building and flying Saturns, or had developed the Shuttle? Or that if we’d developed a better version of the Shuttle (perhaps by starting with smaller prototypes, and continually improving the concept over the past thirty-five years) that it would have made no difference in our prospects for being spacefaring? That it makes no difference whether we spend thirty-billion dollars developing Ares, or instead something that actually reduces the cost of access to space?

To listen to the “multiplier” argument, it doesn’t matter at all. Having the engineers design a machine to bore a hole to the earth’s center has the same economic value as to build a space elevator.

When we are talking about government spending, it isn’t sufficient to talk about how much we’re spending, and whether or not it will “stimulate the economy.” We have to talk about what we’re spending it on, and unfortunately, much of what the Democrats want to spend it on will (relative to letting people decide what to do with their own money) not create wealth, or grow the economy, but rather destroy it. It’s what governments do.

Business, Economics, Media Criticism, Political Commentary

Reason Number 32,467

13 Comments

…that I won’t miss George Bush. He did an interview with the Star Telegram the other day. He talked about a range of things (including space policy, which I’ll discuss in a separate post), but this makes me crazy:

No question that the economic — the current economic situation is very difficult and it obscures the fact that during my time in office we had 52 uninterrupted months of job creation, which was a record. The current economic crisis began before my presidency. All of us who have held office during — from the genesis of the crisis until today bear responsibility.

On the other hand, given the stark nature of the financial situation and the dangers inherent with it, I have moved and moved very aggressively. We have abandoned free market principles and did what it took to prevent the financial system from melting down.

The implication of that last was that we were in the midst of some sort of riot of laissez faire up until September, then had to suddenly “abandon free market principles.” But what happened had nothing to do with free-market principles. Unless, that is, you consider strong-arming by Congress into handing out dodgy loans to unworthy home buyers is somehow a “free market principle.” Or that putting so much paperwork requirements on the accounting of public corporations (see Oxley, Sarbanes) that it has almost shut down the IPO market, and inhibited the formation of new startups is a “free-market principle.”

This kind of foolish rhetoric plays right into the hands of the people who demagogued the Democrats into power, with their talk about all of the mythical “deregulation” under “Republicans” that somehow resulted in the current financial mess, even thought they cannot point to a single actual instance of such “deregulation” (at least not in the Bush years). If they think that repealing Glass-Steagal was a bad idea (I don’t, in and of itself), that happened under that famous free marketeer, Bill Clinton.

I expect the Democrats to rewrite history, but I’m not going to miss a supposedly Republican president who acquiesces to it. And John McCain would have been no better.

[Update a few minutes later]

OK, here’s reason 32,468:

Two more former top Bush Justice Department officials have endorsed the nomination of Eric Holder for attorney general, the latest in a growing list of GOP backers for Holder.

In letters obtained by Politico and expected to be released shortly, Paul McNulty and Larry Thompson, both of whom served as deputy attorney general under President George W. Bush, threw their support behind Holder, who was a deputy attorney general under former President Bill Clinton.

James Comey, another Bush deputy attorney general, has also backed Holder.

This says much more to me about the poor quality of Bush Justice Department picks than it does about the merits of Eric Holder. I hope that the otherwise worthless senior Senator from Pennsylvania puts up the kind of fight against Holder that he’s been hinting at (though I wish that someone would also ask him about his views on the Second Amendment and Heller).

[Afternoon update]

For anyone interested, I’ve put up a post about the space portion of the president’s interview now.

Business, Economics, Media Criticism, Political Commentary, Space, Technology and Society

Why?

58 Comments

Dennis Wingo says that we need a compelling reason for a space program, and we don’t currently have it. I agree. This is the space policy debate that we need to have, and never really have, at least not since the early post-Sputnik period. There is no way to come up with the right transportation architecture/infrastructure if we don’t understand the requirements, and we don’t really understand why we’re doing it. People persist in thinking that the VSE was a destination (the moon, then Mars), and then proceed to argue about whether or not it was the right destination. But it was, or should have been, much more than that — it was a statement that we are no longer going to be confined to low earth orbit, as we had been since 1972. But the failure was in articulating why we should move beyond LEO. Dennis has done as good a job of that here as anyone to date.

I would also note that it’s hard to generate enthusiasm for spending money, or astronauts’ lives, when we don’t know why they’re doing it. As I wrote a couple years ago:

Our national reaction to the loss of a shuttle crew, viewed by the proverbial anthropologist’s Martian (or perhaps better yet, a Vulcan), would seem irrational. After all, we risk, and lose, people in all kinds of endeavors, every day. We send soldiers out to brave IEDs and RPGs in Iraq. We watch firefighters go into burning buildings. Even in more mundane, relatively safe activities, people die — in mines, in construction, in commercial fishing. Why is it that we get so upset when we lose astronauts, who are ostensibly exploring the final frontier, arguably as dangerous a job as they come? One Internet wag has noted that, “…to judge by the fuss that gets made when a few of them die, astronauts clearly are priceless national assets — exactly the sort of people you should not be risking in an experimental-class vehicle.”

What upset people so much about the deaths in Columbia, I think, was not that they died, but that they died in such a seemingly trivial yet expensive pursuit. They weren’t exploring the universe — they were boring a multi-hundred-thousand-mile-long hole in the vacuum a couple hundred miles above the planet, with children’s science-fair experiments. We were upset because space isn’t important, and we considered the astronauts’ lives more important than the mission. If they had been exploring another hostile, alien planet, and died, we would have been saddened, but not shocked — it happens in the movies all the time. If they had been on a mission to divert an asteroid, preventing it from hitting the planet (a la the movie Armageddon, albeit with more correspondence to the reality of physics), we would have mourned, but also been inured to their loss as true national heroes in the service of their country (and planet). It would be recognized that what they were doing was of national importance, just as is the job of every soldier and Marine in Iraq and Afghanistan.

But space remains unimportant, and it will continue to be as long as we haven’t gotten the public and polity to buy in on a compelling “why.”

Business, Economics, Media Criticism, Philosophy, Political Commentary

From Fiction To Reality

10 Comments

Steve Moore says that we are fulfilling Ayn Rand’s dystopian prediction:

In the book, these relentless wealth redistributionists and their programs are disparaged as “the looters and their laws.” Every new act of government futility and stupidity carries with it a benevolent-sounding title. These include the “Anti-Greed Act” to redistribute income (sounds like Charlie Rangel’s promises soak-the-rich tax bill) and the “Equalization of Opportunity Act” to prevent people from starting more than one business (to give other people a chance). My personal favorite, the “Anti Dog-Eat-Dog Act,” aims to restrict cut-throat competition between firms and thus slow the wave of business bankruptcies. Why didn’t Hank Paulson think of that?

These acts and edicts sound farcical, yes, but no more so than the actual events in Washington, circa 2008. We already have been served up the $700 billion “Emergency Economic Stabilization Act” and the “Auto Industry Financing and Restructuring Act.” Now that Barack Obama is in town, he will soon sign into law with great urgency the “American Recovery and Reinvestment Plan.” This latest Hail Mary pass will increase the federal budget (which has already expanded by $1.5 trillion in eight years under George Bush) by an additional $1 trillion — in roughly his first 100 days in office.

The current economic strategy is right out of “Atlas Shrugged”: The more incompetent you are in business, the more handouts the politicians will bestow on you. That’s the justification for the $2 trillion of subsidies doled out already to keep afloat distressed insurance companies, banks, Wall Street investment houses, and auto companies — while standing next in line for their share of the booty are real-estate developers, the steel industry, chemical companies, airlines, ethanol producers, construction firms and even catfish farmers. With each successive bailout to “calm the markets,” another trillion of national wealth is subsequently lost. Yet, as “Atlas” grimly foretold, we now treat the incompetent who wreck their companies as victims, while those resourceful business owners who manage to make a profit are portrayed as recipients of illegitimate “windfalls.”

She was far ahead of her time.

Business, Economics, Political Commentary

“No One Is Going To Bail Out America”

15 Comments

Some sobering thoughts on the financial future. We have to get spending (particularly entitlements) under control. And socialized health care is one of the worst things we could do in that regard.

[Update a few minutes later]

Some thoughts on the disaster that was the New Deal:

The New Deal tripled taxes, which meant consumers had less money to spend and employers had less money for hiring; a number of New Deal laws made it more expensive for employers to hire people, which also meant less hiring; New Deal soak-the-rich taxes discouraged investment, and it’s almost impossible to create private-sector jobs without investment.

Other policies hurt Americans in other ways. Several New Deal laws banned discounting, when desperate people needed bargains; the New Deal authorized the destruction of food when people were hungry; the New Deal established hundreds of cartels and monopolies; the New Deal centralized the power of the Federal Reserve, and the Fed’s first major policy decision was a blunder that brought on a crisis within a crisis (the depression of 1938); the New Deal broke up the strongest banks and did nothing about laws that prevented thousands of banks from diversifying their depositor bases and their loan portfolios (Canada didn’t have these laws, and it went through the Great Depression without a bank failure).

Unfortunately, we just put a lot of people in power who want to (or at least claim to want to) do it over again.

Economics, Political Commentary

“A Nanny State On Steroids”

8 Comments

(Doctor) Paul Hsieh explains why lovers of freedom should fear “universal health care”:

Government attempts to regulate individual lifestyles are based on the claim that they must limit medical costs that would otherwise be a burden on “society.” But this issue can arise only in “universal healthcare” systems where taxpayers must pay for everyone’s medical expenses.

Although American healthcare is only under partial government control in the form of programs such as Medicaid and Medicare, American nanny state regulations have exploded in recent years.

Many American cities ban restaurants from selling foods with trans fats. Los Angeles has imposed a moratorium on new fast food restaurants in South L.A. Other California cities ban smoking in some private residences. California has outlawed after-school bake sales as part of a “zero tolerance” ban on selling sugar products on campus. New York Gov. David Paterson has proposed an 18 percent tax on sugary sodas and juice drinks, and state officials have not ruled out additional taxes on cheeseburgers and other foods deemed unhealthy.

These ominous trends will only accelerate if the US adopts universal healthcare.

But how could it be a nanny state on steroids? That’s probably one of the first things that will be banned…

Business, Economics, Media Criticism, Political Commentary

Bailout Rage

1 Comment

Arnold Kling vents:

De Rugy and the others also mention my other frustrations. First, that the Republican Party betrayed libertarians so badly on this issue. Second, that the media portrayed opponents of the bailout as unserious and ideological. Bernanke, Geithner, and Paulson were hailed as saviors, even though they could just have easily been portrayed as bumblers. The whole thing was portrayed as government having no choice but to come in and clean up the private sector’s mess, rather than an ill-conceived attempt to stop markets from adjusting to a mess that was created by a combination of market failure and government failure. Third, that even though much of the public instinctively and correctly opposed the bailout, it sailed through without costing Congressmen their seats.

The one upbeat commentator is Len Gilroy. He thinks that the high level of indebtedness of government will force politicians to scale back spending and to privatize. I’m sorry, but he comes off sounding like Mary Poppins on laughing gas.

As a commenter notes, the only hope is that a lot of non-libertarians are outraged, too. I hope it doesn’t end in riots, but I hope it ends.