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...

Gödel, Escher, Bernanke

I have recently been thinking about Gödel's Theorem and the regulation of markets. No, seriously... I know. I can't help it.

It is extremely important to note that I recognize a serious hazard here. It is dangerous to attempt translation across domains of knowledge, and such attempts often go awry, but I believe there is at least a slight chance that there is something real with this idea.

The question is whether the law can be accurately described as a "formal system," which has a mathematical definition. It seem plausible to me to suggest that it can, because all legal questions ultimately seem to boil down to a binary choice: Is action X lawful? That is, given a set of facts, describing the actions of some person, group, or entity, were those actions permitted or prohibited by the law?^* In greater detail, the laws and regulations would represent the axioms of the formal system. Furthermore a grammar exists (largely inscrutable to most of us, but natural for lawyers, judges, and such) for constructing assertions or statements in this system, e.g. "Being that, on the Eleventieth of Smarch, Homer J Fonebone did willfully violate article diggity-two, section naughty-five of the state penal code..." (Heh, heh, he said "penal.") Finally, at least in this brief treatment, the grammatically valid statements in this system are ultimately adjudicated as "true" or "false," i.e. a verdict. The law in practice, messy as it is, surely never obtains the status of a formal system, rigorously defined, but in idealized form, this is a reasonable model of what law aims to be.

Now, Gödel tells us, for those who have not visited our friend Kurt recently, that any rigorously constructed formal system must be either incomplete or inconsistent. That is, the system will either contradict itself by producing at least two derived statements that actually contradict each other, OR, if such contradictory statements are prohibited, then the system cannot validate the truth or falsity of all possible statements. That is, there can never be a simple, mechanistic algorithm for determining the truth of any and all possible statements in the system.

If this does, in fact, apply to law, then the signs are certainly all around us. I see two major consequences: First, this renders the idea of "strict constructionism" logically impossible. Various "lower" courts are often arriving at blatantly contradictory conclusions on matters of constitutional law, and since the law, at least in theory, must be consistent, the Supreme Court must resolve the dispute. In doing so, the court sometimes makes new law, which, if I am correct, is not (necessarily) arrogance or hubris, but actually a logical necessity. This is not to say that the Court is always right, or that it does not sometimes exceed its proper bounds, but merely that existing law, as written, will never be both complete AND consistent. This is not quite the same as the classic "the framers couldn't forsee everything" argument, but a statement about logical inevitability.

The other consequence relates to the currently heated "debate" (really at lot more like ad hoc and ad hominem arguments hurled about the chattering political commentariat) concerning regulation and the economy. I have more than once heard prudent, thoughtful people argue that no matter how much we regulate, clever accountants, CEO's, CFO's, and lawyers will find a way to innovate to find "loopholes" that enable some sort of behavior that was intended to be prohibited. I have always found myself nodding, or even exclaiming, my agreement. Now, it seems that this argument may possibly be mathematically true.

Finally, as always, yes, we need regulation. Regulation is just law at the lowest level, and without the rule of law, not only will markets fail to function, but society collapses. But I do believe the Gödelian argument, if valid, points in the direction of so-called "principle based regulation" as an alternative to the minutely detailed proscriptive framework that dominates the modern regulatory landscape. Rather than chasing the mirage of a perfectly tuned and adjusted vast edifice of rules, which will inevitably fail to cover all situations, we should formulate the problem as one of basic principles. Regulate transparency, disclosure, and clarity. Do not, as a rule, try to prohibit any particular contractual arrangement between parties, but rather ensure that the parties fully disclose relevant obligations, and do our best to ensure that disputes about any given contract can later be sorted out effectively and fairly by the courts, for when the shit inevitably hits the fan.


Notes

* I am expressing the problem in language suitable for criminal law, but the reasoning should apply equally well in the civil arena, with suitably adjusted verbiage. Also, the observant, or lawyerly, reader will have noted that I asserted "given a set of facts," omitting the courts' role in actually finding facts. I understand that finding facts is also one of the chief duties of our legal system. This actually makes the argument stronger. Not only are courts needed to find the facts, but they can never be replaced by some mechanisitic framework even taking the facts as given. (Return)

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...

First thing we do, let's kill all the canaries and roosters!

Comes word from on high that market regulators are considering banning or otherwise restricting short selling, to "help stabilize the markets." Genius. Thank God our men and women of vision are on the job, saving us from the evil speculators.

It brings to mind how in the old days, miners would take various birds, most famously canaries, down into the mines, presumably because they enjoyed the plumage--the mines being otherwise such a dark and dreary place. Trouble is, the birds would die occasionally, and there was very often a buildup of toxic gas in the mine at the very same time! Clearly the canaries were a serious hazard, the gas buildup often sickening or even killing miners. Thankfully, the practice is now a thing of the past, the birds are rarely taken into the mines, and the number of gas-related miner deaths has declined apace!

On a related note, it has come to my attention that nearly all recent stock market declines have taken place during daylight hours (market local time, that is). Given the seriousness of this problem, I call for a large scale rooster-slaughtering program. Eliminate the sunrise, and I can nearly guarantee that the stock market will stop dropping (if not immediately, then at least after one final round of selling). Yes, this does raise the problem of how we will get more chickens in the future, but I am simultaneously calling for our genetic scientists to get to work on cloning hens, which should resolve the matter in short order.

You can thank me later.

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?

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.

Trade and Morality

I rather enjoyed this recent pro-trade piece by Tim Worstall at TCS, in which he lays out a strong moral case for trade, and I would add that I more or less agree with his position and its underlying reasoning. It did, however, remind me by association Steve Landsburg calling John Edwards a bigot in Slate a couple of years back--which I liked a good deal less. The overall point is much the same: trade is unquestionably turning hundreds of millions of poor people into non-poor people, and therefore a force for good in the world. Opponents of trade are therefore on some pretty shaky ground, especially since workers in the developed world aren't really any worse off absolutely than they were, it's just that the rich are getting richer faster, so that they are relatively less rich than before.

That last point is pretty important, however, in making the case to middle class and working class people, and in the realm of politics in the rich countries of the world. If someone is actually being harmed by globalization, it is rational for them to get upset about it. And if you're a politician who is trying to represent those people, it makes sense to give voice to that discontent. It doesn't make you a racist, just mistaken. Perhaps it's bad form to quote yourself, but it can be efficient. I posted this in the Slate Fray as a response to Landsburg:

Let's be clear--this is not about agreeing or disagreeing with your position on international trade. ... I come down as a pro-trade sort of person. That is, assuming that the truth is probably somewhere between the Lou Dobb's scare-mongering, "outsourcing is evil" alarmism and its polar opposite ..., I think the polar opposite is closer to the truth. I think the free traders (and I have to assume you are one) are probably right. (I support Kerry and Edwards, however, because other issues outweigh the trade issue for me.)

But that has little to do with calling John Edwards a xenophobe or worse. The argument for trade is that we will ALL be better off in the long run, NOT that a foreign worker is just as deserving of a given job as an American. If the idea of free trade is merely that foreigners deserve American jobs, then it is NOT xenophobic to oppose it. In fact it would be a dereliction of duty for an elected official to do otherwise. We elect officials to represent our interests, not to engage in some sort of international welfare program.

I repeat, I think trade is good--Ricardo's comparative advantage and everyone ends up wealthier and all that. But that means that trade is GOOD for Americans, not bad. That's an argument a politician could (and probably should) make. But you aren't saying that, you're saying that if someone running for office believes trade is BAD for Americans, they should support trade anyway, because Americans have some moral duty to give other people their jobs. You are arguing that giving the welfare of Americans priority over the welfare of foreigners makes a politician no better than a common racist. Nonsense, and shame on you.

Worstall, as I indicated, makes the same basic point about trade without the nasty slur used by Landsburg, but I am saying that you still need to make the case in terms of "everybody wins." "Everybody else wins, you get screwed, but you should be all right with that because you're helping poor people!" is not only a political loser, but not necessarily a moral winner either. If the fat cats are getting ever fatter, why is it the middle class' duty to sacrifice for the poor?

Dramatic and growing income inequality might have negative implications for democracy, but it isn't necessarily bad in and of itself, as long as absolute income keeps growing across the board. Conflating relative poverty with absolute poverty is the sleight of hand that Krugman and many others engage in. Krugman, since I think he supports trade, must be angling for good old-fashioned redistribution. Others are trying to shut the borders, to both goods and people. Some of them are xenophobes (Lou Dobbs, Tom Tancredo, and Pat Buchanan come to mind), but others are merely misguided.

Gross Errors

I think Daniel Gross does a generally good job discussing economics in the Moneybox column over at Slate, but his recent two-part (so far) series on the labor market and immigration misses the mark, I think. While not an anti-immigrant stance per se, that is clearly the net result of his analysis, although he at least officially blames business owners and/or managers for the "problem" that he sees. In answer to the "we can't find Americans to do these jobs" argument, he trots out a standard dismissal: just pay more! Gosh, why hasn't anyone thought of this before? Just pay more and Americans will do the work!

Does the word "inflation" ring a bell? While Gross wants to attribute the problem to greed by business owners and managers, or perhaps stinginess on the part of the customers of these businesses, he loses sight of one of the basic concepts of economics (or is deliberately ignoring it). If the price goes up for the exact same thing, that's inflation. Doesn't matter if it's milk, eggs, or labor. The price of labor will work its way through the economy and less stuff gets produced and consumed. No free lunch, folks!

Consider landscaping, a business I know a little bit about. To be sure, if landscapers raised their wages they are paying for labor dramatically, they surely could find some price point at which Americans will be enticed away from other work, or out of comfortable non-work (but since we continue to have low unemployment and high workforce participation, as Gross points out, there's not a whole lot of non-working slack), but there is only so much profit margin in any business. Most landscapers I know aren't fat cats eating truffles on their yachts. To stay in business, they will have to raise prices to their customers. Now, surely there may be a few people in the market for landscaping who aren't price sensitive. The real fat cats are going to get their landscaping, if that's what they want. But the rest of us non-fat cats are sensitive to little things like price. So, raise the price of landscaping and what happens? People buy less of it. People may buy the plants and do it themselves. (Or go down to Home Depot and pick up some Mexicans! ;-) Or do without.

And there's the rub! That is real work that doesn't get done, and therefore real wealth that doesn't get created. So you can say that we just have to raise wages, but that doesn't really create wealth, it actually does the opposite.

No. Free. Lunch.

Popular Economics - Mini Book Reviews Part II: The Undercover Economist

In The Undercover Economist, Tim Harford offers pellucid discussions of many important concepts. The style is lively and engaging, but he does not shy away from tackling some of the big problems facing society (and its economists), and I saw little evidence of an ideological ax to grind. That is, while he might be a bit (or a lot) more taken with the power of markets as a force for good than your average leftist, this is to be expected from most modern economists, and he also takes an honest, thoughtful look at the places where markets break down.

In a chapter ("Crosstown Traffic") dealing with externalities, when he snarkily tells an earnest young environmentalist (could easily have been someone like me, once upon a time) that he traveled to the meeting by anthracite-powered steamship from Australia, I'm sure I chuckled aloud. Admittedly, it was a snotty way to make a point, but a point well worth making: moral posturing has very little to do with actually solving problems. And although the case has been made many times, by many eloquent spokespersons, that economic development and environmental progress are not contradictory but complementary, we can always use another voice making the case intelligently. Because, unfortunately, too many partisans of the left and the right still haven't gotten the message--or won't acknowledge it, for political purposes.

I would heartily recommend this book as an introduction to economics. While it actually deals with a wide-ranging array of topics including environmental issues, income inequality, trade, and macroeconomic growth, Harford manages to make even the mundane microeconomic discussions (he opens with purchasing a cup of coffee) lively and engaging, as opposed to the deathly dry nature of most economics textbooks I have picked up. It's probably as good as you can get without getting significantly into the math. (Math is good! I'm all in favor of it, but perhaps the average reader, even an intelligent one, doesn't pick up a book expecting to manipulate variables for entertainment...)

Popular Economics - Mini Book Reviews Part I: Freakonomics

I've read three economics books for the general reader in the past year and a half or so. While I've enjoyed all three, I thought I'd pass on slightly more specific thoughts and recommendations. The three titles are Freakonomics, The Undercover Economist, and The Origin of Wealth. I'll give my mini-reviews in (at least) three installments, in ascending order of my ranking/relative enjoyment.

Freakonomics, I believe, sold the most copies and received the most buzz by a wide margin. Enjoyable, but still my least favorite of the three. At least a couple of people close to me were decidedly unimpressed with the methodology used to make some of the more controversial claims. In particular, the result linking legalized abortion to the drop in crime seems to set a lot of folks' teeth on edge. I cannot speak with much authority on the methodology, perhaps my anonymous economist buddy will chime in sometime. It does seem like multivariate regression analysis is tricky business. On the one hand, these economists (Levitt, et al.) do seem to do their homework. They go out of their way to acknowledge that correlation does not prove causation, but then attempt to show that other plausible explanations don't show the same correlations. After a while the case seems to build and at least approach convincing, at least to a layman such as myself.

I guess the main caveat I'd throw out is that I am still dubious about much (most) of the methodology of the social and behavioral sciences. Proving things about human behavior still seems like an immensely daunting and complicated task, and I'm not convinced that any manageable set of data points is up to it, at least yet. In the specific example, sure they weave an impressive tale about how all the other variables they can think of (and have data for!) do not account for (all of) the drop in the crime rate. But what about something they haven't thought of or do not have data for? There are so many possible variables--human brains and social constructs are just so vastly complex! I suppose in some scenarios, you can try to account for this sort of thing with an "everything else" bucket, which would include all the things currently unspecified, but that seems like a dubious technique. Reminds me of the unrealistic assumptions about perfect information and perfect "rationality" in classical economic theory (but more on that when we get to The Origin of Wealth) . My two bit, armchair amateur critique.

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!

Frontline, Wal-Mart, and Trade

I've been a huge fan of Frontline over the years, it’s one of the best shows on TV. The “Is Wal-Mart Good for America?” report, which I just saw last night, doesn’t seem to live up to its typically high journalistic standards. While maintaining a superficial level of even-handedness, it definitely seemed like it had an anti-Wal-Mart axe to grind. Another way of putting it is that it appeared to be a largely anti-trade piece, with Wal-Mart as our “evils of globalization” poster child.

Possible ideological biases aside, part of why so many of these pieces skew anti-trade is laziness. It’s extremely easy to show sympathetic images of factory workers being laid-off, their livelihoods, and lives, upended and uncertain. But the upside is really there, it’s just harder to show, partly because it’s more diffuse. Sure, as one of the anti-trade economists observes, working class Americans are BOTH consumers and workers. Consumers pay lower prices, and nobody really thinks that is bad in itself, but then closing factories does hurt a smaller number of people badly. He proceeds to state that he “believes” the net effect on the American economy is bad. This is in response to a Cato Institute fellow (probably “fellow” in both senses) who pointed out the standard upside: the greater well-being of all the cost-conscious consumers, who then have more money to spend on other things, which in turn stimulates the economy and creates jobs somewhere else.

Well, I don’t know that it’s clear whether “Cato-guy” or “Protectionist-guy” is right, in the balance. It depends, crucially, on the where the savings go. Say Jane consumer buys a Chinese-made blouse for $15 instead of an American-made one for $20. It’s all about what Jane does with the $5 she saved. Does she just sink it into more cheap Chinese goods? If so, Mr. Protectionist is probably right. Or does she put it toward some domestically produced good or service, or God forbid, save it? If so, Mr. Cato is probably right.

This is a complicated issue, and one I find very interesting. The answer(s) is (are) not so straightforward. Economists don’t all agree, but there is actual data out there. For instance unemployment has remained low and I believe that in general, real wages have held steady or risen, and the share of national income going to labor has remained stable. Seems like a point for pro-trade, but there are still subtleties to be explored. For example, how does the job and wage picture break down across income groups, skill levels, etc.? Why not show some of the data, and let some economists duke it out? I expect the cable news networks, with their tiny attention spans and competitive ratings pressures, to take the shallow route (I can hear Lou Dobbs beating his one big drum now), but this is public television, for crying out loud! Do some work guys! If PBS doesn’t do it, who will?