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.