Christmas Trees and Kandy Keynes

So, in the interest of "getting it" and not being labeled as some wild-eyed extremist, let's consider the theoretical, and perhaps empirical, case for government "stimulus." (Am I alone in wishing that Beavis and Butthead would make a brief reappearance to snicker idiotically at the phrase "stimulus package"?) Hopefully, I can get my economist friend to offer a critique, if I am missing something fundamental.

The true essence of Keynesian stimulus theory is psychological. The free market critique of Keynes seems so straightforward as to be unassailable, as long as pure rational market actors are assumed. That is, neither the government nor the private sector can magically create wealth. It is, as always, a marriage of capital and labor to produce something of value. And if the government is allocating capital, then it is inevitably displacing something else that could be done in the private sector, i.e. opportunity cost. A quick sanity check on this: the money must come from somewhere! So the government must either tax it, borrow it, or print it. Either taxing or borrowing removes the money from private hands, and printing it is the ultimate illusion (no new stuff, just more money to buy it with--inflation). So, in a classic, rational market, government stimulus could be compared to scooping water from the deep end of the pool and pouring it into the shallow end.

But the reason Keynes could be right would be that, in the midst of a severe downturn, a crisis of confidence can cause those with capital to basically withdraw from rational investing. That is, there are bound to be good opportunities somewhere (there always are, there have to be, it's just a matter of finding them) it's just that in this moment of crisis, investors have no faith in anything and want to sit on their cash. So, enter the government. Said fearful investors, unwilling to bet on anything else, are nonetheless willing to lend to the government, i.e. buy treasury bonds. By being the borrower and spender of last resort, government gets the money moving again.

Keynes in a nutshell: psychological! Unless you really do believe that government, on average, as a matter of principle, actually does a better job at allocating resources than the private sector. And if you do believe that, then I think maybe the "S" word does apply... though I won't utter it, seeing as how mercilessly McCain (for whom I did not vote) was mocked.

And so, further, it does not really matter, from this point of view, whether the money is particularly well-spent or not. Yes, other things being equal, it is better for government to spend wisely rather than unwisely, but if what you want is stimulus, and if Keynes is right, just show me the money! Enjoy the Christmas tree of a bill that we have! Let us hope our children don't regret having to pay for it...

Greed, Gekko, and Us

Gordon Gekko has emerged as a stock figure in the national psyche, or at least he's a recurring figure over at the Slate Culture Gabfest. And apparently, the "Greed is Good" speech is a cultural touchstone in itself. (I must confess to never having seen all of Wall Street, from whence the character and speech come, but I'm pretty sure I've got the gist of it. Apart from Emilio's turn as Otto in the delightful Repo Man, I tend to avoid the Sheen boys.) Apparently Gekko's little oration, in blind disregard of the practically unambiguous evil of the character himself, actually became a rallying cry for the era that followed. "Greed is good!" an unironic cheer of the striving, trading classes.

I think the problem is largely semantic. There used to be a term, although I have not heard it in a while, for an alternative to "greed," namely "enlightened self-interest." Perhaps it was too unwieldy or just didn't fit the times, post Gekko, but it seems worth considering. As someone who will still stick up for the ideals of free markets, even in these dark hours, it is precisely this distinction that matters. "Self-interest" is fine. It is natural, healthy, and IS in fact the driving force of economic growth. (Innovation, among other things, enables growth, but the engine is self-interest.) As long as you play the game by the rules, it is fine to try and make money, even a lot of it, and I believe it should be your right. "Greed" is actually the exact point when things go off the rails--it is the point where you break the rules in order to get ahead. Breaking the rules, in economic terms, basically means theft in one form or another (fraud, for instance, is merely another form of theft).

Even Gekko, when he first introduces the "G" word into his monologue, actually says, "Greed, for lack of a better word..." He is thereby implicitly acknowledging something about the semantics and connotations of the term. Gekko is indeed evil, and indeed greedy (so I am given to understand, since I still haven't seen the film), but the speech he is giving is arguably about self-interest, and defensible on those terms, if you permit the distinction. If you do NOT lie, cheat, and steal, then it is OK to get what you can in the world. Simple enough.

But this has never been entirely accepted, even on the terms I propose. There seems to have always been a conflation between the two forms of self-interest, and it is not merely a left/right distinction. "Populists" of both flavors have always stood ready to impugn the profit motive. Making money is an unseemly pastime for the moral scolds of both stripes. The left maintains, incorrectly, that it must involve exploitation of someone, by failing to distinguish between positive sum and zero sum transactions. The right holds, incorrectly, that it must undermine other values like family, country, and God.

Yes, greed is bad, by definition. But "enlightened self interest," now that makes the world go 'round! Or so I will hold...

The "Tyranny" of Scale?

I really do love Slate. Generally excellent writing, a decent ideological balance (or at least intellectual honesty), and a fascinating array of topics. But there is the occasional clunker, such as this piece of pseudo-economic "thinking" on "The Tyranny of the Market." by Joel Waldfogel. I could not refrain from jumping into the Fray, here is my post from that forum:

Lord, what dreck. So there is a minimum necessary size of a market for some product before it becomes profitable to make that product. Hallelujah, Mr. Waldfogel has discovered economies of scale, thanks for sharing that with us! Somehow I suspect that Friedman, Hayek, and von Mises (with a couple of Nobel prizes between them) had actually heard of this concept.

Heavy sigh. No, free markets are not, in fact, magical fairy gum-drop land, where all is a happiness and light. They're just (almost always) better than the alternative. Setting aside the hard-core free market question of whether it is appropriate to take from the majority to benefit the minority (or vice versa!), Native Americans have not, generally speaking, had to go barefoot up until now, I suspect. Aside from making do with ill-fitting mass produced (and therefore inexpensive) shoes, I don't doubt that many purchased specially made shoes--when they could afford them. And there's the crux, to the extent that Native Americans had trouble finding shoes to fit them (as opposed to Nikes, which is not the same thing) it was almost certainly a matter of money. Another news flash: poverty causes deprivation. While generally libertarian, I am not religiously so, and so I am not opposed to any and all welfare spending. The best way to help people with little money, in the short run, is to give them money. With money, they can get shoes, or food, or medicine or whatever the hell they need, and the government doesn't need to enforce an arcane list of requirements on businesses in order to force them to make specific products. In the LONG run, the best way to help poor people is economic growth, and here the record is unequivocal: capitalism beats the pants off socialism.

What the modern shoe industry (and economic activity in general) has accomplished is to continually provided better and better products at better and better prices. Those people who had the most common feet shapes and sizes benefited before those with atypical feet. What is gratifying about Nike's decision is that they are now giving a new group of consumers access to the same superior products, in terms of price to performance, that others with more typical feet have been enjoying for some time. The fact that Nike doesn't see a lot of direct profit in this line of shoes, but is doing it anyway for goodwill and good PR, is ALSO a sign of market economics at work. Good PR is good marketing, just to restate yet another observation that should be obvious, but apparently doesn't occur to Waldfogel.

The good news is that the march of technology and entrepreneurial innovation is pushing economies of scale lower and lower. A prime example being the "long tail" of Chris Anderson fame. Without the same physical limitations of a traditional bookstore, Amazon is able to offer something like a bajillion times more titles (forgive the technical lingo, I've been reading too much economics), because low inventory and other overhead means it needs to sell fewer and fewer of any given title to make money. Similarly, technology has changed the profitability scale at the publisher level as well; digital presses have lowered the cost of printing dramatically, so that books become profitable at much lower production numbers, and many more titles with smaller market potential can now be published.

Much the same can be said for vast swaths of products in many different markets, including pharmaceuticals, another topic touched on here. But it should not escape notice that one of the major contributors to the $1 billion price tag on getting a drug to market is... (anyone?) government regulation. This is not to say we should have no oversight of the industry, but the cost of getting FDA approval is huge, and makes the bar ever higher for the marketability of any given drug. Allowing greater flexibility in approval for smaller niche-market drugs would almost certainly work better than some hypothetical mandate to force researchers to work on some particular drug type.

A final note: Since the market allegedly "tyrannized" them, why don't we ask Native Americans just how well the U.S. government has taken care of them over the years? Any takers?

Girl Scout Death Squads

Another front in the war to ensure you eat virtuously: Girl Scout Cookies. As the author, Katherine Mangu-Ward, points out, at least this particular campaign isn't advocating a government ban--yet. But the same puritanical impulse drives this as the trans fat ban, and this sounds like busybody meddling to me. I hope the Girl Scouts resist the pressure. I think I'll buy an extra box or two this year.

More IATF RFC

Kling follows up and, among other things, defends the link between libertarians and "conservatives" by arguing that the Left is "religiously" worse than the Right. I'd say he's right about the Left's ideological religiosity, but wrong that it is worse than the Right's. As long as placating the Republican base means visiting Bob Jones University and paying respects to the likes of Falwell, Robertson, and Dobson, the GOP can never really be the party of liberty.

The term "social engineering" is often used sneeringly by "conservatives" to dismiss "liberal" programs aimed at, say, ending poverty. But "engineering" really just refers to a teleological enterprise, i.e. trying to shape or build a structure (or other artifact) with a specific goal or vision in mind, and this can be accomplished by proscriptions as well as prescriptions. What are prohibitions against all manner of individual choices, such as with whom we may enter into life partner relationships, and what sort of chemicals win intake in private, if not "social engineering?" Maybe we don't see these restrictions as such because we are accustomed to them, but those sorts of limits are certainly designed to make our society "better" by constraining our individual choices. Just because something is traditional doesn't make it right. Like Kling and his "liberal" friends, I myself lead a pretty traditional or "conservative" lifestyle, but living conservatively either brings its own rewards or it doesn't. If it does (and I find that it does), then the government need not enforce it; if it does not, then government sanction is unjustified and counterproductive.

In proving my libertarian bona fides, let me take just a moment to vent at the Left again. Just as Kling decries how the GOP Right has betrayed small government conservatives in the arena of fiscal responsibility, so to has the Democratic Left stomped all over small government ideals in the domain of personal liberty. Just to cite a couple of examples, they want to essentially expand the drug war to include tobacco, and they also seem hell-bent on legislating the foods we are allowed to purchase and eat. And there are at least a couple of dimensions to these prohibitionist impulses. One of their big justifications is that because society is on the hook for medical expenses incurred by poor lifestyle choices, society is thereby empowered to prohibit those choices. This is, indeed, Hayek's road to serfdom in spades, look no further. If the government is daddy when it's time to pay the bills, then you have to live by daddy's rules… But while fiscal responsibility is the enabling tool for government expansion in this scheme, it is hardly the ultimate impetus; the driving force of the Left's vision of the nanny state is plain old unadulterated Puritanism. Junk food and tobacco simply do not fit into the moral standards of today's so-called "progressives," and they are going to take them from you by force, if need be.

No, I cannot abide the Right's Bible-thumping moralizing, but I can only occasionally barely tolerate the Left's preachy paternalism—just long enough to vote for divided government, which I did. Principled non-voting increasingly looks like my preferred approach, in general, with a vote for the Democrats if divided government is at stake.

Mystery of Capital Rides On...

A well-written article at TCS by Peter Schaefer about unlocking the “dead capital” of the developing world, and what a huge opportunity it could be for everyone. I like just about everything he has to say, although I am curious as to why the name Hernando De Soto never comes up. (Answer: ah, I see, he does link to De Soto’s book, as I just did.) At any rate, my one quibble is with the assertion that (mostly) all the developing world needs (I’m paraphrasing and simplifying) is “America’s original blueprint”. That is, the work of the framers at the end of the 18th century, who, in his view, set up everything so well that our economy evolved into its potent, modern form as a matter of course, flowing inexorably from the framers’ genius. I would argue that it is a bit bigger than that. The true construction of America’s prosperity and freedom both started earlier and ended later than the era of the framing itself. To take them backwards, De Soto points out how the process of squatting, followed by formalized property rights, played out over a couple of centuries. This is something that Schaefer seems to acknowledge at certain points, but that gets lost in the simple assertion of the framers as the fount of all this goodness. The framers did some good work, but to the extent that this pattern is the root of modern wealth, it is as much a cultural phenomenon as a political one, or even more so. The framers recognized and helped formalize some of this approach, but the cultural values that gave birth to it before the framing, and perpetuated it afterwards, are really the key.

Property rights, and the securing thereof, are indeed key, but there is a crucial, fascinating, and paradoxical twist. A modern economy clearly relies, in part, on stable and secure property rights, but they cannot be entirely rigid and fixed! If they were, then they formalization process itself would never really work! If you respect the property rights of the wealthy landowners who nominally “own” all this land being squatted upon, then you can’t formalize the squatters’ rights. Indeed one “critique” I read of De Soto’s policy prescriptions suggested that his ideas made things worse because some official landowners go in and forcibly evict squatters when they see formalization coming. I put “critique” in scare quotes because I don’t think much of this line of criticism. Allowing the wealthy, “official” title holders to evict the squatters is absolutely ass backwards of the De Soto plan. You can’t say that an approach that does the exact opposite of the intended plan is the fault of the plan. You have to deal with the rich landowners up front, in whatever manner will work. I’d say in general you’re best advised to buy them off. Use the foreign aid money to do it. Most of the foreign aid to the poorest countries gets skimmed off and goes to the wealthy already, and this way you’d at least get some tangible return on the investment!