пятница, 11 сентября 2009 г.

How is it possible to remain civil?

You have probably noticed the outrage that was caused by Rep. Joe Wilson's refferral to a statement from the latest President Obama's speech to Congress as a lie. The calls for civility and demands for apology have been coming from both sides of the aysle. Rep. Wilson quickly apologized.

Truth is that even if that particular statement of Obama was not a lie, his speech was packed with untrue statements the deliberate nature of which is clear since Obama has been repeating them speech after speech after speech despite plenty of evidence that they are untrue.

Moreover, moments before Rep. Wilson attacked Obama's speech, Obama himself referred to Sarah Palin death panels statement as "a lie, plain and simple". Whether the President may openly call his fellow citizen a liar with impunity while not tolerating such treatment of himself, is not what the politically correct establishment is concerned with.

The real question, however, is whether one should remain civil when a politician uses his/her oratorial mastery to convince people to abandon part of their freedom, to grab more and more power benefitting from the public's inability to see through his/her soaring rhetoric.

For me, it is the height of immorality for the orator to use his gift in such fashion. It is a pity that Obama must have missed some ethics lessons in his upbringing.

пятница, 21 августа 2009 г.

Does Barlett understand what the market is?

Seems that he does not if you read his recent article for Forbes.

Although, normally, Barlett is a free-market supply sider, after the crisis hit he has been striking compassionate tone.

In the article in question, Barlett is defending the stimulus with the following line of reasoning.

1) It is true that the financial crisis was largely caused by the mistaken government policies.

2) But those who really suffer are ordinary citizens and businesses (whom Barlett equates with the market).

3) Therefore, it would be unfair if the burden of helping the economy recover were placed entirely on the market.

4) Therefore, the Government must step in to right its wrongs.

Sounds logical, right?

But this kind of superficial logic is based on an elementary cognitive mistake of misplaced antropomorphic analogy.

The following analogy is in order. The market is the citizens who need help with, say, a broken bridge which they cannot mend by themselves. And the bridge was broken because the government, say, ordered the constructors to build the bridge from wrong materials. Since the government is to blame it must act as a repairman.

But neither the market nor the government is an antropomorphic actor. Both are institutional systems - one based on voluntary and the other - on involuntary cooperation. What the government does is it displaces the market with relations based on involuntary cooperation thereby at best impeding its work. The government thus can only help the market by allowing the market to work not by further displacing it.

среда, 19 августа 2009 г.

It's the Evidence, Stupid

I highly recommend watching the CNBC debate between Casey Mulligan (against stimulus) and David Goodfriend (pro stimulus). Note that both Mulligan and Goodfriend claim to have evidence.

But let us look closer.

The debate revolves around the White House report saying that without the stimulus 161,000 jobes would be lost. The White House claims to have saved them at the cost of $ 100 billion.

Mulligan's logic is as follows:

- it is impossible to determine with precision any impact of the stimulus;

- but even if we take the claims of the White House report at face value, the cost per job (around $ 600,000) is staggering.

Goodfriend, however, says that he has evidence that 161,000 jobs were really saved by the stimulus. But he does not stop there. He then claims that he has evidence that had those jobs been lost, the US economy would have been in much worse shape than it is now (in that he is clearly confusing correlation (in this case better even to say the coincidence of the stimulus and the economic improvement) with causation).

I think Krugman and the like would have applauded Goodfriend's defense of the stimulus as quite logical. But if the magic multiplier effect (of which there is no evidence) is taken out, the whole logic collapses spectacularly and the defence of stimulus becomes what it is - an excercise in sophistry.

вторник, 11 августа 2009 г.

Why Keynesianism is Unscientific

There are multiple ways to criticise Keynesianism.

One way is to say that it deals only with the seen side of the equation while ignoring the unseen, thus representing a classical broken window fallacy. A similar approach is to point at potential crowding out of the private investment by government spending. Yet another version of this view holds that it is logically impossible for the government to increase output by pumping money into the economy because it must first take money out of the economy. It is usually ridiculed by Krugman and the like as the so-called Treasury View.

Although I think that an increase in output (GDP) through government spending is not impossible, it is actually possible under very unrealistic conditions. But it is not even the voodoo multipliers that I would like to address in this post.

One should ask oneself a question. Even if the government could raise output for some short period of time through activist fiscal policy, why do that? Why prefer the imaginary present over not so distant future, the short term over the long term? Why believe that the consumers should spend the money now rather than later? Why reduce demand to spending on whatever has been produced prior to an economic slump?

Remember that Keynesians go so far as to claim that in the short run period of a recession caused by a fall in the aggregate demand (the demand is equated with total spending) the normal laws of economics do not apply, as masterfully exposed by Casey Mulligan in this video debate with Robert Reich.

Moreover, in the words of Keynes himself:

Now 'in the long run' this [way of summarizing the quantity theory of money] is probably true.... But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.

Keynes probably was not saying that the long run is utterly irrelevant. But he still expressed a clear preference for the short run outcomes.

And on this preference the whole Keynesian paradigm is built.

But this preference is clearly a verboten normative judgment. It does not have anything scientific about it.

Now you might say this is dishonest. After all are not the Austrians or Chicago School theorists expressing preferences for free market in their paradigms?

But before dismissing me as an ideological libertarian (and libertarian I am) you may note that in my critique of Keynesianism I did not even mention that it favors Big Government.

For me, the Austrians' preference for free market and the Keynesians' preference for more government are policy conclusions, not assumptions. The policy conclusions are by their nature normative.

But the Keynesians' preference for the good short run outcomes is not a policy conclusion. It is a normative assumption that short term effects are more important than the long-term ones. Keynesians do not even bother to provide a scientific justification to this. They just assume that involuntary unemployment and economy operating below so-called full capacity is somehow inherently bad, even if the underlying processes may have beneficial effect in the long run.

четверг, 6 августа 2009 г.

Why virtually all the progressive policies are unconstitutional

I was recently asked why progressive policies violate the US Constitution.

The answer is because they infringe on negative rights.

A negative right to x is a right to do x to the extent that a holder of the right to x does not violate other peoples'negative rights. It is as simple as that.

It is quite logical and non-contradictory. I can smoke pot, bear a gun, run naked in the street, spend billions on yaughts or other eccentricities and not violate any of your negative rights.

Remember that the US Constitution says that these rights are unalienable.

The only complex issue is property since the US Constitution does not it explicitly as an unalienable right.

But I can't imagine liberty or pursuit of happiness without property. For me, property is an integral, inalienable part of those freedoms. How could I have liberty to do business, to produce or exchange something without property? If you can think of an alternative to property as a necessary condition for negative liberty please share it with me.

That brings us to progressive policies. Virtually all the progressive policies (redistribution, licensing, "consumer protection", reporting requirements, you name it) infringe upon my negative rights while I in fact do not infringe on anyone else's.

понедельник, 20 июля 2009 г.

Why Universal Coverage is Manifestly Unconstitutional

One of the most contentious issues in US politics at least since the presidency of Lyndon Johnson has been universal health insurance coverage for all Americans. Up until now, all the attempts to adopt it have failed, including Hillarycare in the nineties.

Nonetheless, today the proponents of universal coverage from the Democratic Party are closer than ever to the fulfilment of their longtime ambition. They now control both chambers of the US Congress and the Presidency. Thankfully, they do not control the Supreme Court.

And I strongly believe that the Supreme Court must strike down universal coverage, if it passes through, since universal coverage manifestly violates the US Declaration of Independence which is part of the US Constitution.

The US Declaration of Independence famously says that "all men are created equal". What does this wording mean? The answer is that one does not need to be an originalist to conclude that it refers to formal as opposed to real equality.

The key word here is "created" and it was not used just by accident. One can only be created equal in the formal sense. In other words, this wording means that those who are created equal must be treated as equals. If you are already created equal you can only claim equal treatment.

Which brings us back to universal coverage.

The concept of universal coverage, whereby every American may claim insurance if he/she does not have it, strongly implies a right to health insurance, since a right is a claim that every member of the polity may put forward against the polity.

But the notion of a right to health insurance inherently violates the principle of formal equality, since it divides the people into the haves and have-nots, and maintrains that the latter should be treated differently from the former by the polity on the grounds that they are uninsured.

The concept of universal coverage therefore manifestly contradicts not just the spirit but the letter of the US Constitution. The US Supreme Court must be prepared to confirm that.

среда, 11 марта 2009 г.

Arnold Kling on the Relationship between One's Views on Probability and One's Views on Economics


A Nice Anti-Statism Cartoon


Fun. Two Cows Economics

From http://thrandur.net/chitchat/two-cows-economics-world-iceland/

SOCIALISM You have 2 cows. You give one to your neighbour.

COMMUNISM You have 2 cows. The State takes both and gives you some milk.

FASCISM You have 2 cows. The State takes both and sells you some milk.

NAZISM You have 2 cows. The State takes both and shoots you.

BUREAUCRATISM You have 2 cows. The State takes both, shoots one, milks the other, and then throws the milk away…

TRADITIONAL CAPITALISM You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income.

SURREALISMYou have two giraffes. The government requires you to take harmonica lessons

AN AMERICAN CORPORATION You have two cows. You sell one, and force the other to produce the milk of four cows. Later, you hire a consultant to analyse why the cow has dropped dead.

VENTURE CAPITALISM - AN ICELANDIC CORPORATION You have two cows. You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows. The milk rights of the six cows are transferred via an intermediary to a Cayman Island Company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company. The annual report says the company owns eight cows, with an option on one more. You sell one cow to buy a new president of the United States, leaving you with nine cows. No balance sheet provided with the release. The public thenbuys your bull.

A FRENCH CORPORATION You have two cows. You go on strike, organise a riot, and block the roads, because you want three cows.

A JAPANESE CORPORATION You have two cows. You redesign them so they are one-tenth the size of an ordinary cow and produce twenty times the milk. You then create a clever cow cartoon image called ‘Cowkimon’ and market it worldwide.

A GERMAN CORPORATION You have two cows. You re-engineer them so they live for 100 years, eat once a month, and milk themselves.

AN ITALIAN CORPORATION You have two cows, but you don’t know where they are.You decide to have lunch. A RUSSIAN CORPORATION You have two cows.You count them and learn you have five cows.You count them again and learn you have 42 cows. You count them again and learn you have 2 cows. You stop counting cows and open another bottle of vodka.

A SWISS CORPORATION You have 5000 cows. None of them belong to you. You charge the owners for storing them.

A CHINESE CORPORATION You have two cows. You have 300 people milking them.You claim that you have full employment, and high bovine productivity. You arrest the newsman who reported the real situation.

AN INDIAN CORPORATIONYou have two cows.You worship them.

A BRITISH CORPORATION You have two cows. Both are mad.

AN IRAQI CORPORATION Everyone thinks you have lots of cows. You tell them that you have none. No-one believes you, so they bomb you and invade your country. You still have no cows, but at least now you are part of Democracy….

AN AUSTRALIAN CORPORATION You have two cows. Business seems pretty good. You close the office and go for a few beers to celebrate.

A NEW ZEALAND CORPORATION You have two cows. The one on the left looks very attractive

Thoughts on Operation Cast Lead

Further to the yesterday's debate on the Israeli Operation Cast Lead against Hamas, which I was adjudicating, I would like to put an important argument on the table.

Those who castigate Israel as an agressor usually commit the following fallacy. On one hand, they claim that you cannot punish the Gazans for the activities of Hamas for which they are simply not responsible. On the other hand, they say that Hamas is a democratically elected government which must be treated as a legitimate party in the negotiations process.

However, YOU CANNOT HAVE IT BOTH WAYS. Either the people who have elected Hamas should be held responsible for their choice since they elected Hamas as their representatives, or Hamas is actually not a government and does not in fact represent the Gazans, regardless of the fact of its election.

I tend to favor the second view. For me, the mere fact of a single election won and the ability to control the territory by force does not make a terrorist gang a government.

To excercise sovereignty, such gang should cease terrorist activities and start actually governing, i.e. providing public goods to the population. And the historical experience does not support the view that a terrorist organization may be peacefully transormed into a functioning government. The examples of Hizbollah in Lebanon, LTTE (Liberation Tigers of Tamil-Eelam) in Sri-lanka, FARC in Colombia, Khmer Rouge in Cambodia, and yes, the VKP(b) in the USSR - suggest that terrorists will remain terrorists even under the veil of "government".

Stimulus Thought Experiment

Now let us run a thought experiment.

Imagine a closed economy consisting of 5 members – John, Bob, Mark, Anna and Vera.John’s only function is to govern his small community. John’s debt is owned by a banker down the road (mind the Chinese holders of the US debt) Mark is currently unemployed. And only Bob, Anna and Vera are involved in productive activities (no implied sense here) providing for all the needs of the 5 community members. There will be no increase in the number of members in the community and no increase of consumption of the current resources in the foreseeable future (This is the first unrealistic assumption).

But let us forget about it and suppose the total real wealth of the community is equal to $ 500 and it is stable. On top of this wealth, the economy has $ 500 in financial instruments (money) which circulate in the economy to facilitate exchange among members (This already means that there is no current household debt and that the current real wealth arising from the initial resources will not decrease in the future).

And let us also suppose that due to their animal spirits which have failed them, Mark, Bob, Anna and Vera do not utilize an idle resource, say, a mill. Imagine also that this mill represents all the idle resources in our hypothetical economy.

Now, concerned with the falling public confidence about the future economic growth, John searches through his dusty book shelves and finds (surprise) a Keynesian textbook by, say, Paul Samuelson. He gets inspired and decides that he (the government) must do something to help the economy recover. He decides to stimulate the other members by providing them an interest-free loan (This represents the second assumption that in the future John (the government) will not demand more than $ 100 in real wealth at the moment when the stimulus funds become due). And John prints the needed money on his printer.

Now comes the crucial part of the stimulus story. John distributes the money among members of his community (regardless of the proportion to simplify the case), and this magically makes the community suddenly realize the perfect business opportunity, the gold mine presented by the unutilized mill.John appoints Mark to work on the mill.

Now the problem of unemployment is done away with (Forget that Mark may refuse or be unsuited or unable to work on the mill, otherwise crowding out of the private investment will result from the utilization of the mill because John would need to divert another member of the community from productive activities).

Now let us not forget that in our hypothetical economy no inflation results from the injection of the additional paper money into the economy, otherwise the excess amount of money would be offset by the rise of prices of the initial resources and would not be stimulating enough. The utilization of the mill also does not require diversion of any other real wealth from the economy. The mill can start operating from scratch, the grain used in the mill costs zero. Mark’s needs will still be catered for out of the existing real wealth.

How about Mark’s additional needs for at least more food and water to heroically work on the mill? Well, he will eat grain and drink water from a puddle. He will not need any additional entertainment or other goods which the community does not currently produce.

But unfortunately for the community members, we cannot forget that John will have to have real wealth in the amount of $ 100 to offset the $ 100 deficit he runs because he owns $ 100 of real wealth to the banker down the road who may have the court confiscate part of the community’s real wealth if he does not get payment.

Therefore, simple calculations suggest that the utilization of the mill must miraculously produce a stock of new wealth which will be equal to at least $ 110 to ensure economic growth by the time John demands his $ 100 in real wealth back. Thus, Mark should heroically produce an amount of bread which will be valued as $ 110 by the community members and the banker down the road.

The real wealth of the community is increased by $ 10 - can John declare victory over the animal spirits of his community? Yes, if Mark continues operating the mill at no cost and the increase in the real wealth does not change the preferences of the other community members and many of the assumptions mentioned above remain the case.

Now I did not manage to demonstrate you that John’s (the government’s) victory over recession through economic stimulus is impossible. But the assumptions under which it may materialize, seem anything but realistic. Unrivaled in its bizarreness is the assumption that all that the economic agents need to utilize the supposedly perfectly idle economic resources is the government throwing money at them.