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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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