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Archive for the ‘Economics’ Category

Mother Jones reports that Humbolt County, California, home to prolific marijuana growing, now has some great new bumper stickers.

Recently, “Keep Pot Illegal” bumper stickers have been seen on cars around the county. In chat rooms and on blogs, anonymous writers predict that tobacco companies will crush small farmers and take marijuana production to the Central Valley. With legalization, if residents don’t act, “we’re going to be ruined,” said Anna Hamilton, a radio host on KMUD-FM (91.1) in southern Humboldt County.

Bruce Yandle might be proud that actual bootleggers have signed on to his theory.

Via Boing Boing.

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From Marginal Revolution:

(From The Rational Optimist) The subtitle is How Prosperity Evolves and you can buy it here.  The book is due out in May.  Excerpt:

In this book I have tried to build on both Adam Smith and Charles Darwin: to interpret human society as the product of a long history of what the philosopher Dan Dennett calls “bubble-up” evolution through natural selection among cultural rather than genetic variations, and as an emergent order generated by an invisible hand of individual transactions, not the product of a top-down determinism.  I have tried to show that, just as sex made biological evolution cumulative, so exchange made cultural evolution cumulative and intelligence collective, and that there is therefore an inexorable tide in the affairs of men discernible beneath the chaos of their actions.  A flood tide, not an ebb tide.

This book will be adored by fans of Julian Simon.  Ridley is an optimist about the year 2100 and one of the final sections considers whether Africa and climate change will be exceptions to the generally optimistic trends.

Sounds very interesting.

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Quoting Quotes of Quotes

PPI via Kling via Unbroken Window:

from Ed Kilgore, of the Progressive Policy Institute.

Certainly, few self-conscious libertarians have much tolerance for racism, but they are encouraging a point of view about “welfare” that has long been catnip to racists. And that’s a problem for liberals. How can an alliance last in a climate where a progressive think tanker has to look down the rostrum at that nice Cato Institute colleague and wonder if he or she privately thinks the poor are “looter scum”;

People like Wilkinson, Lindsey, and myself have indeed spoken out against “welfare” of the auto bailout and the “looter scum” of the bailed-out financial industry. On the other hand, when people criticize my pro-immigration stance on the grounds that we will be adding to the welfare burden and thereby enlarging the state, my reply is that welfare is not the state enlargement that I fear. What I fear is the state’s control of education, health care, the financial industry, and so on.Ed Kilgore exemplifies what Thomas Sowell calls “using the poor as mascots.” That is, when a libertarian opposes a statist agenda, Kilgore comes back and accuses us of being racists and hurting the poor.

I am disappointed but not at all surprised to see this attitude expressed. In fact, I am glad to see this rhetoric out in the open. If the rest of the Progressive movement wants to rally to this flag, it helps clarify the situation for libertarians.

(Prof Rizzo:) I, too, am glad this is out in the open. In fact, much of what I aim to do is get this stuff out in the open. To add one small comment, I would add that a good number of  “Progressive” critics of a classical liberal position have no idea what the underlying economics are in the first place. More often than not, the criticisms are ad hominem and not of much substance. In any case, count me among the folks the PPI gives the salute to. For the record, say what you will about the likes of Wilkinson, et al, but at least they are not, themselves, “looter scum.”

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Matt Yglesias:

Gregg concerned that CFPA might do too much to achieve social justice: http://bit.ly/cxqNJE

Thomas Sowell (quoting, I believe, from his recent four part column on fairness which I have only had time to skim):

“Fairness as equal treatment does not produce fairness as equal outcomes.”

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I was watching a Mises Institute video (not worth linking to) about a new English-language Bastiat compendium (new as of I don’t even know when), and the scholar who edited the works called Bastiat an economist. It got me thinking: I don’t like the term “economist.” It presupposes that something needs economizing. In fact, narrowly speaking, I hate “economists” (for a thorough exposition of this sentiment, see The Black Swan by Nassim Nicholas Taleb). The job description assumes a central planner role. A technocratic role. An OMB/CBO/Peter Orszag/bulls***ter who makes ridiculous claims about, for example, Social Security’s solvency*, based on “economic projections.” It assumes someone who studies economics but thinks that “economics” allows them to know and do much more than it actually does.

“High priests and lowly philosophers” — read it. Economists really shouldn’t act like they transcend the title “lowly philosopher.” That’s why I love Bastiat, Hazlitt, and others (e.g. Stossel) who are outside of the “economics” establishment. They’re observers and lowly philosophers, not technocrats. For all the purported benefits mathematics has brought to economics, I think they have been outweighed by the air of sophistication and accuracy they have afforded economics, exploited by those who wish to use the “science” for authoritarian ends. See “The Pretence of Knowledge,” because if you haven’t read it already you must. This is why Austrians are legit. They realize the limits of their knowledge.

More generally, I hold great respect for scholars who do not reside in academia (or who can at least avoid groupthink within it). I include the aforementioned Bastiat and Hazlitt, along with Mises (virtually unknown in America while he resided here), Hayek (scorned until his unexpected Nobel in ’74), even Rand, and my new favorite intellectual terrorist, Taleb. And of course, the Austrians. Perhaps their status as outsiders in the intellectual tradition of economics has kept Austrian economists free of the pretensions of the mainstream. In any event, I consider economics to be enlightened philosophy — normative arguments must be informed by an understanding of what is, which is why Austrian concepts such as spontaneous order, entrepreneurship, and market processes are so useful.** Useful in a philosophical sense, however — not analogous to the physical sciences, which is what many (most?) mainstream economists desire to emulate.

*Along the lines of intellectual herding, I’m infuriated every time I hear an academic knock Wikipedia, or hear the oft-uttered, sarcastic “Well if its on the internet it must be true.” To which I reply “Well if its in print it must be true.” For first-rate intellectual fraud and ideological rationalization, check out this book on Social Security by Peter Orszag. While researching the (nonexistent)  Social Security Trust Fund a couple of years ago, I came across this book and Orszag immediately made my top 5 most despised public intellectuals. Other notables include Naomi Klein and the notorious Michael Moore (not an intellectual, but you get the idea).

**I highly recommend The Foundations of Morality by Henry Hazlitt. It’s a beautiful synthesis of philosophy with economic understanding to produce a rule-utilitarian ethical system. It doesn’t answer all questions, of course, but its a great approach. And as discreetly as possible, I’m going to concede defeat in my debate with Seth.

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Luck and Risk

How would you describe someone who’s made a fortune in the stock market, only to lose it all, many times over? The average journalist would probably choose from among dogged, persistent, undaunted, and maybe irrepressible. According to Professor Rizzo, they should probably just use ‘lucky’.

What is this chart telling us? It is a reminder that current market prices tend to capture any relevant and publicly relevant information about a product, company, sector, or industry. This is the simple foundation for the “Efficient Markets Hypothesis.” What are its implications? Well, it would suggest that an investor, by looking at business cycle conditions, and other publicly available information, cannot profit from that information by trading based on it.

Does that mean investors cannot beat the market? Not at all. But do not confuse luck with competence.

This reminds me of an old Gladwell piece, available here and in his book, that looks at two different Wall Street strategies, and the rise of Nassim Taleb’s no-risk, slow-reward approach.

One day in 1996, a Wall Street trader named Nassim Nicholas Taleb went to see Victor Niederhoffer. Victor Niederhoffer was one of the most successful money managers in the country. He lived and worked out of a thirteen-acre compound in Fairfield County, Connecticut, and when Taleb drove up that day from his home in Larchmont he had to give his name at the gate, and then make his way down a long, curving driveway. Niederhoffer had a squash court and a tennis court and a swimming pool and a colossal, faux-alpine mansion in which virtually every square inch of space was covered with eighteenth- and nineteenth-century American folk art. In those days, he played tennis regularly with the billionaire financier George Soros. He had just written a best-selling book, “The Education of a Speculator,” dedicated to his father, Artie Niederhoffer, a police officer from Coney Island. He had a huge and eclectic library and a seemingly insatiable desire for knowledge. When Niederhoffer went to Harvard as an undergraduate, he showed up for the very first squash practice and announced that he would someday be the best in that sport; and, sure enough, he soon beat the legendary Shariff Khan to win the U.S. Open squash championship. That was the kind of man Niederhoffer was. He had heard of Taleb’s growing reputation in the esoteric field of options trading, and summoned him to Connecticut. Taleb was in awe.

“He didn’t talk much, so I observed him,” Taleb recalls. “I spent seven hours watching him trade. Everyone else in his office was in his twenties, and he was in his fifties, and he had the most energy of them all. Then, after the markets closed, he went out to hit a thousand backhands on the tennis court.” Taleb is Greek-Orthodox Lebanese and his first language was French, and in his pronunciation the name Niederhoffer comes out as the slightly more exotic Nieder hoffer. “Here was a guy living in a mansion with thousands of books, and that was my dream as a child,” Taleb went on. “He was part chevalier, part scholar. My respect for him was intense.” There was just one problem, however, and it is the key to understanding the strange path that Nassim Taleb has chosen, and the position he now holds as Wall Street’s principal dissident. Despite his envy and admiration, he did not want to be Victor Niederhoffer — not then, not now, and not even for a moment in between. For when he looked around him, at the books and the tennis court and the folk art on the walls — when he contemplated the countless millions that Niederhoffer had made over the years — he could not escape the thought that it might all have been the result of sheer, dumb luck.

It’s an excellent piece, and good reading for any of us who deal in the ideas of business, or the business of ideas.

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Mmmm. Bacon.

Rochester Economics Professor Micheal Rizzo, who’s blog shares our affinity for Hayekian humility, had an excellent series of posts over the holidays. In the spirit of the Twelve Days of Christmas, he examined what the last century has shown us about the interaction of scarcity and productivity, and the effects on the cost of twelve resources, from salt and tin to cobalt and diamonds.

His point is that these goods are growing ever more scarce, yet generally the cost (computed in both work hours and real price) is much lower. He argues that this is not merely incidental to each commodity, but true as a general rule. Even something as fundamental as sweet delicious mouth-watering hickory smoked bacon.

He notes that the average American manufacturing worker earns a pound of bacon every 11 minutes, a decrease in real price of 73% since 1900. And all that despite nearly a century of farm policy that can best be described thus.

P.S. While googling ‘bacon’ images, these bacon-wrapped-scallops popped up. Set mouth to ‘water’.

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Greg believes that spontaneous order can be too broadly applied so as to become meaningless.  Sure, if the analysis is too broad, then socialist states could be viewed as federalist experimentation, but I think this reading is intentionally mischievous.

Knowledge belongs to individuals.  This was a theoretical foundation from which Hayek was working.  A corollary of the normative defense of spontaneous order is that for any centrally planned system, central planners can’t have the knowledge to produce outcomes as efficient as a system where empowerment is decentralized to individuals to take advantage of the knowledge that they have.  This is enough to defend spontaneous order as a normative prescription.  It would be an abuse of language to say that socialist Cuba is spontaneously ordered because of a kind of international federalism, because political power is so concentrated there, relative to other types of systems.

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This month’s issue of Cato Unbound features a pretty good discussion of Hayek’s conception of spontaneous order.  Timothy Sandefur’s first critique in the lead essay is provocative, but has some flaws.  On Hayek’s description of how law is constructed, Sandefur writes:

“No system of law,” Hayek admits, “has ever been designed as a whole, and even the various attempts at codification could do no more than systematize an existing body of law, and in doing so supplement it or eliminate inconsistencies.” Even the most sophisticated bureaucratic, top-down plan is going to incorporate lessons learned through historical experience. In other words, the “partially different rules” that compete in the spontaneous order are necessarily “constructed” ones. And because Hayek incorporates these elements of constructivism into his account of spontaneous order, he ends up making it impossible to discriminate between a spontaneous and a constructed order.

This misses the point!  Hayek uses the idea of spontaneous order to comment on how centralized or decentralized power, knowledge, and decisions are in a social system.  Sure, a system of primarily constructed order can have feedback from the bottom, and a system of spontaneous order can have top-down universalities.  That doesn’t mean that if features of one type exist within a system of the other that the distinction between each becomes meaningless.  After all, Hayek was contrasting central planning with a market economy.

Sandefur oversimplifies.  He wants to classify systems into absolute categories while ignoring the existence of messy continua.  While it is possible to nitpick, we can easily classify the United States as a liberal market economy, and Cuba as a socialist economy.  It would be dishonest to deny these categorizations; we wouldn’t say that because the U.S. has public schools, and that because Cuba has a money supply, we simply can’t distinguish any difference between these economies.

Hasnas corroborates my sentiment that the difference really is simple:

If there is anything more to this problem, I am blind to it. Spontaneous orders are the product of human action but not human design; constructed orders are the product of human design. That’s about it. The former implies the absence of a conscious final decision maker; the latter implies its presence.

Sandefur attacks Hayek for making a normative critique of constructed orders.  Though he builds this argument from the supposed lack of distinction between spontaneous and constructed orders, he contradicts himself by acknowledging the existence of the difference, so that he can continue.  Given that the distinction does exist, is Hayek justified in making a normative critique of constructed orders?  Yes, he is!  Hayek’s point is that spontaneous order can handle more complex systems than constructed orders.  Constructed order can only be as complex as the central planner can design it, but spontaneous order can handle far more complexity.  This is a good thing.  A more complex system is able to handle more information and processes, and is able to give more people more of what they want.  Sandefur lays this in the introduction, so why not accept this normative claim at face value?

Sandefur chastises Hayek as lacking a basis for advocating social reform since spontaneous order will have provided some optimal socially constructed order.  That could be true, but that’s not how I read Hayek.  I read him as desiring to decentralize power and decisions, which would be social reform in and of itself.  Did Hayek really ever consider reform of social institutions that had already arisen from spontaneous processes?  Wasn’t the point just to criticize social processes that had been implemented from a central authority?

Obviously Hayek was a liberal, in the true sense.  He defined himself as such in “Why I Am Not a Conservative.”  So it doesn’t make sense that he would position himself against social change–he welcomed the dynamism of free markets, which carries a kind of social change.

Hold on!  Was the decision of Lawrence v. Texas justified by spontaneous order?  Sandefur is correct in pointing out that Hayek’s framework is ambiguous enough to both attack and defend the decision.  It’s a strong example of an instance where the logic of spontaneous order does not provide a clear normative prescription.  Does that matter?  Spontaneous order is a useful analytical tool, but it doesn’t apply to everything.

Hasnas’s normative defense of spontaneous order seems accurate, that true spontaneous order advances legitimate moral values, but also indicates the proliferation of them.  Also, Hasnas agrees that Hayek stretched the applicability of spontaneous order when using it to describe law.

Another point that comes up in the discussion is whether Hayek was making normative claims at all.  Caldwell writes:

Another way to make sense of Hayek is simply to assert that he was making no normative claims at all, that he was doing positive science. This would probably be Hayek’s preferred route, given that the Austrians always claimed to be following Weber’s strictures regarding Wertfreiheit. Thus when he criticized central planning, Hayek was actually claiming that, given the goals of socialists, central planning was not the appropriate means by which to reach them.

Is this true?  It seems to me that socialism has always held egalitarianism as its goal, not uplift.  Have you ever heard of a socialist discuss positive-sum game?  I haven’t.

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The triumph over scarcity?

Will Wilkinson picks up a nice tidbit from NYU’s Dean of Social Sciences, Dalton Conley, making this point;

Inequality — and its consequences — is the wrong target. It’s time for progressives to spend less time trying to prove the effects of inequality on health, growth, and politics and instead start focusing on opportunity for those shut out entirely.

There’s  a lot  of other great commentary, I suggest reading the whole post.

The point that a rising tide lifts all boats is echoed nicely in this video from Reason.tv

The gales of creative destruction are not about taking a set number of goods and distributing them, but constantly creating new ways of meeting or creating needs and demands, and desires.

Damn that Nick Gillespie can rock a leather jacket, and bust a Schumpeter reference too.

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